Kundayi E.

Mahembe

Vincent Pol University International Business

Studies

Index no 15332

3rd Year 5th semester

 North Korea

Cultural factors influencing international business practices

Korea is greatly influenced by the Chinese and Japanese cultures. This influence can be
seen by Confucianism, which is an ancient Chinese belief system focusing on the
importance of personal ethics and morality. Whether it is only or a philosophy or also a
religion is debated.1 These traditions include the ethical code of conduct in social life and
showing respect to the elders and family.

International relations history

North Korea is an isolated and remote to the international community with restrictions on
travel into or out of the country. It has a totalitarian controlled press, and an ideology of self-
reliance. In the 1970s and ’80s the North Korean government maintained its balanced
diplomatic position between the country’s only two significant allies, China and the USSR,
while sustaining a hostile attitude toward the United States. The collapse of the Communist
Party of the Soviet Union and dissolution of the U.S.S.R. in the early 1990s left China as
North Korea’s sole major ally. China could no longer be relied upon fully, as
it cultivated friendly relations with South Korea that culminated when the two established full
diplomatic ties in August 1992.2

Diplomatic breakthroughs between North and South created was once created between the
two countries, but it did not last as suspicion grew that North Korea planned to build nuclear
weapons.3

Relations with the South

During the late 1960s North Korea had significantly escalated its subversion and infiltration
activities against South Korea—from about 50 incidents in 1966 to more than 500 in 1967.
One of its most brazen acts occurred on January 21, 1968, when a group of 21 North
Korean commandos managed to reach within a few hundred yards of the South Korean

https://www.nationalgeographic.org/encyclopedia/confucianism/#:~:text=Confucianism%20is%20an%20ancie
nt%20Chinese,Confucian%20philosopher%20after%20Confucius%20himself.
2
Hosch W,L (2010) The Korean War and The Vietnam War: People, Politics, and Power
3
John Bedard , https://www.armscontrol.org/factsheets/dprkchron
presidential palace in Seoul in an attempt to kill then President Park Chung-Hee. In April
1969 North Korea shot down a U.S. reconnaissance plane in the international airspace over
the east coast of the peninsula. North Korea’s armed provocations continued into the early
1970s, marking the period of highest military tension on the peninsula since the end of
the Korean War.

The two Koreas subsequently decided to engage in a dialogue amid the new U.S policy of
détente, or relaxation of tensions, toward the Soviet Union and China, North Korea’s two
major allies. The North called off its armed provocations, and talks between the North and
South began at Panmunjom in the demilitarized zone in September 1971.4 Discussions
began in early 1972, culminating in a historic joint communication in July, in which both sides
agreed on three principles of reunification: that it be peaceful, without foreign influences, and
based on national unity, discussions continued until August 1973, when they were
unilaterally suspended by the North.

As the Vietnam War wound down and U.S. policies and public opinion became more
focused on domestic issues, North Korea probed in vain for a chance to, in its view,
“liberate” the South by means of a quick military strike. Meanwhile, South Korea tried to
forestall a possible withdrawal of U.S. troops from Korea. In addition, human rights in South
Korea became a thorny issue between the two allies.

In the early 1980s North Korea’s policy toward the South alternated, often bewilderingly,
between peace overtures and provocation. Because of North Korea’s provocations, there
was no official contact between the two Koreas in the 1980s, although there were some
unofficial talks and contacts between their Red Cross societies. North-South relations
reached a milestone in 1991 with the immediate admission of the two countries to the UN in
September and a series of prime ministerial talks that produced two agreements in
December: one that pledged nonaggression, reconciliation, exchanges, and cooperation and
a joint declaration on the denuclearization of the Korean peninsula. The agreements went
into effect in February 1992. However, little came of them, especially after North Korea
became embroiled in the controversy over its nuclear program and as it suspended all
contacts with South Korea in early 1993.

