tourism cluster in south korea
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Description of Tourism Cluster in South Korea and predicting its position in 2023TRANSCRIPT
MICROECONOMICS OF COMPETITIVENESS
TOURISM CLUSTER IN SOUTH KOREA
SHREYAS SATHE
JINGYI HUANG
SHRADDHA SHUKLA
LU CUI
TING DING
18 April 2014
Microeconomics of Competitiveness Tourism Cluster in South Korea
TABLE OF CONTENTS
EXECUTIVE SUMMARY ……………………………………………………………………………………………………………………………………………4
ASSESSMENT OF OVERALL BUSINESS ENVIRONMENT AND POLICY………………………………………………………………………..5
The legacy of South Korea…………………………………………………………………………………………………………………………5
Religion…………………………………………………………………………………………………………………………………………………..…8
Geography regional position……………………………………………………………………………………..………………………………9
Macro and micro-policy choices………………………………………………………………………………………………………………10
Macro Policy………………………………………………………………………………………………………………………………10
Micro Policy……………………………………………………………………………………………………………….………………11
Developed infrastructure……………………………………………………………………………………..………11
Labor market………………………………………………………………………………………………………..………11
National Business Environment analysis…………………………………………………………………………………………………12
1) Factor conditions……………………………………………………………………………………………………………………12
2) Demand conditions……………………………………………………………………………………………………..…………13
3) Context for firm strategy and rivalry………………………………………………………………………………………14
4) Related and supporting industries………………………………………………………………………………….………15
OVERALL ECONOMIC PERFORMANCE……………………………………………………………………………………………………………………16
Macro performance
1. GDP………………………………………………...........................………………………………………………………………16
2. Productivity……………………………………………………………………………………………………………………17
3. Inflation………………………………………………………………………………………………………………………..18
4. Currency………………………………………………………………………………………………………………………18
5. Fiscal stability………………………………………………………………………………………………………………………19
6. Employment………………………………………………………………………………………………………...………20
Micro performance
1. Trade…………………………………………………………………..…………………………………………………………………20
2. FDI…………………………………………………………………………………………………………………………………………21
3. Education………………………………………………………………………………………………………………………………21
4. GCR survey data……………………………………………………………………………………………………………….……22
IN-DEPTH ANALYSIS OF TOURISM CLUSTER OF SOUTH KOREA………………….…………………………………………………………22
1.History of the cluster
Phase 1 – Strengthening of Tourism Infrastructure (1960s) ………………………………………………………22
Phase 2 – Revitalization of International Tourism (1970s) …………………………………………………………23
Phase 3 – Development of South Korean National Tourism (1980s) ………………………………….………24
Phase 4 – Balanced development of International and Domestic Tourism (1990s) ……………………25
2.The cluster today………………………………………………………………………………………………………………………….………26
3.Cluster Diamond……………………………………………………………………………………………………………………………..……29
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Microeconomics of Competitiveness Tourism Cluster in South Korea
IDENTIFICATION OF STRATEGIC ISSUES…………………………………………………………………………………………………………………34
1. International Disputes & Heavy dependencies on China and Japan………………………………………………………34
2. Inconvenience Issues in South Korea………………………………………………………………………………………………35
3. South Korea could be heading for Deflation …………………………………………………………………….………35
4. Accommodation shortage………………………………………………………………………………………..…………………37
5. High overseas carrier prices………………………………………………………………………………………………………37
6. Travel Agencies…………………………………………………………………………………………………………..…………….…38
POLICY RECOMMENDATIONS………………………………………………………………………………………………………………………...…39
Recommendation 1 : Re-branding the South Korean Tourism……………………………………………..39
Recommendation 2 : Invest on accommodation facilities………………………………………….…40
Recommendation 3 : Introduction of " Tourist Police " system………………………………………40
Recommendation 4 : Implication of Monetary easing policies ……………………………………...…41
Recommendation 5 : Government action for Taxi problem………………………………………….42
Recommendation 6 : Targeting global market without losing the current market……………………..…42
CONCLUSION & PREDICTING THE MARKET IN 2023……………………………………………………………...…43
REFERENCES …………………………………………………………………………………………………….……44
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Microeconomics of Competitiveness Tourism Cluster in South Korea
EXECUTIVE SUMMARY
South Korea has experienced an amazing economic development during the past 50 years. The
legacy is a high-level combination of modern and traditional culture of Korea. The unique south
Korea culture such as the food, architecture, religion and entertainment has contributed to the
diversity of traveling resources of South Korea. Besides, the Korean government has conducted
the policy to promote the development of South Korea, including the well-developed
infrastructure, the motivated innovation and education policy, the powerful internal consuming
capacity and completed industry network. Nevertheless, there is still some economic barriers
such as the Chaebols group and decreasing labor competing capacity have limited South Korea's
development.
The country has been laying more emphasis on tourism industry since the settlement of Korean
War. After several phases of development, South Korea has become an important tourist
destination and tourism also accounts for an indispensable proportion of GDP. In the diamond
analysis, several factors have been identified. The positive factor conditions includes capital and
cultural legacy, as well as cultural tourism, human resources, tourism infrastructure and
accessibility of transportation, while lacking natural tourism resources is a shortage for factor
conditions. South Korean tourism is faced with rapid increasing domestic demands and more
slowly increasing international demands. Well-developed related and supporting industries are
also crucial for the development of tourism. Advantages over rivals and cooperation
agreements have provide a favorable platform for South Korean tourism though it is in a market
of hyper competition.
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Microeconomics of Competitiveness Tourism Cluster in South Korea
Through concrete analysis of the macroeconomics in South Korea, we could notice that the
Korean is recovering fast from 2008 financial risks and the overall economic performance is
good. But because the volatility of the global economy environment, the economic developing
speed of South Korea is slowing down. In terms of the microeconomics performance, the
import& export trade, education results, FDI and the rank of global competitiveness are all
improving. But there are also some problems to solve.
Finally , we look at the different strategic issues and recommendations to the cluster and also
see what would be the position of the tourism cluster after a decade in South Korea.
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Microeconomics of Competitiveness Tourism Cluster in South Korea
ASSESSMENT OF OVERALL BUSINESS ENVIRONMENT AND POLICY
The legacy of South Korea
With an amazing economic development during the last 50 years, Korea is now a modernized
vibrant nation that still maintains its traditional culture. Korea has a long history that could date
back to 2333 B.C. Koreans are largely ethnically homogenous which made their culture highly
concentrated. The culture of South Korea is a combination of modern culture and traditional
culture. The traditional culture is from the culture of Korea, which shares the same culture with
North Korea. The modern culture is shaping with development of industrialization of South
Korea and it is highly influenced by the Western culture, particularly the USA. The culture of
South Korea is very diversified: Traditional Korean culture and Modern Entertainment culture .
