Investment theory (final edition)


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Investment theory (final edition)

  1. 1. Investing in KoreaPossibilities and Methods -0-Nguyen Hoang Quan …………………….. 52905030057-1Veera Yuth………………………………...52905050052-7Supee Rungsrisawat…………………….....55050503005-0 1
  2. 2. Korea‘s economy is the 15th largest economy in the world by GDP, after the world‘s financial-economic crisis in 1997, Korea had one of the fastest recovery, three years later, they declared that theyhad totally recovered the economy and continue to grow. In the previous year, unemployment rateremain low at 3.6%. Fast growing, long-term solid policy, stable economy, high educated work force,Korea is one of the most attractive countries for investing, along the others countries in Asia. There are two main types of investing for foreign investors, Foreign Direct Investment andPortfolio Investment. Both have particular requirements issued by Foreign Investment Promotion Act(FIPA), an government agency helping investors in with their legal procedure and make investing inKorea easier than ever. 2
  3. 3. Table of contents: Introduction…………………………………………………………………..2 I. Overview of the Economy………………………………….……….4 1. Domestic Economy.....................................................................................4 i. GDP and PPP ii. Demographic 2. Export and Import......................................................................................5 3. Fields of Industry.......................................................................................6 i. Steel ii. Electronic iii. Automobile iv. Shipbuilding II. Investing environment………………………………..……………...8 1. Foreign Investment Promotion Act (FIPA)………………………………...8 2. Covered Interest Abbitrage (CIA)……………………………………………8 III. Investing opportunity………………...………………………………9 1. Logistic…………………………………………………………………………..9 i. Overview ii. Advantage Location and Emergin Logistics Market iii. Promising Investment Region for Logistics Activities iv. Globalisation and main competitors analysis v. Infrastructure leverage vi. SWOT analysis 2. Regulations and Policies for logistic investment…………………………12 i. FDI Incentives in the Logistic Industry ii. Logistics Industry Promotion Policy 3. Steps……………………………………………………………………………..14 i. Service considering ii. Foreign Investment Notification iii. Investment Capital Remittance iv. Incorporation Registration and Incorporation Notification & Business Registration v. Paid-In Capital Transfer to Corporate‘s Account vi. FDI Company Registration 4. Financial expectation………………………………………………………..18 3
  4. 4. I. Overview of the Economy 1. Domestic Economy The economy of Korea had actually been booming since the early of 1960s to the late 1990s, andit still has one of the highest growth rate among developed countries in the 2000s, along with HongKong, Singapore and Taiwan. STATISTIC GDP growth rate 6.1 % Nominal GDP $ 986.3 billion PPP $ 1.467 trillion Inflation 2.8 % Gini index 31.3 Labour force 24.37 million Unemployment rate 3.7% Currency Won Korea domestic economy is strongly effected and related to the world economy since its foreigntrading stand for 90% of the country GDP. In the 1997 Asia financial crisis, Korea, along with Indonesiaand Thailand are the three contries worstly effected. Even though Korea makes foreign transactions in avery high rate of quantity and quality, but the government still keeping its growth rate (6.1%) in aresonable rate, along with inflation (2.8%), and unemployment rate (3.7%) to keep inflow investment‘sliquidity. However, although Korea had maken the ―Miracle of Han river‖ and continued keeping highgrowth rate in the 2000s, its growth rate in the first month of 2011 (0.5) is not really impressive becauseof the world economy recession effects last from 2008. Jan/2011 Interest rate 2.75% Inflation rate 3.5% Unemloyment rate 3.7% Growth rate 0.50%Source: The government has to face more troubles come from rising inflation rate and unemploymentrate, lowering growth rate.But it seem as a very difficult mission since Korea rely their economic growthrate on Ex-Im. 4
  5. 5. 2. Export and Import As we‘ve known that Korea is the world‘s 11th largest trader with imports and exportsaccounting for nearly 90 percent of the country‘s GDP. Korea ranked 10th in the world in terms of globalexport markets share based on cumulative export from January to April 2009. Since Korea isn‘t a country with much resources, they choosed to import resources from supplierfrom around the world to manufature and export finished product such as electronic, automobile, semi-condutor, steel, ship and petrochemical. As we can see from the graphic, Korea‘s biggest supplier is U.S. with $63 billion dollars ofimport goods, but the biggest piece of the exporting pie is belonged to China with $61.2 billion dollarsof goods, right after China is U.S. at the second place with $61 billion dollars of goods. Korea reported a trade surplus equivalent to $3.74 billion in December of 2010. Their maintrading partners are: China, European Union, The United States and Japan. Korea’s Ex-Im index Export $44340.0 million Import $40600.0 million 5
