Pestle & Demographic Analysis-Meaning

Meaning of Pestle Analysis

• PESTLE stands for - Political, Economic, Sociological, Technological, Legal,

Environmental. The term PESTLE has been used regularly in the last 10 years and its

true history is difficult to establish. Various other similar acronyms have been used

including ETPS, STEP, PEST, and STEEPLE. The term PESTLE is particularly

popular on HR and introductory marketing courses in the UK.

• PESTLE analysis is in effect an audit of an organisation's environmental influences

with the purpose of using this information to guide strategic decision-making. The

assumption is that if the organisation is able to audit its current environment and assess

potential changes, it will be better placed than its competitors to respond to changes.

• To help make decisions and to plan for future events, organisations need to understand

the wider ‘meso-economic’ and ‘macro-economic’ environments in which they operate.

(The meso-economic environment is the one in which we operate and have limited

influence or impact, the macro-environment includes all factors that influence an

organisation but are out of its direct control). An organisation on its own cannot affect

these factors, nor can these factors directly affect the profitability of an organisation.

But by understanding these environments, it is possible to take the advantage to

maximise the opportunities and minimise the threats to the organisation. Conducting a

strategic analysis entails scanning these economic environments to detect and

understand the broad, long term trends.

Page 1
• A PESTLE analysis is a useful tool for understanding the ‘big picture’ of the

environment in which an organisation is operating. Specifically a PESTLE analysis is a

useful tool for understanding risks associated with market (the need for a product or

service) growth or decline, and as such the position, potential and direction for an

individual business or organisation.

• A PESTLE analysis is often used as a generic 'orientation' tool, finding out where an

organisation or product is in the context of what is happening outside that will at some

point affect what is happening inside an organisation. The six elements form a

framework for reviewing a situation, and can also be used to review a strategy or

position, direction of a company, a marketing proposition, or idea.

Meaning of Demographic Analysis

Demographic analysis includes the sets of methods that allow us to measure the

dimensions and dynamics of populations. These methods have primarily been developed

to study human populations, but are extended to a variety of areas where researchers want

to know how populations of social actors can change across time through processes of

birth, death, and migration. In the context of human biological populations,

demographic analysis uses administrative records to develop an

independent estimate of the population. Demographic analysis estimates are often

considered a reliable standard for judging the accuracy of the census information

gathered at any time. In the labor force, demographic analysis is used to estimate sizes

and flows of populations of workers; in population ecology the focus is on the birth,

Page 2
death and movement of firms and institutional forms. Demographic analysis is used in a

wide variety of contexts. For example, it is often used in business plans, to describe the

population connected to the geographic location of the business. Demographic analysis is

usually abbreviated as DA. For the 2010 U.S. Census, The U.S. Census Bureau has

expanded its DA categories. Also as part of the 2010 U.S. Census, DA now also includes

comparative analysis between independent housing estimates, and census address lists at

different key time points.

Page 3
Introduction to South Korea

• South Korea officially the Republic of Korea is a sovereign country located in the

southern part of the Korean Peninsula .

• Total area of 99,392 km2 (38,375 sq mi)[8] and has a population of 50 million.

• The capital and largest city is Seoul, with a population of 9.8 million.

• South Korea is a member of the United Nations, WTO.

Current President of South Korea is Park Geun Hye from Feb 2013.

Page 4
Pestle Analysis

• Political Analysis

South Korea had a turbulent political past, characterized by frequent changes in

government, little political freedom and military coups. However, in 1986 the democratic

process was streamlined and the president was vested with maximum power. Due to the

centralization of authority, policy making became straight forward. The president is the

chairman of all the committees, which makes it very easy to co-ordinate and run the

whole system. The country also has strong political and economic support from the US.

Although South Korea has been a democracy for over two decades, the military continues

to wield considerable power. There is a high-degree of political violence in the country

and relations with North Korea continue to be tense. This is costing South Korea both

economically and politically. There have been frequent

summits between the two countries; however they have so far failed to reach a consensus.

Current strengths Current challenges

▪ Centralization of power ▪ Military influence in South Korean

politics
Future prospects Future risks
▪ Confidence building measures with North ▪ Uneasy relationship with North Korea

Page 5
Current Strengths

Centralization of Power

In South Korea, the president plays a key role in both the economy and polity of the

country. The president is the head of state, head of government and chief of the armed

forces. The president has the power to execute and amend any laws or policies of the

country. He also has the power to dissolve the national assembly. Due to the

centralization of power in the hands of the president, he has to regulate and solve all

administrative issues. All the committees in South Korea are headed by the president and

are known as presidential committees. This makes it very favorable in terms of

consistency and mutual co-operation and interdependence among various national and

state bodies. The new president, Lee Myung- Bak, has created the ‘Korea 747 Vision’, a

policy completely focused on all round economic development. He aims to expand

growth to 7% and double per capita income to $40,000. One of the policy's most

ambitious aims is to make the country the seventh largest economy in the world in a

decade’s time

Strong Foreign Relationships

After the Japanese–Korean War ended in 1945, it was the US which turned the country's

economic fortunes around. As a result, the country’s relationship with the US remains

very firm, and South Korea concluded a free trade agreement with the US in June 2007.

