{"id":2203743,"date":"2024-02-06T17:39:34","date_gmt":"2024-02-06T08:39:34","guid":{"rendered":"https:\/\/koreapro.org\/?p=2203743"},"modified":"2024-02-07T18:49:32","modified_gmt":"2024-02-07T09:49:32","slug":"why-india-is-largely-absent-in-south-koreas-indo-pacific-strategy","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2024\/02\/why-india-is-largely-absent-in-south-koreas-indo-pacific-strategy\/","title":{"rendered":"Why India is largely absent in South Korea\u2019s Indo-Pacific strategy"},"content":{"rendered":"

The Yoon Suk-yeol administration introduced its <\/span>Indo-Pacific Strategy<\/span><\/a> in late 2022, highlighting the country\u2019s focus on expanding its diplomatic and trade ties with Southeast Asia. However, the extent of South Korea\u2019s outreach to India falls short compared to its other regional partners despite the strategy\u2019s name.<\/span><\/p>\n

Between 2015 and 2022, trade figures show China\u2019s continued dominance in South Korean trade, although its share slightly decreased by 3.2%. In contrast, trade with the U.S. and other Asian countries has increased by 2.8% and 6.3%, respectively. South Korea\u2019s trade with Vietnam stands out as its exports to the Southeast Asian country have surged from $27.7 billion to $61 billion.<\/span><\/p>\n

South Korea\u2019s exports to India also increased but are significantly lower, amounting to just a quarter of the volume to Vietnam. Import patterns are similar, with China and the U.S. as major sources, while Vietnam, Malaysia and Indonesia have become more important than India.<\/span><\/p>\n

Investment trends echo this cautious stance toward India. The U.S. is the leading recipient of South Korean outward foreign direct investment (OFDI). South Korea\u2019s preferred investment destinations in Asia are China, Singapore and Vietnam, with investments in India trailing.<\/span><\/p>\n

The $368 million invested in India in 2022, as <\/span>reported<\/span><\/a> by South Korea\u2019s Export-Import Bank, appears modest, considering India\u2019s size and economic growth. This limited investment highlights India\u2019s secondary role in South Korea\u2019s Indo-Pacific Strategy engagements and raises questions about its position within South Korea\u2019s broader foreign economic strategy.<\/span><\/p>\n

South Korea\u2019s low prioritization of India indicates that Seoul\u2019s Indo-Pacific Strategy is more focused on aligning with other nations\u2019 strategies rather than forging its own path forward. However, this approach raises critical questions about South Korea\u2019s investment strategy in India.\u00a0<\/span><\/p>\n

\"\"

South Korea\u2019s OFDI to the U.S. and other regional partners from 2016 to 2022 (figures in $1,000), Source: Export-Import Bank of Korea<\/span><\/i><\/p><\/div>\n

SUBCONTINENTAL CHALLENGES<\/b><\/p>\n

Approximately 600 South Korean companies, including <\/span>six banks<\/span><\/a>, operate in India, but <\/span>only large firms<\/span><\/a> such as Hyundai, LG, Samsung and POSCO have made significant inroads. However, even those companies have faced challenges. For instance, POSCO has yet to establish an integrated steel mill, highlighting the difficulties of penetrating the Indian market.<\/span><\/p>\n

The economic relationship between the ROK and India primarily involves South Korean businesses buying resources from India and selling finished consumer goods. Unlike in other Southeast Asian countries, Korean firms have not integrated India into their supply chains as a component supplier, leading to lower trade in parts and components \u2014 a significant segment of modern trade.<\/span><\/p>\n

Operating in India presents challenges for South Korean companies. India\u2019s substantial industrial base, particularly in traditional sectors, is dominated by domestic firms resistant to foreign market entry. The Indian government\u2019s \u201c<\/span>Make in India<\/span><\/a>\u201d initiative further fortifies this domestic manufacturing base.<\/span><\/p>\n

Research by POSRI, an analytical unit under POSCO, indicates a trend among South Korean companies that operate in India of avoiding joint ventures, preferring to operate wholly owned subsidiaries instead. Such concerns stem from past <\/span>partnership failures<\/span><\/a> in the mid-1990s.<\/span><\/p>\n

Bureaucracy further complicates India\u2019s business environment, raising operational costs, particularly for small and medium enterprises (SMEs). The involvement of SMEs, crucial in the value chains of Korean conglomerates, is essential for robust economic cooperation between the two countries.<\/span><\/p>\n

Another significant challenge is India\u2019s tax regime. With an average industrial tariff rate of <\/span>18.3%<\/span><\/a>, India\u2019s tariffs are notably higher than South Korea\u2019s (approximately <\/span>6.4%<\/span><\/a> for non-agricultural products) and significantly exceed the typical rates in other developed countries. This contrasts with <\/span>China<\/span><\/a>, where lower tariff barriers have facilitated South Korean exports.<\/span><\/p>\n