North Korea under Kim Jong Il

Domestic priorities and international cooperation

Kim Il-Sung died on July 8, 1994, and his son Kim Jong Il succeeded him. However, he did
not assume the posts of secretary-general of the KWP or president of North Korea. Instead,
he consolidated his power over several years. In 1997 he officially became head of the
KWP, and in 1998 the post of president was written out of North Korea’s constitution—Kim Il-
Sung was given the posthumous title “eternal president. A further revision of the constitution
in April 2009 added the title “supreme leader” to the description of Kim Jong Il’s position. His
regime adopted the basic guideline of “military first politics” to safeguard it from any
unforeseen adverse impact resulting from such events as the collapse of the Soviet
Union and eastern European communist regimes in the late 1980s and early 1990s and the
persistent economic hardships at home.

4
History.com Editors, https://www.history.com/topics/korea/korean-war Korean War
The death of Kim Il-Sung had come at a critical time for North Korea. The country had been
locked in a dispute over nuclear issues with the United States and the International Atomic
Energy Agency (IAEA), which had been denied access by the North Koreans to an
experimental facility, where it was suspected that North Korea was build nuclear weapons..

Nuclear ambitions

In late August 1998 North Korea fired a multistage, long-range missile eastward over
Japanese airspace. This new missile capability caused shock worldwide and precipitated a
major global controversy. In addition, suspected underground nuclear facilities were
discovered near the sites whose activities were to have been frozen under the terms of
the Agreed Framework.

Internal challenges and international relations

Throughout the 1990s North Korea suffered severe food shortages that
caused widespread starvation. In efforts to help North Korea cope with this crisis, South
Korea, Japan, the United States, and international relief agencies (including the UN World
Food Programme), provided emergency food and medical assistance. The North Korean
government’s response inside the country included officially promoting what it called the
“arduous march”. Despite these measures, hundreds of thousands of North Koreans died of
starvation in the latter half of the 1990s, and a UN study found that life expectancy had
decreased substantially and infant mortality had increased dramatically.

The country’s economic situation began improving in the early 21st century, in part because
of North Korea’s own efforts to accommodate certain aspects of market economics,
including more open trading policies. In late 2009, however, the economy was thrown
temporarily into chaos when a government currency-reform program reduced the won to 1
percent of its former value while limiting individuals to exchanging only a small amount of the
old currency for the new. The revaluation which was aimed in part at curbing private market
activity led to inflation, a food crisis, and public protests as many citizens saw their savings
vanish. The government subsequently acknowledged the shortcomings of the reform
program, and the official identified as being responsible for its implementation was executed
in March 2010.

After Kim Jong Il’s consolidation of power under the 1998 constitution, his regime began to
pursue formal diplomatic relations with many countries, including those of western Europe.
By early 2001 North Korea had established relations with most of the West, amid a friendlier
climate created by the improving inter-Korean relations. The United States, South Korea,
and Japan also had reasons for keeping diplomatic channels open with North Korea, such
as maintaining peace and seeking improvements in the country’s human rights situation.
Despite its successes with other countries, however, North Korea did not make
any substantive progress in its diplomatic talks with Japan and the United States, even after
years of direct contact.

Relations with the United States in particular reached a low point in January 2002, when
U.S. Pres. George W. Bush named North Korea, with Iran and Iraq, as part of an “axis of
evil” of countries that were pursuing the development of weapons of mass destruction.
Tensions remained high for several years. Multiparty talks in 2008 resulted in the U.S.
government’s removal of North Korea from its list of state sponsors of terrorism in October,
as North Korea took certain previously agreed-upon steps in connection with the pending
nuclear issues.

In contrast to the hopeful beginning of the 21st century, however, the ensuing years saw the
erosion of the gains that had been made in international cooperation. The joint ventures
established under the “sunshine policy” after 2000 were suspended by the North within a few
years. North Korea’s launch of several rockets in 2009 which the
international community generally suspected were tests of ballistic missiles were considered
by many observers to be diplomatically provocative acts.