  6. 6. 3. Fields of Industry i. Steel The upturn experienced by the Korean steel industry following the dramatic downturn in late1997/98 has proved short lived with demand falling steadily in the second half of 2000 and continuedropping in 2001. Never-the-less, demand at present still remains higher than in 1998 and, with theexception of the construction sector, is expected to remain positive. Korea still being the 6th largest steelproducer world-wide. In 1989 South Korea was the worlds 10th largest steel producer, accounting for2.3 % of world steel production. South Korea continued expandinf crude steel production--19.3 milliontons for 1988, up 14.9 % over 1987. Domestic demand for steel products increased 8.5 % from 15million tons to 16.3 million tons over the same period because of the growing demands of South Koreanindustry. Domestic demand accounted for 70 % of the total, mostly because of the increased needs ofsuch steel-consuming industries as automobiles, shipbuilding, and electronics. The steel industry grew in the 1970s after the government constructed the POSCO mill to serviceSeouls rapidly growing automobile, shipbuilding, and construction industries. In 1988 South Koreassteel industry included 200 steel companies. Iron and steel production was expected to increase in theearly 1990s, given the output increases in domestic user industries. Exports were likely to be flat or todecline because of decreased international demand. ii. Electronic In 1989 South Korea was a major producer of electronics, producing color televisions,videocassette recorders, microwave ovens, radios, watches, personal computers, and videotapes. In 1988the electronics industry produced US$23 billion worth of goods (up 35 % from 1987), to become theworlds 6th largest manufacturer. The total value of parts and components (including semiconductors)produced in 1988 totaled US$9.7 billion, overtaking consumer electronics production (US$9.2 billion)for the first time. Manufacture of industrial electronics also grew significantly in 1988 and totaledUS$4.6 billion (20 % of total production). Electronics exports grew rapidly in the late 1980s to morethan US$15 billion in 1988, up 40 % from 1987--to become Seouls leading export industry. AlthoughSouth Korean electronic goods enjoyed substantial price competitiveness over Japanese products, theelectronics industry continued to be heavily dependent on Japanese components, an important factor inSouth Koreas chronic trade deficit with Japan. Some South Korean firms formed joint ventures withforeign concerns to acquire advanced technology. In the late 1980s, South Koreas leading electronicsfirms (Samsung, Lucky-Goldstar, and Hyundai) began establishing overseas plants in such markets asthe Federal Republic of Germany (West Germany), Britain, Turkey, and Ireland. By 1990 significant shifts were occurring within the electronics industry. In 1989 South Koreahad lost some of its cost advantage to newer consumer electronics producers in Southeast Asia. At thesame time, production of electronic components and of industrial electronics, particularly computers andtelecommunications equipment, continued to expand to such an extent that overall demand for South 6
  7. 7. Korean electronics products was expected to increase modestly in the early 1990s. In 1990 Seoulprojected that the microelectronics industry would grow at an annual rate of 17.2 % in the early 1990s. iii. Automobile The automobile industry was one of South Koreas major growth and export industries in the1980s. By the late 1980s, the capacity of the South Korean motor industry had increased more thanfivefold since 1984; it exceeded 1 million units in 1988. Total investment in car and car-componentmanufacturing was over US$3 billion in 1989. Total production (including buses and trucks) for 1988totaled 1.1 million units, a 10.6 % increase over 1987, and grew to an estimated 1.3 million vehicles(predominantly passenger cars) in 1989. Almost 263,000 passenger cars were produced in 1985—afigure that grew to approximately 846,000 units in 1989. In 1988 automobile exports totaled 576,134units, of which 480,119 units (83.3 %) were sent to the United States. Throughout most of the late1980s, much of the growth of South Koreas automobile industry was the result of a surge in exports;1989 exports, however, declined 28.5 % from 1988. This decline reflected sluggish car sales to theUnited States, especially