The US military troops stationed in the country provide support to the South Korean

army, as relations with North Korea continue to be volatile. Furthermore, the country also

Page 6
has very strong ties with China, Japan and Russia. South Korea has been a member of the

United Nations since 1991 and has diplomatic relations with almost 170 countries. The

former foreign minister Ban Ki-moon is presently the Secretary General of the United

Nations, which is likely to help the country improve relations with North Korea, and also

strengthen ties with other nations.

Current Challenges

Military Influence in South Korean Politics

The military staged coups in 1961 and 1980 and it continues to influence political

decisions and policies. Although 1986 saw the direct election of a president formulated by

the constitution, the constant military threat posed by North Korea means that military

leaders still exert considerable influence over the country's political decisions. After a

short naval battle with North Korea in 2002, a summit was held in North Korea in 2004 in

an attempt to improve relations between the two countries. Although the summit did not

result in any major changes, one third of the US troops stationed in South Korea were

withdrawn. As a result, both military leaders and other political parties in South Korea

demanded that security issues be prioritized among national policies, which has

perpetuated the military's strong influence in South Korean politics.

Page 7
Political Violence

violence in the country began due to different protests staged by the students to overthrow

the presidents during 1960s and 1970s. By the late 1980s, violence- prone student

radicals, although a small minority, demonstrated increasing effectiveness in organizing

temporary lock outs and arson against facilities. In 1988, under the general guidance of

the National Association of University Student Councils or the Seoul Area Federation of

Student Councils, small groups of students staged more than two dozen raids on the US

diplomatic and military facilities. After the presidential elections, the political violence

seems to have reduced but it could be still used as a means of resistance.

Future Prospects

Confidence Building Measures with North Korea

The two Koreas are still officially at war and the situation remains fraught. In early

October 2007, a historic Korean summit was held in Pyongyang, North Korea. During

this summit, both countries agreed that a solution to the historic rivalry over border issues

needs to be found and as such both sides have signed a peace declaration aimed at

replacing the armistice with a permanent peace treaty. In addition, the summit also

resulted in an agreement between North and South Korea to establish a joint economic

area in the border port city of Haeju in 2008. The proposal included joint fishing areas

along the sea border and a joint shipyard at Haeju. This is seen as a necessary first step

towards thawing relations between South and North Korea.

Page 8
Strengthening Relations with the EU

The EU and South Korea are major commercial partners, with mutual trade reaching $80

billion in 2006. The EU is South Korea's second biggest trading partner after China. In

May 2007, the first round of negotiations on a possible free trade agreement was held and

negotiations have been ongoing since then, with the sixth round of negotiations

completed at the end of January 2008. Among other things, negotiations have

focused on creating a uniform auto standard for the automotive industry. Both parties

were also keen to solve tariff and quota issues. If this agreement comes into force, it will

provide South Korea with very lucrative future trade prospects, as the country strengthens

its ties with other EU nations. Incidentally, the EU is also one of the biggest investors in

South Korea.

Future Risks

Uneasy Relationship with North Korea

South Korea has made consistent efforts towards reconciliation with North Korea.

However, provocative military actions and North Korea's efforts to build and acquire

nuclear weapons are a cause for concern. Moreover, the intrusions by the North-Korean

ships in the South-Korean seas ended in a short naval battle in 2002. In late 2007, the

summit resulted in boosting cooperation between the two countries especially in the area

of transportation and logistics. However, the intrusions by the North-Korean ships into

South-Korean seas have continued even in 2008, which have increased the tension

between the two countries. Furthermore, North Korea warned South Korea over the

Page 9
alleged sending of the propaganda leaflets into its territory in May 2008 with the

concomitant escalating of tensions between the two countries. The relations between the

two countries continue to remain tense and North Korea continues to remain a major

military threat to South Korea.

• Economic Analysis

The economic structure is well supported by government policies in South Korea. Due to

strong economic reforms, the country has continued to experience steady economic

growth. The powerful export sector is the main reason for economic growth in the

country. Although the country is developed in terms of all-round economic health, and

provides a good investment climate, it still suffers from structural weaknesses due to very

stringent rules on imports and FDI. These restrictions are affecting the domestic market

and make it internationally uncompetitive. Even though the country is on a path of

economic growth, it has been affected by declining FDIs. Furthermore, the nuclear test

conducted by North Korea has created uncertainty among investors in South Korea,

which has led to instability in markets.

Current strengths Current challenges

▪ Powerful export sector ▪ Low level of imports

Future prospects Future risks

▪ Competitive tax policy ▪ Nuclear crisis

Page 10
Current Strengths

Powerful Export Sector

South Korea is now the world’s 12th largest economy, growing at a rate of 5.4% in the

third quarter of 2007. This was largely due to exports, which were on a roll, with the

country's export volume standing at $325.5 billion in 2006, compared to $284.4 billion in

2005. According to the central bank, the export pattern is going to be similar for the

coming years. Most of this comes from electrical and electronic products, which brought

in about $91 billion. South Korea is now one of the largest producers of computer

memory chips and mobile phones. The magnitude of exports acts as a major attraction

drawing foreign investors to South Korea.

