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November 2016

Korea Voices Bryan Hopkins Jocelyn Clark Mitchell Williams & Woody Epstein Hank Morris

Competing for the Future

Innovation, Data, Mobility Incredible Interviews R Us Hank Morris Arnold Chung Korea Intelligence

Trade and Business Economics Technology Logistics and Infrastructure Real Estate Risk Management

Lee & Ko

Protecting the ‘Little-Guy’ in Distributorship Arrangements in Korea


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In This Month’s Issue Founders’ Message

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KBLA Update Upcoming KBLA Events

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KBLA Dinner at Wolfgang’s BBS: Crowdfunding in Korea Innovation Series: Entrepreneurship in an Innovative World

Recent KBLA Events

KBLA Professional Seminar Series Managing People Risk

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New Members This Month

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Hank Morris

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KBLA Community

Argentarius Korea’s past is not its future, but it has always been adept at changing. Some of its toughest challenges may still yet lie ahead.

Arnold Chung

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Kookmin University Korea is doing a lot of things right today. That doesn’t mean it can’t do better. To stay ahead of the curve, it will have to. Here’s how.

Korea Intelligence Trade, Finance, & Industry

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Economics

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Technology

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Risk Management

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Infrastructure/Transportation

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Real Estate

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Legal Analysis

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Asan Institute Retrospect

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In This Month’s Issue

Korea Voices Bryan Hopkins

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Unfair Trade Practices Under Korea’s Monopoly Regulation and Fair Trade Act

Hank Morris

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Competing (or not) for the Big Prizes in the Second Age of Orality

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The Korea Discount is not always good news for Investors.

About the KBLA

Jocelyn Clark

Woody Epstein, Mitchell Williams Time to refocus Korea’s nuclear power plant debate.

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Founders’ Message

2017 is the future. T

he title above may seem like an obvious statement maybe, but it has some non-obvious meanings as well. At its most obvious, it could mean that 2017 isn’t here yet. It could also signify that 2017 will herald some long-awaited advances that will make it clear that some promised future has arrived. Perhaps the meaning we are looking for here is that 2017 won’t be like 2016 - at least not in some key ways that matter. For businesses, for example, maybe it won’t just be a better or faster or more efficient version of 2016, but one that is qualitatively different; one that is revolutionary, almost, where customer expectations aren’t just higher, but totally different from what they were in 2016. This is the new normal, right? Disruption doesn’t take a decade anymore. It can happen in a year. It can happen in a month. We are, after all, living in the future. The future of communities like the KBLA is not immune to the competitve imperatives of changes to the business landscape. Things just can’t be done the way they were in the past. We get that and aim to stay ahead of the curve, aim to lead the trends, not lag behind them. To that end, we are working hard with the whole KBLA community to determine what matters and where we want to go. We’re working hard to get there first. One of the realities of the future is that data is at the center of everything. There will be rich companies and poor companies, and which is which will not be determined by how much money each has. It will be determined by access to data and the insights good analysis of data provides. There will be good leaders and poor leaders, and they will be separated not by the strengths of their convictions

or strategic intuitions, but by their ability to obtain, analyze, and maximize the usage of good data throughout their organizations. Another new reality is that because the amount of time available for decision-making is shrinking, we can’t expect anyone to operate at the old speeds or schedules. We can’t make the same demands on our customers’ attention, our business partners’ time, or even our employees’ awareness. We know we can’t sit by idle and let these core trends go unheeded. We will innovate. After all, doing things differently is our reason for being. In 2017 You want to time shift. You want to be mobile. You want data and meetings to come to you. You want to consume them however you prefer, when you prefer. You want more data, but more curation. You want guidance and insight. You want more collaboration and more interaction. The KBLA intends to give you all of those things in 2017. You want to look good. We want to make you look good.

Rodney J. Johnson President, Erudite Risk Co-Founder, KBLA

Steve McKinney President, McKinney Consulting Co-Founder, KBLA


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Upcoming KBLA Events

Friday November 11, 2016 Wolfgang’s Steakhouse, Gangnam, Seoul This event is limited to KBLA Members and specially invited guests only.


Upcoming KBLA Events

Friday November 18, 2016 Sansoo Room, Grand Hyatt Seoul This event is limited to KBLA Members and specially invited guests only.

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Upcoming KBLA Events

Wednesday November 30, 2016 Namsan V, Grand Hyatt Seoul This event is open to the public.


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Recent KBLA Events

KBLA Professional Seminar Managing People Risk

Presentations were on Korea’s new anti-bribery law, mitigating risk through insurance, and investigating bribery and corruption. KBLA’s third Professional Seminar of the year was held on October 19th at the Grand Hyatt. The seminar featured four presentations and discussion periods by leaders in the fields of law, corporate investigations, and insurance. The highlight of the seminar was Lee & Ko’s presentation on Korea’s new Kim Young-ran Act,

which has dramatically changed the rules surrounding the private sector’s interactions with those deemed public persons. Participants also learned about the hiring and firing of key personnel and the laws and options surrounding dismissal for poor performance.


Recent KBLA Events

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Recent KBLA Events

Se Dong Min Jeremiah Chung Lee & Ko


Recent KBLA Events

Sanghoon Lee William Woojung Kim Lee & Ko

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Recent KBLA Events

Rodney J. Johnson Erudite Risk


Recent KBLA Events

David Kim Marsh

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New KBLA Members This Month Mr. Byung Geun Chun Samsung Fire/Marine Insurance Team Leader, Expat Insurance Team

Mr. Michael Edmunds Meme Creative Communications Founder & CEO

Mr. Nikos Tsakalakis Beiersdoft Korea Ltd. General Manager

Ms. Wonyoung Jung Janssen Korea Senior Counsel

Ms. Seong Eun Kim Goldman Sachs International Bank Managing Director

Mr. Eric Li TheBoan Inc. Technical Director

Mr. Seon M Ahn Standard Chartered Bank Head of Strategic Alliance (VP)

Mr. Mukesh Methwani Quantum Technologies Inc. Co-Founder and Director

Mr. Ryan An Daekyo Holdings Senior Manager (Business Development)

Ms. Ok-Jeong Baik Swiss Business Hub Seoul Deputy Head

Mr. Scott Stout The Wellness Company Director of Marketing

Mr. George Simeon SK Telecom & Sollers Partners Senior Director (SKT) & Partner (Sollers)

Mr. Charlie Chanho Bae Henkel Korea Head of Automotive Business

Dr. Richie Taylor studygps Inc., KOSEA CEO/Founder, Chairman of the Board at KOSEA

Mr. Harry Ko Oracle Korea Sr. Country Sales Director, Oracle Marketing Cloud

Mr. Joshua Peacock iris Worldwide Managing Director

Mr. Byungho Park Standard & Poor’s Director at S&P Ratings Services Mr. Daniel Valle Daniel Valle Architects Director

Mr. Kevin Skeoch Dwight School Seoul Head of School Ms. Catherine Germier-Hamel Millennuim Destinations Ltd. Founder and CEO

Mr. Howard Hyunwook Cho Pexip Korea Sales Director

Mr. Younki Wyi inkore technology inc., Morgen Evan Advisory Services, Ltd. CEO

Mr. Byoung Nam An Mettler-Toledo Korea Head of Business Unit Service

Mr. Mikael Yitzhakov HSBC Korea Head of International Subsidiary Banking

Ms. Shin-Young Ahn Korea Railway Association Section Chief Head of International Business and Education & Training

Mr. Geoffrey Bailey Real Estate Investor President

Dr. Thorsten Schuetze Sungkyunkwan University Prof. Dr.-Ing. Architecture Mr. Paul Bok Intel Security Senior Partner, Product Manager

Mr. Jure Sutar juresutar.com Entrepreneur, Consultant and Public Speaker Mr. Zachary Marble Shuttle Delivery Entrepreneur

Mr. Javier Camposano Celltrion Managing Director, Head of the Drug Product Division Dr. Hans-Jörg Feigel Mando Corp. Vice President R&D Executive Advisor Mr. Saravanan Sornam DaeHan Instrument Co., Ltd, Korea General Manager (Quality & Project Coordination) Mr. Marco Clemente Sungkyunkwan University, SKKGSB Assistant Professor Mr. Sockjoong Yoon Indian Chamber of Commerce in Korea Secretary General Mr. Jin-Chul Kim Solvay Silica Korea Representative Director Mr. Dilip Sundaram Mahindra Korea President Mr. Brian Kim General Manger Santa Fe Relocations Services Mr. Sia Moussavi GE Healthcare Korea President & CEO Ms. Sara Lee Elux Seoul, Honkong CEO Mr. Ben Chung Cisco Services Korea Ltd. Center Manager / Program Manager Mr. Shimon Ben-Shoshan Embassy of Israel Counsul Ms. Jungah Lee Prime Airwave Sr. Vice President

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KBLA Community

Hank Morris

Witness to development and extraordinary change in Korea Korea’s past is not its future, but it has always been adept at changing. Some of its toughest challenges may still yet lie ahead. You’ve been in Korea a long time. Tell us how you got started in Korea and why you stayed so long. I have indeed been in Korea for a long time, but it has always been an interesting place to live and work for me. I came to Korea first in 1972 by ‘accident’. I was a US Peace Corps volunteer and when I signed up to join the Peace Corps I had requested that the US government send me to a South or Central American country since I spoke some Spanish. But I was only given an offer to join the Peace Corps in Korea. The Peace Corps flew me to a pre-service weekend meeting in Denver, Colorado and the Peace Corps staff members from Korea who conducted the briefing meetings made Korea sound like quite an adventure, so I agreed to sign on and arrived in Seoul in November, 1972 but then went with the other 25 or so volunteers in my particular group to a 3 monthslong training program in Daegu. Our training consisted of 6 or more hours a day of Korean language classes and a couple hours of English teaching methodology classes. Upon finishing our training in Daegu the members of our group were assigned to teach English at universities all over Korea, and my assignment was to teach at Kyungnam University in Masan. I continued to study Korean while in Masan and got on well with the professors and students. On visits to the Peace Corps Korea head office in Seoul, I also got to know the training officer’s secretary, whom I married a year and a half after we first met in December, 1972.

