Business Week International International Business: Korea
NORTH KOREA TODAY, CREDIT CARDS-TOMORROW, COKE? (int'l. edition)
After 50 years in a cold war bunker, North Koreans may soon be exposed to a few amenities of modern civilization, such as Daewoo TV sets, phone links with the U.S., and even Coke.
On Jan. 20, the U.S. announced small steps to relax the 1950 ban on trade with North Korea, permitting direct phone links between the two countries, letting U.S. news organizations open offices in Pyongyang, and allowing American visitors to pay hotel bills with U.S. credit cards. Such measures are intended to encourage further openings by North Korea following the Oct. 21 nuclear pact between the two nations. It calls for replacing North Korea's nuclear plants, which can yield weapons-grade byproducts, with ones that will lessen the problem.
If the embargo is eased further, Coca-Cola Co., for one, clearly aims to have its products among the first into North Korea. On Jan. 12, the president of Coke's Pacific Group, Douglas N. Daft, hosted North Korea's Ambassador to the U.N. at a private luncheon at Coke's Atlanta headquarters.
North Korea, for its part, is taking advantage of the lowered tensions to attract investments from abroad to help prop up its tottering economy. The first foreign bank to arrive will be Amsterdam-based ING. It announced on Jan. 25 that it's setting up a joint venture bank in Pyongyang with the Korean Foreign Insurance Co., the country's non-life insurance monopoly. The bank, 70% owned by ING, will be registered in the Rajin-Sunbong free-trade zone on North Korea's northeast coast.
In November, Jim Enters, president of the South Korean subsidiary of Dutch chemical maker Akzo Nobel, led a visit by eight European Community businessmen to Rajin Sunbong. EC companies are interested in setting up there, Enters says, though he warns that North Korea's lack of a tax system can be a problem. Also eyeing prospects in North Korea is Hong Kong's Peregrine Investment Holdings Ltd. "We certainly are interested in opening an office at some time," says Chairman Philip L. Tose, who plans to visit in February.
What North Korea's regime, led by Kim Jong-Il, is most hoping for is a spate of investments from South Korea. Since Dec. 15, when Seoul lifted its ban on business travel to the North, at least 50 South Korean executives have gone there. In January, North Korea hosted visits by major business groups, taking them to tour sites such as Rajin-Sunbong and Nampo, an industrial park designated as a location for South Korean pilot ventures.
Lee Kyung-Hoon, vice-chairman of Daewoo Corp., which is considering $5 million worth of investments in North Korea, was elated on his return. He said the North Koreans have completed construction of a building for Daewoo's proposed factory to produce pieces of garments for export. Daewoo plans to send 20 instructors to train 1,200 workers for the factory, and it is discussing setting up a consumer electronics plant.
HOT PROSPECTS. Equally upbeat was Kang Jin-Koo, chairman of Samsung Electronics, which proposes to build an airport and other facilities at Rajin-Sunbong. Most leading South Korean conglomerates have announced plans for North Korea. Ssangyong wants to invest in a joint-venture cement plant, a hotel, and telecommunications facilities. Shinwon has plans for apparel plants, and Tong Yang proposes investments in confectionery and food processing. If all of the projects are carried out, analysts say, South Korean investment in the North could exceed $100 million within three years.
Prospects depend, though, on how the new North Korean leadership follows through. On Jan. 25, South Korea proposed a North-South conference on reunification. But Pyongyang has rebuffed previous calls for political talks since the death of former leader Kim Il-Sung on July 8. As a result, the Seoul government worries that the conglomerates may be moving into the North too fast.
In trying to maintain North Korea's totalitarian system while rescuing its economy, Kim Jong-Il is taking a major risk. Without outside help, North Korea's economic crisis could deepen. But a rapid opening could backfire as contact with outsiders increases awareness among long-isolated North Koreans of the dismal failure of their totalitarian system. To carry out the nuclear agreement, for example, hundreds of South Korean and American engineers will begin commuting to Pyongyang. But after the signing of the nuclear accord, it may be too late for Kim Jong-Il to turn back: Whether or not he succeeds in shoring up the economy, his regime seems likely to face growing strains.By Laxmi Nakarmi in Seoul