Successful Economic Reforms

The Asian financial crisis of the late 1990s exposed a variety of structural weaknesses in

the South Korean economy. South Korea’s recovery from the crisis, in terms of gross

domestic product (GDP) growth, was remarkable. GDP shrank by

6.7% in 1998, but grew by 9.3% in 1999. This was largely due to financial and economic

restructuring carried out by the government. As a part of the reforms, many banks were

nationalized. The country also went on to liberalize restrictions in the capital and foreign

exchange markets. As a result, the country attained macro-economic stability and

demonstrates the strong structure of economic reforms in South Korea. This liberalization

is also slowly helping the country to reduce its reliance on exports.

Page 11
Current Challenges

Low Level of Imports

In South Korea, the level of imports is comparatively low compared to its Asian

neighbors. The import tariffs, duties and restrictions are highly regulated and as a result,

the country’s import volume is considerably lower compared to other countries.

Consequently, the imports required for production are scarce both for domestic and

foreign corporations. Imports to South Korea stood at $356 billion in 2007 compared to

$917 billion for China and $570 billion for Japan during the same year.

Declining Level of FDIs

The FDI regulations are still not streamlined in South Korea in comparison to its

neighbors. In spite of being a developed country, South Korea is still unable to attract FDI

into the country due to absence of clear policies and streamlined processes. The FDI stock

in South Korea in 2006 was around $118 billion compared to $699 billion in China. With

India too becoming a strong contender for FDI, it will be quite a challenge for South

Korea to attract FDI into its own territory. Furthermore, the clear public animosity,

insufficient transparency and over regulation have further driven away FDI.

Page 12
Low Intensity of Competitiveness

After emerging from the Asian financial crisis, South Korea made great strides in its

economic reforms to put the economy back on track. However, the country has yet to

commence its second wave of market oriented reforms to make the domestic market more

competitive. Small and medium scale enterprises in the country account for almost 80%

of employment and 40% of exports, but these markets are still under government

regulation and have strong interventions from trade unions, which has resulted in a low

level of competitiveness against emerging regional rivals. According to government

sources, foreign investment in the country is also decreasing due to a lack of support for

foreign companies. Foreign investment inflow fell from around $11.5 billion in 2005 to

around $10 billion in 2007.

Future Prospects

Competitive Tax Policy

The previous tax policy had a differentiated tax system for domestic and foreign

corporations. In tax reforms implemented in 2007, the government brought in an

equitable tax system, with a corporate tax rate of 25% for both domestic and foreign

corporations. This should augur well as it will not only attract more foreign firms

to the country

Page 13
Liberalized Service Sector

South Korea is historically known for its technological innovation and possesses a very

advanced form of technology development. The country is one of the largest producers of

computer peripherals and memory chips, which makes it a crucial driver in the global

service sector. The country is yet to reform its service sector and open it up further. A

highly educated work force with the requisite technical skills puts South Korea in an

advantageous position in the services sector. This provides it with a good opportunity to

become a world class service sector destination, allowing it to compete with several other

Asian majors like India and China.

Implementation of Free Trade Agreements (FTA)

Liberalizing South Korea's markets will provide a renewed chance to improve trade

freedom, and also help the economy to implement effective economic reforms.

Implementing FTAs will send a powerful signal to foreign and domestic investors and

provide a new growth engine to improve competitiveness. The FTA between South Korea

and the US was ratified in

2006 and the country is inching towards a FTA with the EU. These FTAs will greatly

improve future prospects of economic expansion in South Korea.

Page 14
Future Risks

Nuclear Crisis

The constant tension with North Korea is creating economic ramifications in South

Korea. Worries over North Korea's nuclear ambitions have now been branded as the

biggest hazard to the South's economy by the nation's central bank. The nuclear test

conducted by North Korea has been credited with causing a range of problems, from the

falling stock market to hollowed-out foreign investment. Although the recent summits

have improved relations, there is still a lot of uncertainty with regard to its relations with

North Korea. This has now become a major disadvantage for the country’s economic

growth prospects.

Growing Local Hatred for Foreign Companies

There is a growing local hatred surrounding foreign companies in South Korea. There is

strong resistance to foreign investment from labor unions in South Korea, which are

against both the US-Korea FTA and also the proposed EU FTA. This resistance is a

significant threat to foreign investors and will also hamper the level of exports due to

increased protests, strikes and lockouts.

Page 15
• Social Analysis

In South Korea, the wages are generally higher than other neighboring countries and the

labor force is well educated and technically qualified. The country’s literacy rate is one of

the highest in the world; however, the country's low fertility rate still presents a

significant challenge as South Korea is faced with an increasingly ageing population. In

spite of rapid urbanization, government spending on social welfare is low. The labor

unions are resistant to the rising wage disparity,which continues to be a serious problem

for South Korea.

Current strengths Current challenges

▪ High wages ▪ Low fertility rates

Future prospects Future risks

▪ Low unemployment rate ▪ Wage disparity

Page 16
Current Strengths

High Wages

South Korea has one of the highest wage levels in Asia. The minimum wage payable in

South Korea is $3.84 per hour,$30.74 per day and $868.27 per month. This is much

higher than the wages paid by its regional counterparts. High wages also mean that there

are a large number of people willing to join the industry and this continuous flow of

people into the sector ensures that there is continuous production, and a consistent output.

Moreover, the level of output and productivity is higher due to infrequent layoffs. High

wages have also enhanced the standard of living in the country which is higher than any

regional economy in Asia.

