South Korea and India: A win-win partnership

India can learn a lot from South Korea's ascent from poverty in the 1950s to the ranks of the most technologically advanced societies especially in the fields of manufacturing, defence technology, electronics and skills development. And India can, in turn, help South Korea in areas like software and space technology that it excels in. It is a warm and deepening economic and strategic partnership that could well become the template for India's engagement with other geographically smaller but economically dynamic Asian Tigers. South Korea has been in the news in India recently for three separate but loosely connected developments, all of them positive. The first announcement was dramatic, though not startling. Kia Motors, South Korea's second-largest automaker, announced its plan of setting up a $1-billion auto assembly plant in Andhra Pradesh. Its suppliers, who will build their own ecosystem in India, will make additional investments, which were not quantified. Kia Motors will begin work on building the factory later this year. The 300,000 cars per annum plant will ready in two years and the first cars will begin rolling out in 2019. India is already the world's fifth largest passenger car market, having crossed sales of three million units last year. By 2020, it could become the world's third largest after China and the US. So, Kia Motors expects to find a ready market for its products in India. Push to FDI flows The second announcement went largely unnoticed in the Indian media. India, which has set up an investment promotion and facilitation agency, Invest India, to handhold FDI into India “from concept to cash flow”, and South Korea quietly launched Korea Plus, a platform to promote investments from that country into India. It is a special initiative to promote and facilitate Korean Investments in India, the Commerce Ministry said in a statement, shortly after the launch by Nirmala Sitharaman and Joo Hyunghwan, the commerce ministers of India and South Korea, respectively. Korea Plus has three representatives each from the South Korean government and Invest India. “The mandate of Korea Plus covers the entire investment spectrum including supporting Korean enterprises entering the Indian market for the first time, looking into issues faced by Korean companies doing business in India and policy advocacy to the Indian government on their behalf,” the statement said. The initiative is already bearing fruit. Shortly after announcing its billion dollar foray into India, Kia Motor Corporation said in a statement: “Kia Motors Corporation, along with the entire team, wish to express our sincere gratitude for all the support and assistance extended to us in connection with KMC's feasibility study on investing and setting up its first manufacturing unit in India. We further wish to express our appreciation for the assistance provided by Korea Plus which has been helpful for us in making an informed decision.” Boost to Make in India in the defence sector The third announcement was, arguably, the one with the greatest long-term impact. India's largest engineering and construction company, Larsen & Toubro (L&T) announced that it had entered into a $700-million contract with the Ministry of Defence to make and supply one hundred 155 mm/52 calibre tracked, self-propelled artillery guns to the Indian Army. The technology for the guns will be provided by South Korea's Hanwha Tech Win. This will mark the entry of the Indian private sector into the domestic manufacture of offensive weapons systems. These guns are based on Hanwha Tech's K9 Thunder self-propelled howitzers and have been customised to meet the needs of the Indian Army. They will be built at L&T's factory in Hazira in Gujarat and the guns, dubbed K9 Vajra in India, will be delivered within 42 months. The contract envisages 50 per cent indigenous content and is seen as the first step towards building a private sector defence industrial eco-system in India under the Narendra Modi government's flagship Make in India scheme. India currently imports 70 per cent of its defence requirements from foreign vendors. A maturing economic relationship These announcements mark a deepening of the economic engagement that took off in right earnest about two decades ago with the entry into India of four till then practically unknown South Korean brands - Samsung and LG in home appliances and electronics and Hyundai and Daewoo in automobiles. The Indian home electronics market had till then been dominated by homegrown majors such as BPL, Onida and Videocon and the auto market by Maruti, a subsidiary of Japan's Suzuki Motor Company, Fiat, Peugeot and Ford. In the automobile sector, Hyundai has fought its way to the second position in the market, beating off global rivals such as Honda Motor Company, Toyota, Volkswagen, Ford and General Motors, though Daewoo has since ceased operations following its bankruptcy in its home country. Battleground India In a very short time, Samsung and LG swept aside their domestic rivals and even stole a march over Japan's Sony to become India's leading home appliances companies. The Indian mobile phone market, then in its infancy, was dominated by European majors Motorola, Ericssen, Nokia and later, Blackberry. But Samsung's entry soon relegated these once iconic brands to the periphery of the Indian market and the Korean brand is now the clear market leader both in feature phones as well as smartphones. In fact, the Samsung versus LG battle for supremacy in the Indian market has taken on epic proportions and has been compared in several quarters with the famous Coke versus Pepsi rivalry worldwide. After an even start, Samsung stole a huge march over its Korean rival. According to the latest figures available with the Registrar of Companies, Samsung registered sales in India of about $6.5 billion for the year ended March 2015 compared to just $2 billion by LG. Mobile phones account for about 70 per cent of Samsung's Indian turnover. LG has belatedly woken up to this gap and is now following Samsung's lead in designing and making products specifically tailored to the needs of the Indian market and by doubling its marketing budget. This is expected to add to India's domestic capabilities in designing and manufacturing mobile phones and household appliances to the exacting