Opportunities for International Business with North Korea - Case Study Example

Opportunities for international business with North Korea Brief explanation of the History and consideration of the most vital insight The sole thought of doing business in North Korea is by itself intriguing, considering that North Korea is one of the most difficult, if not the most difficult environment for conducting business. This is because, the culture of business in North Korea is build around strict government control, lack of proper infrastructure and high levels of risk taking (Potter, 2014 n.p.). Therefore, the title, “Opportunities for international business with North Korea” simply implies an opportunity to critically think beyond the obvious. While there is always a well devised pattern of assessing business opportunities for any start-ups to determine whether the opportunity in question presents any profitable propositions, the thought of venturing into such a closed economy requires more than the normal application of the conventional business models, in order to determine the appropriateness of a business idea targeted at North Korea (Leppert, 1996: 27). The situation is further complicated by the fact that it is not even possible to assess the business requirements for international investment into North Korea, considering that there is only meager data that speaks to the conditions and nature of the North Korean economy (The Heritage Foundation, 2014 n.p.). To this end, explaining this topic simply means venturing into a world of uncertainty, where it might be possible to assess the possible opportunities that international businesses can venture into, in North Korea, but painting a clear picture in relation to the actual chances of survival and profitability of such opportunities is considerably difficult (Kim, 2003:12). One of the major reasons why assessing the North Korean business environment for foreign investors is due to the fact that from 1967, there is no credible National Economic Data on North Korea that has been published, with the DPRK releasing information in piecemeal and to suit and shape the interest of the country’s foreign policy outlook (The Heritage Foundation, 2014 n.p.). This makes such data unreliable for solid business decision making. Historically, the North Korean economy is built on the self-reliance pillar that requires the country to operate in a self-reliant manner, without much focus on either external trade or relations. This being the case, the North Korean economy is not fully open for business with the outside world. As a matter of fact, until 1997, the North Korean foreign policy operated on the basis of discouraging any Foreign Direct Investment into the country (Jeffries, 2013:77). However, the East Asian financial crisis forced the country to open up to foreign investment in the country, as a condition for assistance by the IMF during the crisis. Nevertheless, there is little foreign investment and minimal international business ownership in North Korea, except for China, which accounts for 90% of foreign trade with North Korea (Noland, 2014:n.p.). The force of globalization that offers the most important insight to the title is technology. Cheap technology is an essential driver of globalization, considering the fact that it offers for an easy and convenient means of interaction internationally. However, in North Korea, technology as a major driving force for globalization has had less impact, considering the fact that both the internet and international phone communication has been restricted as a preserve of the elite leadership of the country, while the common citizens are denied such access (Williamson, 2012 n.p.). Thus, technology as a force of globalization simply offers the most important insight to the title, that internationalization of trade in North Korea is a daunting task. The economic & political situation in the North Korea North Korea remains an isolated country from the rest of the world, both in the political and the economic sense, considering the fact that the country has completely shunned international relations with the liberal and democratic world, opting to remain a social-monarchy dictatorship that follows a family line leadership (Jeffries, 2013:144). The political leadership of the country follows a single line of family dynasty, where the throne of leadership is passed on from the father to the son. In this respect, the economy of the country is highly repressed, considering that it operates under a strict system of state command and control guided by the military policy, making the economic freedom a mere shadow in North Korea (Noland, 2014 n.p.). The political dictatorship has favored military development and technology at the expense of any meaningful social and economic development, with the nuclear development strategy of the military taking the bulk of the country’s budget every year, leaving the social development a highly wanting area of development (Eberstadt, 2008:33). In this respect, north Korea is perennially faced by shortages of food for its population, since the agricultural economy as well as the commercial economy that are capable of generating food and income for its population are poorly developed. The political and economic freedom index has consistently ranked North Korea at the bottom of the global ranking, not only because there is little political and economic freedom, but also because there lacks sufficient data necessary for tabulating such indexes, leaving any economic information regarding North Korea highly speculative, due to its lack of authoritative source (The Heritage Foundation, 2014 n.p.). The foreign policy of North Korea is equally isolated, with the country treading carefully and suspiciously with the selective foreign partners it chooses to associate, thus making China and South Korea the most important trading partners of the country. Despite the fact that the political regimes have tried to open up the economy for more free international involvement, the militarization and the transition of the leadership along the family line has made it impossible for the advocates of the open North Korean economy to have any meaningful impact (Kim, 2003:16). Thus, the North Korean economy is constantly faced by chronic economic problems, which include an acute shortage of industrial capital, weather-related crop failures, poor transport infrastructure and collectivized