Huge business conglomerates, known as chaebol, dominated the South Korean economy and in 1997 the top four (Hyundai, Daewoo, LG and Samsung) accounted for over half of the country’s exports. The exporting success of the chaebol encouraged them to diversify and when growth rates were high, such diversification was seen as a sign of strength. The main objective that South Korea adopted to be successful was to invest heavily and copy the developed world’s technology. This was a way of producing wealth. More and more South Korean companies moved production to China to take advantage of lower costs for example Samsung built plants in China as they were attracted to low labour costs and other costs.
There are many other ways that South Korea could have been more successful for example, if the value of the yen had increased, there would have been an increase in the relative price of South Korea’s products compared to the neighbouring countries. This would increase profits and company borrowing would decrease, leading to lower figures of debt. Another example of economic activity to gain success would be to lower the percent of the manufacturing workforce and also try to eliminate foreign competitors by lowering prices of their exported goods.
An example of Second Generation NIC’s is Malaysia. The country has earned its status as an Asian Tiger on the basis of its successful transition from dependence in the 1960s and 70s on primary product exports, to manufactured exports in the 1990s (where over 80% of exports were manufactured goods). One of the factors that affected this manufacturing growth was cheap labour. During the 1970s, increasing personal prosperity in MEDCs fuelled the growth of the consumer society, which in turn accelerated the demand for a wide range of goods. Progressive improvements in transport reduced the inconvenience and costs associated with long distances between markets and company headquarters. This led to a higher proportion of manufacturing processes to be farmed out to factories in LEDCs.
While the explanation for manufacturing growth should always be firmly placed on low costs of production in Malaysia, cheap labour alone is never enough to explain industrial growth. Quality of labour is very important; a certain level of education in the country is required in order to sustain a valuable working force, leading to a wealthy economy. Economic growth and political stability work together. Growth in Malaysia is based on a clear industrial policy, at first attracting overseas investment and then strongly promoting the development of locally owned industries.
India is often describes as a Third Generation NIC. This generation of NIC’s had an estimated $485 GNP per Capita in 2000. The primary sector still dominates employment in India. About 75% of the population are engaged in this sector of the economy, which accounts for around 25% of GDP. In 1999 44.2% of the population of India lived on less that $1 a day. Although India has a reasonably diverse manufacturing base, it has not as yet achieved the rapid expansion experienced by the Asian rivals such as South Korea, Taiwan, Thailand, Malaysia and China. This has been due to a low level of foreign direct investment. The country has a large number of highly qualified professionals whose skills are in demand in other countries, particularly in the English-speaking world. The rapid growth of the 1990s was due to much more to the expansion of the service sector than to manufacturing. In 2000, services accounted for over 47% of GDP. The Indian industry was heavily protected from foreign competition. This lack of competition contributed to poor product quality and inefficiencies in production. Indian manufactured products were often viewed as poor quality and made little impact abroad.
In conclusion the growth of the Indian economy over the past decade has been based more on the service sector unlike the other Asian NICs due to low levels of foreign direct investment in manufacturing and the ability of the English speaking middle class to supply a range of low cost services, particularly in the area of ICT, to developed countries.
The first generation of NICs, the Asian Tigers, developed industry based on a lot of cheap labour and labour intensive production on the traditional industries e.g. textiles, clothing, and leather. They had high populations due to immigration, therefore cheap labour was a key resource, while they were industrialising during the 50s and 60s. The Asian Tiger countries attracted a lot of investment from Japan, multinationals and trans-national corporations (MNEs/TNCs). It was found that it was more productive to move investment form Japan to other countries and other markets, as it would be cheaper. These companies found it a comparative cost advantage due to cheap labour. By diversifying to areas such as FMCG (fast moving consumer goods), they are increasing levels of wealth as these areas are more capital intensive and the goods are destined for export.
There are many factors in the development of NICs. The main objective is to attract inward investment form other countries. Government intervention means that incentives to attract foreign trade are used, for example, tax reductions.