standards of these global majors. Building a manufacturing eco-system Hyundai Motor Company, in particular, has helped nurture and build a small car manufacturing eco-system in India, along with Japanese rival Suzuki. Its factory near Chennai produces more than 600,000 Made in India cars, 40 per cent of which it exports to markets around the world. It has created linkages with India's burgeoning small and medium (SME) sector and built up a base of suppliers, vendors and service producers that have helped India emerge as the small car hub of the world. Appreciating the role played by Invest India in facilitating its entry into India, a leading South Korean electronics manufacturer said in a statement: “Thanks for all your support in arranging meetings with state government officials, they have in principle agreed to resolve all major issues.” Another mid-sized South Korean company entering India said: “I deeply appreciate your help. With your help we will be able to formulate actual pricing of products to be manufactured in India.” A win-win partnership South Korea has been aggressive in betting on India's economic and strategic potential. Bilateral trade has grown more than 40 per cent since 2009, and South Korean companies such as Samsung, LG and Hyundai are among the most respected brands in India. The two countries are now looking at ways to expand their strategic partnership in areas where there are considerable synergies. India's Look East and Act East policies and its efforts to increase its global heft dovetail nicely with South Korea's policy of diversifying its overseas markets and balancing the strategic matrix in Asia. South Korea can provide India with technology to upgrade its domestic industry as well as its defence industrial base and India can, in turn, provide an opening for South Korean companies in the Middle East and Africa, where India carries influence and clout. Space and aerospace There is considerable scope for enhanced cooperation in the field of science and technology between the two countries. India has already established itself as a global powerhouse in software while South Korea is globally competitive in hardware. India has also established itself as a major player in the space technology area, with successful missions to the Moon and Mars. Cooperation between the two countries in these spheres can help South Korea realise its ambition of emerging as a major player in the global aerospace industry while India can benefit from South Korean expertise in designing and building hardware. Infrastructure development India has already identified South Korea as a partner for major flagship initiatives such as Smart Cities, Sagar Mela and Industrial Corridors. The Modi government has embarked on a $650-billion plan to improve India's creaking infrastructure over the next five years and the Prime Minister has frequently mentioned South Korea as a reliable partner for this. South Korea can help rebuild and rejuvenate India's infrastructure in roads, railways, urban waste management and treatment and education. The proposed $4 billion infrastructure development fund will give a fillip to such cooperation. Learning from history South Korea is now the world's 12 th largest economy and the fourth largest in Asia. It is a world leader in consumer electronics, automobiles, steel, ship building and many others. But it wasn't always like this. As the South Korean government website says: “In the 1950s, South Korea was one of the poorest countries in Asia. At the end of World War II, the country inherited a colonial economic system designed solely for Japan′s needs. Much of the country′s infrastructure was destroyed during the Korean War that followed in 1950-1953.” However, an ambitious economic development programme an intensive skills development initiative and an emphasis on foreign trade from 1962 onwards led to “a boom in trade and investment. Rapid expansion, first into light and then heavy industries, followed in the 1960s and 1970s.” The website continues: “This phenomenal growth is often called the 'Miracle on the Han River', the Han River being the main river that runs through the nation′s capital and largest city, Seoul. In the 1980s and 1990s, growth continued as South Korea transformed itself from an exporter of mostly textiles and shoes into a major global producer of automobiles, electronics, shipbuilding, steel and, later, high-technology products such as digital monitors, mobile phones, and semiconductors.” “The South Korean model of encouraging the growth of large, internationally competitive companies through easy financing and tax incentives led to the dominance of family-controlled conglomerates... known as chaebol... Some such as Hyundai, Samsung, LG and SK Company became global corporations.” Replicating the Korean story In a recent report titled “How India Can Become the Next Korea,” Goldman Sachs said India will do well to follow the Korean model. It noted the similarities between the Korean economy of the 1970s with India's current stage of development and concluded that India could be poised for similar exponential growth if the right conditions are created. Skills development South Korea made the transition from being one of Asia's poorest countries to a world leader in heavy industry and high technology sectors in the space of a single generation. It encouraged export-oriented manufacturing industries that led to the creation of a clutch of the world's biggest and most iconic corporations. This journey from an economic laggard to Asian Tiger could not have been possible without heavy investment in basic and advanced technical and vocational training to its population. The Modi government has embarked on a similar initiative called Skill India to impart necessary training to the army of 10-12 million youth who join the Indian workforce every year. The South Korean government can be an important partner in this initiative that is imperative for the success of the Modi government's vision of increasing the share of manufacturing from 18 per cent of GDP at present to 25 per cent and bringing prosperity to all. In this context, Samsung has already signed a partnership agreement with the Ministry of Micro, Small and Medium Enterprises to set up technical schools across India to impart necessary skills development and training to Indian workers.