agricultural farming, which delivers little economic benefits both for the country and the farmers. It is these challenges that have seen North Korea gradually starting to open up to foreign investment, for example by opening 14 Economic Investment Zones that are meant for foreign investors (Potter, 2014 n.p.). Therefore, while both the economic and political economy of North Korea has been inhibitive of trade and open economic development, some notable changes are being registered at present. Host & home stakeholder’s analysis The host & home stakeholder comprises of the government’s influence on the economic opportunities for both the domestic and the international companies and businesses operating in the economy. The government of North Korea has not been supportive of foreign-based companies and business to operate in the North Korean economy, but the situation is gradually changing. According to the World Polity Theory of globalization, universally applicable political and economic models have made globalization a possibility, considering that it is such universality that makes any business institution work within any environment globally (Eberstadt, 2008:21). Therefore, it is only through the creation of a universal model of political and economic structure that would make it possible for foreign investments to enter into any given country’s economy. In this respect, the North Korean government influence has hindered the creation of such universal political and economic structures that can attract foreign investment, thus making the internationally owned businesses and Foreign Direct Investment into the country very low (The Heritage Foundation, 2014 n.p). Further, according to the Development Theory of globalization, interdependence in trade and communications between different regions and countries in the world forms the basis of globalization (Eberstadt, 2008:24). Thus, considering the fact that the government of North Korea has isolated itself from global communication, interaction and trade, it has made it more and more difficult for international businesses to invest in the country. In addition, the Modernization Theory of globalization holds that greater level of integration in different parts of the world is resulting in the creation of high level of economic growth and social development (Eberstadt, 2008:21). This suggestion by the theory shows a positive reflection of both the economic and the social situation of North Korea, which has not made major developmental strides both in the economic and the social sense. This is because, the home and host environment created by the government of North Korea has hindered international economic and social interactions, thus making the country lag behind in development. Objectives you think the North Korea’s government is seeking to achieve The North Korean government has set its major objective as that of realizing self-reliance for the country (Williamson, 2012 n.p.). Consequently, the government has created an environment that does not open completely to international investment into the country, since the countries major objective is to realize both economic and political power through self-reliance. The government is therefore seeking selective support from the international partners that it deems its allies such as China and Russia, so that its political system is not interfered by the attempts to have it open up the economy for foreign investments (Kim, 1996:16). Military technological equipping has been a major investment of the North Korean government, since it seeks to ensure the sovereignty of the country is safeguarded, thus engages in numerous nuclear weapon researches and testing, to ensure that the country is ready to defend itself from any perceived external intrusion. It is this political and security superiority objective that has seen North Korea focus more on the militarization investment at the expense of economic and social development (Noland, 2014, n.p.). Nevertheless, to realize the self-reliance objective, the government has realized the need to enhance food sufficiency and economic freedom for its citizens, the reason structural changes are being made both in the commercial and agricultural sector, to create more freedom for production and profit making. Additionally, the government of North Korea is gradually opening up to external investment, through creating 14 Economic Zones specifically meant for foreign investors (Potter, 2014 n.p.). In conclusion, the potential of international business with North Korea in the next 5 years is high, since there are gradual changes that are opening the historically closed economy for foreign investment. Despite the fact that North Korea is a very difficult working environment for foreign businesses, most especially due to the state control and command of the economy in the country, there is a glimpse of hope that more foreign investment will venture into the country and eventually transform the business environment. In this respect, there lies a great potential for foreign investment in North Korea in the next 5 years, and as such investors should start seeking for viable ventures in the country in readiness for investing, when the economy eventually opens-up for foreign investment. References Eberstadt, N. (2008). The North Korean economy between crisis and catastrophe. New Brunswick, NJ, Transaction Publishers Jeffries, I. (2013). North Korea: A Guide to Economic and Political Developments. Routeledge. 236-245. Kim, S. H. (2003). North Korea at a crossroads. Jefferson, N.C., McFarland & Co. Kim, U.-Y. (1996). A cross-cultural reference of business practices in a new Korea. Westport, Conn. [u.a.], Quorum Books. Leppert, P. A. (1996). Doing business with Korea. Fremont, Calif: Jain Publ. Noland, M. (2014, February 5). Case Studies on Chinese Business in North Korea. Peterson Institute for International Economics. Available at: http://blogs.piie.com/nk/?p=12854 Potter, R. ( 2014, February 11). The Perils of Investing in North Korea. The Diplomat. Available at: http://thediplomat.com/2014/02/the-perils-of-investing-in-north-korea/ The Heritage Foundation. (2014). North Korea: The 2014 Economic Index of Freedom. Available at: http://www.heritage.org/index/country/northkorea Williamson, L. (2012, February 16). Made in North Korea: Business in a communist monarchy. BBC News. Available at: http://www.bbc.co.uk/news/magazine-17046941 Read More