After I finished my Peace Corps service at the end of 1974, my wife and I arrived in the suburbs of Baltimore, Maryland and spent the next several years living with my parents and working in the Baltimore area. We came to know many Koreans in the area due to my wife’s participation in the Korean Catholic church congregation in Baltimore. I went to work for the US Prudential Insurance company, and while working

This has been the most amazing change in my experience: that Korea went from being a country with a very poor standard of living to a country that can compare with the best that Europe, or North America or any developed country has to offer. there kept up with the rapid economic development that was taking place back in Korea. In 1982, the Prudential approved my request for a transfer to the company’s operation in Korea, and after a couple of years with the Prudential in Seoul, I took an offer to join a large Korean securities company


KBLA Community

as deputy general manager of that company’s international department. In the mid 1980s the Korean stock market was largely closed to foreign investment, but a few investment funds and corporate bonds were issued by Korean asset managers and companies for international investors and due to the rapid, double digit growth of the Korean economy and the impressive performance of the Korean stock market, many foreign banks, securities companies and investment companies became very interested in the Korean market and its prospects for further opening to foreign investment. In 1987, I accepted an offer from the

Asia-based senior management of a British investment bank to open and manage an office in Korea for their bank. Since those days I have worked mainly for UK banks, securities companies and asset managers. It has been a very interesting period to have been in Korea since Korea continued to make impressive progress in economic development, but with some periods of crisis such as the economic crisis of 1997-98, which is still known in Korea as the ‘IMF Crisis’ since the Korean government was forced to seek a bailout from the IMF in late 1997. Nevertheless, the Koreans always managed to overcome major and minor periods of economic crisis and to continue to develop their

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KBLA Community economy to the point where today it is genuinely a developed country and a valid member of the group of major global economies, the OECD. That continuous eonomic development resulted in growing interest in the Korean economy by foreign investment companies and banks, and in turn that resulted in opportunities for me to be employed in Korea by these foreign financials. If I had been ambitious to be the CEO of a foreign financial company, then I should have taken an opportunity to transfer to a major market elsewhere, such as London, Hong Kong or Singapore. However, in my case the Korean financial market has always been of prime interest and I have had no wish to leave to work anywhere else. What has been the most significant transformation in Korea over the time you’ve been here? Everything has changed, yes, but what has changed that you may have at one time believed would never change? In my time in Korea the most significant transformation has to be the level of economic development. In 1972 the Koreans had very little in terms of income and personal property. Their housing was barely adequate in many cases, and often was uncomfortably hot in the summer and very cold in the winter. Koreans often wore the same clothes for several days because they had little choice, they simply did not have much clothing to wear. It was quite common to see people in Korea in the 1970s who barely had enough food to eat. As the Korean economy expanded in the late 1970s and through the ‘80s and ‘90s, the incomes of the Koreans grew rapidly and suddenly Korea became a consumer society with a great choice of food, clothing, and housing options. Most of the old style single story individual houses that Koreans lived in the 1970s when I first arrived were torn down and replaced from the late ‘70s with giant housing estates of apartments, and by the late ‘90s probably over 90% of Koreans were living in some sort of apartment type housing, either low rise, mid rise or high rise types. This has been the most amazing change in my experience: that Korea went from being a country with a very poor standard of living to a country that can

compare with the best that Europe, or North America or any developed country has to offer. Has your own relationship with Korea changed or had to change in order for you to continue to live and work here? My relationship has changed in that I first came to Korea as a university teacher and subsequently returned to work in the financial sector. I could not have stayed on in Korea for so many years if I had remained in Korea as a university teacher. The income earning opportunity for foreign university teachers is far less than that of those working in finance, and the work in finance has been much more interesting for me as well. If I had not had the opportunity to work in the securities and asset management businesses in Korea, then for me staying in Korea would not have been a sensible decision. Do you feel that Korea has maximized the development opportunities it has had over the last 50 years, getting everything it could have hoped for out of the time, resources, and opportunities it had, or do you believe it could have done even better had it just done a few things differently? Korea has not made maximum use of its development opportunities over the past 50 years for one basic reason. About 50 years ago the president of Korea at that time, Park Chung Hee, made the deliberate decision to promote Korea’s economic growth primarily though the development of the chaebol, the major Korean business groups. That meant that there would be little funding available for smaller Korean companies, and also that the chaebol companies would be protected from both foreign and domestic competition. Foreign competition was prevented through bans on foreign investment, unless it was done with Korean government approval in a joint venture with a government-selected Korean chaebol, and also by very high tariffs which prevented foreign goods from taking market share in Korea even when imports were permitted. Also, on the domestic side, the chaebol were given special privileges and business


KBLA Community

licenses were restricted so that other Korean companies that might have wished to enter particular industrial sectors were prevented from doing so through the licensing system. The result is that although the major chaebol did lead Korean economic growth to impressive levels that Koreans enjoy today, it has prevented Koreans from enjoying ‘economic democracy’ and it has also resulted in the creation of a class of Koreans, the families that are the major shareholders and managers of the chaebols, who have had and continue to have special privileges in Korean society due to their status, influence and wealth. Do you believe Korea’s strong bureaucracy and very paternalistic government/citizenry relationship has been a net positive for the country? Is it something other countries should look to emulate or is it something that is very unique to Korea’s situation and culture?

In some respects the paternalism of the Korean government and the bureaucracy has been highly beneficial and in some respects it has held the country back. The ability of the Korean bureaucracy to ensure that everyone in Korea had anti-TB medications and other preventitive medications has resulted in a healthier population. Likewise, the focus on providing education to all classes of Koreans has enabled the Korean economy to make very rapid progress due to the numbers of well educated Koreans that the system has produced. Of course, the bureaucracy has also stood in the way of progress at many times, and in some respects it continues to do so. In finance we see this with the insistence by the bureaucracy on preventing the Korean won from being fully convertible and tradable.

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KBLA Community What would you say are the largest challenges currently facing corporate Korea, separate from anything the government can or cannot, or has not, done to aid business? The largest challenges for nonchaebol companies remain the stranglehold that the chaebols have on business and industry in so many sectors. At the same time, the chaebol system itself in undergoing significant change as the government monitors the operations of the major chaebols to attempt to ensure that they are in compliance with tax and corporate governance codes. As the management changes from one generation of the controlling family shareholders to the next generation, each chaebol is faced with internal problems related to the development of its business lines in times of domestic and global market pressures, as well as the social, labor and political pressures that have been building up in Korean society in recent decades. For a young person just beginning their career in Asia, as an expat, would you counsel them to come to Korea? Do you believe Korea has a comparative advantage over, say, the next 20 years, compared to other comparable Asian countries? No, I would never counsel anyone from a foreign country to come to Korea to live and work. It is not an easy society in which to live and work opportunities are limited for foreigners, most of whom would be better off to try another market in Asia that is more open to foreign participation. 2016 has seen some serious issues related to traditional backbone industries in Korea: steel, shipping, shipbuilding, and even electronics. Do you think these are signs of long-term weakness at the core of the Korean economy, or shortterm issues that are likely to be overcome eventually? Will it ever be back to business as normal in these industries? It is hard to see how the Korean shipbuilding industry could ever return to a period similar to its ‘salad days’ of the mid and late 1970s to the late

1980s, when it was able to produce efficiently with low-cost labor. Korea today is not a low cost labor country, and it will not be again in the future. That means that the heyday of some of the ‘smokestack’ industries is over, and will not return. These industries can still enjoy success in Korea, but they must be ever more efficient in their production, and offer the most up-to-date engineering and design. They must also focus on more narrow segments of their industrial product categories. If the traditional industrial backbone of the country is weakening, do you believe there are emerging industries that can replace the ones Korea is losing? The government talks a lot about technology and startups, but do you believe startups can be a suitable salve for what ails the Korean economy? Korea could replace some of the traditional industries with various elements of the electonics industry, but its best hope probably lies in becoming more efficient in producing services. Even in that case, it is hard to imagine Korea becoming a leader in software. It might however have potential in international medical services and retail business. If you could tell the government one thing regarding the Korean economy today, what would it be? If I could speak to senior government officials in Korea I would tell them that Korean small and medium businesses are the best way to provide for Korea’s economic future and that they should adopt tax and regulatory regimes that will benefit the SMEs. Along with that, they ought to end the restrictions on the conertibility of the won which hinder small business much more than the chaebol.


KBLA Community

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KBLA Community

Arnold Chung

Teaching innovation and entrepreneurship in Korea Korea is doing a lot of things right today. That doesn’t mean it can’t do better. To stay ahead of the curve, it will have to. Tell us about your own background and what you do in Korea. I am on my fifth career. I currently teach at Kookmin University’s KMU International School of Business. Previously, I spent time as a management consultant, an investment manager, entrepreneur, and general manager. What are your main research interest areas? I really think of myself as an educator rather than as a research professor. I try to inform my teaching with the international and multi-cultural experiences I have had in different industries. Although I have responsibilities across a broad number of topics, I find entrepreneurship the most rewarding. However, at the end of the day, I really see my role as someone who needs to prepare students to succeed in business, which increasingly means to understand the importance of innovation today and what are the different ways to think about and identify potential innovations. For most of my students, this will be in the context of analysts and future managers in established firms. Hopefully for some, this will be in the context of starting a new venture.