Relations with the South

After the death of Kim Il-Sung and through the early years of the Kim Jong Il regime, the
situation between North and South remained fairly static, although the countries participated
in multiparty negotiations on nuclear issues and South Korea supplied aid to the North.
Hopes were high at the turn of the 21st century that the issues dividing the two Koreas might
soon be resolved. As part of his policy of reconciliation with the North, which he termed the
“sunshine policy,” South Korean Pres. Kim Dae-Jung visited North Korea in June 2000—the
first time any Korean head of state had traveled to the other side—and the two leaders
worked out a five-point joint declaration that specified steps to be taken toward the ultimate
goal of national unification. A select number of North and South Koreans were permitted to
attend cross-border family reunions. Later that year, at the Summer Olympic Games in
Sydney, North and South Korean athletes marched together (though they competed as
separate teams) under a single flag showing a silhouette of the Korean peninsula. (The
countries also made a joint appearance—with separate teams—at the 2004 Summer
Olympic Games in Athens but failed to reach an agreement to do likewise at Beijing in
2008.) Kim Jong Il’s government reestablished diplomatic relations with several Western
countries and pledged to continue its moratorium on missile testing.

Efforts to restore a North-South dialogue continued. In May 2007 trains from both the North
and the South crossed the demilitarized zone to the other side, the first such travel since
the Korean War. Later, in October, the two Koreas held a second summit, in which Roh Moo
Hyun, the South Korean president, traveled to P’yŏngyang to meet with Kim Jong Il.

Jung Ha Lee

The December 2007 election of Lee Myung-Bak as South Korean president began another
period of coolness in inter-Korean relations as Lee took a more hard-line position toward
P’yŏngyang. Tensions increased when the North Korean government announced in January
2009 that it was nullifying all military and political agreements with South Korea. In May of
that year it announced the cancellation of all business contracts with South Korea that
pertained to the joint-venture Kaesŏng Industrial Complex, although, in practice, little
changed there. In March 2010 a South Korean warship, the Ch’ŏnan (Cheonan), exploded
and sank in the waters of the Yellow Sea near Paengnyŏng (Baengnyeong) Island, close to
the maritime border with North Korea. An international team of investigators concluded in
May that the explosion had been caused by a torpedo fired from a North Korean submarine.
South Korea soon ended all trade relations with its northern neighbour and declared its
intention to resume propaganda broadcasts along the border. The North Korean
government, denying responsibility for the attack, severed all ties with South Korea.
Relations between the two countries continued to be mixed. A cross-border reunion for
hundreds of North and South Korean family members took place in late October 2010.
However, one month later, as South Korea was conducting a military exercise off
the country’s northwestern coast, North Korean artillery shells bombarded the South Korean
border island of Yŏnp’yŏng (Yeonpyeong), which also has been the scene of offshore naval
skirmishes in 1999 and 2002. The shells hit a military base and civilian homes, and there
were several casualties. South Korean forces returned fire and raised the level of military
preparedness on the island. The incident was considered one of the most serious episodes
of belligerence between North and South in years.

Economy of North Korea

North Korea has a direct centralized economy, The state controls all means of production,
and the government sets priorities and emphases in economic development. Main focus on
the North Korean economy is to reconstruct industries and improve agricultural growth.

Information on the North Korean economy is hard to find and sometimes diluted. The country
has consistently failed to meet its stated goals and that production statistics released by the
government often have been inflated.

North Korea’s economic goals are centralized on the policy of self-reliance. They
avoid foreign investment, although it accepted economic aid from Russia and China. Despite
its stated policy of self-reliance, North Korea routinely found it necessary to import such
essential commodities as fuels and machinery as well as grain.

North Korea’s poor economic performance forces the government to abandon its policies
opening up the economy to limited foreign investment and increased trade. By the end of
that decade 2000, North Korea was actively inviting foreign investment from European
Union (EU) countries, South Korea, and others. It was more receptive to discussions with EU
and Commonwealth countries than it was to the United States, Japan, and South Korea the
latter three countries having been much more at odds diplomatically and strategically with

Efforts have been made throughout North Korea’s history to increase low labour productivity.
In the early 1960s, programs were introduced in agricultural and industrial management. In
the late 1990s the country adopted the official goal of building a strong military and a
prosperous economy.

Agriculture, forestry, and fishing

By 1958 all privately owned farms were combined into more than 3,000 cooperatives; each
cooperative comprises about 300 families an estimated 500 hectares farm. The farm units
are controlled by management committees, which issue orders to the work teams, set the
type and amount of seed and fertilizer to be used, and establish production quotas. Produce
is delivered to the government, which controls distribution through state stores. There are
also state and provincial model farms for research and development.