Highly Educated Workforce

In terms of growth of productivity, from 1994 to 2005, South Korea was ranked second

with annual average gains of 3.9% according to Employment Outlook published by the

OECD. Over 97% of the labor force in South Korea possesses either a college education

or vocational training backgrounds. The work force at senior levels has an immense

exposure to international experience and, according to the OECD, the country ranks fifth

in terms of educated workforce in Asia. In addition, South Korea fundamentally has one

of the highest literacy rates of 97.9% for the total population.

Page 17
Rapid Urbanization

After the Korean War, rapid industrialization brought on a massive population shift from

rural to urban areas. Approximately 30 million rural dwellers have migrated to urban

areas over the last four decades. As a result, the urban ratio increased from 35.8% in 1960

to 88.5% in 2002, with the urban population increasing by approximately 800,000 a year.

The major characteristic of urbanization has been the concentration of people and

economic activities in the metropolitan region of Seoul. The population in the Seoul

Metropolitan Area grew from 5 million (20.8%) in 1960 to 21 million (46.3%) in 2000.

Furthermore, the country was supported by the US since the time of attainment of

independence from Japan. This longstanding relationship with the US provided the

country with strong infrastructural support which contributed to the development of its

cities.

Current Challenges

Low Fertility Rates

South Korea has one of the lowest fertility rates in world. The total fertility rate was as

low as 1.28 children per woman compared to 1.75 in China and 2.81 in India. According

to a special report by the UN Population Fund, State of World Population 2007, South

Korean women registered the fourth lowest fertility rate among the 155 nations surveyed.

The high divorce rate in the country plays a large part in this. South Korea has one of the

highest divorce rates in the world, although the US still tops this list. Continuation of low

Page 18
fertility rates will have a negative impact on the population growth of the country, which

in turn will have an adverse effect on the economic growth through declining labor force.

Ageing Society

Due to the low fertility and high divorce rate, South Korea is now classed as one of the

ageing societies in the world. In 2006, the population aged between 0–14 comprised just

18% compared to more than 31% in India. In addition, the population above 65 years was

more than 9% compared to 5% in this population group in India during the same period.

This causes a huge concern in terms of future productivity and economic activity.

Low Social Welfare Spending

The nation's social welfare spending has grown at 18.3% annually over the 13 years from

1994, and the percentage share of GDP of social welfare spending has doubled.

Nevertheless, South Korea's social welfare spending as a percentage of GDP is about half

that of the US and Japan, and about a third of the European average. The percentage of

people receiving a public pension among persons aged 65 or over was 13.9% in 2004,

compared to 60–70% on average in advanced European countries. Despite rapid growth

in welfare spending since 1987, the indices show that South Korea's welfare standard has

a long way to go.

Page 19
Future Prospects

Low Unemployment Rate

The unemployment rate in South Korea is one of the lowest in the world, which is mainly

due to labor market reforms in the early 1990s. In 2007, it stood at just 4%. In order to

systematically cope with unemployment problems caused by a slowdown in economic

growth; the government passed several major laws. The Employment Insurance Act

(1993), the Basic Employment Policy act (1995) and the Vocational Training Promotion

Act (1997), were some of the policies which laid the ground work for South Korean

employment policies. Various efforts are further being made to improve employment

support services. For instance, services that are aimed at specific, vulnerable groups such

as the “YES” program for young people and "Restart" for the homeless; are being rolled

out. These programs provide encouragement and give students the opportunity to venture

into higher studies and new avenues.

Rising Awareness of Human Rights

There has been an increased awareness of human rights among the citizens of South

Korea in recent times. The social atmosphere in South Korea is now such that judicial or

police authorities cannot detain people at will, as was the rule in the past. For example,

the number of prisoners has fallen mostly due to democratic governance and regulation.

This in turn quelled the student unrest, and on the whole increased awareness about the

protection of human rights. The continued awareness and respect of human rights is

therefore expected to lead to more harmonious living conditions in South Korean cities.

Page 20
Future Risks

Wage Disparity

The percentage of earned (labor) income out of total national income fell from 63.1% in

1996 to 58.2% in 2002, before increasing again to 61.4% in 2006, although this is still

below the figures recorded before the 1997–98 Asian financial crisis. The wage disparity

of the lower 10% of earners versus the upper 10% rose to a factor of 5.4 in 2006 from 4.8

in 2001, meaning that wages for the top deciles of earners were nearly five and a half

times greater than those of the lowest deciles of earners, a factor higher than the US under

the same parameters. South Korea also held a dubious first place in terms of abuse and

discrimination against part-time and short-term contract workers among OECD members.

While the unemployment rate is comparably low and real wages have increased, both the

quality of employment and structure of income redistribution pose a future risk.

Rising Power of Labour Unions

South Korea's labor market flexibility has been hampered by high costs and the militancy

of the country's labor unions. Despite noticeable progress in past years, labor laws are still

viewed as restrictive by the standards of many other countries in the region. Union

membership reached an apex in 1989 with 19.8% of all workers participating in some sort

of labor organization. However, union membership has recorded a downward trend since

then, receding to around 12% during

Page 21
1997–2001 and falling further to 10.3% in 2005. But even after such a drop, the unions

still influence many political decisions and their hatred for foreign corporations may turn

out to be a risk to the country in future.

