Opportunities for investment on the Peninsula
In recent years, Korea has become a hotbed for innovation. While the nation's strategic location as a springboard between East and West helps to attract business, it is not the key to an innovative economy. We recently spoke to Mr. Kiwon Han, the Commissioner of Invest Korea at KOTRA, the Korea Trade-Investment Promotion Agency, about the attractiveness of doing business in Korea. Read on to find out more about the range of services offered by the state-run organization, the Korean government's business-friendly approach to policy-making, and the incentives for foreign investments in Korea.
GSC: In recent years, Korea has become one of the most popular markets for foreign investors. As a state-funded trade and investment organization, how does KOTRA encourage foreign direct investments in Korea?
Mr. Han: KOTRA stands for the Korea Trade-Investment Promotion Agency, and as a state-run organization, it promotes trade and investment in Korea. The latter is done by a division of KOTRA called Invest Korea. We support foreign investors at Invest Korea through providing comprehensive services including investment consulting, business establishment support, the provision of site-related information and assistance with investment notification and applying for investment incentives.
KOTRA has a large global network of 123 offices in 83 countries. Forty-two of these offices, which we call Korea Business Centers, are devoted to investment promotion. We use this global network and a project manager system to provide investors overseas with the comprehensive investment consulting services listed above. Our project managers serve as a bridge connecting foreign investors with Korea.
At our KOTRA headquarters in Seoul, we run the Investment Consulting Center, where seconded officials from government ministries, related agencies and local governments provide a free one-stop service related to Korea's investment system and procedures, the establishment of a corporation, investment incentives, visa and stay-related matters, human resources and labor, tax codes, customs clearance and tariffs, finance and accounting, land acquisition, the establishment of production facilities, investment notification and more.
The one-stop service also includes aftercare, which is offered through the Office of the Foreign Investment Ombudsman. Established in 1999, the OFIO operates a Home Doctor system in which specialists from various fields help resolve a wide range of foreign investor grievances. The Ombudsman system is regarded as a best practice by many investment promotion organizations. In 2007, KOTRA won the WAIPA award for its excellent aftercare services at an annual world investment conference.
Russia benchmarked Korea's Ombudsman system and adopted a corporate ombudsman system in 2012. And years earlier, in 2009, a delegation of investment promotion agencies from 11 countries visited Korea for a week through UNCTAD and WAIPA to learn about the system.
It's also worth mentioning that KOTRA established Korea's first business incubation center for foreign companies. Invest Korea Plaza, which is located next to KOTRA in Seoul, has offices foreign investors can rent at a reasonable rate in the initial stage of their business, meeting rooms and more.
GSC: Korea has become well-known as a world-class manufacturer of cars and electronics over the past 30 plus years. Are there any other industries at the moment that appear to be especially rewarding for investors? If so, which industries and what makes them particularly attractive?
Mr. Han: The manufacturing industry has been Korea's traditional strength, with the semiconductor, TV and display and smartphone sectors having the largest global market share. The country's auto industry ranks 5th in terms of global market share.
Our shipbuilding and chemical industries are well positioned based on their solid industrial foundation. In particular, the shipbuilding industry ranked first for orders for new ships, and the number and amount of deliveries. The offshore and marine equipment sectors are rapidly growing.
Also, the country's petrochemical industry is the world's fifth largest. And Korea's secondary battery sector outgrew Japan's to have the largest global market share in 2014.
In addition to the strengths of and opportunities presented by these industries, what makes them attractive are Korea's foreign investment incentives and FTA platform.
The Korean government provides various incentives, including tax exemption, location support and cash grants, to companies that meet certain requirements and have passed an evaluation. One goal of the government is to attract the headquarters and R&D centers of global companies through policy measures in order to introduce advanced technologies, increase the number of quality jobs, promote innovation and boost equipment investment and domestic demand in Korea. Related incentive policies have been implemented since last year.
Also, Korea has FTAs with the world's three major economies — the United States, European Union and China. The Korea-China FTA, which has been concluded, is expected to go into effect this year. And in order to attract companies from advanced markets such as the United States, Europe and Japan that seek business opportunities in China and elsewhere through using Korea as a production and R&D base, the government plans to announce customized incentive schemes for the following industries: bio / pharmaceutical / medical equipment, IT / communications, food, contents, high added-value clothing / fashion and tourism / leisure.
