A Chance for Positive Change in North Korea

Despite all the dire predictions about what may happen in North Korea after the recent death of Kim Jong Il, the event could help open up the reclusive communist country to new business opportunities.

The West tends to focus on North Korea’s nuclear programme and starving population. One of the lesser-reported facts is that in the last decade or so there have been encouraging signs that capitalism is slowly taking hold. A free economic zone, known as Kaesong, has been established in a border area near the demilitarised zone where South Korean companies can employ North Koreans to manufacture cost-competitive products for exporting. And in 2003, Hyundai launched a tour programme to a resort it owned on Mount Kumgang, which attracted nearly 2 million tourists from the south and elsewhere. (The programme was halted in 2008 after a shooting incident.) These ventures are undoubtedly motivated by North Korea’s need for hard currency. But they also signal the country’s willingness to experiment with its communist model. China was once a hard-line socialist regime until it too began tinkering with capitalism in the 1980s. In fact, Kim Jong Il was a frequent visitor to China in recent years, not only to scurry financial favours from North Korea’s biggest ally but also to benchmark China’s economic reforms.

There is great uncertainty surrounding North Korea’s newly crowned “supreme leader,” the 20-something Kim Jong Un. Given the younger Kim’s inexperience, the expectation is that he will have to prove himself to the regime’s old guard – which is likely to mean more military provocations.

The more optimistic scenario, however, is that his coterie of advisers will include a few reform-minded technocrats. Pyongyang is a relatively modern city inhabited by well-educated people who are conscious of the need for change. The younger Kim himself was partly educated in the West. The hope, therefore, is that he might be open to new ideas and to rebooting the commercial initiatives initiated by his father.

The companies that could invest in North Korea are likely to be either South Korean or Chinese. China has a vested interest to maintaining stability in the region, and with Chinese companies becoming more prominent on the world stage, the timing is ripe for them to invest in causes that can generate goodwill abroad.

North Korea may be one of the poorest countries in the world, but its actions affect some of the richest. Instead of taking a ''wait and see’' approach, policymakers and businesses should be more proactive in promoting positive change in North Korea.

(Dae Ryun Chang is a professor of marketing at Yonsei School of Business in Seoul, South Korea.)

© 2011 Harvard Business School