• Technological analysis

South Korea has been historically known for technological innovation. Moreover, with a

highly educated workforce and well equipped infrastructural facilities, the country is a

favored destination for R&D. South Korea is the most wired country, in terms of

communications and internet facilities, in the world. The gap between innovation and

commercialization is also very small in South Korea. There are about 900 R&D centers

that include foreign participation in South Korea, although

over regulated governance and low cost competitive neighbors cause a major threat to the

country.

Current strengths Current challenges

▪ Robust telecom sector ▪ Scarce natural resources

Future prospects Future risks

▪ Government policies promoting R&D ▪ Foreign companies pulling out of the

country

Page 22
Current Strengths

Robust Telecom Sector

South Korea has world's highest broadband internet subscription rate, while the country’s

68% mobile-phone penetration rate is also one of the highest in the world. South Korea

also introduced the world's first commercial wireless broadband (WiBro), satellite digital

media broadcast (DMB), and telephonic-DMB services. WiBro services began in 2005

and are now being run on a commercial basis (in August 2006, Sprint of the US adopted

Samsung WiBro technology as its wireless communication platform). Satellite digital

multimedia broadcast (DMB) services began on a commercial basis in June 2005.

Terrestrial DMB began on a pilot basis in the second half of 2005 and was placed on a

commercial footing in 2006. On the mobile telecom front, commercial WCDMA services

began in 2005, HSDPA was due to begin in 2006 and HSUPA in the first half of 2007.

All these developments act as major attractions to foreign technology investors to set up

their R&D centers in the country.

Presence of Large Global and Domestic Players

The powerhouses of South Korean economic growth are its world-leading industries that

act as powerful draws to foreign investors. South Korea is the world's sixth largest

automobile producer, and ranks first in DRAM semiconductor manufacturing, and LCD

production. South Korean mobile phone producers Samsung Electronics, LG Electronics

are among the world's largest mobile firms. Major South Korean companies have joined

the celebrated Fortune500 list.

Page 23
Current challenges

Scarce Natural Resources

South Korea has very few natural resources as the majority of the country is covered by

high mountains. As a result, any natural resources required for advanced biological

research are hard to come by, and the scope of such activities is completely restricted to

imports of such materials. This presents a problem in terms of encouraging technological

advancement in biotechnology and related areas.

Rising R&D Costs

Added to high wages and strict labor laws, the cost of maintaining an R&D center in

South Korea is rising. This problem is compounded by scientific personnel in emerging

economies like China and India demanding much lower wages for the same productivity.

As a result, the R&D costs in South Korea have now become a worrying factor for many

MNCs and without radical changes to the cost structure; the country is likely to be further

disadvantaged.

Page 24
Future Prospects

Government Policies Promoting R&D

The South Korean government has formulated favorable policies to encourage foreign

firms to locate their research centers in the country. These policies are focused on

developing new growth engines and making industrial improvements. The government

has employed a variety of methods to attract the R&D centers of cutting-edge institutions

and corporations such as Pasteur (France), Cavendish, University of Warwick (the UK),

Novartis (Switzerland), Intel, HP, IBM and Microsoft (the US).

As part of these efforts, in 2003, the South Korean government implemented the "Free

Economic Zones Act" to improve the business environment in South Korea and bring it to

the same level as that in advanced nations. The government provides tax breaks and

financial support to foreign firms moving into government-designated Free Economic

Zones (FEZs) in addition to various other measures aimed at boosting foreign investment

in R&D. The consistency in the policies is expected to improve R&D prospects in South

Korea.

Growing R&D Centers

Multinational corporations have begun to pay serious attention to the rapid growth in the

technology sector and the state-of- the-art technologies available in the South Korean

market. As a result, there has been a dramatic increase in the number of corporate

research institutes and R&D centers built in South Korea. These research facilities are a

Page 25
key element of most companies' headquarters. As of September 2005, the total number of

foreign investment R&D centers reached 901, including 137 corporate R&D centers that

are wholly owned by foreign investors. The US owns 52 R&D centers (100% foreign

owned) in the country, followed by Germany, which owns 17 R&D centers. The

Netherlands, France, Switzerland, Singapore, and China also own R&D centers in South

Korea. Growing number of R&D centers will enhance the country’s research competence.

Commercialization of New Ideas

South Korea is known for its high technology innovation and is also very quick to

implement ideas, resulting in a very small time gap between innovation and

commercialization in South Korea. High technology exports contribute almost 9% to

GDP every year. This shows the consistency of the process and also a low turnaround

period.

Future Risks

Foreign Companies Pulling out of the Country

Although the South Korean government has a favorable attitude towards investments into

R&D, there is a lot of local hatred against foreign companies. This has been a growing

concern among foreign companies operating in South Korea and may lead to further

problems due to the influence of the labor unions. In January 2007, chip maker Intel

Corporation announced closure of its R&D center in South Korea. Although the

company announced this as a strategic move to consolidate its centers around the world,

Page 26
the South Korean government will need to monitor the R&D environment to ensure that

this does not develop into a trend among large R&D

companies.

Over-Regulated Governance

Government intervention has always been a long standing weakness among East Asian

economies and South Korea is no exception. With more and more markets opening up,

there is a growing need to reduce restrictions, various business procedures and processes.