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Microeconomics of Competitiveness Tourism Cluster in South Korea
Korea is a peninsula jutting out from the world's largest continent, which has helped form the
unique Korean characteristics: a combination of traits associated with continental and island
people. Korea has a long history of interacting with the continental cultures of Asia such as
China. Long history and unique cultural characteristics have given South Korean a culture of
great splendor.
Korea food is very famous which has become a symbol of South Korea. Rice is the staple of
most Koreans like most of the other Asian countries. A Korean traditional meal is not complete
without kimchi, a mixture of various pickled vegetables such as Chinese cabbage, radish, green
onion and cucumber. Certain types of kimchi are made spicy with the addition of red chili
pepper powder, while others are prepared without red chili peppers or are soaked in a tasty
liquid.
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Microeconomics of Competitiveness Tourism Cluster in South Korea
Another cultural symbol of South Korea is the entertainment culture, which is called The
Korean Wave referring to the increase in the popularity of South Korean culture since the late
1990s. The Korean Wave is especially popular in Asia and it was firstly driven by the spread of
Korean dramas televised across East and Southeast Asia during its early stages. Besides, the
Korean-pop is the main factor that has driven Korean Wave from a regional development into a
global phenomenon. Young adults and teenagers are the main audiences of Korean Wave and
some of the outstanding symbol of Korean Wave has attracted the attention of the world, for
example, Psy, who became a world-wide celebrity thanks to his song “Gangnam Style” who has
got 3 billion views on YouTube. Moreover, with the growing acceptance of South Korean pop
culture as a valid form of entertainment in many parts of the world, the government of South
Korea has used the Korean Wave as a tool of soft power for promoting the national image and
developing international status. Apart from this, the increasing influence and popularity of
South Korean pop culture have also promoted the image of South Korean goods and products
in international market.
Religion
The religion culture in South Korean is not single and there are a wide variety of religions that
have influenced Korean people's way of thinking and behaviour. In the history of Korean,
religion used to be closely related to political functions where political power made use of
religions to control people and the country while the function of religion has changed in
modern times. Under the influence of ancient China, Korea used to have Shamanism,
Buddhism, Taoism or Confucianism. Nevertheless, in modern times, the Christian faith has
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Microeconomics of Competitiveness Tourism Cluster in South Korea
become the dominant religion bringing forth yet another important factor that may change the
spiritual landscape of the people. Freedom of religion is guaranteed by the Constitution in
Korea.
Geography regional position
South Korea is a country in East Asia, constituting the southern part of the Korean Peninsula.
It shares land borders with North Korea to the north, and overseas borders with China to the
west and Japan to the east. Based on the geographical position of South Korea, there are tree
countries that South Korean has attached great importance to: North Korea, China and Japan.
The Korean president Park had stressed her trust-building strategies for improving and
stabilising relations with these countries. Inter-Korea relationship came from the historical
issue, the long-term complicated relationship between South Korea and North Korea has been
an important element that influences the development of South Korea. The tension of this
relationship could be a treat to the future of South Korea while regional policy of Seoul
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Microeconomics of Competitiveness Tourism Cluster in South Korea
government calls for both strengthening deterrence against Pyongyang as well as remaining
open to engagement and it continued providing humanitarian assistance to North Korea and
reiterating its openness to dialogue. China and Japan are the other two countries that play an
important role in the regional strategy of South Korea. In order to strengthen and develop the
relationship with the two countries, South Korea has adopted a trust-based approach to
relations with China and Japan for the growing economic interdependence among China, Japan
and South Korea and languishing political-security cooperation.
Macro and micro-policy choices
Macro policy
South Korea is a major international economic power and it also plays an important role in
Asia. South Korea achieved rapid economic growth through exports of manufactured goods and
its macroeconomic policy is export-led economy, which makes its economy highly, relied on the
international business environment and consequently a fragile economy. Since 2011,South
Korean has suffered a decreasing growth, declining from a 5.4% rate in Q1 to a 1.4% rate in Q4.
The government strengthened its overseas economies and motivated its export business in the
world market. Besides, the economy of South Korea is very innovative which motivated the
long term GDP growth. While the growth of economy is not stable because that South Korea
imports virtually all the energy it consumes with the uncertainty comes from the international
oil price. Korean has been making of its advantages of high innovation to improve the country’s
energy power such as electricity power. With respect to public finances, the Central
government continued running a low budget deficit but changes in the tax reform are likely.
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Microeconomics of Competitiveness Tourism Cluster in South Korea
The overall South Korean economy is characterized by moderate inflation, low unemployment,
an export surplus, and fairly equal distribution of income.
Micro policy
Developed infrastructure:
South Korea has a very advanced and modern infrastructure, which has been expanding since
the 1960s. Both the South Korean government and the private sector are involved in the
financing, construction, and operation of various infrastructure projects and services. The South
Korean telecommunications system is among the best, the most modern, and the fastest
growing in the world1.
Labor market:
From the period of 1960s, South Korea has experienced a high speed growing, its openness to
the international market has attributed to this, and its high qualified and expanding labor force
has also helped the country fulfilled this target. The rising of South Korean labor market is
together with the increase of education system of its work force. People are well educated and
meet the standard of the development of economy.
1 ( “Korea, South - Infrastructure, power, and communications”, Encyclopedia of the nations, see at
http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Korea-South-INFRASTRUCTURE-POWER-AND-COMMUNICATIONS.html)
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Microeconomics of Competitiveness Tourism Cluster in South Korea
National Business Environment analysis
1) Factor conditions
The infrastructure in South Korea is highly developed which is very advanced and modern. Over
the first 20 years of the 21st century, the government will spend more than US$300 billion on
airports, roads, railways, and mega-resorts. Additionally, it will spend US$60 billion on the
construction of more than 100 new power-generation facilities. 2
2 “Korea, South - Infrastructure, power, and communications”, Encyclopedia of the nations, see at http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Korea-South-INFRASTRUCTURE-POWER-AND-COMMUNICATIONS.html
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Microeconomics of Competitiveness Tourism Cluster in South Korea
South Korea has an extensive and well-kept system of roads, the system is being improved by
the government under the increasing pressure of transportation. For example, the government
has invested in the project to develop the highways, regular train and bus services around the
country. Besides, the air transportation system and sea transportation is also well developed.
The South Korean telecommunications system is among the best, the most modern, and the
fastest growing in the world.
The service industry is also well developed, service industries included insurance, restaurants,
hotels, laundries, public bath houses, health-related services, and entertainment
establishments. In South Korea, the retail industry is advanced, South Korea has a very large
and growing retail sector including small-scale traditional shops, restaurants, larger and modern
establishments as well as various foreign retailing networks. Together with the improvement of
transportation and communication, increasing incomes, enhanced consumer sophistication,
and government tax incentives, the service industry has been well encouraged and developed.
