Each year, the IMD World Competitiveness Ranking assesses a country’s ability to cultivate an environment conducive to sustainable value creation by businesses, relying on both quantitative data and surveys of local executives. In 2023, South Korea found itself ranked 28th out of 64 economies surveyed, a notable decline from 20th place in 2020. This drop has raised concerns regarding the ability of South Korean companies to continue growing and contributing to the well-being of their citizens.
IMD’s analysis highlights South Korea’s strengths in scientific prowess and digital capabilities, potentially paving the way for long-term growth. However, the country’s businesses lag in modern management practices and talent development, hindering their ability to fully leverage their impressive technological foundation. If South Korean companies can transform their organizational structures, management approaches, and talent strategies, they can position themselves for sustained success.
The nation boasts a robust technological base, with South Korea securing the top spot in per capita R&D researchers, second place in business spending on R&D and patent applications per capita, and fourth place in higher education accomplishments.
This base allows the country’s conglomerates to excel at innovation in areas as distinct as semiconductors, electric vehicle batteries, biotech, and telecoms on a global scale. This technological foundation not only benefits industry giants like Hyundai and Samsung, but also helped establish a thriving ecosystem of small and medium-sized enterprises (SMEs), the country’s economic bedrock.
In addition, IMD’s World Digital Competitiveness Ranking lists South Korea in eighth place, reflecting its favorable digital mindset and broad acceptance of technology by organizations and private citizens. The nation also boasts a well-developed digital infrastructure and scores highly on “future readiness”, or the level of preparedness to exploit digital transformation, for which it ranks second globally, surpassed only by Denmark. This gives South Korea a solid basis to undertake economic transformation across business, government, and society at large.
Despite having strong technological and digital foundations, South Korea suffers from relatively low workforce productivity growth, ranking 54 out of 64 in the IMD World Competitiveness Ranking. A contributory factor to this situation is its less-developed management practices and talent-development policies. As soon as South Korea addresses these issues, it should become a high-tech nation on a path to sustainable and long-term growth.
The low workforce productivity growth is linked to the service sector rather than manufacturing. Many service-based companies are still SMEs that do not leverage technology and digital tools to improve their operations. However, even the large companies in South Korea are marred by issues that undermine labor productivity, such as excessively long working hours.
In addition, there are very rigid organizational structures and hierarchy which emphasize top-down management, complex upward reporting, but limit informal communication, particularly across departments.
Moreover, there is limited encouragement of employees to change their work practices, and promotion is still based on seniority rather than skill. These practices stand in contrast to the more agile and horizontal collaboration practices that have been central to the competitiveness of many American and European companies.
To make matters worse, companies in South Korea do not invest enough in the development of senior leaders. They also do not expose leaders to international experiences, depriving them of hands-on knowledge about how to manage modern organizations.
Both factors combined explain why South Korea ranks 55th when it comes to its belief in the competence and credibility of its senior leaders. Talent scarcity issues are also accentuated by the fact that South Korea does not attract foreign talent easily, ranking 49th on this metric.
To reverse this problem, South Korean companies need to equip leaders with new leadership skills through education and international exposure. Such leadership development is key because when business leaders are genuinely transformed they become able to foster meaningful change in their organizations, embedding the cultural and strategic shifts that are necessary for people to operate at maximum effectiveness.
At the same time, South Korean companies need to start reducing cultural and linguistic barriers to entice more global talent to join their ranks.
But ultimately a multi-faceted approach is needed. By capitalizing on its technological strengths, addressing workforce productivity challenges, and prioritizing leadership development and global talent acquisition, South Korea can navigate the path toward sustainable prosperity and continued global competitiveness.
Misiek Piskorski spoke at the World Knowledge Forum in Seoul, which took place on 12-14 September. The theme of this year’s forum was Techno Big Bang: Humanity on the Shoulders of Giants.
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