Moreover, increased competition from neighboring economies will pose a risk to further

investment in South Korea if these processes are not streamlined.

• Legal Analysis

The South Korean judiciary is based on the US and German court systems and juries are

not present during trials. The country also has an exclusive constitutional court, which

keeps a check on government decisions and law making. Very few students pass the

tough law examinations in South Korea and, consequently, the country is facing a

shortage of judges. After becoming a member of the OECD, South Korea gained the

status of a developed country and it provides one of the most attractive regulatory

incentives for industrial development among the OECD nations. The country earns a very

large income from exports, which makes it an attractive destination for FDI. However,

procedural delays and hostility towards foreign investors act as a discouragement.

Page 27
 Current strengths Current challenges
▪ Regulatory incentives ▪ Absence of juries

Future prospects Future risks

▪ Judicial system similar to US and ▪ Judges quitting for private practice

Current strengths

Regulatory Incentives

A major attraction for investing transnational companies is the array of incentives offered

by the South Korean government. Among all the OECD countries, South Korea offers

foreign investors some of the best incentives in the south east Asian region. Among the

incentives offered, financial incentives include reductions/exemptions of corporation,

local, and income taxes, as well as cash grants for investment in high-tech industries that

have a broad economic impact. In addition to offering major financial incentives, the Free

Economic Zones (FEZs) of Incheon, Gwangyang, and Busan/Jinhae are committed to

creating an international business and living environment. These incentives are attractive

to investors looking to enter the country.

Favorable Tax Policies

In order to promote investment, the country has been dishing out favorable tax policies.

The ratio of net profit to sales among foreign-invested companies in South Korea is far

Page 28
higher than that of domestic companies. Moreover, the South Korean subsidiaries of

transnational corporations tend to be among their more profitable, if not their most

profitable units. At the end of 2005, some 264, or 53%, of the corporations listed in the

Fortune Global 500 had invested in South Korea

This is due to the relaxed tax policy and the fact that reinvestment of earnings is not

compulsory. The country's high export earnings make it one of the most attractive

destinations to invest in.

An Exclusive Constitutional Court

The constitutional court of South Korea was established in 1988, and is designed to

protect the people's fundamental rights and effectively check governmental powers. The

power to determine the constitutionality of laws is vested in the constitutional court and

acts as a check-and-balance mechanism on the legislative branch, as well as allowing the

governance of various decisions to be monitored.

Current Challenges

Absence of Juries

The South Korean political system is based on balance and checks among the president,

parliament and the judiciary. Constituents select the president and members of parliament

through a direct vote. The president and parliament appoint the judges of the Supreme

Court. The South Korean legal system does not have juries; instead the court is composed

Page 29
of one or three judges who hear cases. South Korea is relatively unusual among

developed countries in that it does not use juries in its judicial system. This makes it

difficult for people to engage with and participate in the country's judicial system. This

creates incompatibility between the South Korean judiciary and most western models,

such as the US and German systems on which the country's judiciary is allegedly based.

Inefficient Customs Operations

Imports into South Korea have to undergo a long drawn out procedure in order to clear

the customs department. This customs clearance involves nine stages and each stage has

internal procedural loops. The procedure also involves declaration, pre-tax review,

inspection, the submission of documents and so on, which delays the timely supply of raw

materials. This is one of the causes of the low level of imports into the country.

Weak IPR Enforcement

In spite of some progress in the enforcement of intellectual property rights (IPR) in South

Korea, infringements are prevalent across segments like software, entertainment, books

and pharmaceuticals; insufficient protection of proprietary information and trademarks

are also an issue. IPR protection issues have raised international concerns, which can

prove to be an impediment to the country’s initiative to enhance FDI inflows. Moreover,

the US has kept South Korea on its IPR "watch list" for 2008, but the former expects that

Page 30
the Korea-US free trade agreement will lead to significant improvements in IPR

protection.

Future Prospects

Judicial System Similar to the US And Germany

The South Korean legal system is similar to that of Germany and the US. For instance,

the South Korean constitution was established in 1948, and was influenced in part by the

US legal system.

• Environmental Analysis

South Korea has modest natural resources. Government policies and directives on

environmental development have lead to the formation of national eco parks and

environmentally-friendly technology. The government has adopted several control

measures in urban areas and is promoting environmental education in schools and

business communities. However, South Korea’s high emission levels are a cause for

concern.

Page 31
 Current strengths Current challenges
▪ Promotion of national parks ▪ Limited natural resources

Future prospects Future risks

▪ Environmental technology development ▪ Rising emissions levels

Current Strengths

Promotion of National Parks

South Korea's national parks are well preserved and protected public land in the country.

Most forms of development are prohibited on this land. National parks cover 6.6% of the

country's total area, and are typically located in mountainous or coastal regions. The

country's largest mountain park is Jirisan National Park in the southwest and the largest

marine park is in Dadohae, which has an area of more than 2,200 sq km. These form the

main biological and natural resource reserves for South Korea and government ensures

there is no development in these areas.

