CyWorld was the world’s first social media network but few people outside of Korea have ever heard of it. Started in the late 1990s, it flowered then collapsed in large part because it was unable to integrate its business model and style with the rest of the world. The challenges faced by CyWorld in many ways mirror the challenges facing Korea’s fast-growing economy as a whole.
Prof Joon Nak Choi has been studying the Korean economy and what it needs to do to sustain its standing as one of Asia’s powerhouses. The country has had enormous success (4.5 per cent GDP growth, rated top in the world for innovation by Bloomberg), but it cannot take it for granted.
“Korea has developed very rapidly, but to keep growing impressively, it needs new tactics,” said Prof Choi. “It’s now living on a lucrative but very fragile business model.”
That model is the “ABCD” model originally proposed by Prof Moon Hwy-chang of Seoul National University – for Agility that combines speed and good workmanship, Benchmarking against the best in the world, Convergence of strengths (such as Samsung going into the smartphone business after manufacturing most of the components of iPhones), and Dedication through hard work.
However, with competitors in China snapping at its heels and Koreans starting to tire of the frantic pace of life and work that helped their country to advance, the model is starting to show cracks. Attempts have been made to find a new model but these have largely failed because, said Prof Choi, they have not been supported by the appropriate human capital.
“Korea produces the highest proportion of college graduates in the world but in terms of producing high end, extremely talented people, the Korean educational system isn’t geared to do that,” he said. “For Korea to expand beyond the ABCD model, it is going to have to do something different.”
Prof Choi argues, in a book with Prof Gi-Wook Shin of Stanford University forthcoming from Stanford University Press, that transnational bridges linking Korea with other countries is the key to the country’s future. Korea needs to bring in new people and ideas from abroad to help it carry its economy forward, but it will not be an easy thing.
“Korea is not necessarily the most open country to foreigners. So how do you get foreigners to connect with Korea and stay there? Our solution is to have them come short term, to build relationships and have a good experience, and transform Korea from an insular country to one that is more like Hong Kong, more globally networked.”
The benefits would include information transfer, trust building and innovation, achieved by bringing foreigners in, sending Koreans overseas, and tapping into the nearly 90,000 foreign students studying in Korea. Prof Choi’s and Prof Shin’s key recommendation is to make the time commitments of people manageable – for, say, periods of two or three years – rather than asking them to permanently commit to Korea.
“There have been studies demonstrating that transnational connections increase trade, increase opportunities for learning and innovation, and increase monitoring of global trends,” Prof Choi said.
“Foreigners who are entrepreneurial, like Indians and Korean-Americans, and Koreans educated overseas, can set a good example for other Koreans. Korean entrepreneurs might also look upon them as partners.”
Social capital could take Korea’s economy in new directions, in particular developing overseas markets for Korean services. Despite the high quality of these services, most firms have confined themselves to the “red ocean” domestic market. Insights from foreigners could help them branch out to other markets and avoid CyWorld’s fate.
“When CyWorld went overseas, they tried to do the same thing that they did in the Korean market. They were just so arrogant about it. If Koreans had known more about overseas markets, we would all have CyWorld accounts instead of Facebook accounts, but they blew it,” Prof Choi said.
He concluded that Korea needed to improve its engagement with the outside world to help it develop a more creative economy and avoid Japanese-style stagnation.
Professor Joon Nak Choi of the Business School’s Department of Management was speaking at the Business Insights luncheon in March 2014.