In 2012, people all over the world were gallop dancing and singing ‘Gangnam Style’, even though they weren’t sure of the meaning of the Korean words. Psy’s widely popular track was the first video to break one billion views on YouTube and is just one of the symbols of Korea’s wildly popular creative industries.
Since then, Bong Joon-ho’s Parasite became the first film in a foreign language to win an Oscar for best picture, and Korean pop (or ‘K-Pop’) groups like BTS and Blackpink have huge followings all over the world. Meanwhile, during Covid lockdowns the Netflix hit Squid Game attracted a massive international audience.
This popularity of the creative industries, known as the Korean Wave – or ‘hallyu’ – has transformed the perception of Korea to a country that is decidedly cool. The impact of hallyu on the economy, however, is limited. If you listen to K-Pop fans they may try to convince you the seven-member boy band BTS is the country’s most important export and overshadows the contribution of the conglomerates – or ‘chaebol’. The major contributors, however, remain very much in the traditional industries such as semiconductors, electronics, automotive and shipbuilding.
Martin Roll, a business and brand strategist an1d author of ‘Asian Brand Strategy’ tells Treasury Today Asia, “The Korean Wave modernised the face of Korea.” Although the mainstay of the economy has not significantly shifted, hallyu has transformed what ‘Made in Korea’ means.
Joining the rich person’s club
The rise of Korea’s creative industries comes in the context of the country’s rapid modernisation, taking Korea from one of the poorest countries in the world in the 1960s to the 12th-largest economy in the world.
Part of this rise, as John Walsh, Assistant Professor in Marketing and Communication at Shinawatra University in Bangkok, Thailand, includes Korea joining the Organisation of Economic Cooperation and Development – often described as the ‘rich person’s club’ – in 1996. “It is the hallyu that has persuaded Asian countries at the societal level that Korea is really part of the developed, western world,” Walsh writes in an academic paper.
The Korean Wave also enabled the country to bounce back from the Asian financial crisis of 1997, when it had to be bailed out by the International Monetary Fund, and quietened criticisms that Korea shouldn’t have joined the OECD. Shin Song-bum, Minister – Permanent Delegation of the Republic of Korea to the OECD, writes in an editorial that the economic crisis provided Korea with an opportunity to overhaul its economy, which was when the hallyu was born. “The success story of hallyu is said to be one of those that eloquently testifies that it was the right decision for Korea to join the OECD.”
The value of branding
Roll notes in a blog post how the effect of hallyu has grown massively, contributing 0.2% of Korea’s GDP in 2004, which was around US$1.87bn to an estimated US$12.3bn boost on the Korean economy in 2019.
Roll, also CEO of Martin Roll Company, explains that if countries pursue a strategy of being a low-cost manufacturer, that position will eventually be eroded, and to add value they need to have a clear brand identity. Roll says hallyu has enhanced Korea’s international image and changed the perception of ‘Made in Korea’, and the country has successfully established a distinctive edge. With the Korean Wave, all Korean producers benefit, in theory, because there is a more favourable perception of the country of origin.
In other estimates from the Korea Economic Research Institute (which were released in July 2023) between 2017 and 2021 the export of items like cosmetics, music and dramas, had an economic impact of 27trn won (~US$20bn) based on the ‘production inducement amount’, or the wider ripple effects of hallyu.
Jimmyn Parc, Associate Professor in the Department of East Asian Studies at the University of Malaya and a research associate at the Institute of Communication Research, Seoul National University, notes that when people discuss the ‘impact’ of the hallyu, this can encompass many things. One interesting point is that gaming – an industry that the government has frowned upon (because of concerns about youth spending so much time engaged in video games) – contributes the lion’s share of the creative industry’s revenue. “The gaming industry has had a huge impact on the economy but the government does not help this sector,” notes Parc.
Parc is currently working on an academic paper that focuses on the brand image of hallyu and how it relates to the purchasing of other products, such as cosmetics. He is based in Malaysia and has looked at data from 2014 to 2022 on Malaysia’s imports. “People always argue that hallyu has a positive impact on consumption of Korean products. We argue that if there is a positive impact then all the imports should be positive, however it is not the case. There are certain products that show a positive increase and some show a decrease – it depends on the products’ quality. Hallyu is not the core factor that increases the sale,” Parc tells Treasury Today Asia.