India\u2019s reluctance to engage in regional trade agreements that necessitate significant tariff reductions has maintained these high tariff levels. It has <\/span>withdrawn<\/span><\/a> from negotiations like the Regional Comprehensive Economic Partnership and is not a part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.<\/span><\/p>\n

The <\/span>Comprehensive Economic Partnership Agreement<\/span><\/a> signed between the ROK and India in 2009 also <\/span>lacks substantial tariff harmonization<\/span><\/a>. Such tariff policies and instances of tax investigations like the current one involving <\/span>Samsung<\/span><\/a> can deter foreign investment.<\/span><\/p>\n

Further complicating matters are infrastructural gaps, bureaucratic hurdles in accessing public services and the challenge of securing skilled labor. While India\u2019s workforce is often lauded for its education and skill, this is not uniformly the case across the country.\u00a0<\/span><\/p>\n

A former Amazon employee involved in setting up the company\u2019s network in India told <\/span>Korea Pro<\/span><\/i> that the demand for skilled labor often outpaces supply, complicating Korean firms\u2019 talent search initiatives.<\/span><\/p>\n

Additional issues include inadequate payment infrastructure, the predominant role of local governments necessitating <\/span>extensive regional networking<\/span><\/a> and high crime rates. These factors, particularly impactful for businesses operating on thin margins and reliant on mass consumption, reduce the overall attractiveness and profitability of the Indian market for foreign investors.<\/span><\/p>\n

\"\"

Hyundai’s headquarters in India, Oct. 10, 2022 | Image: Wikimedia Commons<\/a> (CC BY-SA 4.0 DEED<\/a>)<\/em><\/p><\/div>\n

VITAL PARTNERSHIP<\/b><\/p>\n

Despite the challenges, it is crucial for South Korea to strengthen its economic ties with India, particularly as it seeks to diversify its economic dependency beyond China. The global trend toward <\/span>diversifying supply chains<\/span><\/a> for risk mitigation and resilience will likely persist.<\/span><\/p>\n

With many markets nearing saturation, India is a promising destination for South Korean companies seeking new export markets and cost-effective labor.<\/span><\/p>\n

India\u2019s infrastructure initiatives under Prime Minister Narendra Modi’s government are poised to create substantial demand for industrial inputs \u2014 an area where South Korean companies have the potential to contribute significantly.<\/span><\/p>\n

Moreover, the <\/span>rising disposable income<\/span><\/a> of Indian consumers presents opportunities for a range of products, from cosmetics to home appliances and automobiles, aligning with South Korea\u2019s export strengths.<\/span><\/p>\n

At the start of the year, the Korean Investment Corporation <\/span>announced<\/span><\/a> its intention to set up an office in Mumbai, indicating a more committed approach by South Korea to deepen its economic presence in India. This decision, along with <\/span>increased investment commitments<\/span><\/a> from several South Korean companies, is a strategic step toward building a foundation of trust and reliability for South Korean businesses in the Indian market.<\/span><\/p>\n

However, progress in strengthening these economic ties will be gradual. Building the necessary physical and administrative infrastructure in India will require concerted efforts at multiple levels. Companies may also face initial financial challenges, potentially incurring losses for several years before achieving profitability in the Indian market.<\/span><\/p>\n

Consequently, support measures from Seoul will likely play a crucial role in integrating India more centrally into South Korea\u2019s Indo-Pacific Strategy, ensuring a balanced and effective approach to this vital economic partnership.<\/span><\/p>\n

Edited by John Lee<\/span><\/i><\/p>\n

Business & Economy<\/span><\/a>Inter-Korean & Foreign Relations<\/span><\/a><\/div>","protected":false},"excerpt":{"rendered":"

The Yoon Suk-yeol administration introduced its Indo-Pacific Strategy in late 2022, highlighting the country\u2019s focus on expanding its diplomatic and trade ties with Southeast Asia. However, the extent of South Korea\u2019s outreach to India falls short compared to its other regional partners despite the strategy\u2019s name. Between 2015 and 2022, trade figures show China\u2019s continued […]<\/p>\n","protected":false},"author":10407,"featured_media":2203744,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[24,28],"class_list":["post-2203743","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-business-economy","tag-inter-korean-foreign-relations"],"yoast_head":"\nWhy India is largely absent in South Korea\u2019s Indo-Pacific strategy - KOREA PRO<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/koreapro.org\/2024\/02\/why-india-is-largely-absent-in-south-koreas-indo-pacific-strategy\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why India is largely absent in South Korea\u2019s Indo-Pacific strategy - KOREA PRO\" \/>\n<meta property=\"og:description\" content=\"The Yoon Suk-yeol administration introduced its Indo-Pacific Strategy in late 2022, highlighting the country\u2019s focus on expanding its diplomatic and trade ties with Southeast Asia. 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