2) Demand conditions
The domestic market of South Korea is large due the increasing income standard. Korean
customers demands are increasing both in the quality diversity. According to the Global
Competitiveness Report, Korean buyer sophistication and the degree of customer orientation
ranked at 16. The customers demand ranged from a variety of consumer products such
electronics, automobile, entertainment products which could meet the increasing living
standard and high level lifestyle of Korean people.
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Microeconomics of Competitiveness Tourism Cluster in South Korea
3) Context for firm strategy and rivalry
The main characteristics of the Korean business environment is the dominant role of some
industrial groups known as Chaebols which are unique to Korea.
Richard M. Steers, Yoo Keun Shin, and Gerardo R. Ungson defined the Korean chaebol as "a
financial clique consisting of varied corporate enterprises engaged in diverse businesses and
typically owned and controlled by one or two interrelated family groups." The majority of
Korean economy is dominated by this kind of industrial groups. On one hand, Chaebols could
maintain the stability of economy development of South Korea; on the other hand, because of
the independent powerful position of Chaebols, it is difficult for SMEs and foreign companies de
develop business in South Korea. The market and resources have been controlled by local
Chaebols and there are full of barriers for the other companies. Besides, the close relationship
between the government and Chaebols makes it more difficult to break the barriers. The poor
transparency of public administration and the existing barriers to FDI limited Korean‟s ability to
bring new skills, capabilities and technologies.3
South Korea is a high innovative country due the national encouragement of high
technology and education development. The government strictly sets up the intellectual
3 “Doing business South Korea”, reference for business, see at http://www.referenceforbusiness.com/encyclopedia/Kor-Man/Korea-Doing-Business-in-the-Republic-of.html
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Microeconomics of Competitiveness Tourism Cluster in South Korea
property rights, such as amendments and fines for breaking the related regulations, to
guaranteeing the innovation development in South Korea.
The local labor is high qualified and increasing while it is losing its competitiveness
compared to the Chinese labor market with a low cost in manufacturing industry.
4) Related and supporting industries
The capacity of supporting industries in South Korea is strong, the well-developed
manufacturing industry has laid solid foundation for the other industries such as electronics,
telecommunications, automotive and service industry. Both Electronics and automotive
industry are the main power of innovation, which could interact and cooperate for promoting
the overall industry development. Interactive supporting industries not only increase the
productivity of manufacturing industry but also have a positive influence on the daily and
business environment.
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Microeconomics of Competitiveness Tourism Cluster in South Korea
OVERALL ECONOMIC PERFORMANCE
Macro performance
1. GDP
South Korea is a developed country and one of the wealthiest countries in the world. South Korea’s
economy started from 1960s and kept developing with high speed to the late 1990s. The per capita
GDP in South Korea grows from 87 dollars in 1982 to 10548 dollars in 1996, which is called the
Miracle on the Han River. From 1970 to 2013, the averaged GDP growth rate is 1.7 percent.
Below is the chart of GDP Growth Rate in South Korea, which is reported by the bank of Korea. We
could notice that it dropped a record low of -7.0 percent in March of 1998. Because it suffers a lot
in the 1997 Asian financial crisis and after that, the economy in South Korean enters in medium-
speed growth period. Following the financial crisis in September 2008, South Korea was once
considered to have the possibility to become the second country in bankruptcy after Iceland.
However, the situation changed. Korea recovered the fasted among the 30 member states in the
OECD (Organization for Economic Cooperation). Last year, the GDP in the fourth quarter increased
0.90 percent compared with the previous quarter. Now, in terms of the market economy, South
Korea ranks 15th in the world by GDP, and it ranks the 12th about the purchasing power parity.
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Microeconomics of Competitiveness Tourism Cluster in South Korea
2. Productivity
According to the productivity index of South Korea, the averaged index from 2008 to 2013 is
108.94. It ranked about 30th in the world. Compared with its GDP ranking, it’s comparatively low.
From the analysis of South Korean economists, the main reason is the low labor productivity in
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Microeconomics of Competitiveness Tourism Cluster in South Korea
services owing to too many restrictions in services industry. And many others consider it’s related
to tax control system developed by the government for the manufacturing industry.
3. Inflation
From 1966 to 2014, the averaged inflation rate of South Korea is 7.91. And the highest point
reached to 32.51% in October of 1980 and the lowest point is 0.17% in 1999. In the consumer price
index(CPI), housing, water, electricity, gas and other fuels are the most important classifications,
which account for 17% of total weight. And the service is about 5.4%.
In recent years, the economy of South Korea showed a slow recovery trend. And the central bank
of South Korea said the inflation will keep low for the being and it remained the its rate at 2.5%. In
2013, the inflation rate of the full year was only 1.3%, which is far below the 2.5%-3.5% target
range that is set by the Bank of Korea (BOK). And it is the lowest since 1999(0.8%). But in the
monetary policy outlook in 2014, the BOK stated that the reasons for the current price pressure
eased only because temporary supply and policy changed. Therefore, it still forecasts that the
inflation rate of South Korea would go up to 3.8% in2014 and expand to 4.0% in 2015.
4. Currency
The currency of South Korea won demonstrates the tendency of rapid appreciation recently. The
won always behaves unstable and looks like Korea is a part of emerging market. Now the rapid
appreciation of won has made export-led Korean economy raised the alarm. To avoid excessive
appreciation, South Korea’s central bank has taken some interventions into foreign exchange
market. The appreciation of won is not favorable for those large export-oriented enterprises, but it
could save domestic market and improve the life quality of citizens.
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Microeconomics of Competitiveness Tourism Cluster in South Korea
5. Fiscal stability
From the financial stability report of Korea in 2013, we could generally speaking that the South
Korean financial system was stable, even though it exists some uncertainties abroad and
domestically. Because of the international financial market was becoming more stable in the
United States and China, the external economic environment have improved. On the other side,
the domestic economic condition is not that positive. Firstly, the hosing market sluggishness in
continuing and in 2012 the household debt expanded by 5.2%. Secondly, because of the increase
of the loan ratios and the decline of the profitability, the financial structure stability of corporate
sector is not improving. In terms of the banking sector, the profitability has worsened. And at the
same time, in some parts of the non-bank financial sector, financial stability is also deteriorating.
We could get this information from the financial stability map below.
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Microeconomics of Competitiveness Tourism Cluster in South Korea
6. Employment
Between 1999 and 2014, the averaged unemployment rate in South Korea is 3.64%. And according
to the statistics in March of 2014, the unemployment rate decreased to 3.5%. On a monthly basis,
the services created about 196 thousand new jobs. Therefore, on the whole, the unemployment
rate in South Korea is not very high.
