Dominic Barton
Chairman of McKinsey & Company Asia

'Seoul Is One of the Best Cities in Asia but It Underplays'

This is the first in a series of interviews with the heads of the top five global consulting firms doing business in Korea ― McKinsey & Company, Bain & Company, Boston Consulting Group (BCG), AT Kearney and Booz Allen Hamilton (BAH). The Korea Times will look into a wide variety of issues regarding the leadership of President Lee Myung-bak, his economic policies, the Korean economy and financial markets through the eyes of leading global consultants. ― ED

By Kim Jae-kyoung
Staff Reporter

President Lee Myung-bak and his top policymakers may have sleepless nights nowadays with hundreds of thousands of people taking to the streets day after day to vocalize their discontent of the government's administrative mismanagement.

This massive, unceasing protest came as a result of the Lee administration's mishandling of the resumption of U.S. beef imports and coincided with the economy sinking into deep mire amid skyrocketing oil prices.




Reminiscent of the 1997-1998 financial crisis, all economic indicators are pointing to a downturn. Economic growth is slowing down, the current account is in deficit, inflation is soaring, and most importantly, President Lee's popularity is plummeting.

However, this is not all. Lee may not be aware that there is something more important sinking equally as fast. It is the image of Korea. Korea's image and brand are falling in the global society in the midst of pandemonium here.

A noted global consultant said that Korea has great potential to become an international finance center and an advanced economy, however, its falling image and brand is surfacing as a major stumbling block, preventing the country from moving forward.

In an exclusive interview with The Korea Times, Dominic Barton, chairman of McKinsey & Company Asia, said that Korea should work on improving its image and brand as a place to live and do business in order to join the league of advanced economies.

`` There is a sense that in the last five years the image of Korea as a place to invest and do business has worsened. The thing that I worry about is how we can manage Korea's public image,'' he said.

``We came across a legacy of Korea being a tough place to do business, even though a lot of foreign companies have come here over time,'' he added. ``We have to be very careful about the image because we want foreign direct investment (FDI) and we also want our companies to succeed overseas.''

``Other countries have a choice regarding which companies and countries they work with. They will not work with our companies if our image is that of being rough, tough and aggressive,'' he said.

He pointed out that people outside of Korea do not have the context to understand issues here, such as the U.S. beef issue and protests against the free trade agreement (FTA).

``Sometimes it can be good to have discussion and lively debate, but if it's not in the right context, people may say, 'oh my god what's happening there,''' he said.

Korea used to be known as a country of the "miracle" due to its rapid transformation from a war-ravaged agricultural economy into a manufacturing powerhouse, but it has lost its glorious image and is now turning into a republic of "protest" and a country of "xenophobia."

Over the past few years, Korea's image has worsened due to frequent strikes led by militant labor unions, the government's ambivalent attitude toward foreign capital and business, and the nation's inconsistent, heavy-handed regulations.

Adding insult to injury is the government's amateurish handling of the resumption of U.S. beef imports and oil prices, which made many Koreans join the nationwide candlelit protests, demanding renegotiation of U.S. beef imports and Lee's resignation.

Barton, who lived in Korea for a couple of years as a consultant before, said that Korea is not as well known as it should be as a great place to live, noting that Korea actually underplays itself.

``Making a country an attractive place to live in is not an unimportant thing. I travel all around. I actually think Seoul is one of the best Asian cities to live in. But the image is not,'' Barton said.

``If you mention to someone you are going to move to Seoul from New York, people may ask why? That is our brand and we have to work on that side of it,'' he stressed.

The global consultant's view is not a groundless concern. Some indicators suggest that foreigners have turned their back on Korea over the past years amid the falling image of the world's 13th largest economy.

Net FDI ― FDI inflow minus outflow ― in the first quarter fell to minus $670 million for the first time since the third quarter of 2006, according to the Bank of Korea. This compares with net FDI inflow of $1.58 billion in 2007 and $3.59 billion in 2006.

In the 2008 World Bank's ``Doing Business'' survey, Korea's business friendly ranking fell to 30th place in the world, seven steps down from a year earlier, and falling behind most Asian countries, including Singapore, Hong Kong, Japan, Malaysia and Thailand

The nation received failing grades in the categories of launching a business, employing workers and taxation in which it ranked 100th, 131st and 106th place, respectively, among 178 investigated countries.