In the areas of entrepreneurship and economic development, what do you think are the main impediments to Korea’s success today? Whenever big change happens, culture needs to be considered. Relatively speaking, the formal

Korea does not have to discard traditional values that emphasize education, diligence, responsibility, perseverance, or even seniority. Rather, Korea needs to integrate additional values such as individualism, initiative, enterprise, and curiosity. elements of change such as laws, organizational structures, programs, systems and processes, are much easier to design, re-construct, and implement than culture. The main reason for this is that we


KBLA Community

understand and can control these formal elements much better than we do culture. Consequently, we tend to focus on the laws, structures, programs, systems, and processes of change, with the hopes that these new constructs will be sufficient to achieve the desired change. However, change management professionals and researchers all agree that while essential, these efforts are not sufficient because they do not directly address culture, particularly when it comes to radical change like what Korea is trying to accomplish. Korea does not have to discard traditional values that emphasize education, diligence, responsibility, perseverance, or even seniority. Rather, Korea needs to integrate additional values such as individualism, initiative, enterprise, and curiosity. This requires constant communication of the new mix of

values. Listing or explaining this new mix of values is not enough. Korea needs to demonstrate how these values will benefit Korea. Identifying those who espouse these values and telling their stories are good starts. But we also need to elevate their status in society through awards and celebrations, regardless of the scale of their achievements. The communication needs to reach all ages, from pre-school toddlers to retirees with the opportunities to model desired behaviors. Furthermore, Korea needs to address the disincentives that are impeding those who resist or doubt the change. Koreans need to be dispelled of the myth that 9 out of 10 startups fail. This myth originates from and continues to be inadvertently perpetuated by venture capitalists, who have broadly defined failures as any business in their investment portfolio that

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KBLA Community has not achieved the minimum acceptable return on investment. On average, this happens to be 9 out of 10 businesses in which the average VC invests. So, this includes not just those businesses that have failed (3 out 10 on average), but also those hovering around break-even (another 3 out of 10), and those who are making money but not enough for the VCs to gain the minimum expected returns (another 3 out of 10). These statistics are supported by the Korean governments estimates that more than 40% of startups fail within their first year, with roughly 30% surviving after 5 years. The numbers are actually much better when there are two or more partners starting a business; less than 25% fail after the first-year and more than 40% continue to survive after five years. Compare these numbers to the number of university graduates who actually secure a job within a year after graduation. Last year there were roughly 78,000 jobs offered to new hires from MNCs, government and public corporations as compared to the 2.9 million graduates applying for these jobs. That’s close to a 97% failure rate. There are other misconceptions about risk-taking and startup resource requirements that also

are impeding the transformation of Korea’s economy. Imagine how the startup survival numbers might improve if more Koreans were given the basic knowledge in the latest thinking on how to identify and develop attractive business ideas, to compartmentalize and manage risk, and to manage and grow these businesses once they have launched. Furthermore, we would likely see more people with the capabilities to start and manage new ventures actually migrate to entrepreneurship rather than avoid it due to exaggerated risks, misconceptions, and social stigmas. More support is needed to start this communication and education earlier, in primary school. Every opportunity to highlight small wins; celebrating the stories, not just listing or grouping these stories into generic statistics. Attention to the supply side of entrepreneurship is starting to generate global attention, but ironically has not touched the lives of most Koreans in a positive way. When Koreans have the information and the perception that entrepreneurship is an opportunity rather than a last resort, then we will start to see engagement throughout society and the economy. Parents will demand more courses and programs in creativity and problem-solving; and


KBLA Community more opportunities for their children to lead and collaborate rather than follow and compete. Students will demand more opportunities to learn how to innovate and become entrepreneurial. I would expect more effort to establish inter-disciplinary programs at university and graduate schools. More of the workforce would seek greater empowerment and challenges in their workplace or realize starting a business not only offers these advantages but also enables them to accrue most of the economic value generated from their efforts.

While the government’s efforts and initiatives may have significant opportunities for improvement when it comes to realizing the “creative economy” (Korea’s take on the knowledge economy), I would venture to say that most of the big issues surrounding the formal elements required to transform Korea’s economic engines are being addressed.

telecommunications, and health and beauty. According to the Industrial Research Institute, South Korea is ranked fifth in the world for total R&D spending, outpaced only by the U.S., China, Japan, and Germany. If R&D spending is ranked as a percentage of GDP, Korea is second only to Israel. As a result, more mid-career professionals in the most successful firms of these industries are setting up their own businesses, particularly on the tech side. Furthermore, the government has developed several initiatives to foster entrepreneurship in universities. Universities can gain additional funding from the government by developing entrepreneurship-related curricula. There is also competition for direct government funding of entrepreneurship centers and incubators at universities. Korea is also attracting global attention, with Seoul being regularly recognize as a leading hub for technology-related startups. Government incentives, together with high national STEM scores and leading internet/mobile connectivity and R&D, are beginning to bring in foreign investment.

Clearly things can’t be all wrong, or Korea would not have success stories in highly competitive global industries like automobiles, consumer electronics,

Do you believe in Korea’s corporate hiring practices and culture are healthy and effective? What changes can be made to enhance the effectiveness of

What does Korea do well in the areas of entrepreneurship and talent development?

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KBLA Community hiring, onboarding, and working in Korea today? Are these changes possible and practical? If Samsung’s new hiring process is leading a trend, the signs are positive. The new process went into effect in 2014, and is designed to give greater weight to demonstrated qualifications and cultural fit, rather than rely simply on traditional “specs” such as grades and alma mater. The influx of more foreigners and foreign investment should also have a positive effect on the process. I recently spoke with an executive from HP who was proud of the fact that the culture in the Korean offices was very much driven by working smarter and effectively, rather than on artificial measures of productivity. The problem is that much of the progress is highly concentrated in the MNCs and elite public organizations. Even among these progressive organizations, it’s not clear that all is well. Young men and women are spending more on plastic surgery as a means of competing for the best jobs in the most prestigious companies. Companies should see that the recruitment process should be interactive, not only matching organizational needs with individual abilities and potential, but also matching individual interests and ambitions with career paths and organizational culture. It is not uncommon for hiring companies to not only encourage and evaluate questions asked by candidates, but even for these companies to go so far as to have formal and informal information sessions for candidates to learn more about the companies. Senior and peer mentors can help new recruits after the hiring process. I think the other big gap that can be addressed in better collaboration between companies and universities. The government has encouraged universities to diversify their approaches and focus, which some universities are trying to do. However, the general feeling is that most are making changes

that result in continued similarities. Perhaps even more unwelcome are the attempts to change only on the surface. Lastly, it is not clear that any of these changes are helping students with career decisions and opportunities, nor helping employers find better qualified candidates. While research collaboration is an excellent opportunity to achieve some of these results, these collaborations do not necessarily impact academic curricula. Company executives and HR representatives should be visiting university and high school campuses to communicate with and influence faculty, administrators, and most importantly students. What types of career paths are available for new hires? What fields of studies are welcomed in general or are specific to certain careers? What is the recruitment process? What are the attributes and qualifications that a company values, and what are the ways in which the company will evaluate if an individual possess these attributes and qualifications? More investments should be made in lengthening internship programs from winter and summer break programs to semester and wholeyear stints. The longer lengths will enable a better read on student capabilities and cultural fit. For example, an internship program could be structured as a funnel screening process with the wide end of the funnel being interns during the winter or summer break, narrowing to the intern pool to those offered an extension for a semester or year, down again to a select few who are offered a full-time position. There are also opportunities to provide sponsorship or mentoring for specific projects and courses. One project that I am interested in developing is an interdisciplinary team of students to work on a product design and development. Such a project does not have to be confined to product development, but also could be focused on process or systems development. Having a corporate partner for mentoring and some financial assistance would make such a


KBLA Community project much more engaging and productive for the students, while offering the corporate sponsor potential new ideas and new hires. At a minimum, students would also start to learn to take more initiative and feel empowered. A collective movement towards this kind of collaboration would also teach students to innovate and problemsolve within real world constraints and complexities. Where do we go from here? Startups are all the rage among government and economic planners, but does Korea have the bases and fundamentals to succeed in startups at the level necessary to jumpstart growth again? The word “jumpstart” makes me nervous. I think it’s tougher for larger economies such as Korea’s to jumpstart when the global economy is not booming. Currently, the Korean government is forecasting less than 3% annual growth on an estimated GDP of US$1.4 trillion. For argument’s sake, round the figure to 3% with a desired annual growth rate of 5%. I think most would consider the almost 70% increase in the annual growth to be a sizeable jump. So a 200 basis point increase would amount to US$28 billion in additional GDP. To give some perspective, Samsung Electronics, on a global basis, reported roughly US$22 billion in operating profit. If we kept the definition of a startup to be a company that’s been in business less than 3 years, I’m not sure that the total revenues of all startups in Korea totals more than one or two billion US dollars. But I think there is every reason to be optimistic, despite the issues I’ve mentioned above, for Korea’s startups to fuel significant economic growth in the longer term. Mobile apps, gaming, e-retailing, fintech, and other digital industries have already yielded significant successes. Healthcare and biopharma look promising as well. And if more of President’s Park’s vision were to come true, perhaps we will see some interesting and

significant activity in agritech. Korea certainly has the educated labor force and R&D spending to continue the trend. However, I think there should be more attention and support given to non-technology sectors. This enables greater participation across more demographics; and real opportunities exist. For example, franchising is taking off but is also generating a lot of casualties as hopeful franchisees lack the basic knowledge to differentiate between good franchise opportunities and bad ones. Furthermore, legal frameworks, market practices, and real estate pricing structures are not startup and small business friendly. But these things can be changed in time. What can academia do to become more involved and relevant in the discussion about where the economy is going and where it should be going? I want to say that this is better answered by an econ professor. So, I’ll limit my thoughts to simply how can academia be more involved and relevant to helping support economic development. In Korea, educators are good at imparting subject knowledge. This is fundamental. However, Korea lags other countries in the effort to teach students to integrate knowledge and apply it to solve real problems. This also implies that Korea’s academic community does not encourage creative or critical thinking, or initiative and independence. If we do more of these things, and continue to help students master specific knowledges, we will become more relevant. This will require us to be more creative and proactive ourselves with the internal motivation to be relevant rather than rely on government initiatives to push us to be more relevant. Also, we will need to be better collaborators with our competitors, the public, the government, and the private sector.

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Korea Intelligence | Trade, Finance, & Industry

Seven Major Korean Economic Issues in 2017 On September 23, the Hyundai Research Institute (HRI) issued a paper on seven major Korean economic issues it anticipates being important in 2017. The report identifies four potential major risks, and three issues which may indicate positive developments.

Four major risks focus on growth, household debt, and (un)employment issues.

Data HRI, Table and Translation KBLA

Three potential positive developments deal with potential breakthroughs in down consumption, potential trade recovery, and potential recovery of consumption (consumer) and investment sentiment.

Data HRI, Table and Translation KBLA


Korea Intelligence | Trade, Finance, & Industry

September 2016 Exports On October 1 the Ministry of Trade, Industry, and Energy (MOTIE) issued its trade figures for September 2016. Exports amounted to 409 million KRW, a 5.9% drop from September 2015. At least some of the drop was attributed to the Hyundai strike and the Galaxy Note 7 recalls.

Data MOTIE, Chart and Translation KBLA

With the exception of computers, textiles, and auto parts, all major export categories were down in September. The Samsung Galaxy Note 7 recalls were estimated to have cost roughly 370 million USD losses in exports, while the Hyundai strike was estimated to have cost 1.19 billion USD.