Parc explains that there are many different factors that go into the exports of Korean products, and people only tend to attribute hallyu to a rise in exports and ignore it if there is a decrease. “They only say it is because of hallyu when it is positive,” he comments.
Also, Parc notes that if the impact of the K-Pop bands was so strong, then if BTS is promoting a particular smartphone it would be reasonable to expect those products to fly off the shelves. However, this hasn’t been the case as LG found in 2018 when it paid BTS to promote its G7 ThinQ smartphone and it failed to increase the sales of the device. In 2021, LG withdrew from the smartphone market altogether. Samsung also wasn’t able to leverage the popularity of the K-Pop group either with its Galaxy S20+ BTS edition and the multinational had to drop the price in many markets.
The gaming industry has had a huge impact on the economy but the government does not help this sector.
Jimmyn Parc, Associate Professor, Department of East Asia Studies, University of Malaya
Government support for the sector
The government has lent its support to the Korean Wave (apart from gaming, which at one time it tried to curb with a curfew on when students could play), recognising that an improved perception of Korea will help its image overseas, and thus help its wider exports. Roll notes that the government has a budget of US$5.5bn to boost economic growth through its cultural industry. This effort is not dissimilar to other countries – the United States and the UK’s film industries, for example, for many years have received subsidies from the governments in a bid to promote the country’s interests abroad.
In a piece for the Joongang Daily, Lee Young-ryeol, Professor at the Seoul Institute of Arts writes that exports of K-Pop exceed the combined exports of products like televisions, refrigerators and washing machines. He argues that the government could do more to link up the efforts to ensure that the boost from hallyu can translate further into greater revenue share for other industries, such as tourism. The popularity of bands like BTS and Blackpink could be translated further into greater visitor numbers to Korea, for example, much in the same way as France has positioned Paris as a major tourism destination for luxury brands.
The Korean government has not always supported the creative industries, however. During the leadership of Park Chung-hee in the 1960s there were many restrictions placed on content and the work of creatives. In 1996 censorship was lifted, which resulted in an explosion of creative energy.
More recently, there was a time, explains Parc, that the government was not supportive of the K-Pop industry, especially when it was dominated by hip hop artists with dyed hair and loose pants, who were deemed to be unsuitable role models. However, this attitude changed when they realised the popularity of the K-Pop and saw the potential from an economic point of view. On the one hand the government is seen as supporting the hallyu and being critical to its success, and on the other they can be viewed as exploiting the industry and claiming credit for the achievements of others.
Anecdotally, Parc says some entertainment companies are reluctant to be seen to be taking money from the government because of the anti-chaebol sentiment that may be directed at them. The chaebol, the large multinational brands in Korea, have been subjected to such ill-feeling when the common people perceive that they have been profiting at the expense of government – ie taxpayer’s – money. Parc explains that many of the entertainment companies in this sector are large companies and they don’t want to be seen as taking government money for this reason.
Korean dramas did receive money from the government in the early days because many of them were made for public broadcasters. That relationship evolved over the years as the industry changed and regulations were eased. A rule change meant that chaebol could fully own their own satellite channels and this opened up new sources of funding for production. Chinese investment in Korean productions followed and later Netflix also started funding productions.
The wielding of soft power
Although the hallyu may not have a sizeable direct contribution to the Korean economy, it has enabled the country to exercise soft power, a term – which Roll explains – was first coined by political social scientist Joseph Nye to describe how countries wield power through a positive image rather than by force, such as associations of American ‘cool’ with Marlboro cigarettes or Coca-Cola.
Other countries, of course, have become known for their film industries – India has its Bollywood, and Hollywood has long been a dream factory, points out Roll – they have been exporters of dreams.
When it comes to the argument that Korea is exerting its soft power through such productions, Parc points out that often the depictions of Korea – such as in Squid Game or in Parasite – are negative and are critical of the region, and not the kind of images that would be portrayed if there was a concerted effort to put itself in the best light.
Despite this, however, there remains a huge international appetite for the consumption of Korean cultural exports, even if their actual direct impact on the economy is not as large as the attention that is given to them. In the past, young Koreans would have consumed American products – smoking Marlboros and drinking Coca-Cola – and watched Hollywood films to learn English and the ways of the Western world. Now it is the other way round; Korean cultural exports have gained such an international following that people all over the world are clamouring to learn Korean, to learn about Korean culture – and how to dance in Gangnam Style.