Agriculture contributes a decreasing proportion to the national economy, but there has been
an overall increase in cultivated land, irrigation projects, the use of chemical fertilizers, and
mechanization. Nonetheless, since the early 1990s, North Korea has had a chronic shortage
of chemical fertilizers, seed grains, and farming equipment. Farmers are paid for their labour
in money or in kind and are allowed to keep chickens, bees, fruit trees, and gardens. In
theory, farmers can sell surplus produce at local markets that are held periodically, but with
the food crisis that began in the mid-1990s, any surplus above the subsistence level
disappeared. Although farmers fared relatively better than most urban workers during the
lean years, even they struggled for survival.

The main food crops are grains—notably rice, corn (maize), wheat, and barley. The country
formerly produced enough rice for domestic consumption, but some is now imported. Wheat
had to be imported even before the period of food shortages, although wheat productivity
increased after the mid-1950s. Potatoes, sweet potatoes, soybeans and other beans,
vegetables, and tree fruits are raised extensively. Industrial crops include tobacco,
cotton, flax, and rape (an herb grown for its oilseeds). Livestock raising is concentrated in
areas poorly suited for crop raising. Livestock production has increased steadily, especially
poultry production, over the country’s history. However, all sectors of agricultural production
were drastically affected during the food crisis.

The northern interior contains large forest reserves of larch, spruce, and pine trees. Most of
the coastal slopes have been extensively deforested, however, much of this having
been done by the Japanese during World War II; reforestation programs have stressed
economic forestry. Forestry production, after having declined following the war, has not
grown substantially. Much of the wood cut is used as firewood. During the severe fuel
shortage that accompanied the years of economic crisis, North Koreans indiscriminately—
and often illegally—cut down trees for firewood. Many hillsides in the country are now
barren; the loss of forest cover contributes to massive flooding in the monsoon season,
which in turn leads to poor harvests and further economic hardships.

The sea is the main source of protein for North Koreans, and the government has continually
expanded commercial fishing. Most fishing activity centres on the coastal areas on each side
of the peninsula, although there was an increase in deep-sea fishing beginning in the late
20th century. The main species caught include pollack, sardines, mackerel, herring, pike,
yellowtail, and shellfish. Aquaculture represents about one-fourth of the country’s fish
production.

Resources and power

North Korea contains the great bulk of all known mineral deposits on the peninsula. It is
estimated that some 200 minerals are of economic value. Most important are iron ore
and coal, although greater emphasis has been given to the extraction of gold, magnesite
(magnesium carbonate), lead, and zinc. Other abundant minerals include tungsten, graphite,
barite (barium sulfate), and molybdenum.

Large, high-grade iron ore reserves are mined in South Pyongyang and South Hamgyong
provinces, while deposits at Musan. Rich deposits of hard coal occur along the north of
Pyongyang province.

Industrial development is related to the country’s large supply of electric power. During the
Japanese regime hydroelectric power resources were heavily developed along the Yalu
River and its upper tributaries. Power production is still based mainly on hydroelectricity, but
thermal electricity is becoming important because of lower construction costs and the
unreliability of hydroelectric power during the dry season. However, since the 1990s the
production of electricity has declined to a critical level because of the general failure of the
national economy.

Manufacturing

The industrial sector is organized into state-owned enterprises and production cooperatives,
the latter being confined largely to handicrafts, marine processing, and other small-scale
operations. The most important industries are iron and steel, machinery, chemicals, and
textiles. Iron and steel production initially was centred at Songnim and Ch’ŏngjin but has
been expanded to include the large integrated mill at Kimch’aek. Industrial and agricultural
machinery is manufactured at Kangsŏn, near P’yŏngyang, and several other cities, including
Hŭich’ŏn. The production of chemicals is focused on fertilizers and petrochemicals, much of
the latter being manufactured in the Anju area north of P’yŏngyang. The textile industry is
centred at P’yŏngyang, Sinŭiju, and Sunch’ŏn. Other products include cement, armaments,
vehicles, glass, ceramics, and some consumer goods (mainly clothing and processed food).