Data MOTIE, Chart and Translation KBLA

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Korea Intelligence | Trade, Finance, & Industry

MOSF Outline of Taxes in Korea On October 6, the Ministry of Strategy and Finance (MOSF) published an outline of the state of taxes in Korea and the country’s revenue structure. The 700+ page report analyzes the sources of roughly 217.88 trillion KRW in national taxes collected in 2015, and 61.72 trillion KRW in local taxes collected in 2014.

According to the report, there are 25 major categories of taxes currently collected in Korea; 14 are national taxes, 11 are local taxes.

Data MOSF, Table and Translation KBLA

Income tax (27.9 %), value-added tax (24.9 %), and corporate tax (20.7 %) accounted for nearly three-quarters of the 217.88 trillion in national tax revenue in 2015.

Data MOSF, Table and Translation KBLA


Korea Intelligence | Trade, Finance, & Industry

Survey on Social Trust and Sense of Fairness On October 5, the Hyundai Research Institute (HRI) published the results of a survey on social trust and sense of fairness in Korea. Per the report, Koreans tended to have a low degree of trust in politicians, the government, and large companies. They tended to not view (social) rewards or compensation as being commensurate with ability. They tended to view the “leadership class’” increased (perceived) privilege as having been a growing source of unfairness over the last 30 years, while they perceived themselves to be middle or lower class, and had generally low confidence in social mobility.

“Neighbors/People Around You” (주변 이웃) were the most trusted individuals, while politicians were the least.

When asked in what ways Korea has grown more fair in the last 30 years, a plurality identified improved equality of opportunity in education and jobs.

When asked how Korea has grown less fair in the last 30 years, almost one-third of respondents identified an increased sense or awareness of privilege in the “leadership class” (사회지도층).

Data HRI, Table and Translation KBLA

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Korea Intelligence | Economics

Economic Outlook for 2016 and 2017 On October 13, the Bank of Korea (BOK) released its Economic Outlook for 2016 and 2017. Per the report, “In view of recent changes in global and domestic economic conditions real GDP is projected to increase by 2.7 percent in 2016, and by 2.8 percent in 2017. During this year, the Korean economy is expected to continue its moderate growth, driven mostly by domestic demand thanks to the expansionary macroeconomics policies. In 2017 economic growth is projected to be 2.8 percent, supported by a pickup in exports as world trade gradually recovers.”

“Real GDP is projected to increase by 2.7 percent in 2016 (3.0 percent in H1 and 2.5 percent in H2). It is estimated that the rate of GDP growth in 2017 will rise to 2.8 percent.”

“The number of persons employed is forecast to grow by around 290 thousand in 2016, and by around 300 thousand in 2017. For 2016 and 2017, an unemployment rate of 3.8 percent is projected.”

Data BOK


Korea Intelligence | Economics

Business Survey Index and Economic Sentiment Index for September 2016 On September 30, the Bank of Korea (BOK) issued its Business Survey Index (BSI) and Economic Sentiment Index (ESI) for September 2016.

“The Business Survey Index (BSI) on business conditions in the manufacturing sector for September 2016 was 71, unchanged from the previous month, but that for the outlook for the following month rose by 1 point to 75.” “The Economic Sentiment Index (ESI)* a composite of the BSI and the CSI (Consumer Survey Index) for September 2016 was 94.5, down 0.5 point from August 2016.”

Data BOK

The BSI is read in the following manner: “A BSI reading of 100, equivalent to the benchmark, implies that the number of firms whose responses were positive was equal to that of the negative ones; a reading above (below) 100 indicates the number of firms responding positively to have exceeded (has been less than) that of the negatively responding ones.” A total of 3,313 corporations were surveyed for the BSI. The ESI is read in the following manner: “An ESI reading above 100 is interpreted as meaning that economic sentiment in the private sector, including that of both businesses and consumers, is on a level better than past averages (and vice versa when the reading is below 100), since the ESI is constructed so that it is distributed around a long-term mean of 100 and a standard deviation of 10.”

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Korea Intelligence | Economics

Employment of Foreign Workers in 2016 On October 20, Statistics Korea published its annual report on foreign worker employment in 2016. The economically active foreign population in Korea surpassed one million individuals for the first time, although only about 962,000 were actually employed. Manufacturing and mining accounted for almost half of foreign worker jobs, ethnic Koreans from China were the largest foreign worker demographic, male foreign workers had a much higher employment rate than female workers, and were more likely to earn higher wages.

Data Statistics Korea, Table and Translation KBLA

While foreigners on Overseas Korean (F4) visas were an absolute majority in the overall 15+ population, those on Non-Professional Employment (E9) and Working Visit (H2) were the most numerous among those working. Roughly half of foreign workers are employed in manufacturing and mining. 2016 saw a sharp increase in the agriculture, forestry, and fishing industries, as well as increases in retail/wholesale and hospitality and business and individual services. In terms of countries of origin, ethnic Koreans from China and other Asian countries represented the largest populations, and the largest employed populations in Korea. The highest employment rates were found among populations from Indonesia (95.7 %) Thailand (95.4 %), and other Asian countries (83.5 %).


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Korea Intelligence | Technology

Survey of Concerns Regarding Security of Personal Information and Media Usage On October 15, the Korea Information Society Development Institute (KISDI) issued the results of a survey* on concerns regarding personal information security and media usage. Respondents tended to have an “average� level of concern regarding potential abuses of their personal information. Individuals who used cloud services displayed slightly more concern than users of social networks or Internet messengers. Individuals who posted more frequently on social media had a higher degree of concern regarding potential abuses.

Data KISDI, Table and Translation KBLA


Korea Intelligence | Technology Noting a smaller sample size (1,106, as opposed to 4,255 social media and 6,960 Internet messenger service users), users of cloud services registered a higher degree of concern that said services could lead to a compromise of personal information.

The more frequently an individual tended to post on social networking sites, the more likely they were to be concerned of potential abuses of their personal information.

Data KISDI, Table and Translation KBLA

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Korea Intelligence | Risk Management

KCC Judgements Made on Violations of Personal Information Regulations On October 20, the 58th meeting of the Korea Communications Commission (KCC) met and made the following relevant judgements on cases of companies found to be in violation of regulations pertaining to customer personal information retention and security.

A total of 2.36 million KRW in penalty surcharges, and 75 million KRW in fines for negligence, were levied against five information and communications service providers* (named in the original report), who voluntarily reported themselves, between April and July 2016, as having leaked or otherwise compromised customer personal information. Further KCC investigation found that the companies had taken insufficient technical or managerial measures in safeguarding said information. In a separate case, a third round of investigations was conducted from May 26 to July 13, 2016, to determine whether or not information and communications service providers had destroyed customers’ resident registration numbers (RRN, 주민등록번호), collected before August 17, 2012. A total of five companies (named in the original) were found to be in violation of regulation, with four of them being issued a total of 40 million KRW in fines for negligence.

Data KCC, Table and Translation KBLA


Korea Intelligence | Risk Management

Corporate Debt and Equity Issues, August 2016 On October 6, the Financial Supervisory Service (FSS) issued its figures on corporate debt issues in August 2016. Per the report, “Corporate financing through debt and equity issues1 in August, 2016, totaled KRW7.875 trillion, KRW3.005 trillion or 27.6% down from KRW10.879 trillion a month earlier. Both equity and debt issues fell by 19.0% and 28.1%, respectively.”

“Debt issues totaled KRW7.366 trillion during the same period, KRW2.885 trillion or 28.1% down from KRW10.251 trillion a month earlier. Corporate bond issues decreased KRW1.054 trillion or 75.6% to KRW340.0 billion. There were three issuances of corporate bonds rated AA, and bonds rated A or lower were not issued at all in August, 2016. Financial debts issuance came to KRW5.644 trillion, 22.2% less than the previous month. While issuances by financial holding companies increased 72.2% to KRW620.0 billion, banks debentures decreased by 44.0% to KRW1.562 trillion. Credit card companies issued 7.4% more debts, but installment finance companies reduced its issuance by 19.1% and there was no issuance by securities companies.”

Data FSS

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Korea Intelligence | Infrastructure/Transportation

Korail Releases Desired Specifications for New High-Speed Rail Procurement On October 25, Korail released its desired specifications for a new generation of high-speed trains it seeks to procure. The new train would rely on distributed power (so that disruption to one power source would not stop the entire train), it would carry more passengers, accelerate faster, and have reduced power consumption compared to current high-speed trains.

Data Korail, Table and Translation KBLA

KORAIL Increases Compensation Demanded for Railway Worker’s Strike On October 27, Korail announced that it had increased the amount of compensation it demanded of Korean Railway Worker’s Union (KRWU) for the latter’s ongoing and allegedly illegal strike, from 14.3 billion KRW to 40.3

billion KRW. Korail lawsuits against KRWU and union members over previous strikes (7.0 billion KRW for a 2009 strike, and 16.2 billion KRW for a 2013 strike), are currently ongoing.

The following are comparisons between the current KTXSancheon (KTX-산천), a secondgeneration KTX train, and the new state-of-the-art high-speed train Korail is interested in procuring.


Korea Intelligence | Infrastructure/Transportation

Air Traffic Handled by Korean Airports in 3Q 2016 On October 27, the Ministry of Land, Infrastructure, and Traffic (MOLIT) published its figures on air traffic handled by Korean airports in 3Q 2016. Domestic and international flights using Korean airports increased by roughly 6% and 24% respectively. Increases in low-cost carrier routes led to double-digit increases in daily traffic handled by several airport control towers and approach control centers.

MOLIT attributes the roughly 19 percent year-on-year increases in traffic handled by Incheon and Gimhae as being due to the expansion of routes offered by low-cost carriers. The roughly 12 to 13 percent increases at Jeju are attributed to foreign tourism.

Data MOLIT, Table and Translation KBLA

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Korea Intelligence | Infrastructure/Transportation

MOLIT 4th Mid-Term Transportation Infrastructure Investment Plan On October 20, the Ministry of Land, Infrastructure, and Transport (MOLIT) announced its “4th Mid-Term Transportation Infrastructure Investment Plan” (제 4차 중기교통시설투자계획), accounting for the period 2016 to 2020. The plan details 131.7 trillion KRW in spending over the period, most of which will be spent on roads and railroads. According to MOTIE, the three major goals of the plan are as follows:

Data MOLIT, Table and Translation KBLA

Eighty percent of the plan will be budgeted toward roads and railroads, with a similar percentage going towards ongoing operations.

