Porter’s Five Forces Analysis: Korean Higher Education
INDUSTRY: Analysis is conducted upon the Korean higher education industry and its transnational aspects.
THREATS OF ENTRY: The entry of foreign educational services competitors is opposed due to fears that local institutions survival are already threatened by rapidly falling birth rates and national enrollments which compounds the current crisis in education. There is an aversion to foreign influences in education that will negatively impact upon national culture. In addition due to the already high ratio of private domestic capital a shift could translate into foreign capital dominance which might further propel capital outflows thus negating savings in foreign educational consumption. Foreign entry might also further commoditize an already primarily private industry and extenuate an already growing gap between rich and poor students (Kim & Lee, 2004, 2006: 92). Barriers include government regulations stipulating non-profit institutions only, restrictions on increasing tuition fees, and location outside of metropolitan Seoul to minimize popular demand where such services would be greatest (Lee, M.H., 2006:96, 97 &105). However on paper it is quite legal to start up a foreign educational enterprise. The barriers are officially low but unofficially high in terms of reaching economies of scale in far flung regional locations. This is set to change almost to a degree of barrier free entry if Korea ratifies the FTA with the USA and honours its obligations to the WTO. These barriers then exist because entry implies defeat of Korean cultural precepts in terms of education.
THREATS OF SUBSTITUTES: The US, the UK, Australia, and Canada already provide education to nearly half of all OECD international students and prove price prohibitive access to Korean students unable to currently afford foreign studies (Wyckoff & Schaaper, 2005: 3). However European scholarship awards could provide a path to alternate education for many as the EU is predicted to require nearly half a million new researchers by the year 2010 to increase R & D capacities to a rate of an average 3% of GDP from a current 2% which would be more than 700,000 at EC estimates (Guellec, 2002; Sheehan and Wyckoff, 2003; European Commission, 2003 in Wyckoff & Schaaper, 2005: 5). Predictions suggest Chinese and Indians will fill the gaps yet the same study predicts similar required increases in Japan, which would be easier for Koreans to fill than perhaps Indians or Chinese competitors due to cultural similarities. Furthermore Australian universities are providing more short-term research contracts to encourage immigration and at the same time shifting highly skilled professionals from Oz to the US market offering additional incentive to fully funded educational scholarships for Australians. The Korean industry has best minimized financing options through government deregulation and many national economies, including Canada limit student loan disbursements for the purposes of study outside of the county. In Korea’s case student loans for studies within the nation do not even exist. There are significant costs to be absorbed through such switching. In this case it may be the Japanese, Australians or the Europeans who pay the bills. Koreans are quite willing to immigrate under the right conditions. The only substitute that most Korean students have to attending a Korean university at present is to attend a Korean college because they could not enter a Korean university.
INDUSTRY: Analysis is conducted upon the Korean higher education industry and its transnational aspects.
THREATS OF ENTRY: The entry of foreign educational services competitors is opposed due to fears that local institutions survival are already threatened by rapidly falling birth rates and national enrollments which compounds the current crisis in education. There is an aversion to foreign influences in education that will negatively impact upon national culture. In addition due to the already high ratio of private domestic capital a shift could translate into foreign capital dominance which might further propel capital outflows thus negating savings in foreign educational consumption. Foreign entry might also further commoditize an already primarily private industry and extenuate an already growing gap between rich and poor students (Kim & Lee, 2004, 2006: 92). Barriers include government regulations stipulating non-profit institutions only, restrictions on increasing tuition fees, and location outside of metropolitan Seoul to minimize popular demand where such services would be greatest (Lee, M.H., 2006:96, 97 &105). However on paper it is quite legal to start up a foreign educational enterprise. The barriers are officially low but unofficially high in terms of reaching economies of scale in far flung regional locations. This is set to change almost to a degree of barrier free entry if Korea ratifies the FTA with the USA and honours its obligations to the WTO. These barriers then exist because entry implies defeat of Korean cultural precepts in terms of education.
THREATS OF SUBSTITUTES: The US, the UK, Australia, and Canada already provide education to nearly half of all OECD international students and prove price prohibitive access to Korean students unable to currently afford foreign studies (Wyckoff & Schaaper, 2005: 3). However European scholarship awards could provide a path to alternate education for many as the EU is predicted to require nearly half a million new researchers by the year 2010 to increase R & D capacities to a rate of an average 3% of GDP from a current 2% which would be more than 700,000 at EC estimates (Guellec, 2002; Sheehan and Wyckoff, 2003; European Commission, 2003 in Wyckoff & Schaaper, 2005: 5). Predictions suggest Chinese and Indians will fill the gaps yet the same study predicts similar required increases in Japan, which would be easier for Koreans to fill than perhaps Indians or Chinese competitors due to cultural similarities. Furthermore Australian universities are providing more short-term research contracts to encourage immigration and at the same time shifting highly skilled professionals from Oz to the US market offering additional incentive to fully funded educational scholarships for Australians. The Korean industry has best minimized financing options through government deregulation and many national economies, including Canada limit student loan disbursements for the purposes of study outside of the county. In Korea’s case student loans for studies within the nation do not even exist. There are significant costs to be absorbed through such switching. In this case it may be the Japanese, Australians or the Europeans who pay the bills. Koreans are quite willing to immigrate under the right conditions. The only substitute that most Korean students have to attending a Korean university at present is to attend a Korean college because they could not enter a Korean university.