Strong Governmental Intervention to Protect Environment

The government's policies to protect the environment in South Korea have been

commendable. The government addresses air pollution through a special act on

metropolitan air quality improvement. Industrialized areas do not come under this act, as

they are grouped in five different categories of emissions that are monitored with relevant

Page 32
taxation. The government has also established tele-monitoring systems to capture the

discharge volume of emissions. With regard to water pollution, the government has been

actively implementing the water shed management system for conserving water and is

also focusing on the purification of the four major rivers. On the waste management front,

the country has been successful in formulating extended producer responsibility, which

holds the producers responsible for recycling their industrial waste. In this way, the

government has enforced strong environmental policies, which strengthen the

environmental scenario in the country

Current Challenges

Limited Natural Resources

In South Korea, high mountains cover 80% of the land, making it unusable for farming

and agriculture. As a result, natural resources in the form of plants and ecology are widely

missing in the country, which makes the country highly dependent on agricultural

imports. Due to the high mountain ranges, South Korea’s per capita natural resource

endowment is poor and it has very few exportable natural resources. Moreover, the

attempts made by the government for conservation and protection of forests also been

unsuccessful due to high mountain terrains making conveyance a difficult task.

Soil Erosion

Page 33
Over the centuries, Korea's inhabitants have cut down most of the ancient Korean forests,

with the exception of a few remote and mountainous areas. The disappearance of the

forests has been a major cause of soil erosion and flooding. Infrastructural development

and increased requirement for wood is exacerbating the problem.

Future Prospects

Environmental Technology Development

The Ministry of Environment has been making a focused investment into the research and

development of major environmental technologies, with the goal of expanding the

domestic environmental market, job creation, and increasing exports. Simultaneously,

information technology (IT), biotechnology and environmental technology are now

considered core industries for strategic national development. Environmental technology

development includes projects such as G-7 and the Eco-Technopia 21 project, which have

already been launched. These projects are focused on developing technologies for

conservation and they increase the prospects for environmental conservation in South

Korea.

Eco-Businesses and Green GDP

The South Korean government has developed environmental management guidelines to

make businesses environmentally friendly. The number of products with the eco-label

continues to expand and the country is also making efforts to gain internationally

Page 34
recognized environmental certifications. In addition, there are plans to enact legislation to

promote the consumption of environmentally friendly products. A 10 year plan to

calculate a green GDP for establishing an integrated environment-economy account is

also under implementation in South Korea.

Promotion of Environmental Education

South Korea has included the environment as a subject in school textbooks since 1982,

and it became an official elective subject in 1995. In 2006, the Ministry of Environment

launched one of its more important programs, the 'Purumi (Green) Environmental

Learning Center'. It is a mobile environmental education center that utilizes the learn-by-

experience concept,using specially equipped trucks with hands-on environmental

education tools and materials. The ministry is also promoting environmental education in

the business sector.

Future Risks

Rising Emission Levels

With more than 500 million tons of carbon dioxide emissions in 2007, South Korea is one

of the largest producers of CO2 in the world. This kind of emissions level enhances its

environmental risk which may subsequently dent approval of new industries in the

country. South Korea is also the ninth largest consumer of ozone-depleting

chlorofluorocarbons. Despite being small in size and having a small population, it heavily

Page 35
contributes to environmental damage. This could be a future risk for the country’s

environmental front, and will soon lead to international pressure to reduce emissions

levels.

Dam in North Korea

North Korea started constructing Imnam dam very close to the demilitarized zone (DMZ)

in 1986. The construction of this dam was completed in 2003. The dam is constructed in

such a way that a sudden release of flood water would flow into the Han River (a river

close to Seoul), which can flood the city of Seoul. This kind of sudden uniformed release

was done by North Korea in 2001, 2002 and as recently as September 2007.This issue

still remains unaddressed even though there were two summits in 2007. This presents a

probable environmental risk for the country. Though the country has in response

constructed the Peace dam against the possible flood release, the scientific research

predicts that the collapse would be very destructive.

Page 36
Demographic Analysis

Background

Although a variety of different Asian peoples had migrated to the Korean Peninsula in

past centuries, very few have remained permanently, so by 1990 both South

Korea and North Korea were among the world's most ethnically homogeneous nations.

The number of indigenous minorities was negligible. In South Korea, people of foreign

origin, including Chinese, Japanese, Westerners,Southeast Asians, South Asians and

others were a small percentage of the population whose residence was generally

temporary.

Koreans tend to equate nationality or citizenship with membership in a single,

homogeneous ethnic group or "race" (minjok, in Korean). A common language and

culture also are viewed as important elements in Korean identity. Until recently, the idea

of multiracial or multiethnic nations, like India or France, struck many Koreans as odd or

even contradictory.

Regional Differences

Against the background of ethnic homogeneity, however, significant regional differences

exist.

Within South Korea, the most important regional difference is between

the Gyeongsang region, embracing Gyeongsangbuk-do and Gyeongsangnam-

do provinces in the southeast, and the Jeollaregion, embracing Jeollabuk-

Page 37
do and Jeollanam-do provinces in the southwest. The two regions, separated by

the Jirisan Massif, nurture a rivalry said to reach back to the Three Kingdoms of

KoreaPeriod, which lasted from the fourth century to the seventh century A.D., when the

kingdoms of Baekje and Silla struggled for control of the peninsula.