Data MOLIT, Table and Translation KBLA

The following are the major projects highlighted by MOLIT over the next several years.


Korea Intelligence | Infrastructure/Transportation

Korea Expressway Corporation Introduces Newer, Smaller Hi-Pass Toll Receiver On October 12, the Korea Expressway Corporation (KEC) announced the October 1, 2016 introduction of a new, smaller “SIM Card-Type Hi-Pass Terminal” (심가드형 하이패스 단말기) for use on the country’s expressway toll gates. According to KEC, the smaller terminal, which is apparently about the size of a mobile phone SIM card, will make for easier installation and alleviate concerns about non-payment while passing through toll gates. New supplies of the existing “Hi-Pass Happy Terminal” (행복단말기), of which 2.3 million were sold between September 2014 and September 2016, ended on September 30. The “SIM Card-Type Terminals” will be used for regular passenger vehicles; cargo trucks and exempt vehicles (vehicles operated by those with disabilities, or those with specific veteran status (보훈등급) will continue to use existing terminals. The new terminals will be available for purchase at major KEC service centers, as well as rest areas and e-commerce sites specified in the original report.

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Korea Intelligence |

Real Estate by Cushman & Wakefield


Korea Intelligence |

Real Estate by Cushman & Wakefield

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Real Estate by Cushman & Wakefield


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Real Estate by Cushman & Wakefield

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Real Estate by Cushman & Wakefield


Korea Intelligence |

Real Estate by Cushman & Wakefield

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Legal Analysis

Enforcement Decree to the Fair Retail Agency Transactions Act Protecting the ‘Little-Guy’ in Distributorship Arrangements in Korea

O

n July 26, 2016, the Korea Fair Trade Commission (the “KFTC”) issued a public notice of draft legislation regarding its proposed Enforcement Decree to the Fair Retail Agency Transactions Act (the “draft Decree”). The draft Decree will take effect as of December 23, 2016, together with the Fair Retail Agency Transactions Act (the “FRATA”). The draft Decree stipulates how the FRATA will be enforced and specifies what kind of conduct would be deemed as ‘unfair trade practices’ in retail agency transactions. The KFTC will establish a new Retail Agency Division to actively investigate and sanction violations of the FRATA; it is thus necessary for enterprisers selling their products through Korean retail agents to understand how the FRATA and the draft Decree affect their distributorship arrangements in Korea. I. Recent “Push” Case behind the FRATA’s Enactment The enactment of the FRATA arose from public outcry over the 2013 “Namyang Dairy ‘push’ case”. In that case, Namyang was found to have forced its distributors – many of which were small shop-owners – to “push” (i.e. purchase and re-sell) unwanted inventory with imminent expiration dates and pay salaries for unwanted product display and promotions staff dispatched by Namyang for such purpose. This sparked a nation-wide “abuse of superior bargaining power” controversy. Namyang was ultimately sanctioned with administrative fines by the KFTC and then criminally

sanctioned. The Namyang ‘push’ case exposed the need for a special set of laws that would sanction unfair trade practices in retail agency transactions, and the FRATA was thus enacted to proscribe and sanction a supplier’s abuse of superior bargaining power.

Legal analysis provided by Lee & Ko.

II. Key Provisions of the FRATA and the Draft Decree A. What is a Retail Agency Transaction? The FRATA defines a “retail agency transaction” as “a repeated set of

To prevent the abuse of bargaining power by a supplier, such as forcing an oral agreement or an arbitrary contract interpretation upon a weaker counterparty, the FRATA imposes a duty on suppliers to prepare and retain physical copies/records of written agreements, which must also include certain prescribed terms. transactions between a supplier and an agent for the resale or consignment of goods or services arising from a contract for goods or services with a fixed contract term.” Thus, not only ‘distributorship’ but also ‘consignment’ transactions fall


Legal Analysis within the scope of a “retail agency transaction”.

C. Forced Purchases and Other Unfair Trade Practices in the FRATA

However, it should be noted that FRATA will not apply in circumstances where the supplier is a small or medium enterprise1, the retail agent is a large company, or it is otherwise established that the supplier does not have superior bargaining power over the retail agent.

The FRATA prohibits forced purchases, forced provision of economic benefit, forced sales targets, the imposing of sanctions, interference with management, rejecting or avoiding requests for confirmation of order details and whistleblower retaliation as unfair trade practices. The draft Decree also specifies these types of conduct as unfair trade practices under the FRATA and the criteria for determining same. Such types of conduct are described further below.

B. Supplier’s Duty to Draft and Retain Written Agreements To prevent the abuse of bargaining power by a supplier, such as forcing an oral agreement or an arbitrary contract interpretation upon a weaker counterparty, the FRATA imposes a duty on suppliers to prepare and retain physical copies/ records of written agreements, which must also include certain prescribed terms. These include: (1) transaction type, products, and period; (2) delivery method, place, and time; (3) method and timing of payment; (4) conditions for return; (5) assignment/transfer of business provisions; (6) causes and procedures for termination; and (7) provisions on payment of sales incentives. The draft Decree additionally requires: (8) provisions related to the scope and performance of consignment services; and (9) provisions related to consignment fees. Violation of these duties is subject to administrative fines (duty to draft: up to KRW 50 million; duty to retain copies/ records: up to KRW 10 million). The FRATA requires that such written agreements be retained for three years after the date of expiration or termination of the relevant agreement. In order to encourage compliance with the FRATA, the KFTC have also recommended that suppliers and retail agents utilize the agreement templates prepared by the KFTC.

1

As defined by Article 2, Section 1 of the Framework Act on Small and Medium Enterprises.

- Forced purchase: Forcing a retail agent to purchase a product or service against its will. - Forced provision of economic benefit: Forcing a retail agent to provide an economic benefit consisting of money, product or services. - Forced sales targets: Proposing sales targets for the retail agent for the sale of products or services, and forcing the retail agent to meet such proposed targets. - Imposing sanctions: Setting or altering contract terms to the disadvantage of the retail agent, or imposing an unreasonable sanction in the performance of the transaction terms. - Interference with management: Unreasonably interfering with the retail agent’s management activities. - Rejecting or avoiding requests for confirmation of order details: Rejecting or avoiding a retail agent’s reasonable request to confirm order details including subscription, the product(s) it expressed an intent to purchase, quantity, or other details. - Whistleblower retaliation: Retaliating against a retail agent by ceasing transactions, reducing supply, or otherwise imposing sanctions against a retail agent for filing a request for mediation

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Legal Analysis under the FRATA or reporting and cooperating in investigations regarding the supplier’s violation of the Monopoly Regulation and Fair Trade Act (the “MRFTA”). As for any unfair trade practices under the FRATA that may overlap with the types of abuses of bargaining power proscribed under the MRFTA, the FRATA will preempt the MRFTA for unfair trade practices arising from any retail agency transactions from and as of the date of the FRATA’s enforceability (December 23, 2016). D. Prescribed Administrative Fines Administrative fines under the FRATA may be levied up to the maximum prescribed “amount relating to violation”, and the draft Decree prescribes the specific “amount relating to violation” for each type of unfair trade practice, which will increase the predictability of applicable sanctions. Although the KFTC levied KRW 12.4 billion in administrative fines in the Namyang ‘push’ case, the court canceled 11.9 billion of the administrative fines, reasoning that there was no legal basis for including product sales unrelated to the violation in the calculation of administrative fines. In recognition of the court’s decision in the Namyang case, the FRATA and the draft Decree state that the administrative fines levied for forced purchases must be calculated on the basis of “actual quantity forcibly purchased”. E. Punitive Damages Provision The FRATA provides that a supplier will be liable for any damages caused to the retail agent by its violation of the FRATA. Furthermore, a punitive damages provision has been introduced where liability of up to three times the amount in damages (i.e. treble damages) may be imposed on the supplier for forced purchases and forced provision of economic benefit.

F. Additional Powers regarding Criminal Prosecution Under the FRATA, the Chairman of the Board of Audit and Inspection or the Minister of the Small and Medium Business Administration, considering the pervasive effects on society and the degree of harm on the retail agent, may request that the KFTC refer a matter for prosecution, in which case, the KFTC will be obligated under the FRATA to make such a referral. (The Prosecutor General also has a similar power to request the KFTC to make criminal referrals.) III. Implications for “Abusive” Suppliers The KFTC may impose corrective measures and administrative fines, and refer a violator of the FRATA to the Prosecutor’s Office for criminal prosecution. Responsible executives and employees may also be prosecuted individually (imprisonment of up to two years and/or fines of up to KRW 150 million). In addition, the KFTC may

Retail agents may bring damage claims against suppliers who violate the FRATA. also publish their findings of a violation of the FRATA through an official press release, which would cause adverse effects on the image and reputation of the violating supplier. Aggressive enforcement of the FRATA is anticipated, as the KFTC already strongly sanctions unfair trade practices considered as “abuse of bargaining power” generally, and has repeatedly expressed its strong commitment to reforming unfair trade practices in retail agency transactions. In addition, retail agents may bring


Legal Analysis damage claims against suppliers who violate the FRATA. As previously noted, a violation of the proscriptions against forced purchase or provision of economic benefit would be subject to treble damages. And as with violations of the MRFTA, the supplier has the burden of proof that the supplier engaged in such conduct neither intentionally nor negligently in order to avoid liability. Responding to lawsuits from various plaintiffs (retail agents) would entail substantial time, cost and resources. When the FRATA takes effect, ‘abusive’ suppliers may be subject to aggressive KFTC investigations and sanctions, as well as damage claims brought by their ‘little-guy’ retail agents in Korea. The following precautionary measures should thus be taken by any larger supplier enjoying superior bargaining power over its Korean retail agents: (1) analyzing whether distribution

agreements it has entered into, or plans to enter into, with retail agents fall under the definition of a “retail agency transaction” under the FRATA; (2) analyzing whether distribution agreements entered into or renewed after the effective date of the FRATA contain all of the provisions required under the FRATA2; and (3) analyzing whether any acts capable of being deemed an unfair trade practice under the FRATA were committed in distribution transactions and, if so, taking necessary corrective measures.

2

As far as liability under the FRATA is concerned, it would be safer to use, or utilize as a precedent, the standard form agreement templates prepared and suggested by the KFTC as the supplier’s standard agreements.