at the less expensive end of the market, and labor strife at home. South Koreatoday has developed into one of worlds largest automobile producers. Hyundai Kia AutomotiveGroup is Koreas largest automaker. Export iv. Shipbuilding During the 1970s and 1980s, South Korea became a leading producer of ships, including oilsupertankers, and oil-drilling platforms. The countrys major shipbuilder was Hyundai, which built a 1-million-ton capacity drydock at Ulsan in the mid-1970s. Daewoo joined the shipbuilding industry in1980 and finished a 1.2-million-ton facility at Okpo on Geoje Island, south of Busan, in mid-1981. Theindustry declined in the mid-1980s because of the oil glut and because of a worldwide recession. Therewas a sharp decrease in new orders in the late 1980s; new orders for 1988 totaled 3 million gross tons 7
  8. 8. valued at US$1.9 billion, decreases from the previous year of 17.8 % and 4.4 %, respectively. Thesedeclines were caused by labor unrest, Seouls unwillingness to provide financial assistance, and Tokyosnew low-interest export financing in support of Japanese shipbuilders. However, the South Koreanshipping industry was expected to expand in the early 1990s because older ships in world fleets neededreplacing. South Korea eventually became the worlds dominant shipbuilder with a 50.6% share ofthe global shipbuilding market as of 2008. Notable Korean shipbuilders are Hyundai HeavyIndustries, Samsung Heavy Industries, Daewoo Shipbuilding & Marine Engineering, and STX Offshore& Shipbuilding, the worlds four largest shipbuilding companies. South Korea also owns STX Europe,which is Europes largest shipbuilder. II. Investment environment Foreign direct investment was on an upward trend as 2010 drew to a close, climbing nearly 7 percentfrom the prior year as of November to over $10 billion. Authorities are implementing several measuresto build on this foundation. The Ministry of Knowledge Economy is refining foreign investmentpromotion legislation to extend the maximum period for which foreign companies can lease state land,and easing the cost burden on some foreign firms by cutting land lease commission rates and makingsupport available for new research facilities. Several tweaks to the tax system are also in the works,including new tax credits for creating jobs outside the Seoul metropolitan area. Conversely, as the stock and bond markets heat up on an influx of foreign capital -- Goldman Sachsrecently predicted Koreas main index, the KOSPI, could rocket to the 2,700 point level in 2011 -- thegovernment is mulling ways to curb hot money inflows and foster financial system stability. Measuresunder consideration include the reimposition of a withholding tax on foreign bond holdings. 1. Foreign Investment Promotion Act (FIPA) Investing in Korea has been facilitated by FIPA, which was enacted in November of 1998. Thefoundation of this Act involves two main points: - Foreign investors will have accesses to invest in virtually all types of business in Korea - Potential foreign investors only have to ‗notify‘ the relevant government authorities rather than to ‗seek‘ for a consent. Currently, out of a total classified 1,148 industrial sectors, only 31 sectors remain closed (13permanently in 18 partially) to foreign invesment. In short, this law attempts to treat the foreigninvestors equally as it does Korean investors. A ―direct foreign investment‖ under FIPA means a foreign investor‘s acquisition of at least 10%of total issued shares of a domestic corporation, or a foreign investor‘s acquisition of less than 10% oftotal issued shares of a domestic corporation accompanied by: - A secondment of an executive to the domestic corporation or a contract granting such secondment right to the foreign investor. - Execution of a supply contract for raw materials or other products for a period of at least a year or more. - Execution of a techonology license contract or joint development agreement. 8
  9. 9. 2. Covered Interest Abbitrage (CIA) Exchange Rate Buying Selling USD 30.57 31.22 KRW 0.0233 0.0321 Interest Rate Deposit Borrow Thailand 1.75% 6.38% USA 0.25% 3.25% Korea 2.75% 7.17% Borrow from US bank at 3.25% US 10,000,000*3.25%= US 10,325,000 Convert from US to Won US 10,000,000*1,300.6= W 13,006,000,000 Lent money to Korean at 7.17% W 13,006,000,000*7.17%=W 13,938,530,200 Convert back into US W 13,938,530,200/1,300=US 10,717,000 Return borrowed money US 10,325,000 - US 10,717,000= US 332,000 Convert into Thai Baht US 332,000/30.57= 10,149,240 Baht (Covered Interest Arbitrage)III. Investing opportunity 1. Logistic i. Overview As far as global corporations are concerned, building an efficient logistics system is the key totheir competitiveness. South Korea is located in Northeast Asia between China, which has been growingnot only as a major base for manufacturing, but also the worlds largest market, and Japan, which is still 9
