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Hot Spot

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Title: Setting Up Shop In a Political Hot Spot | The background/context | | he participants and their different perspectives | Name and role | Perspective | | Park Jehee: The CEO of the watchband manufacturer Timepiece | The companies already doing business in the KIC don’t appear to be suffering from the uncertainty. And global firms have always operated in politically volatile regions, often quite profitablyWithout risk, there’s really no reward | | Kim Jaehyun | 1. The labor savings and productivity estimates in the KIC literature seem real.2. Capital risk also seems low because of the South Korean government’s guarantee of up to 90% of our capital investment, along with privileged access to low-interest loans.3. We have to consider how manufacturing in North Korea, given the international sanctions it’s under, would affect customs and trade agreements. Exporting goods made in the KIC could be problematic. | | Mark Lee: | Our factory would provide a better work environment than what they’re used to. But we would have no transparency and very little autonomy. | | Keel Young-hoon | 1. North and South Koreans are working side by side for the first time in decades! North Koreans are getting exposure to market economics. And it’s a fantastic show of goodwill toward the North. 2. The KIC will be a key factor in our reunification. |

Dilemma: Should Park set up shop in Kaesong? | | Expert 1Youssef Nasr(agree) | Expert 2Ian Bremmer(disagree) | Experts’ perspectives on the case | 1. Park should base her decision on two perspectives: a business one and a humanitarian one. 2. But she must take several steps to understand the risks embedded in the KIC option and how they might be managed. 3. Park should use a suitably high discount rate in her financial valuations of the KIC, to reflect the high level of risk. 4. She must factor in the South Korean government’s capital-investment guarantee and its provision of low-interest loans— compelling offers that significantly limit capital risks. 5. She should consider how to manage production and supply chains so that any problems at the KIC would cause minimal disruption to the parent operation. 6. Timepiece should limit its initial investment to an amount that would not be life-threatening to the company if the arrangement failed. The most common rule of thumb for multinationals is about 10% of their total investments.※ | 1. A serious rise in tensions on the Korean peninsula this year makes any substantial investment in Kaesong far too risky. Consider the signals now coming from the North. 2. There’s a bigger worry still. North Korea has been running small-scale experiments with capitalism for more than a decade. Their purpose has been to avert civil unrest by giving the population access to food and consumer products that the government can’t provide. 3. Kaesong is and will remain an island of engagement subject to its whims. The only certainty is that the regime cannot continue indefinitely along (what passes for) its current path. 4. Invest in China. Invest in Saudi Arabia. Invest in other authoritarian states. In these countries, at least it’s possible to see when trouble is coming. | | 7. Park should then assess the humanitarian case. Successful companies today are expected to show leadership in this area. 8. Park should proceed with the investment. 9. Timepiece could help alleviate the misery of life in the North, at least for its own employees. 10. the company could provide them with a number of nonmonetary benefits, such as a pleasant, comfortable work environment; healthy, nourishing cafeteria meals; good job-training programs; and sport and social facilities.~ | |

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