President Lee's Leadership and Vision

Barton, who is chairman of the International Advisory Committee to the President of South Korea on National Future and Vision, said that Lee and his administration are going in the right direction in the long term.

``He is the guy who can make big changes that will benefit the country, but things will not change overnight,'' he said.

``I think from an external point of view, in the global scene, it's very positive because he is seen as very open, very market-oriented, very interested in different ideas, very determined to make some moves,'' he added.

His assessment on Lee and his team is in stark contrast to Lee's popularity that has recently hit rock bottom, battered by the U.S. beef import issue.

``There can be different views on issues around the mad cow disease thing. I don't think a leader should run the government based on opinion polls,'' he said.

``I just hope that we don't get too distracted from that mission because so many things need to be done. We have a short time frame to get it done,'' he added.

Consulting to Lee Administration

Barton picked four key areas that President Lee and his administration should work on _ research & development (R&D) for future businesses, talent development, leverage of Korea's power and deregulation.

``I would put a lot of emphasis on R&D for new businesses of tomorrow, which are going to be climate change, medical services, and IT services,'' he said. ``We have to double down on these areas because they are very important.''

He also stressed the need to develop a big program on talent development, citing the poor performance of the nation's universities.

``A big issue with companies around the region is scarcity of talent. That's why I would do reform of the education system,'' he said, noting that Korea has only one university in the top 100 rankings of the world.

Barton said that he would also look for ways to leverage the power that Korea has, which would be a big economy, a lot of wealth and so on.
``I would be thinking about our outbound investment. What market shares do Korean companies have in infrastructure building going on in India, China and Russia? We should have a big share of that,'' he said.

He emphasized that Korea may want to buy some Chinese and Indian companies doing infrastructure or may buy junks of oil companies.

``We should buy a percent of British petroleum or Shell. We have got to participate in the energy industry as well outside the country for Korea's benefit much like the Dutch did,'' he added.

Finally, he said he would remove red tape and bureaucratic mash to make it much easier to set up new businesses.

``It takes longer to be able to get a new business going in Korea than many other countries. We have to make it much easier and faster,'' said.

``I think regulatory overburden has to be examined so we can move quickly because speed is going to be the most important thing with everything happening,'' he added.

Korean Companies

Barton said that there are some strong Korean companies operating in the global scene but more innovation is needed to move forward.

``The issue now is we need more innovation, more new businesses for tomorrow so we need to get going on that,'' he said.

The Canadian veteran consultant cited climate change, health care and IT services as new businesses for tomorrow. In particular, he stressed the importance of IT services.

`` IT services are related to other businesses, which would be health, financial services and so on. There are lots of opportunities. It's time to invest in building those future businesses,'' he said.

Lack of Global Leaders

Barton pointed out that Korean companies have made a lot of improvements but they don't have enough global leaders to move them to the next level.

Now there are many Korean companies with a lot of sales outside Korea. But the number of executives from outside of Korea in the top three levels is less than 5 percent, according to the veteran consultant.

``We need more Russians, Germans, Americans and so on in these Korean companies. Also, we need more Koreans in Western companies,'' he said, noting that globalization of top talent needs to accelerate because Korea is behind on that side of things.

Financial Hub Vision

Barton said that the nation's financial hub vision is still feasible but in order to win in the race, Korea should move faster and respond more quickly to the changes in regional environments.

More importantly, he stressed that a public-private sector partnership is a must for the country to achieve its goal to become a financial center in Asia.

``Korea's financial hub vision is still feasible but a lot of things should get going. We have to get into action mode,'' he said.

``It's now time to get both public and private sectors working on a very concrete set of initiatives. It can't be just done by the government, not just done by the private sector,'' he said.

He pointed out that financial center competition is shifting to a new level in Asia, with several significant trends reshaping Asia's role globally.

``As Asia's global economic and financial importance continues to increase, we will see another push by at least five cities beyond Hong Kong ― Seoul, Singapore, Tokyo and Shanghai ― to increase their share and centrality as financial centers in Asia,'' he said.