However, the employment rate is only about 59%, which is similar to some south European
countries who suffered from economic crisis, like Italy (56.9%) and Spain(59.4%). So many people
are afraid that South Korea may enter into employment downturn phase. The main reasons of the
employment difficulty are the over high enrolment rate of universities and the new poste is
decreasing.
Micro performance
1. Trade
South Korea is an export-orientated country, with the export amount of 5597 million dollars in
2013, which increased 2.2% than 2012. And also because of lack in natural resources, it is
highly dependent on import of raw materials and industrial supplies. In 2013, the total
imported amount is 5155 million dollars. Among those, the oil import account a lot, with 3.074
million barrels imported per day. Trade surplus was 44.2 billion dollars. These figures make
South Korea the 7th largest export country and 10th largest importer in the world. To boost
global trade with other countries, South Korea has established its network of free trade
agreements since 2003. It also signed the FTA with US, which plans to remove off 95% of the
trade tariffs. According to the trading environment outlook analysis of Korean Ministry of
Commerce Industry, the economy of EU and other advanced countries have hope to pick up,
global business would be more stable, with the increase competitiveness of Korea’s major
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Microeconomics of Competitiveness Tourism Cluster in South Korea
export commodities, most export commodities are expected to grow. The estimated exports
will reach 5955 billion and imports will get 5620 billion.
2. FDI
Foreign direct investment is a vital part of the Korean economy. It counts about 12% of the
exports. Since the financial crises in 1997, the government of South Korea has been active in its
effort to attract FDI in Korea. It expanded a lot over the last decade. Until 2012, the FDI in
Korea has reached 162.58 billion dollars, which increased 18.9% than in 2011. Data show that
in 2012, Japan has the biggest investment scale in all the foreign investments, which accounts
for 27.9%. China ranks the second with 24.6%. And the services sector accounts for the largest
part---58.9% of the total investment scale.
To improve Korean foreign investment environment and protect investors’ interests, the
government took many actions. For example, the government reduces the corporate taxes and
simplifies the administrative procedures. They also established a new system to protect the
intellectual property rights. At the same time, South Korea has other strengths for foreign
investors. It locates near East Asian, which occupies two-thirds of the world’s population. And
it has the trend to become the world’s largest market and production center. It would be a
good strategy for foreign countries to use Korea as a test platform, and then it can easily
expand to other markets.
3. Education
Owing to the high results of Korean education, it has been praised for many years. From the
results of the international school tests, South Korean has been one of the highest achievers.
Thanks to the education, it brings lots of talents for the economic development of Korea.
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Microeconomics of Competitiveness Tourism Cluster in South Korea
However, it is also criticized for the intensely competitive system, which caused the high
suicide rate in Korea.
The students in South Korea ranked second in the OECD’s triennial program for International
Student Assessment, which measures the scholastic performance of 15 year olds in over 60
countries. Good results come from long hour studying time. The children in South Korea spend
220 days in school, which is much longer compared with 180 days in United States. And the
children often spend 13 hours a day to study. In the higher education, in 2012, almost 72% of
South Korean high school students went to the university.
4. GCR survey data
According to the global competitiveness index of 2012-2013, South Korea ranked 19 th of 144
countries in the world, which improved 5 compared with 2011-2012 and entered the top 20
again. From the catalogues in the index, South Korea ranked the 9 th with its outstanding
infrastructure, and its macroeconomic environment ranked 10th with its 2 percent growth in
GDP. What’s more, it’s not surprised that because of its high-qualified education system, South
Korea got the 11th in primary education and 17th in higher education. Furthermore, the
country’s capability of innovation (16th) is also very remarkable. But, there are some factors
arise our concerns, for example, South Korean labor market efficiency ranked 73rd and its
financial market development ranked 71th. These areas still have a lot to improve.
IN-DEPTH ANALYSIS OF TOURISM CLUSTER OF SOUTH KOREA
1. History of the cluster
Phase 1 – Strengthening of Tourism Infrastructure (1960s)
South Korea had spent several years to rebuild the country after the Korean War ended in
the year of 1953. It was not until 1961 that South Korea started developing tourism industry.
The Tourism Revitalization Law of South Korea established in August, 1961 was the first law to
regulate tourism industry (Li, B., 2006). In 1962, South Korea merely hosted 15184 foreign
tourists, and the foreign exchange income reached $4.63 million (Korea Tourism Organization,
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Microeconomics of Competitiveness Tourism Cluster in South Korea
2014), which is a tiny number compared to today. In the same year, South Korean government
implemented its first five-year plan and established an organization which later proved to be
crucial to the tourism industry of South Korea – Korea National Tourism Corporation (KNTC)
(Ahn, J., & Ahmed, Z. U., 1994).
In the following several years, South Korean government has devoted lots of capital to
improve the infrastructure, including the completion of highways and opening of new tourism
attractions (Liu, Y., 2009). As a result, the number of foreign tourists increased to over 173335
(more than 10 times that of 1962) and foreign exchange earnings reached $46.77 million (Korea
Tourism Organization, 2014).
Year Visitor
Arrivals
(number)
Korean
Departures
(number)
Tourism
Receipts
(US$1,000)
Tourism Expenditures
(US$1,000)
Balance
(US$1,000)
196
1
11,109 10,242 1,353 2,374 -1,021
196
2
15,184 10,242 4,632 2,166 2,466
196
3
22,061 11,860 5,212 2,276 2,936
196
4
24,953 20,486 15,704 2,381 13,323
196
5
33,464 19,796 20,798 1,662 19,136
196
6
67,965 35,095 32,494 3,193 29,301
196
7
84,216 40,374 33,817 8,396 25,421
196
8
102,748 67,381 35,454 10,487 24,967
196 122,686 72,311 32,809 10,964 21,845
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Microeconomics of Competitiveness Tourism Cluster in South Korea
9
Table 3-1 Visitor Arrivals, Korean Departures, Int'l Tourism Receipts & Expenditures in 1960s
Phase 2 – Revitalization of International Tourism (1970s)
With the accelerating economic development of South Korea, the government was focused
on promoting the development of tourism industry. During this period, South Korea’s economy
has grown steadily, and the living standard of people improved accordingly; as a result, tourism
industry developed gradually because of the increasing demand of people. In order to promote
tourism industry, South Korean government established Tourism Revitalization and
Development Fund Law of South Korea and Tourism Areas Exploitation and Promotion Law of
South Korea in 1972 and 1975 respectively (Li, B., 2006).
South Korea joined World Tourism Organization (UNWTO) in 1975 (World Tourism
Organization UNWTO, 2014). In 1978, the number of international tourists increased to 1.08
million and tourism receipts grew to $408.11 million (Korea Tourism Organization, 2014). Later,
the government drew up a long-term development plan for tourism industry in 1979 (Liu, Y.,
2009).
