Political Risk in the Kaesong Industrial Complex

The Kaesong Industrial Complex (KIC) is a 1.25-square-mile industrial park six miles north of the Demilitarized Zone in the Democratic People’s Republic of Korea. The complex includes both North and South Korean workers, and is subsidized by Seoul. The result of an agreement between North and South Korea in 2000, Kaesong stood as the sole beacon of hope for economic cooperation between the divided states, and remained open for business despite a number of hostilities over the ensuing decade. This case reviews the political and economic risks and opportunities of entering Kaesong through the lens of Bright Ray Apparel, a hypothetical South Korean textile manufacturing firm. Jihoon Lee, Bright Ray’s CEO, is encouraged by his CFO and a trusted senior economist to enter Kaesong. But risks abound. North Korea’s nuclear threats and leadership transition have brought a new wave of uncertainty to the Korean Peninsula. Facing its own upcoming presidential election, much remains to be determined in Seoul regarding future economic policy and outreach toward Pyongyang. As Jihoon Lee’s meeting with his financial adviser nears, Bright Ray’s leadership must consider a variety of influences and factors involved in entering Kaesong, from political instability to economic opportunity, and the potential to improve the working condition of North Korean employees. This case is available for purchase from ECCH.