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[Herald Interview] New markets, startups can counter crisis: Arthur D. Little CEO

Consulting firm CEO says Korea should avoid being taken hostage, seek global talent for startups

Nov. 23, 2022 - 17:24 By Choi Si-young
Ignacio Garcia Alves, chairman and chief executive of Arthur D. Little, speaks during an interview with The Korea Herald at the consulting firm’s Seoul office on Nov. 17. (Im Se-jun/The Korea Herald)

As colliding shocks prompted by inflation rocks the global economy, policymakers are managing their expectations for growth while companies are searching for ways to ride out the disruptions following a potential global recession.

The pace of recovery will be as much different as the size of the impact and there is no universal way of preventing and mitigating such a crisis in coming years. For South Korea, however, the antidote lies in finding new markets to avoid overdependence and launching startups to support growth, according to Ignacio Garcia Alves -- chairman and chief executive at Belgium-based consulting firm Arthur D. Little.

“Being able to not be overly dependent on one country (is key),” Garcia said in an interview with The Korea Herald. That is what the maestro in strategy would do if he were to directly advise Korean policymakers currently grappling with what they say are “unprecedented economic woes” for Asia’s fourth-largest economy. Growth for the trade-led economy is expected to take a bigger hit next year as higher energy import costs chip away at export gains.

But opening new markets to source Korean products is not to be mistaken for “being totally independent.” Rather, the approach seeks independence from “any influence that makes you a hostage,” Garcia said, stressing the export powerhouse should be able to “control dependence,” in a reference to China, Korea’s biggest trading partner, amid a slowdown in the world’s second-largest economy.

A world with higher volatility, uncertainty, complexity and ambiguity or VUCA requires preparations for “different scenarios,” according to Garcia, who cited a German example of underdelivering on those efforts. Dependence on Russia for gas was a mistake, Garcia noted, though it had been nearly impossible to have anticipated a full-blown, geopolitical conflict that set off a search for an alternative energy source.

But contingencies are only half measures to fight off another supply chain crisis, the consulting firm CEO added, saying Korea needs an army of startups to deliver actual growth. Startups are what the Korean economy, fueled by big family-run conglomerates, is chiefly missing; creating an ecosystem that fosters them is the priority, according to Garcia.

And the Asian country should take a bold step this time, allowing global talent to come in and build the next “unicorn,” privately held startups worth at least $1 billion, Garcia stressed. Nearly all Korean startups are launched by locals, in part because foreigners face a number of hurdles -- the biggest of which are language and culture. Seoul’s drive, often involving putting up a tax-free zone to incentivize businesspeople, has largely sidestepped foreign talent leading the re-makeup of its economy.

“Take a look at France and see how they completely changed the mindset about creating startups, not just for people but for international people,” Garcia said, referring to “the last five years or so” when Paris made the shift to jumpstart the economy. “France is now one of the biggest countries with startups.”

Meanwhile, existing companies should be more conscious of the latest global initiative addressing environmental, social and governance problems for “sustainable growth,” according to Garcia.

“Personally I am convinced that we have no other choice but to do it,” he said, describing the ESG campaign as serving interests of not only governments but also businesses themselves, because the commitment to leaving positive social impact makes them better, more energy-efficient at the least.

The younger generation, more sensitive to such change than any other age groups, will increasingly “blacklist” firms looking the other way, he added, saying the current global headwinds involving inflation and aftershocks of the pandemic would help set a higher ESG target for many industries looking reduce costs and redundancies -- particularly those keen to attract the millennials and Generation Z, born between 1981 and 1996.

Emerging digital businesses like the metaverse -- an online space where people can meet, work and interact virtually from anywhere in the world -- is also an opportunity for Korean businesses; seeking business-to-business transactions would be more profitable, according to Garcia, who said Korea could tap into its “strong industrial background.”

“Everything related to the internet, it’s very US-dominant from a business-to-consumer perspective,” Garcia said, citing US tech giants including Google and Meta. “I don’t believe you can win a battle when you are too far from a leadership position.”

The consulting firm CEO, however, was less sure about putting a timeline on when the global economy would pick up steam again, noting “many triggers” -- like the Ukraine war -- render any forecast tricky. He estimated that the US might make a rebound quicker than other economies, while the Korean economy could eye a full comeback as early as the fourth quarter in 2023.

“(That is) if it’s a short one. The crisis could be longer and could last a longer time,” Garcia said.