Year Visitor
Arrivals
(number)
Korean
Departures
(number)
Tourism
Receipts
(US$1,000)
Tourism Expenditures
(US$1,000)
Balance
(US$1,000)
197
0
173,335 73,569 46,772 12,424 34,348
197
1
232,975 76,701 52,383 14,808 37,575
197
2
370,656 84,245 83,011 12,570 70,441
197
3
679,221 101,295 269,434 16,984 252,450
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Microeconomics of Competitiveness Tourism Cluster in South Korea
197
4
517,590 121,573 158,571 27,618 130,953
197
5
632,846 129,378 140,629 30,709 109,920
197
6
834,239 164,727 275,011 46,234 228,777
197
7
949,666 209,698 370,030 102,714 267,316
197
8
1,079,396 259,578 408,106 208,019 200,087
197
9
1,126,100 295,546 326,006 405,284 -79,278
Table 3-2 Visitor Arrivals, Korean Departures, Int'l Tourism Receipts & Expenditures in 1970s
Phase 3 – Development of South Korean National Tourism (1980s)
With the continuous high speed economic development, South Korea’s tourism industry
became freer and more open. During this period, government has kept investing in tourism in
order to improve life quality of South Korean people, instead of to simply earn foreign
exchanges. The government declared the liberalization of international tourism, which enabled
South Korean people to travel abroad.
Besides, the growth of Korea’s international tourist arrivals was particularly substantial in the
late 1980s thanks to the 1988 Olympics held in Seoul (Ahn, J., & Ahmed, Z. U., 1994). The visitor
arrivals and tourism receipts in 1988 were 2.34 million and $3.27 billion respectively, grew by
24.9% and 42% compared to those of 1987 (1.87 million and $2.30 billion respectively) (Korea
Tourism Organization, 2014).
Year Visitor
Arrivals
(number)
Korean
Departures
(number)
Tourism
Receipts
(US$1,000)
Tourism Expenditures
(US$1,000)
Balance
(US$1,000)
25
Microeconomics of Competitiveness Tourism Cluster in South Korea
198
0
976,415 338,840 369,265 349,557 19,708
198
1
1,093,214 436,025 447,640 439,029 8,611
198
2
1,145,044 499,707 502,318 632,177 -129,859
198
3
1,194,551 493,461 596,245 555,401 40,844
198
4
1,297,318 493,108 673,355 576,250 97,105
198
5
1,426,045 484,155 784,312 605,973 178,339
198
61,659,972 454,974 1,547,502 612,969 934,533
198
71,874,501 510,538 2,299,156 704,201 1,594,955
198
82,340,462 725,176 3,265,232 1,353,891 1,911,341
198
92,728,054 1,213,112 3,556,279 2,601,532 954,747
Table 3-3 Visitor Arrivals, Korean Departures, Int'l Tourism Receipts & Expenditures in 1980s
Phase 4 – Balanced development of International and Domestic Tourism (1990s)
After the liberalization of tourism, South Korean people were more inclined to travel abroad,
in the meantime, tourist arrivals increased more slowly. As a result, the increasing tourism
deficit brought severe challenges to South Korean economy (in 1996, the deficit amount was
$1.53 billion) (Korea Tourism Organization, 2014).
26
Microeconomics of Competitiveness Tourism Cluster in South Korea
In order to change the situation, South Korean government adopted a series of measures to
increase the inbound tourism, including reforming the structure of tourism, improving tourism
infrastructure, marketing to the neighboring countries, etc (Liu, Y., 2009).
Year Visitor
Arrivals
(number)
Korean
Departures
(number)
Tourism
Receipts
(US$1,000)
Tourism Expenditures
(US$1,000)
Balance
(US$1,000)
199
02,958,839 1,560,923 3,558,666 3,165,623 393,043
199
13,196,340 1,856,018 3,426,416 3,784,304 -357,888
199
23,231,081 2,043,299 3,271,524 3,794,409 -522,885
199
33,331,226 2,419,930 3,474,640 3,258,907 215,733
199
43,580,024 3,154,326 3,806,051 4,088,081 -282,030
199
53,753,197 3,818,740 5,586,536 5,902,693 -316,157
199
63,683,779 4,649,251 5,430,210 6,962,847 -1,532,637
199
73,908,140 4,542,159 5,115,963 6,261,539 -1,145,576
199
84,250,216 3,066,926 6,865,400 2,640,300 4,225,100
199
94,659,785 4,341,546 6,801,900 3,975,400 2,826,500
Table 3-4 Visitor Arrivals, Korean Departures, Int'l Tourism Receipts & Expenditures in 1990s
27
Microeconomics of Competitiveness Tourism Cluster in South Korea
2. The cluster today
From the end of last century to today, the focus of South Korean tourism is to revitalize the
inbound tourism and to promote cultural tourism. Since the Asian financial crisis, tourism has
been considered a critical factor to shake off the shadow and restore national economics by
South Korean government.
In terms of the exploitation of the tourism resources, South Korea has excavated many
tourism sites and events which could display the cultural characteristics of South Korea. As a
matter of fact, natural tourism resources is not bountiful compared to its neighboring countries
like China because of the small area – merely 100,032 square kilometers, about the size of
Hungary (93,000 square kilometers) and Jordan (97,700 square kilometers) (AsianInfo, 2014).
Nonetheless, South Korean government has developed cultural tourism products vigorously so
as to enrich tourism resources and to build the image of power of cultural tourism. To be more
specific, there are nine tourism attractions in South Korea that have been granted as World
Cultural Heritage by UNESCO (World Heritage Convention, 2014).
Besides, South Korean government has been promoting a phenomenon called “Korean
Wave”, which refers to the increase in the popularity of South Korean culture since the late
1990s. Korean Wave shows the growing acceptance of South Korean culture in the world,
especially in some regions like East and Southeast Asia, Middle East, and Latin America. Usually
expressed through the forms of pop music, TV dramas, and movies, Korean Wave also has a
huge impact on the tourism industry of South Korea. Back in 2002, after the airing of the TV
drama Winter Sonata, the revenue of related tourism sites and products was more than 3
trillion Won (roughly US$2.9 billion) (Zhang, X., 2014).
South Korea has also held several international tourism conventions and exhibitions; the
government had even provided a special fund to invite journalists all over the world to take part
in the experience tours, which has created the word-of-mouth effect for South Korean tourism
(Liu, Y., 2009). At the end of 2013, South Korea has attracted over 12 million international
tourists, and tourism receipts reached $14.30 billion (Korea Tourism Organization, 2014).