PRESSURES FROM SUPPLIERS: Seoul remains the location of choice for Korean students as it is the keystone of the culture and contains the most highly rated universities and colleges. Korean institutions solidify hierarchical authoritarianism at the same time which elevates rigid communication networks reinforcing decision-making of rank over specialty, age over merit, and gender over ability, all precepts which do not often translate into globalized best managerial practices (Lee, J.K., 2001). Such supplier power is to the benefit of private control of education as opposed to the common weal. Deregulations and government spending cuts throughout the early nineties permitted colleges and universities to freely increase enrollments and income especially those outside of the Seoul Metropolitan area provoking rapid expansion although it was known at the time significant declines would arise in the immediate future. Current supply exceeds demand. Further research confirms that the nature of differentiation and forward integration of higher education is stalled by continuous conflict between founders and their families with stakeholders such as faculty and students (Kim & Lee, 2004: 22). The pressure of suppliers created an educational sector which is under-endowed and the cost of education itself could be one of several significant factors to explain the low birth rates.
Students are obviously essential to the profit-making aims and goals of the majority of Korean universities and colleges. Unfortunately they appear unwilling to stay married long enough to procreate at rates comparable to the early seventies especially when ordered to do so as the cash cows they are perceived to be by educational suppliers. Even Songdo west of Seoul is being filled with Korean campuses and appears a white elephant under current regulations and coincidentally filling the spaces originally intended for foreign competitors (Songdo Map, 2007).
PRESSURES FROM CUSTOMERS: The Korean educational marketplace has routinely allowed few freedoms in terms of choice of provider, choice of product, use of resources, or determination of prices (Jongbloed, 2003 in Kim & Lee, 2004: 3). However highly ranked institutions are able to draw more students, spending more on them and giving more student aid. As a result while enrollments decline, universities and colleges are becoming more competitive, increasing student scholarships while also relying singularly on tuitions for their profits. Such customer driven service improvements are a stop-gap within the industry whereby those institutions unable to adapt to a student as customer satisfaction orientation shall be merged, acquired, bought, sold, and either closed or reborn within a free market system. This occurred in rural Gangwondo in 2005 at the Yang Yang Campus of Kwandong University, a rural subsidiary of Myonggi Corporation which was unprepared to address student complaints that the campus was located too far from Seoul. Local residents protested the foundation of a “Silver Town” respite care facility to the point that the university was losing 1.5 million dollars a year keeping the lights on in an empty facility suitable to the housing and educating of in the range of two thousand students. It is a suitable paradox to ameliorating traditional Confucian arbitration between the individual and the community with a new twist whereby the educators will be accountable to the student rather than vice versa. At a population increase of 0.4% the Korean government is attempting to fill emptying schools with, “tax breaks for parents, social insurance benefits, and subsidies for childcare expenses” (The Korea Times, 2006). Thus attitudes to information and awareness of educational quality are becoming more important because they have become unique selling points for an increasingly competitive and dwindling marketing orientation.
POTENTIAL RIVALS: Extrapolation of current data relating to cooperative programs in China (from highest to lowest rates of participation) of universities and colleges from Australia, the USA, Hong Kong, Canada, France and Britain suggest what a future transnationalized Korean educational landscape may look like. A comparative participation of Australian institutions representing 53.9% or 21 out of 39 of its universities with profit-making concerns in China apparently indicates a freer market than the Korean higher educational sector at present which only provides two programs in China among nearly two hundred and fifty institutions (Wu & Yu, 2006:215). However the shortage present in trained professionals in China does not correlate to Korea and a shortage of students more likely predicts mergers and takeovers of Korean educational enterprises perhaps directly proportional to the rate of rapid growth and rapid decline in enrollments of those enterprises to begin with. One may observe the Australians as probable early first entrants to pick up the dogs when their day comes.
KEY CHALLENGES AND OPPORTUNTITIES: Over reliance upon the private sector rather than state subsidies to achieve growth which propelled 50% of high school graduates into university degree granting programs as of 2002 (Kim & Lee, 2004, 1) resulted in variations in educational quality and marks South Korea as spending the highest amounts on education among OECD nations with public support at 16.7% and GNP of 2.51% (Kim & Lee, 2004: 18-19). Perceived solutions to improving the quality of higher education in South Korea include steps to increase transnationalisation to extend choices, liberalize services, absorb foreign educational consumption in the domestic market, reduce deficits of foreign studies and comply with WTO open market requirements as well as pending free trade negotiations with The USA (Lee, M.H., 2006: 91). Most notable examples of managerial change have been demonstrated at POSTECH and KAIST where aspirations for a true research environment are being implemented and a renewed flexibility in management could provide the keys to Korean educational competitive advantages in an imminent market sector shift (Kim & Lee, 2004: 24).
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