Finance and other services

The North Korean won is the official currency, and the Central Bank of the Democratic
People’s Republic of Korea is the sole bank of issue. It receives all national revenues
and precious metals and provides government agencies with working capital. There are
several other state banks, all supervised by the Central Bank. Among these is the Foreign
Trade Bank, which handles all foreign transactions and, when applicable, foreign currencies.
A limited amount of joint-venture banking was allowed beginning in the late 1980s, and later
private and corporate savings accounts for nonresidents were also permitted. In an attempt
to regain control over currency and markets, the government in late 2009 revalued the won
to 1 percent of its existing value (thus eliminating virtually all savings individuals had
accumulated), shut down markets, and banned the use of foreign currencies. These
measures caused an economic crisis and prompted otherwise rare public protests by
citizens.

The government maintains strict control over tourism. Most visitors come from Asia,
particularly from China, with which North Korea maintains close relations. Tourists,
especially those from the West, are tightly restricted in their movements and are
accompanied by official North Korean guides. The sector developed in a new direction
beginning in 1998 by accepting organized admission-paying tourist groups originating
from South Korea (comprising various nationalities, including Western tourists) to
the Mount Kŭmgang area and the Kaesŏng Industrial Complex, two of the country’s special
economic districts. However, both ventures were subject to the vagaries of relations between
the two countries.

Trade

Foreign trade has expanded and diversified slowly. At first trade was conducted only with
the Soviet Union and China, but since the 1960s it has been allowed with a growing number
of countries. Major trading partners include China, South Korea, Russia, Japan, India,
and Thailand. Trade with South Korea is promoted mainly by private corporations. A free-
trade zone, another of North Korea’s special economic districts, was established in the late
1990s in Rajin-Sŏnbong (now Rasŏn), in the northern province of North Hamgyŏng. Imports
mainly consist of beverages, food and other agricultural products, mineral fuels, machinery,
and textiles. Exports include live animals and agricultural products, textiles and apparel,
machinery, and mineral fuels and lubricants.

Transportation

In general, the transport system in North Korea is stagnant, since the infrastructure is worn
out and the energy supply is limited. Few new highways or rail lines have been built since
the late 20th century. With the economic decline in the 1990s, demand on the transportation
networks shrank. It subsequently increased during this period, as many people were forced
to leave their homes in search of food and income—putting pressure on an inadequate and
outdated transportation infrastructure. Although free movement across counties and
provinces is not allowed in North Korea (special travel permits are needed for that purpose),
many North Koreans move around the country illegally.

Railways are the principal means of transportation. Highway transportation is not as

important as railroads, because few motor vehicles are available. Major roads parallel the
rail lines. Express highways connect Pyongyang with Wonsan, Namp’o, and Kaesong. Most
roads, however, are not paved.

River transportation plays an important role in moving agricultural products, minerals, and
passengers. The most important rivers utilized for freight transportation are the Yalu,
Taedong, and Chaeryŏng. The major ports on the west coast are Namp’o—the entry port to
Pyongyang and Tasa; the major eastern ports are Wonsan and Rajin.

Air services are controlled by the air force. Flights are maintained between the major cities,
and international services connect Pyongyang with Beijing and Moscow.

The Effect of Korean Culture and Its Impact on International Business

Korea has its unique cultures and these cultures influence people’s daily lives as well as its
business performance, especially in international business. It is essential for foreigners or
multinational companies in Korea to understand those cultures and use them suitably to
work better with Korean employees or partners.

They’re are six parts of the Korean culture, which are Kibun, Inhwa, the power distance and
hierarchy, Confucianism, the personal relationships in doing business, and business custom
in Korea. All of these critical aspects of the Korean culture have strong influences on the way
how to do business in Korea. Without understanding them, it is hard particularly for
foreigners and foreign companies to do their business in Korea efficiently and proficiently
and have all successes in their business in Korea.

