Article Commentary on LGs plan to enter the European Market
Uploaded by Anita Acavalos on Oct 24, 2007
South Korea is the country in which LG, a multinational corporation, (companies based in many countries) is based. The article presents us with LG’s aim to increase its market share in Europe by 30%. By the fact that Korea has chosen to develop by exporting its industrial goods, like mobile phones, we also see the strategy this country has chosen to develop and we could thus examine the advantages and disadvantages of this strategy.
South Korea is categorized in the Newly Industrialized countries (NIC) (developing countries which have recently developed their industry both rapidly and successfully). The characteristics of these countries are:
Lower development than More Developed Countries (MDC’s)
Rich in resources and factors of production
Rapid levels of growth, not necessarily development
Rapid industrialization
In order for Korea to become a NIC it has taken advantage of its comparative advantage -a concept according to which the country with the lowest opportunity cost (amount of good X that has to be sacrificed to produce Y) is better off producing that good- in labor. Korea due to its large population of 47.7 million has very cheap labor possibly because its population isn’t as educated as the population of developed countries and thus is willing to accept much lower wages out of a need to work and also because the large amount of labor means that finding a job will be harder.
As a result Korea uses her labor to create cheap industrial goods to export as a means of achieving development, because although Korea has achieved high growth levels there is a big difference between growth and development. Growth is the increase of the GDP of a country (the value of everything produced in a country by domestic and foreign firms in a year including depreciation). Contrastingly development as defined by economist Dudley Seers is growth in a country’s economy with reduction in poverty, both absolute (people living below the average income deemed necessary to survive) and relative (people living with the average income deemed necessary to survive), inequality (see figure 1) and unemployment.
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