North Korea: Outsourcing Giant

If there’s one country in the world that you might not think would be at the top of the outsourcing list and the place to send orders to be fulfilled from the West, it would probably have to be North Korea. The world’s most closed economy, that Communist dictatorship. It’s the place where doing business would be as volatile as the guy that leads the country in a patriarchal dynasty handed down from his father and in which the Supreme Leader of the Democratic People’s Republic of Korea, Kim Jong-un, is elevated to the rank of demi-god, alive and kicking.

But, is the economy of North Korea as closed as we have all seemed to believe for decades now?

North Korea and Freedom

North Korea is an economy that is more and more closely tied to the economic expansion of China. It might be the totalitarian dictatorship and ultra-communist of the world, but it is getting overspills from the Chinese economy and despite what the West might be saying there are companies that are already outsourcing there. The dictatorship that has come on from the cold? Or the economy that is too good a deal for the West to override and ignore? Maybe a bit of both, six of one and half a dozen of the other.

North Korea might be the stalwart enemy of the self-proclaimed democratic West, but it’s the destination for the outsourcers. It’s cheap, it’s high-tech and it’s the new place to be. It’s the Costa del Sol of Spain of the 1970s for the flocking German tourist and the Brits abroad: cheap and an opportunity that can’t be missed, but you’ll certainly come home with a Delhi belly.

Data might remain a challenge to collate and whether we can believe what can be found in an economy that chose to try to isolate itself from the world. The economic freedom score is only 1.5 on the 2013 scale. But that is an improvement on the score of 2012 which stood at just 1.

  • The Index of Economic Freedom is an annual ranking that is created by the Wall Street Journal and the Heritage Foundation.
  • Hong Kong is considered to be the freest country economically-speaking in the world yet again in 2013, closely followed by Singapore.
  • Both have a score close to 90 out of 100.
  • The US comes in 10th after Australia, New Zealand, Denmark and Canada to name just a few with a score of 76 (down 0.3 on 2012 score).
  • Long gone are the days when the US was up in the top five back in 2005.

The type of things that are taken into consideration when calculation the rankings are:

  • Business freedom and the ability to set up a company or start a business.
  • The absence or presence of trade barriers.
  • Fiscal freedom and the tax burden on the population.
  • Property and the right to freely own.
  • Financial freedom or the independence of the banking system and freedom from state control.
  • Corruption and the effects on the economy.
  • Labor freedom and the ability to change jobs, demand redress and obtain legal regulation.

North Korea and China

Perhaps some of the elements in the list above might be telling signs of the reason why certain economies are not as free as we might think in some places in the world. North Korea might be 177th and last country on the economic freedom index with the wooden spoon presented in great pomp and ceremony (or at least, the famous Korean steel chopsticks).

  • North Korea is supposed to have a level of Gross Domestic Product which amounts to $40 billion, a GDP-growth rate of 8.75% for 2012.
  • GDP per capita stands at $1, 800.
  • Its main export partners are China, accounting for 67.2% of its exports.
  • South Korea, despite all their differences accounts for 19.4% of its exports.
  • It imports roughly the same amount (from china: 61.6% and from South Korea: 20%).

China was at the origin of a state development bank in North Korea since the Chinese were fed up with the corruption in the country. Now, that’s pretty rich! But there is an increasingly blurry line that is appearing between state activities and private incoming-generating ones. Today there is a strong demand still for working for the state and securing a government position. But, what has changed according to new research is that it’s not for the same old reasons. Today, it’s because being part of the elite means access to business platforms, a springboard for getting ahead and striking it rich (through corruption perhaps, but a different type of corruption to the purely political kind).

North Korea and the West

Today there are companies in France, Germany, the Netherlands and not just China that are outsourcing the production of particularly clothes in North Korea. The garment industry has found its outsourcing replacement for Bangladesh that has grown too publicized for its dangerous sweatshops. Moving to North Korea might just mean that nobody will know anything. What goes into North Korea rarely comes out. Some of the clothes that Europeans could be walking around in might just have been made in North Korea, the Hermit Kingdom dictatorship. The comic-book caricature doesn’t hold anymore and North Korea is not as Hermit-like as the West may make us all believe.

The investment might most definitely be high-risk, but the returns and yield on that investment might be a way to strike it rich. The masterplan of North Korea seems like it is to woo the West to manufacture there. They couldn’t get us by ideology, so the North Koreans are playing us at our own game now.

North Korea may indeed have very little to do (if anything) with the USA, but the rest of the world hasn’t turned its back on the country and it’s far from being hermit-like at all. There are thousands of North Koreans that work in China, thousands that go overseas to study on bilateral exchange agreements with foreign universities and there are companies from the West that are starting to outsource their manufacturing there.

Naturally, there’s no suggesting that the economy of North Korea is going to suddenly explode into a market economy ready to embrace capitalism and free-market economics. Liberalism hasn’t arrived in North Korea quite yet. But, there are pockets of what resembles capitalist money-oriented enterprises. It is still a repressed economy and it is military might that embodies the state, the songun policy. But, that is changing and it looks as if the West has something to say in the matter.

We are overlooking the dictatorship just as soon as we can and anyhow freedom gets put on the back burner these days where money is concerned. 

About The Author

tothetick

Professional team of writers/analysts analyzing the financial markets.

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