Korea has extended past, and even though it has interactions with China and Japan for a
long time, it produced its exclusive culture and advanced its own tradition. Indeed, the
Korean culture is very dissimilar from not only Western cultures, but also neighbouring
countries’ cultures in every feature of culture. Even though some components of the culture
are alike to Chinese and Japanese ones, cultural differences make the way to do
commercial in Korea different from other countries, particularly from China or Japan. Even
though there are more cultural features that effect its business practices in Korea, those
specific items of Korean culture are the most important ones concerning doing business in
Korea by foreigners or multinational companies.

There is a positive relationship between habituate of Korean cultural and increases of

international business.

Korean Culture for Business Practices in Korea

Kibun

As one of the most important key aspect of the Korean culture, which influences the way to
do business in Korea significantly, Kibun does not have direct English translation. It basically
means a mood or feeling of balance and good behavior . In Korea, people are continuously
trying to maintain the environment of stable Kibun, both in personal life and business world.
People are willing to maintain their own Kibun as well as others’.

Inhwa

Another key principle of Korean business culture is Inhwa, which is defined as harmony. As
a collectivist society, consensus is an important element in promoting and maintaining
harmony in Korea. Inhwa was drawn from Confucian beliefs, and stresses harmony between
people, especially unequal. Usually Koreans like to give positive answers and avoid or
reluctant to give direct refusals. They do not want to hurt the harmonious environment by
giving negative answers or refusing others to cause face losing. Inhwa usually exists in
unequal of rank, prestige and power. In the business world, this term requires that
subordinates be loyal to their superiors and that superiors be concerned with the well-being
of subordinates.

Power Distance and Hierarchy in Korea

Korea has higher power distance. Society has higher level of inequality, and individuals and
society in Korea are more unequal compared to those in the United States. The contrast of
United States and Korean explains the atmosphere that the American or other foreigners
face in their daily business with Korean business partners or employees. Many foreigners
who visit Korea for the first time are usually surprised at that mostly. Koreans bow to others,
especially elders, and that younger persons need to wait until the elders and those who with
high hierarchy rankings get their food.

Personal Relationships for Doing Business in Korea

Individual relations are important for doing business, and usually established before the
beginning of the business process. In order to be successful, it is vital to establish good
personal relationships based on mutual trust and benefit. Korean business culture is firmly
grounded in respectful relationship. In order to establish the personal relationships, it is very
helpful to be introduced by a mutual friend or acquaintance at the appropriate level.
Therefore, time should be allocated for this process, particularly during the first meeting,
which is frequently used to simply establish relationship and build trust. Once good, solid
relations have been recognized in Korea, continuous reinforcement and maintenance is vital.

Korean Business Etiquette

Korea has its own unique business etiquette, and all of the etiquette is influenced by their
unique cultures in some extent. Obtaining this culture is vital for foreign companies to do
better business with Korea. Korean unique business protocol mainly displays in six aspects,
which are introduction, greeting, business cards, business meeting, K-Type management
style, and gift giving.

Introduction
In Korea, greeting is one of the steps that businessmen do not want to skip. It usually
happens after the introduction. The usual greeting between men is a bow, accompanied by a
handshake. To show respect, the left hand is placed below the right forearm while shaking
hands. Women do not shake hands as frequently as men. During greeting, maintaining the
eye contact is appreciated.

Commercial Cards

Koreans attach importance to business cards exchange, with their certain way. Usually, after
the handshake, business cards are exchanged between professionals during initial
encounters. The cards are presented and received with both hands. After receiving the card,
it is suggested to nod your head to show your respect and thanks. Once you receive it, try
not to stare too hard at those business cards as it will come across as impolite and/or
possibly offend the Korean businessmen.

Business Meeting

Since business is based on personal relations and trust in Korea, typically it takes longer to
complete a deal. Therefore, it usually takes several meetings to finish the business. The first
meeting is usually a start of the business-relationship building process. Very little might be
discussed which relates to the actual business in hand for a while, with most time being
spent exchanging pleasantries, discussing travel and other small trivia.