Hwan JEONG Partner Hwan JEONG joined Lee & Ko as a partner in 2011. His practice focuses on a broad range of anti-trust & competition law matters including investigation of merger review, cartels, abuse of market dominance and unfair trade practices, and antitrust litigation. Also, as a corporate lawyer since 1995, he has extensive experience in general corporate matters including mergers and acquisitions, hostile takeovers & defense, IPO, corporate governance, anti-corruption & regulatory compliance, unfair competition & trade secret protection, foreign investment, overseas investment, private equity & venture capital, other types of investment funds, healthcare, and insolvency & restructuring.

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Asan Institute Retrospect

The Problem of Legitimacy Crisis and Security Challenge in South Korea South Korea has had its share of scandals but the recent revelation about Choi Sun-sil and her relationship with President Park has been the cause of national uproar. While it is yet unclear what impact the latest scandal may have on the current administration, the country is facing a significant challenge approximately one year ahead of the next presidential election. Putting aside the legitimacy question for the current regime, the North Korean threat still looms large in the background. How will South Korea manage? The Choi Sun-sil Scandal Rumors about an “invisible hand” influencing executive decisionmaking in the Blue House has been confirmed through the surprising revelation of Ms. Choi Sun-sil and her relationship with President Park. The smoking gun was the investigation of the Mir Foundation and K-Sports Foundation. Ms. Choi Soon-sil, a longtime close friend of President Park, is believed to have been meddling in state affairs and using her relationship with the president for personal gains (see

Timeline and Key Players). The public outrage and ensuing protests have resulted in President Park offering two public apologies. The first apology came on Oct 25 when she admitted that she allowed Ms. Choi to edit her speeches during her presidential campaign in 2012. She also acknowledged that she had shared other documents with Ms. Choi soon after becoming president. In her second apology on Nov 4, she took full responsibility for the scandal and stated that she would cooperate with the investigation. Approximately 100,000 people took to the streets in central Seoul to demand President’s Park’s resignation the day after her second apology. Approval ratings for President Park and the New Frontier Party (NFP) have plummeted. President Park’s approval rating hit rock bottom at 5%, the lowest rating for any South Korean president. The previous record was held by President Kim Young-sam during the Asian Financial Crisis. Approval rating for the ruling party has also dropped to 18%.

Authors John J. Lee, Kang Chungku, J. James Kim


Asan Institute Retrospect If President Park decides to see through her term, this scandal is likely to further cement her lame duck status. Most members within the NFP have also begun to dissociate themselves from the president. An internal conflict between the pro-Park and anti-Park camps may even lead to a split within the party, which will have a significant impact on the coming election scheduled to take place in December 2017. Dealing with North Korea In the midst of political chaos in South Korea, it was reported that North Korea would test another Musudan missile during the first week of November. If it does, it would be the 9th test of its kind this year. The two previous tests came last month after North Korea celebrated the 71st anniversary of the founding of the Workers’ Party of Korea (WPK) on Oct 10. It is possible that the North may refrain from conducting another test given the political turmoil in the South and the lack of attention it would receive. Meanwhile, the United States dispatched an anti-ballistic missile detection radar system known as SBX (Sea-based X-Band Radar) to the Korean Peninsula in late September. The radar was

dispatched to monitor a possible long-range missile launch by the North. The radar recently returned to its base in Hawaii after a month of work. In response, South Korea’s Ministry of Defense stated that it could not comment on an operation conducted by the United States. Threat Perception Has the Korean public’s perception about the North Korean threat changed as a result of the recent round of provocations? The Asan Institute for Policy Studies’ survey shows that the Korean public’s threat perception has remained largely stable depending on the type of provocation. For instance, approximately 41-45% of the respondents stated that they felt insecure if North Korea engaged in a long range missile test. 60~63%, however, stated that they felt more insecure after a nuclear test. This suggests that after controlling for the type of provocation, the South Korean public opinion about the North Korean threat has reached a ceiling. This is not surprising given that the type of provocation has remained similar over time.

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Korea Voices

Unfair Trade Practices Under Korea’s Monopoly Regulation and Fair Trade Act Unfair trade practices have become front and center in Korea lately as the KFTC has revised its unfair trade practices guidelines (UFP Guidelines) to protect consumers with regards to e-Commerce transactions. The UFP Guidelines took effect late August and cover several new types of e-Commerce transactions. The UPF Guidelines include recommended practices in the field of (i) social commerce transactions and (ii) price comparison websites. The revisions are quite detailed in nature and cover such areas as follows: 1. Social commerce sites- the UFP Guidelines regarding social commerce websites have been revised to include the requirement that the product or service advertised on the website must clearly describe the previous price it was traded at. The UFP Guidelines also provides that the site operators shall have the service providers not to discriminate between ordinary customers and the users of coupons. 2. Price comparison websites- the UFP Guidelines have been revised to cover price comparison websites. The UFP Guidelines provides that in case of price comparison sites, prices must be compared under the same conditions using the same criteria. The site must compare prices that include option items prices, delivery and installation costs. The UFP Guidelines also includes examples of violations especially with regards to cancellation policies. The UFP Guidelines prohibits e-commerce companies from requesting unreasonable return costs (except for delivery cost) in case of cancellation of the order. False

comments to the sites like “best” or “recommended” without disclosing the fact that it was an advertisement are also prohibited. The UPF Guidelines cover these areas in detail and such terms and conditions of sale are subject to KFTC scrutiny. So , it appears that the KFTC is becoming more and more interested in eCommerce and will issue more guidelines concerning eCommerce and unfair trade practices. But what is an “Unfair Trade Practice” anyway? Unfair Trade Practices are set forth in Section 1, Chapter V, Article 23 of the Monopoly Regulation and Fair Trade Act ( the “MRFTA”) and Appendix 1 of the Enforcement Decree of the MRFTA. Unfair trade practices are in essence those trade practices in which enterprisers engage during the course of their business activities which are likely to impede fair trade. Chapter V of the MRFTA, “Prohibition of Unfair Trade Practices “ states in part that: “No enterpriser shall commit any act which falls under any of the following subparagraphs , and which is likely to impede fair trade ( hereinafter referred to as “unfair trade practices”), or make an affiliated company or other enterprisers perform such act: 1. Unfairly refusing any transaction, or discriminating against a certain transacting partner; 2. Unfairly excluding competitors; 3. Unfairly coercing or inducing customers of competitors to deal with oneself; 4. Trading with a certain transacting partner by unfairly taking advantage

Bryan Hopkins Special Counsel, Lee & Ko bryan.hopkins@leeko.com


Korea Voices of his/her position in trade; 5. Trading under the terms and conditions which unfairly restrict business activities of a transacting party or disrupting business activities of another enterpriser; 6. Assisting a person with a special interest, or other companies by providing advanced payment , loans, manpower, immovable assets, securities, right on intangible properties, etc. thereto, or by transacting under substantially favorable terms therewith; 7. An act likely to impair fair trade, other than those listed above.” Looking at the items listed above, it is clear that the likelihood of impeding fair trade is broken down into two main elements: 1. Anti-competitiveness 2. Unfairness What is anti-competitiveness? The KFTC considers anti-competitive conduct as such conduct which substantially reduces or is likely to substantially reduce the level of competition in a particular market among the number of competitors or potential competitors. What is unfairness? Conduct is considered unfair if the competition method employed by the terms of trade is unfair. A competition method is deemed unfair if the method employed is likely to impede fair competition by competing on terms other than price or quality of the product or service. Basically, the unfair competition practice or method harms the method of fair competition by impeding or preventing the trade counterparty’s freedom to choose or it imposes a detriment on the trade counterparty. Based on the items set forth in the MFRTA regarding unfair trade practices, examples of Unfair Trade Practices includes the following:

1. A concerted refusal to deal- a company without any justification in concert with its competitor refuses to start trading with a certain targeted enterprise or it substantially ceases trading with or restricts its trading with such targeted enterprise thereby restricting the quantity of products or the scope of services with whom it has been trading. - This includes a refusal to supply, purchase, start trading with or continuing to trade. Furthermore, it also encompasses a constructive refusal to trade by requiring the terms of trade that are substantially unfavorable to the trading counterparty. - Refusal to deal does not apply to companies selling directly to consumers 2. Other refusal to deal- An company or enterprise’s unfair conduct in refusing to start trading with certain targeted companies, or ceasing trade or substantially restricting trade by restricting the quantity of products or services to certain targeted companies it has been trading with. - Examples of conduct that may be deemed an unfair trade practice includes: - A company that refuses to deal with a certain targeted enterpriser without reasonable grounds - A company , without reasonable grounds, causes sellers who have purchases raw materials from it to refuse to supply raw materials to certain targeted competitors - A company that refuses to deal with certain targeted types of sellers, eg, discount stores or on-line sellers, and thereby places such targeted sellers at a competitive disadvantage against off-line sellers 3. Price-Discrimination A company’s conduct of unfairly trading on substantially favorable or unfavorable prices depending on the geographical are of the trading counterparty.

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Korea Voices - This includes all forms of consideration paid by the trading counterparty in exchange for products such as discount rates, etc. - Examples of unfair trading: - A company, for the purpose of strengthening its market position in a geographical area of fierce competition and without reasonable grounds, establishes prices substantially below the prices it charges in other geographical areas. - A dominant seller, without reasonable grounds, gives substantially more favorable prices to certain targeted buyers who as a result enjoys favorable prices and enjoys a competitively superior position against competitors. Normal competition is impeded. 4. Discriminatory Terms of Trade A seller or manufacturer’s conduct of unfairly treating certain targeted companies with substantially favorable or unfavorable trading terms or conditions regarding quality or quantity of products or services This conduct applies in respect of discrimination in terms other than price. This includes discriminatory treatment with respect to those terms of trade such as performance of a contract, payment terms, etc. Examples include: - A manufacturer, without reasonable grounds, discriminates against sellers who sell the product by imposing discriminatory terms of trade – such as shipment method, frequency of shipment, terms of supply, etc. 5. Discrimination Favoring Affiliates This is when a manufacturer or seller, without any justification, causes the terms and conditions of trade (price, quantity, etc.) to be substantially more favorable or unfavorable to benefit an affiliate. The illegality of such conduct shall be reviewed based on whether the conduct is likely to restrain competition or cause economic concentration.