GSC: The World Bank classifies Korea as a high-income developed country with a developed market, though many economists argue that the country still has some characteristics of an emerging market. In which ways does the official classification of the economy affect the activities of KOTRA? Are foreign investors more likely to invest in Korea as an emerging market or a developed market?
Mr. Han: More and more foreign companies have been choosing Korea as an investment destination in order to use the global value chains (GVC) of global Korean companies or multinational companies in Korea, China, Japan, etc.
Foreign-invested companies supply or deliver semiconductors, displays, TVs, shipbuilding / marine equipment, devices, materials and solutions to such global corporations in Korea as Samsung, LG and Hyundai. As for foreign-invested companies using the GVC of multinational companies in Korea, they seek to not only enter the domestic Korean market, but to also export or advance into other overseas markets such as China, Japan, Oceania and Southeast Asia. Such companies are mostly from industries including special chemicals, auto parts, processing and logistics.
Also, Korea's FTA network covers 73.5% of the world's economic territory. Foreign investors in Korea can export or make inroads into other markets, such as China, ASEAN and Australia, making the most of Korea's trade pacts. So foreign investors can both enter the Korean market as well as use Korea as an export base or as a springboard to the United States and EU. Korea has the characteristics of both an advanced and emerging market, and this makes it an even more appealing investment destination for foreign companies.
GSC: Korea relies heavily on an export-led economic model, with exports accounting approximately 56% of GDP. In an attempt to end the country's reliance on exports, President PARK Guen-hye introduced her "474 Vision" for economic growth in 2014, which includes goals of generating 4% economic growth, a 70% employment rate, and an average per capital income of $40,000. Since the introduction of this plan, how have you seen foreign investment activity change, especially in regard to the manufacturing and service sectors?
Mr. Han: Under the 474 vision, the current administration is promoting its 3-year economic innovation plans, which aim to achieve three main goals: an economy with strong fundamentals, an economy based on dynamic innovation and an economy with a good balance between exports and domestic demand. This is part of the government's efforts to establish a business-friendly economic system. These measures will not only benefit domestic companies, but also provide foreign investors with an improved investment environment.
To achieve an innovative economy, the government has established seven creative economy and innovation centers nationwide to provide support for startups and ventures and establish a virtuous startup ecosystem cycle. Startups- and accelerator-related areas are expected to attract foreign investment. Google, for one, plans to open its Google Campus in Seoul in the first half of this year. It will provide startup related services such as campus monitoring, campus talks and campus edu-workshops, along with incubating businesses.
To achieve a balance between domestic demand and exports, the government is focusing on expanding domestic demand and creating jobs while seeking measures to strengthen varied and customized support for foreign investors.
In fact, Korean President Park Geun-hye presided over a trade and investment meeting on March 19. The main agenda item was incentives for foreign-invested companies in Korea. The government plans to announce more specific policies.
I should also mention that the government has shifted its focus from the manufacturing industry to the service sector, which has a great impact on job creation, to increase incentives for service investment. In 2014, investments in the service sector rose 13.7%, to USD 11.2 billion, from USD 9.85 billion in 2013. The logistics industry in particular posted rapid growth, from USD 100 million in 2013 to USD 430 million in 2014.
And in terms of processing logistics, a Canadian company has established its processing logistics base in Busan, and it exports fresh food products to China.
GSC: When looking to invest in Korea, are there any cultural aspects of business that companies should keep in mind?
Mr. Han: Confucian values are still upheld in Korea, and these include an emphasis on one's social reputation and a sense of community, and respect for the elderly. As most Korean men serve in the military for two years, they are familiar with working in teams and communal settings.
The country's experience with achieving rapid economic growth has resulted in a tendency to value speed. Also, the advancement of the internet and social network services has increased the influence of media. Korean consumers quickly respond to new products and services.
Foreign investors can make the most of what might be considered Korea's unfamiliar characteristics thorough placing an emphasis on a sense of community and harmony in business management. The country's Confucian values will help with building friendly and cooperative relationships with employees who work well together, thus helping achieve rapid business progress.
Also, Korea is an optimal test-bed for new products. Success in the Korean market can ensure success in other countries, as Korea's consumers are early adopters. And, using social media as well as the traditional media and fulfilling your corporate social responsibility will bring about positive outcomes.
Thanks in part to social media sites such as Twitter, Youtube and Facebook, and active international human exchanges, Korea has a global business environment that embraces foreign cultures and does not pose many obstacles. I believe foreign investors would not face any particular cultural barriers while doing business in Korea.
GSC: Thank you very much for this interview, Mr. Han.
Further information: KOTRA