K-Type Management Style

Because Korea is a society with high power distance and hierarchy, the management style
is quite different from that in the United States or many other Western countries, which have
lower power distance. Therefore, Korean management style, called K-Type management,
consists of top down decision-making, paternalistic leadership, clan management, personal
loyalty, compensation based on seniority and merit ranking, high mobility of workers. The
organization structure of companies are highly centralized and formalized with authority
focused in senior levels. Major decisions go through a formal procedure of approval from top
levels of management

Gift Giving

In Korea, gift giving is part of doing business. It is done to secure favours and build
relationships. Gift giving in South Korea is not seen as a bribery or corruption. Normally,
business gifts should be of good quality but inexpensive. The gifts from the givers’ home
country would be much appreciated and impressive, regardless of the price. The gifts should
be wrapped before giving, and opened in private rather than in the presence of the giver.
When handing out more than one gift, the giver(s) need to make sure that senior members
are given gifts with greater value than junior members, because respect for seniors is
everything in South Korea.

Benefits

Foreigners and foreign companies will be more familiar with the way how to do business with
Koreans and in Korea. If they understand more about the Korean value system based on its
culture and recognize the impact of Korean unique cultures to its business. The more
foreigners understand the Korean culture, the more they could enjoy their business with
Koreans and in Korea. Korean will get more efficient, flexible, innovative, and responsive to
their business. The research will help to identify several key internal and external factors that
impact on the ability of enterprises to compete successfully in international markets. These
include the role of human resource development, the organizational structure, as well as the
technological capability of firms. We argue that generally the pursuit of dynamic upgrading
that allows firms to maintain their competitiveness may be captured by the notion of learning.

What are the political risk management and its implications for international business
in North Korea

Political risk, is an analysis of the probability that political decisions, events, or conditions will
significantly affect the profitability of a business or the expected value of a given business
decision.

Because North Korea is a totalitarian nation most business decisions are approved by the
government. It is prone to bribery and high corruption and from the official leaders.

Its policies towards the economy are considered to be unpredictable as they are controlled
by a single person that is Kim Jung Jung Un the supreme leader and most decision are
made of self interest to him and not the people, because of that once your business loss
favour from him its unlike to be profitable as unforeseen restrictions can be imposed.

Also North Korea is politically unstable as it constantly at brink of war with United States of
America and its illegal nuclear weapon building which result in constant sanctions imposed
on the nation.

Control of the business will be hard as the government is involved in everything happening in
the country so they proved their own supervisors on the company premises and this can
make work difficult with constant supervision from the police.

Principles and practices of the legal environment in North Korea

North Korea is one nation with complicated dictatorial legislation. Because the state is there
to serve the Kim Dynasty most laws are made to protect and serve and respect the dynasty.
The more you respect the dynasty the more you will be rewarded. North Korea has
incorporated kin punishment which is the practice of punishing the family members of
someone accused of a crime, either in place of or in addition to the perpetrator

Citizens have the duty to defend the political and ideological unity and solidarity of North
Korea and to work for the good of society and the people observe state laws and the
socialist standards of life and defend the honour and dignity of being North Korean citizens

Free Economic and Trade Zone Law (FETZL)

North Korea's has a foreign investment laws called FETZL and the creation of Free
Economic and Trade Zones ("FTZs") within North Korea's territory. The FTZs are intended to
be duty free areas for the importation of capital goods and materials for the production of
exports. The other foreign investment laws of North Korea apply in FTZs, including those
relating to the establishment of equity and contractual joint ventures and wholly foreign-
owned subsidiaries. In many cases preferential treatment is afforded to foreign-invested
enterprises with respect to tax rates, rent and financing
Foreign Enterprises Law ("FEL")

The FEL provides the basic framework for the creation of wholly Foreign Subsidiaries.
Foreign Subsidiaries are permitted only in Free Economic and Trade Zones ("FTZs"), and
are permitted for projects involving high-tech production of internationally competitive goods
in the following sectors:

 electronics, automation, machine tool and power industries;

 food processing, garment and everyday consumer goods;

 building materials, pharmaceuticals and chemicals;

 construction, transportation and service sectors;

 Other sectors deemed necessary.

Investment will not be permitted if production processes are outdated economically and
technologically," or for products for which there is no local or international demand. A
number of sensitive sectors, including publishing, press, broadcasting and
telecommunications, are off-limits to foreign investors.