  10. 10. steadily increasing her economic weight. This location gives South Korea certain geo-economicadvantages. South Korea is well equipped with logistics infrastructure which includes airports, seaports,multi-modal cargo terminals, and logistics complexes. The country has also built up the worlds bestlogistics information systems, thereby providing speedy, efficient customs clearance services. Globalcorporations can utilize South Koreas airports and seaports to rapidly and frequently connect to a greatnumber of cities within Northeast Asia to build the optimum supply chain.Advantage Location and Emerging of Logistics Market Asia includes Northeast Asia which consists of Korea, Japan, China, Hong Kong, Taiwan,Mongolia, North Korea, and Siberia. It is noteworthy that the share of Northeast Asia in the Asianeconomy is overwhelmingly huge. In 2008, 68% of Asias GDP came from Northeast Asian countries(excluding eastern Siberia). Northeast Asia accounts for a majority of Asias trade: 81% of Asias totalexport, 76% of Asias total import. Although India is expected to grow into the third largest economy in the world by 2050, it is noexaggeration to say that the center of the world economy is shifting not to Asia but to Northeast Asia.Indias GDP would be just half of China, and its per capita income is expected to be lower than that ofChina. Asias Share of Global Merchandize Export 350 300 250 200 150 $ billion 100 50 0 Korea China Japan Singapore Hongkong Taiwan In 2006, the market share of third-party logistics was 38.8 percent only, compare to 75 percent to90 percent in the U.S. and Europe, where manfatures focus on production and outsource logistics-relatedactivities to specialized firms. This suggests that the high percentage of first- and second-party logisticsdiscourages the growth of specialized transporters in Korea. It‘s also mean the logistic industry in Koreais still not booming yet, and it would be a great advantage to invest in ahead, the benefit might return inlater than 3 years, but the amount would be huge. Anyway, it‘s the mean of investing. 10
  11. 11. ii. Promising Investment Region for Logistics Activities South Korea has massive logistics complexes in the hinterland areas of her major internationalairports and ports. Such complexes constitute free trade zones, offering various benefits to foreign-invested companies. Furthermore, wider areas including free trade zones are operated as free economiczones to support the activities of foreign corporations. South Koreas free trade zones, free economic zones, the Greater Seoul Area, which has amassive domestic demand for logistics, and the Chungcheong region offers the optimal logisticsconditions within Northeast Asia and South Korea. Thus, South Koreas superior logistics infrastructures and services can be effectively utilized tointensively handle import and export products in Northeast Asia or to undertake any logistics businessinvolving sea and air transportation. The Korean logistics market - with its fast growing third-partylogistics business - also constitutes a great attraction for global logistics companies wishing to enterKorea. iii. Globalisation trend and competitors analysis Although globalisation trend has started since the 1990s along the the booming of internet, butthere is no sign of the stop of globalisation. More over, the globalisation is shifting world economiccenter from the Western to the Eastern countries. The reasons of this shifting are up coming labor force, market, purchasing power, etc. of Asiacountries, especially the Eastern Asia countries. Therefore, Korea is more than deserved to be the hub,providing and issuing the on coming economic trend from the other side of the Pacific. About internal advantage, Korea has large educated labor force and high technology in eitherbiology, information or engineer. About external advantage, Korea is a member of Asia Pacific Economic Corporation (APEC)and also is considered and a extended member of AFTA + 3 (Asia Free Trade Association and China,Japan, South Korea). And the country also believe that they can compare with China, Taiwan or evenJapan. About Korea‘s main competitor, those are China, Taiwan and Japan. China is now the second largest economy in the world, just right behind the U.S. and there‘s nodoubt that Chinese are going to overcome the Americans. But still, China has too tight policies ininvesting and operating under the Communism government. In the record, last year, the world largestsearch engine, Google had to moved out to Hongkong because of China‘s tight policies and informationcensors. Strengths: cheap labor force, large market, high purchasing power Weaknesses: tight policies and information censors, high corruption rate 11
