Over the past week, I've been sharing my thoughts on the recent heightened tensions between North and South Korea over the sinking of the Cheonan naval vessel.
After a lengthy investigation following the March incident, a multinational forensics team concluded unanimously it was a North Korean torpedo that sank the South Korean ship.
Why did North Korea launch such an attack knowing it would anger even those sympathetic to their plight? In correspondence, Marcus Noland, noted NK scholar, shared his thoughts on North Korean motivations. They include:
1) Revenge (for an earlier encounter where the North took a bruising from the South's better equipped navy).
3) Wave the bloody shirt—divert attention inside the North from disastrous confiscatory currency reform.
4) Influence South Korean National Assembly elections--the current president Lee Myung- bak administration's takes a hard line approach to the North and opposition leaders have long supporting a more conciliatory path.
5) Succession—Kim Jong Il's son and his peers might get credit for the attack and it would be a show of strength to defy the South and their allies.
That said, tension and emotions are running high. In fact, more so than in years. June elections, pro-North supporters, anti-North war veteran groups, and the media continue to fan the situation.
Without ignoring or downplaying the human suffering and loss resulting from the Cheonan sinking... So, why might this benefit Korean global business? Samsung, Hyundai-Kia Motors and LG derive much of their profits from international sales. Even with the global recession last year, they all performed well---lots due to a weak Won. This year the Won was strengthening against the Dollar as the South Korea economy recovered. This could mean that overseas profits this year would in turn suffer.
Interestingly, the Korea Economic Institute notes that when a threat arises from the North the Won drops in value to the Dollar. (Please review the full article posted by the Korea Economic Institute.) Click Here
So what may foster fear and concern among many working for Korea-based global organizations, the current tensions might actually have some benefit-- at least in short term profits.
So what can we expect.... Over the next few weeks, we'll see defensive positioning of the South Korean and US military forces, more sanctions against the North, China and Russia trying to avoid taking sides, and the North grabbing as much media attention as it can.