Depending on the size of the proposed investment, application to set up a Foreign

Subsidiary is made either to the External Economic Commission or to the FTZ Authority.

What are the dimensions of the index of economic freedom in North Korea

North Korea’s economic freedom score is 5.2, making its economy the least free in the 2021-
22 Index. Its overall score has increased by 1.0 point, primarily because of an improvement
in the property rights score. North Korea is ranked last among 40 countries in the Asia–
Pacific region, and its overall score is well below the regional and world averages. The
economy of North Korea is severely repressed and has been the lowest-ranked in the world
every year. Chronic structural problems beset one of the world’s most centrally commanded
and least open economies. In a country that lacks even the most basic policy infrastructure
of a free-market economy, individuals and businesses lack any economic freedom
whatsoever, both in principle and in practice
Describe the type of economic systems in North Korea and how it works
The economy of North Korea is a centrally planned economy, following Juche, where the
role of market allocation schemes is limited, although increasing.5 As of 2022, North
Korea continues its basic adherence to a centralized command economy. There has been
some economic liberalization, particularly after Kim Jong-un assumed the leadership in
2012, but reports conflict over particular legislation and enactment. 6Since the 1990s,
informal market activity has increased, which the authoritarian regime has tolerated.

Conclusions economic analysis of the North Korea

Various companies have been doing business with Korean and Korean firms for the last
decade as many Korean companies become major players in global markets with their
impressive performance. As foreigners and foreign companies are more involved in business
with Korean and Korean companies, they would often face some difficulties of handling their
daily business with Korean and Korean business people because of different expectation,
practices and behaviours in each stage of business. Most of those differences come from
cultural differences between Korea and other countries. Korea is regarded an isolated nation
many Koreans keep their traditional culture very much and follow their tradition, custom and
practice developed from their culture significantly in doing business. So, understanding the
Korean culture, tradition and custom helps foreigners and foreign companies do their
business with Korean and/or in Korea efficiently and effectively and finally enjoy all kinds of
successes with their business.

North Korea is where a central government makes all economic decisions. The government
or collective own the land and the means of production. It doesn’t rely on the laws of supply
and demand that operate in a Market Economy North Korea. In this system consumer and
producers have no right or power over production. That means the economic is fully control
by government. Government has the full authority on the economic activity, how the goods
should be produced and for whom the goods are released.
Besides, command economic system is centralized control where the most notable feature
of command economy is that large part of the economic system is often control by a federal
government.

Their two key features of Command Economic System in North Korea that are,

1. The government of North Korea creates a central economic plan. The five-year plan sets
economic and societal goals for every sector and region of the country. Shorter-term plans
convert the goals into actionable objectives.

2. The government of North Korea allocates all resources according to the central plan. It
tries to use the nation's capital, labor and natural resources in the most efficient way
possible. It promises to use each person's skills and abilities to their highest capacity.

Some of the problems North Korea face are:

5
International Trade Office of Korea Full of information on investments in North Korea.
6
Andrew Jabobs (October 14, 2012). "North Koreans See Few Gains Below Top Tier". The New York Times.
1. Existing of black Market.

North Korea faces the problem where their citizens are often developing the shadow
economy or black market to buy and sell the things that command economy isn’t producing.
Besides, the government of North Korea is weakening to control this market and weaken
support for the central planning authority.

2. Leading inefficiency resources

Command economies often produce too much of one thing and not enough of another. North
Korea is facing difficulty for the central planner to get up-to-date information about
consumer’s needs. As example customer need online purchasing platform to make them
more effective and efficient purchase.

3. North Korea Issues

Leaders in Politics are what run, organize, and keep a government together or cause it to
fall apart. A leader’s influence and actions can affect the outcome of their government and
country. North Korea’s politics and leaders can easily show their outcomes and
consequences based on their history and reveal the future of their country. North Korea is
full of contradictions and is on a dangerous path to imploding.

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6. Andrew Jabobs (October 14, 2012). "North Koreans See Few Gains Below Top Tier". The
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7. International Trade Office of Korea Full of information on investments in North Korea.

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