28
Microeconomics of Competitiveness Tourism Cluster in South Korea
Year Visitor
Arrivals
(number)
Korean
Departures
(number)
Tourism
Receipts
(US$1,000)
Tourism
Expenditures
(US$1,000)
Balance
(US$1,000)
200
05,321,792 5,508,242 6,811,300 6,174,000 637,300
200
15,147,204 6,084,476 6,373,200 6,547,000 -173,800
200
25,347,468 7,123,407 5,918,800 9,037,900 -3,119,100
200
34,752,762 7,086,133 5,343,400 8,248,100 -2,904,700
200
45,818,138 8,825,585 6,053,100 9,856,400 -3,803,300
200
56,022,752 10,080,143 5,793,000 12,025,000 -6,232,000
200
66,155,047 11,609,878 5,759,800 14,335,900 -8,576,100
200
76,448,240 13,324,977 6,093,500 16,950,000 -10,856,500
200
86,890,841 11,996,094 9,719,100 14,580,700 -4,861,600
200
97,817,533 9,494,111 9,782,400 11,040,400 -1,258,000
201
08,797,658 12,488,364 10,321,400 14,291,500 -3,970,100
201
19,794,796 12,693,733 12,396,900 15,544,100 -3,147,200
201
211,140,028 13,736,976 13,448,110 16,519,900 -3,070,900
201 12,175,550 14,846,485 *14,303,000 *17,838,200 *-3,535,200
29
Microeconomics of Competitiveness Tourism Cluster in South Korea
3
*: estimateTable 3-5 Visitor Arrivals, Korean Departures, Int'l Tourism Receipts & Expenditures 2010 – 2013
In the case of tourist origins, according to Korea Tourism Organization (2014), East Asia and
Pacific accounts for 83.3% of the total overseas tourists, among which China and Japan are the
two biggest origins of international visitors (36.8% and 21.4% respectively); the market sizes of
Europe and Americas are very similar (6.2% and 6.9% respectively).
Americas5.54% Europe
4.98%The Pacific
0.80%Africa0.32%
East Asia & Pacific66.91%
Japan17.19%
Taiwan4.26%
Figure 3-1 Tourist Origin of South Korea in February, 2014
3. Cluster Diamond
As was done in the case of South Korea, the diamond model analysis is now to examine the
competitiveness of the South Korean tourism cluster.
Factor Conditions
30
Microeconomics of Competitiveness Tourism Cluster in South Korea
According to Michael Porter (1990), factor conditions can be categorized by basic factors and
advanced factors. In terms of South Korean tourism industry, the availability and abundance of
capital and cultural legacy are important basic factors. On the other hand, well-developed
infrastructure, transportation network, human resources of tourism and tourism areas can be
categorized as advanced factors.
As analyzed above, the natural tourism resources of South Korea is not bountiful;
nonetheless, the cultural legacy of South Korea has been kept in a good shape. South Korea has
excavated many tourism sites and events which could display the cultural features to the
international visitors, which ensures the attractiveness of South Korea.
Human resources including tour guides, the employed of hotels, restaurants, tourism sites
play an critical role in South Korean tourism they represent the image of country, which means
if they can’t give tourists a good impression, the tourism industry of South Korea may be
affected in the long run. South Korea has maintained a high level of school enrollment in past
several years, the enrollment of tertiary (ISCED 5 and 6) of 2013 was 98%, which is the highest
among all economies (The World Bank, 2014). The high level of education provides a platform
for the cultivation of relevant talents.
Besides, the South Korean government has been aggressively investing and improving
tourism infrastructure. According to the World Travel & Tourism Council, South Korea has
invested KRW 8,062.8 billion (which accounted for 2.3% of total investment) in 2013. The
number should rise by 4.2% in 2014, and rise by 4.2% pa over the next ten years to KRW
12,717.4 billion in 2024 (2.4% of total) (Turner, R. 2014). In the ranking of The Travel & Tourism
Competitiveness Index 2013 (Blanke, J. & Chiesa, T., 2013), South Korea came to the 25 th place
compared to the 32nd in 2011, which can clearly show the improvement of South Korean
tourism infrastructure.
The accessibility of transportation is also an important factor for tourism industry. The high
coverage of transportation network enables international visitors as well as domestic tourists to
travel more often, which creates substantial tourism receipts for South Korea.
Demand Conditions
31
Microeconomics of Competitiveness Tourism Cluster in South Korea
Both domestic and international demand for tourism plays an important role in providing the
competitive advantage for the industry. The more complicated and demanding tourists are, the
more multidimensional the tourism industry has to launch to satisfy the demand. This, on the
other hand, stimulates the emergence of innovative tourism products and services, and thus
creates competitive advantage.
In recent years, although the tourist arrivals and tourism receipts have been increasing, the
balance remains negative (as is shown in Table 5). The phenomenon partly due to the
increasing Korean departures and their rising expenditures overseas, but also indicates that the
foreign demands of South Korean tourism is increasing too slowly to generate profit for South
Korea.
Related and Supporting Industries
Tourism is a multidimensional industry which collaborates with various sectors of the
economy, such as catering, hospitality, transportation, shopping and entertainment, etc. The
tourism cluster of South Korea enables the rapid development of tourism industry.
South Korean government emphasizes on the education of relevant talents for tourism
because of the importance of human resources. Tourism training institutions have been
encouraged to provide qualified tourism workers every year. To be more specific, more and
more universities have offered courses and on-the-job trainings in terms of tourism planning
and management (Chan, C. H.et al, 2001).
The accommodation industry is composed of (chain) hotels, resorts, hostels and private
residence, among which hotels, especially high star hotels, accounts for biggest revenue
margin. In recent years, South Korean government has been being focused on standardizing
operations and management of hotels and increasing numbers of hotels. In general, the
hospitality industry is well-developed. Due to the development of tourism industry, more and
more famous multinational hotel groups like Accor, Hilton, InterContinental also have set
branches in South Korea.
32
Microeconomics of Competitiveness Tourism Cluster in South Korea
Shopping and entertainment industry also has seen a substantial development. Lotto World,
for example, located in south-eastern Seoul, is the largest indoor theme park; Yongyin Farmland
was voted one of the world’s top ten theme parks (Chan, C. H.et al, 2001). There are also many
shopping centers targeted tourists, especially in metropolitan areas and some famous tourist
sites such as Seoul, Jeju-do, Pusan, etc.
Context for Strategy, Structure and Rivalry
In recent years, outbound tourism, as well as inbound tourism, has been increasing, and the
main destinations are China, Japan, and other Asian countries. South Korea has confronted with
huge competition from these rivals, especially China and Japan. For example, ski resorts has
been thriving and are currently economically available in north-eastern China while hot spring
resorts are one of the main tourism attractions of Japan. Undoubtedly, these two economies
have brought about significant impact on South Korean tourism.