  12. 12. Taiwan although has very high technology industry, and they are eying cooperation in logisticsservices with China to boost customs clearance efficiency and transform the island into a logistics hub inthe Asia Pacific region, the Council for Economic Planning and Development (CEPD) said recently. TheCEPD has developed a plan with will commit US$ 3.19 billion between 2010 and 2013 to buildingTaiwan into an Asia Pacific logistics hub. And so on, China has privately voiced its willingness to workwith Taiwan in logistics services. Strenghths: developed information technology Weaknesses: political risk, policy of investing Japan is now the third biggest world economy, after China and The U.S, they have been thelogistic center for East Asia for decades. They have advantage in infrastructure, experience, punctual,hard working. Japan is blocking the way of Korea to reach out the Pacific, and they are still. But Koreacan take advantage in young population, which is a big trouble for Japan government. The rate of oldpeople in Japan is getting higher everyday, 21% of the population is over 65 and it would be 25.6% in2030. Japan need more young people to take care of the elderly and lack of labor force. Strenghs: advantage locations, reliable labor force Weaknesses: old populations In the World Bank‘s Logistics Performance Index (LPI), South Korea is ranked 23 rd, Singapore2nd, Japan 7th, HongKong 13th, Taiwan 20th, and China is 27th. Conclusions: Although Korea is only out-performed China in LPI, and there are plenty of competitors, thegovernment‘s seem like trying very hard to improve it. iv. Infrastructure leverage Korea has been making substantive efforts to secure infrastructure for logistics includingupgrading roads, railways, airports and port facilities in order to increase national competitiveness.Major infrastructure for logistics, including airports and seaports, has been significantly expanded. The following part of Infrastructure leverage is about some outstanding facility of Korea, whichare mainly used for logistic and transportation purposes. You may find these are complicating but welisted them here as an added informations for our selection of logistic investment. - Foreign companies are participating in SOC private investment projects driven by Korea in the form of equity investments or long-term loans (over five years). AMEC of the United Kingdom has invested in the construction of the Incheon Bridge (at 18.5km, the sixth longest in the world). - Incheon International Airport, as the second largest international cargo airport and one of the top 10 international passenger airports. In addition, Incheon International Airport has been 12
  13. 13. recognized as the "Best Airport Worldwide" for four consecutive years for the first time in the history of the Airport Service Quality (ASQ) survey.- The Busan New Port next to the current port of Busan is the fifth largest port (13,452,000 TEU) based on the quantity of goods transported by ports across the world in 2008. Phases 1-3 of the Ports Northern Container Logistics Support Complex have been developed, with several foreign companies already established within. They include C. Steinweg Warehousing PTE., COSTCO Logistics Co., and Sanyo Maritime, among others.- The development project at the Northern Container Logistics Support Complex (Phase 4 scheduled for 2011) is in progress (0.22 million m2), and the Southern Container Logistics Support Complex (1.42 million m2) and the Woongdong District Logistics Support Complex (3.58 million m2) are planned for development, as well.- Gwangyang Port is exclusively reserved for containers, and development of its Eastern Logistics Support Complex (1.95 million m2) was completed in 2008. Foreign companies like TESCO Holdings, and Mevius, have already established operations there and plans are in place to develop a Western Logistics Support Complex (1.93 million m2) by 2012.- The Port of Pyeongtaek located near the capital region is developing an area of 1.43 million m2 for a logistics support complex by 2010 and is set to develop an additional 1.2 million m2 by 2015.- Ulsan Port, characterized by a high presence of liquid cargo, accommodates foreign-invested companies including Stolt Haven, Vopak, and Odfjell. Designs are being executed to secure a port logistics support complex of 440,000 m2 by 2011. The respective ports of Incheon, Pohang, Masan, and Mokpo are planning to actively attract more foreign logistics companies while developing their port logistics support complexes, as well. 13
