UK’s Heightened Interest in Korean Market

As the Korea-EU FTA comes into effect, a new chapter has been opened also in the trade between the UK and Korea. We at BusinessKorea sat down with Rob Edwards, Chairman of the British Chamber of Commerce in Korea (BCCK), to hear his views on the effect on British businesses of the free trade agreement.

Q: As the Korea-EU FTA took into force in July this year, an aggressive expansion by EU businesses into Korea is being made. What are promising fields here for the British companies?

A: The FTA represents a major boost for British companies who are keen to bring their world-class technology and cutting-edge design to the Korean market. Designers such as Burberry and Paul Smith will find it easier to offer quality fashion products to Korean consumers. World-class legal and financial services firms from the UK will be able to collaborate closely with Korean firms, and British low carbon firms will be able to work with counterparts in Korea to devise technologies that tackle climate change, in line with President Lee’s commitment to green growth.

Q: In what areas of the UK is the Korea-EU FTA most likely to benefit the Korean companies? What impact do you see it will give on investment and trade between the two countries?

A: Most certainly where consumer electronics are manufactured in Korea such as high-tech televisions, audio equipment, advanced function washing machines, etc., they will have an increased price advantage over competing Japanese goods.

Efficient and highly automated companies, which can compete on price, stand to gain market share. Here I am specifically thinking about POSCO

In regard to clean energy, once the “noise” subsides in regard to nuclear power which it will in around a year’s time, there will be a major opportunity for companies such as Doosan, as EU countries strive to meet targets for reduced CO2 omissions.

Q: If Korean firms opt for the UK as a foothold to access the EU market, what industry do you believe is most promising?

A: Most of the Chaebols, covering all their multiple activities, already have their European headquarters in London, mainly centered in South West London in areas where Koreans have long been established residentially. The signing of the Korea-EU FTA is unlikely to alter that situation. They are comfortable with the English language and especially recognize the quality of a British education in that South West London area.

London is now one of the world’s leading design centers - some opine that it is the leader - and the Chaebols need to be near the best designers if they are to continue to compete in international markets.

Q: After the 2008 financial crisis, your audit authorization was transferred to the Bank of England with dissolution of the Financial Services Authority. What do you think are the respective strengths and weaknesses of our two countries’ financial supervisory system?

A: The history of British financial market supervision seems to be repeating itself: in 1997 a new Government announced sweeping reform to the institutional framework just days after it came to power; with another new Government in place after the 2010 election, major institutional restructuring has started all over again. Fixing the Financial Services Authority was a solid option in principle, politics has dictated the result. In short the FSA were viewed to have had a too light touch policy in the run-up to the financial crisis of 2008/2009.

Similarly in Korea, it is public knowledge that the Bank of Korea never really accepted banking supervision passing to the FSC/FSS following the 1997/1998 crisis, but probably politics also played its part in that decision as well. The majority of Koreans still do not understand why there is a FSC and a FSS and why the sensible move to merge them just fell away sometime in 2005.

However, there are some indications that the Bank of Korea might take back some supervisory responsibilities on top of those related to banks and financial companies’ foreign exchange transactions, as a result of the current Savings Bank crisis and scandal. There are voices being raised in the National Assembly in this regard.

Q: Recently Moody's gave a warning that major UK banks' credit ratings may drop. Please explain its background and the British financial industry’s reaction to it?

A: Sometimes I think the rating agencies believe they rule the world. They mucked-up big time during the financial crisis and many would now view that they are over-compensating and apply a theoretical discount factor to whatever they are forecasting. Royal Bank of Scotland and Lloyds Bank are virtually sovereign banks through government shareholdings and their ratings, therefore, to a great degree should align with those of the UK. Barclays, HSBC and Standard Chartered are very well capitalized, very profitable and highly liquid banks and are recognized as such in the global financial community.

Q: What do you think must improve for Korea to realize a financial hub in the Northeast Asia?

A: The current Korean government, I believe as a matter of policy, are not promoting Korea as a potential financial hub for North East Asia in the short to medium term. Longer term, perhaps they will. I believe they have taken this view based upon the current reality of the state of the financial industry in Korea and, more to the point, the disappointing progress made since the Capital Markets Consolidation Act came into effect in February 2009 with much fanfare. The previous government, quite rightly in my view, wished for Korea to re-establish an Investment Banking capability and to develop a wide range of asset management capabilities and also develop an alternative investment capability with the formation of Korean Hedge Funds and private equity funds. Progress has been very slow indeed.

My own view is that a lot of work still needs to be done in developing the necessary skill sets of local professionals, so that there is a decreasing reliance on expatriate knowledge. But there is a bit of a Catch 22 situation: there needs to be a period - probably a decade - where there is a significant increase in expatriates who undertake while they are in situ, a knowledge transfer. Of course it would be good if those expatriates were highly-skilled ethnic Koreans who abound in New York, London, Singapore and Hong Kong. There are a sub-set of things that need to be done to make Seoul as exciting and comfortable place to be as are the four cities mentioned. The government, Seoul city government and KOTRA/Invest Korea understand this and are making admirable progress with tailored initiatives.

Q: Lastly, please briefly introduce Standard Chartered Bank and your life here.

A: I should hasten to point out that I am participating in this interview in my role as Chairman of the British Chamber of Commerce in Korea and not as a SVP of Standard Chartered. So any views on economics, finance, etc. are my own and not those of Standard Chartered.

Having cleared the way, broadly what I can say is: Chartered Bank was established in London in 1851 and Standard Bank founded in the Cape Province of South Africa in 1862, but its head office later established, also in London. Standard Chartered was formed in 1969 through a merger of these two banks. It is a truly global bank. We have 1700 branches spread across 70 countries and employ over 80,000 employees representing 125 nationalities. Chartered Bank opened its branch in Seoul in 1968: the second bank, six months after Chase Manhattan Bank. We acquired Korea First Bank in April 2005. It was always in our DNA to have a substantial presence in Korea.

My first posting in Standard Chartered in 1978 was to Seoul for two years. I returned in 1992 for two years and for good in 2004. I live very happily in Seoul with my Korean bride of 32 years. I eat far too much Korean food, because it’s delicious and I am very happy to continue to work in a great organization that is Standard Chartered.