Examples: - A company, without any justification, purchases the products from its affiliate for prices substantially greater than the estimated unit price of a non-affiliate - A company, without justification, pays a substantially higher service fee to an affiliate than a non-affiliate - A company supplies raw materials to the competitors of its affiliate on prices or terms of trade comparatively unfavorable in order to assist its affiliate to be more competitive in a bidding process. Exceptions ( “Safety Zone”) There are always exceptions to most laws and the MRFTA is no different. Under the MRFTA, an enterprise with less than a 10% market share is deemed to have a minimal anticompetitive effect in the marketplace and thus is exempt from an unfair trade practices review. This “ safety zone” is also extended to those companies with less than a KRW 2 billion won sales turnover if the market share cannot be determined. In conclusion, the MRFTA addressees unfair trade practices with the primary goal of improving Korea’s market structure by applying business practices similar to those found in other countries and prohibiting certain unfair trade practices that are also prohibited in many countries as well. The MFRTA has been greatly influenced by the US and EU competition law regimes, though the EU regime has had a greater impact, as Korea is a civil law country.


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Competing (or not) for the Big Prizes in the Second Age of Orality Upon awarding Bob Dylan the Nobel Prize in literature last month, Sara Danius, permanent secretary of the Swedish Academy, referred to the “American troubadour”—shall we say gwangdae here in Korea?—as “a great poet . . . a very interesting traditionalist, in a highly original way. Not just the written tradition, but also the oral one; not just high literature, but also low literature.” The permanent secretary’s statement, and her academy’s selection of Dylan for the prize in the first place, appear to be aimed at highlighting, if not reconciling, the longstanding competition between “low” (oral) “literature” and “high” (written) literature. We find this tension in evidence in many cultural venues: from the ways Korea’s traditional singing arts take their libretti from both the street and the most highly regarded poets of Chinese antiquity, to the ways in which American politicians are using oral strategies to reach an increasingly non-literate (meaning not “illiterate” but “non-reading”) electorate. While the Pacific Ocean may separate these two examples, underneath each struggle between the oral and the written lie deeper divides—between rural and urban, tradition and modernity, working people and “elites.” In fact, the more I watch (and listen) for it, I’m seeing that this competition between orality and literacy underpins just about everything in life—class, race, gender, education, arts, language, history, science, climate change . . . volcanology. This morning, I was listening to the radio. (Ten years ago, I might have been reading a book, but how can I resist English-language news media beamed into my Korean home from halfway around the world as I get ready for work?) The BBC’s Libby Purves was interviewing the volcanologist Clive Oppenheimer, who co-directed, with Werner Herzog, the new documentary Into the Inferno. Oppenheimer was explaining how the

work had been informed by the oral histories and cosmologies of people living next to volcanoes. By listening to oral accounts, the filmmakers learned of eruptions that had occurred “before time”—that is, before written-down history, as opposed to remembered and orally transmitted history1. In Alaska, about 100 km from my hometown, local Tlingits named the oldest bones ever found in the North “Shuka Kaa,” meaning “Man Ahead of Us.” Shuka Kaa lived in what we now call Southeast Alaska 10,300 years ago, at a time when glaciers covered most of North America. He could have been living in the area where his bones were found only because it was part of a refugium, a pocket of land that escaped the Ice Age. The discovery of Shuka Kaa’s remains shed doubt on the history of the colonization of North America by humans migrating across the Bering Strait land bridge during the last Ice Age—and lent credence to alternate migration accounts described in Tlingit stories passed down orally through the ages. As long as oral transmission represented the only available means of sustaining and transmitting history, traditions, ethical norms, and artistic conventions, as was the case for northern indigenous groups like the Tlingit as recently as four generations ago, it worked brilliantly. The problems start when writing culture gets superimposed on oral cultures, as is occurring today the world over. But, even for descendants of civilizations like the Sumerians, who extended their oral conventions into written forms of their own invention, the transition from spoken to textual transmission has not been smooth and remains incomplete to this day. In her remarks, Danius placed Dylan in a 2,500-year-long lineage of poetic

1

http://bbc.in/2etWHhf

Professor Jocelyn Clark Professor, Pai Chai University KBLA Arts Ambassador jocelyn.clark@kbla.info


Korea Voices text singers who “wrote poetic texts that were meant to be listened to . . . performed, often together with instruments.” We still read and enjoy Homer and Sappho, she argued, and Dylan’s songs should similarly be studied not just for their musical value but for their contributions to the literary canon. “He can be read, and should be read,” she urged.2 In the Korean genre pansori, we encounter an oral story singing form built on both colloquial and routinely bawdy pure Korean mixed with highly “literary” classical texts—often Chinese poetry from the Tang Dynasty (“dog whistles” for low and high classes at once)—that, like Dylan’s lyrics, serves to illustrate the complex relationship between orality and literacy. My former grad school professor, Stephen Owen, wrote about the linguistic dynamics surrounding pansori in his article “What did Liuzhi Hear?” He points to the Tang Dynasty poet Li Shangyin, who liked to insert homophones into his written poems, which, like Homer’s, were meant to be recited rather than read silently. For example, in his Yan Terrace Poems: Spring (李商隱, 燕台 四首: 春), Li wrote the characters for mifang yuke (蜜房羽客) “winged visitor of the honeycomb,” knowing that a listener would hear them as a pun for mifang yuke (same basic pronunciation but with different characters and tones) “the immortal of the bedchamber,” or not even catch the pun at all, hearing only the latter meaning. The competition between oral performance of “literature” and writing down of “a classic work of literature” is thus both false and profound. As Walter J. Ong points out in his 1982 treatise Orality and Literacy: The Technologizing of the Word, “In western classical antiquity, it was taken for granted that a written text of any worth was meant to be and deserved to be read aloud, and the practice of reading texts aloud continued, quite commonly with many variations, through the nineteenth century.” Reading out loud would pick back up in the twentieth century with books on

2

http://www.telegraph.co.uk/men/ the-filter/world-exclusive-bob-dylan---ill-beat-the-nobel-prize-ceremony-i/

tape and continue on through to the advent of today’s Audible app. And, in time, digital technology would deliver the ultimate device for reading out loud—the teleprompter. Enter who else but Mr. Donald Trump. To watch the candidate deliver a policy speech is to witness a theatrical display of the competition between oral and written modes of communication. Positioned on his left and his right, each of Trump’s teleprompters contains the guts of his policies, presumably drafted by his campaign staff. Since businessmen are not generally called on to use teleprompters, Trump has never gotten comfortable with this word-scrolling medium. A bit like an oscillating household fan, he turns to one prompter and then back to the other, reading the text for what appears to be the first time. But, at various intervals, he will stop mid pivot and face straight ahead. It is in these impromptu interludes that all of the strategies of orality come into play. Supporters in the hall, well-tuned to their hero’s body language, know he is about to “break the fourth wall” and go off script. He is Kevin Spacey’s character turning to the camera in House of Cards to tell us what he really thinks (and before him Ian Richardson’s, and before him, Richard III’s, had the technology been available then). According to the Washington Post, in 2014, only 43 percent of American adults read at least one work of literature. This marked the lowest reading percentage since the first such survey of its kind was conducted in 1982, when the result was 57 percent. This does not mean that Americans have stopped assimilating written works or are any less engaged with the kinds of quandaries and ideas found in the “great novels.” Most people read quite a bit in a day—just not more than a screen or two at a time. After analyzing how consumers are taking in information in the digital age (through social media, global streaming, etc.), Walter Ong concluded that we have arrived at a “second age of orality.” This age, he writes, bears “striking resemblances to the old in its participatory mystique, its fostering of a communal sense, its concentration on the present moment, and even its

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Korea Voices use of formulas”—all in all, a fairly accurate description of the rhetorical realm of a Trump rally—or at least the candidate’s frontward-facing moments. On the subject of Trump, it should be mentioned that epithets also figure prominently in old oral works like the Homeric epics, where they are deployed in abundance and we find characters like “wily Odysseus.” But, as Ong reminds us, as far as his own study (focused on the West) goes, “Orally managed language and thought are not noted for analytic precision”: In an oral culture, the flow of words, the corresponding flood of thought… tends to manage discrepancies by glossing them over—the etymology here is telling, glossa, tongue, by “tonguing” them over. With writing, words once “uttered,” outered, put down on the surface, can be eliminated, erased, changed. There is no equivalent for this in an oral performance, no way to erase a spoken word: corrections do not remove an infelicity or an error, they merely supplement it with denial and patchwork. That is to say, you must think before you speak and keep your word in order to be credible. Observers of the 2016 American election often seem incredulous at Trump’s refusal to apologize when he gets facts wrong or misspeaks. But, as Ong explains, “Corrections in oral performance tend to be counterproductive, to render the speaker unconvincing. So you keep them to a minimum or avoid them altogether.” In other words, when you hear yourself saying to yourself, “I can’t believe he just said that,” remember that works pretty well for this candidate. When you treat all of your errors as unretractable, for your listeners not to believe their own ears can be a godsend. Written-down statements, on the other hand, are much harder to refute with silence. All that said, plausible deniability should not be considered solely the province of the oral tradition. As a university student, I was told more than once that “in literary interpretation there can be no right and wrong, as long as you can support your analysis.” Perhaps this is why Bob Dylan doesn’t care to try to explain the meaning of his Nobel prize-winning lyrics. “I’ll let other people decide what

they are,” he recently said to Edna Gunderson of The Telegraph. “The academics, they ought to know. I’m not really qualified.” And here you were thinking he was “the immortal of the song studio.”