Observers noted that interregional marriages are rare, and that as of 1990 a new four-lane

highway completed in 1984 between Gwangju and Daegu, the capitals of Jeollanam-

do andGyeongsangbuk-do provinces, had not been successful in promoting travel

between the two areas.

There has been a communist-backed propaganda which tells that South Korea's political

elite have come largely from the Gyeongsang region and they concentrated benefits of

government development assistance on Gyeongsang region, but overall difference of

development should be interpreted as a natural result of proximity from big harbors for

trade, namely Busan, Ulsan, Masanand Pohang.

Population Trends

Population pyramid of South Korea

The population of South Korea showed robust growth since the republic's establishment

in 1948, and then dramatically slowed down with the effects of its economic growth. In

the first official census, taken in 1949, the total population of South Korea was

calculated at 20,188,641 people. The 1985 census total was 40,466,577. Population

growth was slow, averaging about 1.1% annually during the period from 1949 to 1955,

Page 38
when the population registered at 21.5 million. Growth accelerated between 1955 and

1966 to 29.2 million or an annual average of 2.8%, but declined significantly during the

period 1966 to 1985 to an annual average of 1.7%. Thereafter, the annual average growth

rate was estimated to be less than 1%, similar to the low growth rates of most

industrialized countries and to the target figure set by the Ministry of Health and Social

Affairs for the 1990s. As of January 1, 1989, the population of South Korea was

estimated to be approximately 42.2 million.

Urbanization

Like other newly industrializing economies, South Korea experienced rapid growth of

urban areas caused by the migration of large numbers of people from the countryside. In

the eighteenth and nineteenth centuries, Seoul, by far the largest urban settlement, had a

population of about 190,000 people. There was a striking contrast with Japan, where Edo

(Tokyo) had as many as 1 million inhabitants and the urban population comprised as

much as 10% to 15% of the total during the Tokugawa Period (1600–1868). During the

closing years of the Choson Dynasty and the first years of Japanese colonial rule, the

urban population of Korea was no more than 3% of the total. After 1930, when the

Japanese began industrial development on the Korean Peninsula, particularly in the

northern provinces adjacent to Manchuria, the urban portion of the population began to

grow, reaching 11.6% for all of Korea in 1940.

Between 1945 and 1985, the urban population of South Korea grew from 14.5% to

65.4% of the total population. In 1988 the Economic Planning Board estimated that the

Page 39
urban portion of the population will reach 78.3% by the end of the twentieth century.

Most of this urban increase was attributable to migration rather than to natural growth of

the urban population. Urban birth rates have generally been lower than the national

average. The extent of urbanization in South Korea, however, is not fully revealed in

these statistics. Urban population was defined in the national census as being restricted

to those municipalities with 50,000 or more inhabitants. Although many settlements with

fewer than 50,000 inhabitants were satellite towns of Seoul or other large cities or

mining communities in northeastern Kangwon Province, which would be considered

urban in terms of the living conditions and occupations of the inhabitants, they still were

officially classified as rural.

Languages

The Korean language is spoken by the vast majority of the population. English is widely

taught in primary school, middle school and high school, and continues to be taught in

higher education. The Japanese language, a legacy of the Japanese colonial rule of

Korea and an official language until 1945, is not used but has given some loan words to

the Korean language, especially for the older generation.

Page 40
Religion

• Nonreligious: 46.5%

• Buddhism: 22.8%

• Protestantism: 18.3%

• Catholicism: 10.9%

• Other: 1.4%

Page 41
Comparison between South Korea and India

If South Korea were your home instead of India you would...

• Consume 19.6 Times More Oil

• Use 16.4 Times More Electricity

• Make 9 Times More Money

• Spend 17.1 Times More Money On Health Care

• Have 91.37% Less Chance Of Dying In Infancy

• Live 12.35 Years Longer

• Have 61.68% More Chance At Being Employed

• Have 59.14% Less Babies

• Experience 14.95% Less Of A Class Divide

• Be 66.67% Less Likely To Have Hiv/Aids

Page 42
Conclusion

PESTLE helps every entrepreneur to create a combination of creative idea and superior

capacity for execution. The entrepreneur’s creativity may involve an innovation product

or a process that changes the exiting order. Or entrepreneur may have a unique insight

about the consequence of an external change. Entrepreneurship the vehical that derives

creativity and innovation. Innovation creates new demand and entrepreneurship brings the

innovation to the market. Innovation is the successful development of competitive edge

and as such, is the key to entrepreneurship. Creative and innovation are at the heart of

enterprise. It means striving to perform activities differently or to perform different

activities to enable the entrepreneur deliver a unique mix of value. Thus the value of

creativity and innovation is to provide a gateway for a astute entrepreneurship. This

results in actively searching for opportunities to do new things, to do existing things in

extraordinary ways. Creativity and innovation therefore, trigger and propel first-rate at

entrepreneurship in steering organization activites in whatever new directions are dictated

by market conditions and customer preferences , there by delighting the customers to the

benefit of the stake holders. Innovations also means anticipating the needs of the market

offering additional quality or services , organization efficiently, mastering details , and

keeping cost under control.

Page 43
Biblography

Websites

• www.google.com

• www.wikepedia.com

• www.ehow.com

• www.facebook.com

• www.scribd.com

• www.slideshare.com

• www.yahoo.com

• www.bing.com

Page 44
Page 45