Nevertheless, South Korea enjoys advantages over China and Japan to some degree. For
example, the tourism infrastructure of China is not as developed as that of South Korea, and
Japanese tourism is much more expensive (Chan, C. H.et al, 2001).
In order to better compete with its rivals, South Korea has also signed agreements to
guarantee the tourism collaboration with other countries. For example, a contract which
enables Chinese tourists to travel to South Korea more easily has been signed in November,
2013 (Business Korea,2013).
33
Context for Strategy, Structure and RivalryAdvantages over rivals (+)
Cooperation Agreements (+)Hyper-competition (-)
Related and Supporting IndustriesEducation (+)
Accommodation industry (+)Shopping and entertainment industry (+)
Demand ConditionsDomestic demands (+)
International demands (-)
Factor ConditionsCapital and cultural legacy (+)
Cultural tourism (+)Human resources (+)
Tourism infrastructure (+)Accessibility of transportation (+)
Natural tourism resources (-)
Microeconomics of Competitiveness Tourism Cluster in South Korea
Figure 3-2 Diamond Analysis of the Cluster
34
Microeconomics of Competitiveness Tourism Cluster in South Korea
IDENTIFICATION OF STRATEGIC ISSUES
The following are the main strategic issues based on Porter's Diamond Model that the tourism
industry in South Korea is currently facing:
1) International Disputes & Heavy dependencies on China and Japan :
The South Korean tourism shows large dependencies on the Chinese and Japanese customers,
especially Chinese. A research shows that, a Chinese tourist that stayed for average 6.8 nights ,
spent $207 per day4. Chinese and the Japanese together contribute to more that 50% of the
tourism. This is a really large number. But this dependency make take another turn as there is
recently high tension from both sides , China and Japan and a ever prevailing tension from
North Korea. Moreover , Seoul and Beijing face each other in marine time dispute in South
China sea, while the shadow of the historic relationships with both China and Japan is still
prevalent. So the only stance South Korea faces is to be neutral. As of now, Seoul’s inclination
has been to adopt a balanced stand on its relations with Beijing and Tokyo. However, South
Korea’s future policies, will be determined by the course of trilateral relations between China ,
Japan and the U.S.5 Although the dispute between these three countries cannot be very directly
related to tourism, such factors should not be underestimated because there are many other 4 http://tx.english-ch.com/teacher/ackie/level-b/how-japanese-and-chinese-tourists-in-korea-differ-/5 http://www.turkishweekly.net/columnist/3852/-south-korea-between-china-and-japan.html
35
Microeconomics of Competitiveness Tourism Cluster in South Korea
tourist destinations in Asia which can attract tourist and there is a possibility that Korean
tourism can lose its attractiveness.
2) Inconvenience Issues in South Korea :
South Korea’s tourism industry is at risk becoming a victim of its own success. The number of
complaints from the holiday makers are on the rise with the rising number of tourists. As
mentioned previously, Korea has become a highly attractive tourist destination, with tourist
arrivals nearly getting doubled from 6 million in 2005 to 11 million in 2012 and are expected to
be about 15 million by 2015.
But with it, increasing number of theft and scams are reported by tourists. According to the
Korea National Tourism Organization, these complaints have increased by nearly 100% (i.e.
doubled) from 468 in 2009 to 897 in 2012. In addition to these, other tourist complaints for
setbacks such as lack of directional signs or heavy traffic accounted for about up to 1,024 issues
in 2012, which were nearly 640 in 2009.There are also various cases when taxi drivers
overcharge the tourists. To deal with such issues the ministry of Tourism introduced the "
Tourist Police " concept in South Korea which is quite common in many countries6.
3) South Korea could be heading for Deflation :
6 http://blogs.wsj.com/korearealtime/2013/08/05/koreas-arrivals-up-tourist-police-needed/
36
Microeconomics of Competitiveness Tourism Cluster in South Korea
Concerns are rising about the Korean economy that it is drifting towards a more like Japan-
style deflation, because it has now entered a low-growth, low-price period along with a
stagnant economy.
According to Statistics Korea, The annual growth rate was recorded less than 1 percent for
almost three consecutive months. It was 0.8 percent in the month of September and 0.7
percent in October. This was the longest period of less than 1 percent growth after the 14
month period after the 1999 Asian financial crisis.
Moreover, the export price index in November'13 was the lowest in five years and nine
months (90.59). Experts claim that the trend here resembles the one in the Japan’s case when
the country was about to go into a decade-long slump and deflation. The consumer price
growth remained less than 2.5 percent for 18 months, which is less than the bottom limit of
the price growth range which the Bank of Korea (BOK) aims to maintain (2.5-3.5 percent).
Nation's potential growth is forecasted to decrease further under these situations till 2016 as
the number of working population is going to decrease, resulting in lower working hours.The
South Korean Won’s appreciation may continue like the Japanese Yen used to, which will in-
turn decrease Korean exporters’ competitiveness.
Economists claimed that the chance of South Korea entering deflation is lower than Japan’s
previous conditions but the nation needs to take precautions.
The Hana report said the government should understand the nation’s economic situation
correctly to prevent this scenario. It said , “Japan’s long-term depression came from a vicious
37
Microeconomics of Competitiveness Tourism Cluster in South Korea
circle of bubble burst, asset deflation, economic slump and a series of failures in government
policies. Not to follow Japan’s suit, the government needs to improve fiscal and financial
policies”.7
Monetary easing is required in this case as the consumer price growth has been less than the
BOK’s target range for more than a year. The central bank must cut the base rate more, as
lower rate won't cause inflation or asset bubble for the time being.
4) Accommodation shortage :
Despite of tremendous increase in South Korean tourism over the last 4 years , the country
faces shortage of travel accommodation and is unable to meet with the current demands. The
inbound arrivals of tourists reached nearly 11 million in 2012, but by a recent study conducted,
the demands of theses tourists were not fulfilled efficiently . This is potentially one of the main
weakness of South Korean tourism that is affecting its long term scope as a perfect tourist
destination. Though this problem of accommodation seems minimal , it has actually very
negative impacts on the tourists because the easy availability of travel accommodations
contributes largely to the overall experience of tourists . This is in a way that, if availability is
low, the local population try to take advantage of it by increasing the prices which in-turn have
negative effects on tourism. 8
5) High overseas carrier prices :
7 http://www.koreatimesus.com/?p=38268 http://www.euromonitor.com/travel-and-tourism-in-south-korea/report
38
Microeconomics of Competitiveness Tourism Cluster in South Korea
As the tourism in South Korea continues to increase over the past few years, there is an
increase in the number of international tourists from all over the world visiting Korea. So
because of this, there was increasing demand for low cost overseas carrier. This is major
concern for the tourists in South-Asian countries as they face the price burden.9
6) Travel Agencies:
The vast growth of South Korean tourism has promoted a similar kind of expansion in the
number of travel agencies operating in South Korea. Increased competition is always healthy,
but the huge number of new operators have trimmed the profit margins for all domestic
agencies. Thus, some of the operators are unstable and hence assemble poor-quality tours. The
Ministry of Tourism is putting all its efforts to revise agency regulations to assist in the
industry's growth. One way to improve this situation is to encourage international travel
agencies, such as Thomas Cook and Cox & Kings, to operate in South Korea. These agencies
which are well organized and firmly funded can make a standard to which other local tour
operators could aim and thus contribute to improved quality of services.10
9 Ibid10 Ahn, J. & Ahmed, Z.U. 1994, "South Korea's emerging tourism industry", Cornell Hotel and Restaurant Administration Quarterly, vol. 35, no. 2, pp. 84.