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The Korea Discount is not always good news for Investors. Once again a major Korean chaebol or business group has run into problems that involve its top management. In recent days the Korean authorities have indicted the founder and former chairman of the Lotte Group, Shin Kyuk Ho, and his son who is the current chairman, Shin Dong Bin. The charges involve diversion of funds from various companies in Lotte group into the personal accounts of the two Shins, the failure to pay taxes on income and the failure to have taken appropriate action as directors to protect the interest of other shareholders in certain companies in the Lotte group. Considering that the Lotte group is one of the more profitable of the Korean chaebols, the amounts involved in the alleged diversion of funds are apparently rather modest in scale and total less than the equivalent of US$500 million. While that is a large sum, in the context of the scale of Lotte group and the fact that both the former and current chairman are reckoned to be in the ‘global billionaires club’ by any measure it is not an amount that would have much impact in regard to the financial position of the Lotte group. In other words, if something like this amount was really taken from the operating funds of some of the companies in Lotte group, then those companies have nevertheless been able to function quite well despite the loss of the money involved in this case. The point that the Korean prosecution appears to be making, and this is a point of interest to domestic and foreign investors in Korean companies whether those companies are listed on the exchange or remain privately held companies, is that directors of Korean companies have fiduciary

duties that prevent them from acting in a partial manner to the benefit of themselves alone if they happen to be the major shareholders in a company. Instead, major shareholders who are directors must consider the impact of any material change they make in corporate operations in the light of the potential for negative impact on other investors in the company and particularly the interests of minority investors. The problem for investors in chaebol-related companies that come under the scrutiny of the Korean government’s regulators is that the share prices of these companies are going to reflect this Korean market related risk, the so-called ‘Korea discount’. There have been many attempts over the years by analysts to estimate what the Korea discount risk might be in terms of what the share prices might be if no such non-market risks were present, and many seem to agree that it varies from 10 to 20 percent. That is a considerable discount to the pricing that these shares would attain if no such risks were present in the market, and of course being an average, it is entirely possible that shares of targeted companies will move down to much lower levels than peer group stocks in other markets that do not have such Korea-centric risks. The other problem for those with an interest in these Korean companies in such cases is that if there are pending transactions between these companies and counterparts inside or outside Korea, almost all work comes to a halt since there will be a management decisionmaking vacuum at the affected Korean company. In the present circumstances, it is quite clear that investors or companies that may

Hank Morris Argentarius hank@argentarius-group.com


Korea Voices have been looking forward to doing transactions with the Lotte group will in many cases have to put their plans on hold. Other than very simple and routine transactions, companies that are under investigation due to charges being placed against the major shareholders as in the Lotte case, will probably not be able to complete any significant level of pending business. This could possible be costly for the counterpart companies who may have been working for weeks or months on complex transactions that are suddenly put on hold indefinitely. Most Korean groups depend upon a chairman who is usually the senior shareholder of the family that has the largest shareholding in the group. It is expected that the chairman will make final decisions concerning investments, and since most chairmen are also directors of the major companies in their groups, they will also sign the final contracts in many cases. If something takes the chairman out of the picture, such as an indictment for misappropriation of corporate funds or failure to carry out the duties of a company director properly, then any pending transactions of consequence will most likely be put on indefinite suspension until such time as the chairman is able to resume his role as head of the group’s management. Thus in addition to a share pricing risk, there is often also a business interruption risk in the Korean market. The simple lesson here is that Korea although Korea has reached an impressive level of economic development, it is still far from a fully developed market from the political/ economic risk side. Investors and potential business partners of Korean companies, particularly chaebol-related companies, would do well to keep this in mind.

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Time to refocus Korea’s nuclear power plant debate September and October were extraordinary months in Korea. On September 12, a strong M5.8 earthquake struck the Gyeongju area near the Kori and Wolsong nuclear power stations. It was the strongest ever recorded in the country since measurements began in 1978. Then, less than a month later on October 5, typhoon Chaba hit the coastal areas of Busan and Ulsan, causing a 9-meter storm surge, closing the port, and resulting in flooding in both of those cities as well as already earthquake affected Gyeongju. Perspective has played a major role in the national media and independent reports about the Gyeongju earthquake, as the public has not experienced anything like this before. To have the earth shake beneath you with no idea of what to do in this situation is terrifying. Alternatively, one Japan resident is quoted as saying “an earthquake that size wouldn’t even stop me from washing the dishes.” But extreme natural events such as these add to the Korean public’s worries about the possible effects on nuclear power stations. And indeed, earthquakes and floods near Wolsong and Kori bring up visions of Fukushima Daiichi; which, although being caused by a resulting tsunami and not the earthquake itself, drilled TV images into our minds which are difficult, if not impossible, to erase. So why were the past two months extraordinary? Well, we would be correct in saying that a typhoon and a 5.8 quake was an unexpected confluence of unlikely events. But are all unlikely events really unlikely? Is there any way to expect – and guard against – the unexpected? Let us look at nuclear power generation and the possibility of a core damage accident. Over the years, the International Atomic Energy Agency and most regulators have endorsed several safety goals. Two such goals stipulate

that reactor operators should ensure that for each unit, the likelihood of a core damage accident is no greater than once per 10,000 years; the likelihood of a large release of radiation should be no greater than one time every 100,000 years. These seem like pretty unlikely events, right? But let’s put this in perspective. As of March 10, 2011, there were 438 commercial nuclear power generating units around the globe. If each unit was operating 70% of the time, and each one was safe according to the goals we have just described, the likelihood of a core damage accident somewhere on the planet was about three times every 100 years. To put this into very human terms, you should expect a core damage accident, somewhere in the world, during your lifetime to be around 90% (we’ll spare you the math). So a core damage accident, although unlikely in a single nuclear reactor, does not seem so improbable if we look worldwide. In fact, in our lifetimes there have been such accidents at three commercial reactor sites: Three Mile Island in the U.S., Chernobyl in Ukraine and Fukushima Daiichi. Now, core damage accidents do not necessarily result in radiation releases. At Three Mile Island, no radiation escaped. If we use the same reasoning for large releases of radiation, then we should expect a Fukushima-like accident to occur in your lifetime to be around 20%. Please remember, too, that we are only talking about the likelihood of an accident, not the consequence that people will get sick or die from one. The contamination surrounding Fukushima Daiichi is measurable, but according to the United Nations Scientific Committee on the Effect of Atomic Radiation (UNSCEAR) “ … [the accident at Fukushima Daiichi] is unlikely to be able to attribute any

Woody Epstein Mitchell Williams Curtiss-Wright Corporation


Korea Voices health effects in the future among the general public and the vast majority of workers.” Still, consider this: In the next 15 years, the number of new nuclear units will increase significantly worldwide. Therefore, we should expect the odds of core damage accidents to increase worldwide as well. In Asia alone, China has 29 reactors under construction, adding to 15 operational units; Korea is building five units; and Taiwan is working on two. Thailand, Malaysia, Vietnam, and Indonesia hope to be joining the nuclear power club by 2030. So here is our question to you: Can you accept this risk? Keep in mind that energy-related risks will not disappear if Korea abandons nuclear power. Look at all of the gas, oil, and liquefied natural gas tanks on the coasts of almost every Asian country. We have done studies on how large earthquakes, tsunami, and typhoons impact the chemical, oil and gas industries. Believe us, even in adjacent industries there are accident scenarios with environmental, social, and economic consequences that could approach those of Fukushima. Following the Fukushima disaster, panels of scientists and engineers are being asked by their governments to attest that nuclear reactors are “safe.” But Three Mile Island, Chernobyl and Fukushima Daiichi have clearly shown that nuclear power inevitably carries risks. It is important to investigate and study. To suggest improvements, where necessary. To learn from our neighbors in the industry and to come together to ensure that safety, and not competition or competitive advantage, is at the forefront of the energy sector. Perhaps most importantly, it is time to change the terms of the debate from the oversimplified “safe/unsafe” dichotomy to an honest and open discussion of what the risks are and what is being done to mitigate them. This applies not only to nuclear power but to all technological endeavors. In this context, the risks of nuclear

power have to be considered in a balanced comparison with other risks. True, we need to utilize our technical resources. We need experienced masters to dig through the data and decipher where the risks lie. But at the end of the discussion, the public and the leaders they have elected – rather than technical experts – should make the final decision. Risks must be explained to the people in easy to understand language, because in the end, the choice is theirs. Woody Epstein serves as Director of Safety and Risk, Asia-Pacific for Curtiss-Wright. He is also a research affiliate at the Garrick Institute for the Risk Sciences at UCLA, and was a visiting scholar at the Tokyo Institute of Technology, from 2011 - 2013, where he was involved in analyzing the Fukushima Daiichi disaster. Mitchell Williams is Managing Director of Curtiss-Wright’s Nuclear Division in Korea and Taiwan. He has worked and consulted in Asia’s nuclear energy sector since 2008 and is an active participant in the Energy Industry Working Group held by the USG Department of Commerce in Korea. The opinions and views expressed here are those of Woody Epstein and Mitchell Williams only, and do not reflect the opinions or views of their employers, past or present, their affiliates, or clients. You can reach them at: woody.epstein@curtisswright. com and mhwilliams@curtisswright. com.

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About the KBLA Korea Business Leaders Alliance Our mission is to serve leaders in Korea, primarily business leaders, but also academics and arts leaders. We bring peer leaders together, help them build relationships, expose them to new ideas and best practices, give them opportunities to interact, publish, demonstrate expertise, and just spend time getting to know one another. We provide information tools and channels for them to interact online and to be informed.

The KBLA also serves business leaders around the world who have a stake in the Korean business environment through our business intelligence reporting service: Korea Intelligence Package.

Partners of the KBLA


About the KBLA Value Chain Advertisers Index EDITOR IN CHIEF Rodney J. Johnson

Cushman & Wakefield www.cushmanwakefield.com

MANAGING EDITORS Steve McKinney Jocelyn Clark

Korea International School www.kis.or.kr

CONTENT EDITOR Kyle Johnson CONTRIBUTORS Bryan Hopkins Jocelyn Clark Hwan Jeong John J. Lee Kang Chungku J. James Kim Woody Epstein Mitchell Williams Hank Morris Kyle Johnson ADVERTISING Julia Kim (김주희) PUBLIC RELATIONS Jennifer Kim (김잔디)

Value Chain is published monthly by the Korea Business Leaders Alliance on the ground, in Seoul, Korea. Value Chain is a digital-only publication available in PDF and online forms. For advertising and distribution inquiries contact us at admin@kbla.info.

Seoul Foreign School www.seoulforeign.org United Airlines www.united.com Lee & Ko www.leeko.com KEB Hana Bank hanafn.com/main.do McKinney Consulting www.mckinneyconsulting.com Asian Tigers Mobility www.asiantigers-korea.com Grand Hyatt Seoul http://seoul.grand.hyatt.com/en/hotel/home.html Erudite Risk www.eruditerisk.com Hilton Gyeongju http://www.hiltongyeongju.co.kr Agility Korea www.agility.com

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“Everyone has a plan until they get punched in the mouth.� -- Mike Tyson

Value Chain November 2016 Edition  

The Monthly Magazine of the Korea Business Leaders Alliance