Tuesday, September 20, 2005

Outsourcing From Korea to Korea

Newsweek just published an article on the outsourcing of work from South Korea to its Stalinist neighbor to the north. The reasons: cheap labor and real estate, geographic proximity, and the possibility of closer ties between Pyonyang and Seoul. Kaesung in the North is being touted as a potential Shenzhen, China’s storied “special economic zone.” While the relationship is far from off the ground, if it does develop, there are two potential and contradictory outcomes: (1) it could shore up Kim Jong Il’s impoverished slave state and prolong its reign; (2) economic liberalization could lead to some measure of political liberalization as North Korean workers are increasingly exposed to the ways of the South and, by extension, the ways of the rest of the world. If the business is lucrative, the South could potentially require further reforms as a sine qua non for further investment, thus exposing North Korea to political and economic daylight. A combination of carrot and stick, in other words. However, there are major obstacles: “The main problem is Washington's economic sanctions against Pyongyang, which prohibit the sale or shipment of key strategic goods, such as computers, to the North. For the same reason, high-tech firms don't invest in the zone. Telephone calls from Kaesung to nearby Seoul are expensive because they're patched through Japan. What the zone needs more than anything to succeed is a genuine political thaw between North Korea and the United States. Without that, its dreams of hot growth will cool fast.”

The article sponsored by A-1 Technology Inc, dealing in software outsourcing and offshore software programming