39
Microeconomics of Competitiveness Tourism Cluster in South Korea
POLICY RECOMMENDATIONS
The following are the policy recommendation for the South Korea Tourism based on the
analysis and the strategic issues the cluster is facing:
Recommendation 1 : Re-branding the South Korean Tourism
"Visit Korea" is a government-sponsored two-year promotion which is currently under way to
push another side of the country that many perceive as an emerging industrial giants who are
still technically at war with their unpredictable neighbour to the north.
The figure illustrates that even if China and Japan contribute to 54.1% of tourists, the remaining
market is open for re-branding the South Korean image.
40
Microeconomics of Competitiveness Tourism Cluster in South Korea
We recommend that this program should not only be concentrated to Asian countries but also
to western countries. This can be done by making ties with other tourism offices, private
airlines and tourist agencies like Thomas Cook. It will take some time as it is a long term
investment , but in coming years it will modify the international perspective towards South
Korea.
Recommendation 2 : Invest on accommodation facilities
Solving South Korea's long term problem of travel accommodation was a challenging task as the
South Korean Government had to forecast the number of tourists that would come the next
coming years. If there was a steadiness or an increase , the plan had to go forward.
The South Korean government finally announced a four-fold plan to boost the construction of
travel accommodation over the country. The plan consisted of the following objectives :
1. grants from government;
2. eased rules & regulations for constructing travel accommodation facilities;
3. support for the renovating the existing motels as budget travel accommodation; and
4. certification and management guidelines to maintain quality assurance
Thus by 2015, the South Korean government will aim for offering 38,000 new hotel rooms and
8,000 rooms in other travel accommodation in addition to the existing accommodation by
implementing this plan.
Recommendation 3 : Introduction of " Tourist Police " system
41
Microeconomics of Competitiveness Tourism Cluster in South Korea
Korea’s tourism industry heavily relies on tourists from Japan and China. As they visit for some
very specific purposes, like that of beauty treatments or to make a visit to Korean celebrity
hotspots, the competition for their business increases raising the persuasion of locals to make
fast money out of the tourists.
The “tourist police” system was introduced by National Police Agency in association with the
Ministry of Culture, Sports and Tourism and the Seoul Metropolitan Government. South Korea's
Tourism Board (KTO) said that the government decided to start the force of 101 men and
women, in response to the rising number of visitors to Seoul. To make it toursit friendly , their
clothes were designed by the same designer of PSY and the tourist police also performed on the
famous Horse dance by PSY.11
The “tourist police” are assigned with task to protect tourists from theft or being ripped off, and
also to observe travel agencies, tourist shops and restaurants in order to prevent any incidents.
In addition to this, the police officers will offer tourists information regarding attractions,
directions and transportation, accommodation, Korean culture, and even medical services.
Recommendation 4 : Implication of Monetary easing policies
There are also some problems regarding the economic policies of South Korea, which is
eventually heading into a deflation mode which is same as the Japan style deflation which is
typically a low growth and low price era in a typically stagnant economic phase of South Korea.
It is very evident from economic policies around the world that a safe level of inflation is
actually a very important and essential factor for achieving a decent economical growth. In fact
11 http://edition.cnn.com/2013/10/17/travel/seoul-tourist-police-gangnam/
42
Microeconomics of Competitiveness Tourism Cluster in South Korea
South Korean government should consider designing a more quality and intelligently priced
focussed economy will be an effective policy to improve this economic deflation.
Recommendation 5 : Government action for Taxi problem
A fast action has to be taken by the government to solve the Korean taxi problem. Even if the
current system is profitable, it is illegal and promotes practices like dumping fares. One view
says that , as the taxi fares in South Korea are one of the lowest in the world, the taxi drivers
are more inclined to the business class passengers or the high-paying passengers. Moreover,
due to the low rates ,locals prefer to take a taxi rather than public transit, which creates a
shortage of cabs for tourist hire.
We recommend a new wage system for taxi drivers, so that they are assured a rational income.
Fares should be increased sufficiently to cover increased wages. Since fares are so less, they can
be increased without making them unreasonable. Authorities could check wage rates and
payment systems in different places as models for Korea's taxi system. We also recommend
that the government should also set minimum qualifications and training standards for taxi
drivers.
Recommendation 6 : Targeting global market without losing the current market
We strongly recommend South Korea to focus on the worldwide tourists. It is true that most of
the tourism in South Korea is contributed by Chinese and Japanese visitors. This is one of their
markets which will always be a strong advantage as both China and Japan being neighbouring
countries look positive to South Korea as a tourist destination. Whereas it needs to do a re-
43
Microeconomics of Competitiveness Tourism Cluster in South Korea
branding of its image to some of the western countries as they see the North Korean threat and
safety issues and thus hesitate to visit South Korea.
CONCLUSION & PREDICTING THE MARKET IN 2023
To conclude with the cluster analysis, we will see the position of this cluster in 2023. As we can
clearly see from the charts below, the tourism cluster in South Korea is predicted to grow in
next decade. The contribution of this cluster towards employment would not grow much but
the total contribution to the GDP will increase by approximately 30,000 KRWbn ( Korean Won
in billion ). Tourism has played an important role in the South Korean economy in the past
(evident in 1998 at the time of Asian financial crisis) and will keep on contributing the economy
in future. It has multi-faced advantages as it brings in money and also create employement. At
this time, to develop this growing cluster, the governement must take precutions and
implement proper stategies . With around 5000 years of cultural heritage coupled with high
standard of tourism products, the tourism in South Korea is set to assume a grater importace in
the South Korean economy.
44
Microeconomics of Competitiveness Tourism Cluster in South Korea
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45
Microeconomics of Competitiveness Tourism Cluster in South Korea
http://www.referenceforbusiness.com/encyclopedia/Kor-Man/Korea-Doing-Business-in-the-
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Microeconomics of Competitiveness Tourism Cluster in South Korea
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