  14. 14. v. SWOT analysis Strengths Opportunities - Well equiped facilities and educated labor - Asian high growth rate lead to high growth force rate of demand for logistic services - Highly supporting policy - Shift of industry – from large enterprises to - Geography advantage third-party logistic firms. - Developed shipbuilding industry - Government supporting policies - Strong legal system - AFTA+3 and APEC members - Low rate of risks Weaknesses Threats - Number of competitors in North East Asia - War and natural disasters - Cost of operating due to high exchange rate - High rate of domestic enterprise protections 2. Regulations and Policies for logistic investment i. FDI Incentives in the Logistics Industry In accordance with the 7-year Tax Break Operation Regulation for free economic zones, whichwas resolved in March 2009, large-scale foreign-invested companies are eligible for 7-year tax breaks.Major incentives for foreign companies that invest at least USD 10 million in the logistics sector includea 100% exemption from corporate tax and income tax for 5 years, and a 50% exemption for a further 2years. The hinterland areas of airports and harbors, which are mostly located in the FEZs, benefit fromthese tax breaks. Currently, foreign tenant companies within the logistics complex of Incheon InternationalAirport obtain a 50% exemption from land rental charges for 5 years in cases where the initialinvestment ranges between USD 5-10 million, and a 100% exemption for 5 years in cases where theinvestment cost totals USD10-15 million. The Ministry of Land, Transport and Maritime Affairs (MLTM), which is responsible for thelogistics sector, has decided to offer a range of incentives to be applied according to the scale ofinvestment by foreign companies newly established in the hinterland complexes of free trade zones suchas Busan New Port, Gwangyang Harbor, and Pyeongtaek-Dangjin Harbor (March 2009). As such,differentiated incentives are provided according to the size of a companys investment, such as a 5-year,50% exemption from rental charges for an investment of USD 5 million; a 5-year exemption from rentalcharges for an investment of USD 10 million; a 7-year exemption from rental charges for an investmentof USD 15 million; and a 15-year exemption from rental charges for an investment of USD 50 million. Separately, certain local governments provide their own incentives for cargo attraction in a bid tohelp companies overcome the recent economic downturn, and to assist challenges faced by the logisticsindustry specifically, and thereby enhance its competitiveness. 14
  15. 15. There are four main kind of promoting zone for industries, those are: Free trade zone, Foreigninvestment zone, Free economic zoneand National industries zone. ii. Logistics Industry Promotion Policy The South Korean government, having recognized logistics services as a key to nationaldevelopment, has established and is now revising a National Logistics Master Plan composed of 5-yearphases. Under this plan, the government will foster the logistics industry as a new growth engine withthe aim of creating global value-added, in line with the overall goal of raising logistics value-added to11% of the countrys GDP by 2020. At the same time, five major strategies are being implemented toensure that corporate logistics costs will account for 6% of sales to build low-cost, high efficiencynational logistics systems, and to enhance the global competitiveness of key national industries. The government is striving to develop South Koreas logistics system into the worlds best so asto enhance the countrys competitiveness while effectively supporting corporate activities. Domestic andforeign companies can take advantage of a range of support policies concerning facility location, taxesand finance to build optimal logistics systems. iii. Strategies under the National Logistics Master PlanVision: ‘2020 Global Logistics Powerhouse’ - To lead the co-prosperity of Nort-East Asia - To create added value - To lead the high-tech knowledge-based economyGoal: To create the national wealth through the logistics industry - To improve the efficiency of the national logistics systemThere are five main strategies to improve the logistics industry, which are key acts of Korea.Strengthen global logistics systems - Expand the infrastructure of major airports and harbors and develop them into international logistics centers. - Strengthen their linkages to Nort-East Asia‘s logistics networks. - Conduct sales activities vigorously and openly to attract global logistics companies.Build and update hardware infrastrucures - Push for combined development and activation of logistics hubs facilities. - Strengthen the linkage functions between industries and logistics hubs. - Refine urban and provincial logistics bases to activate regional logistics functions. - Activate massive argo transportation systems so as to balance the use of various means of transportation. 15
  16. 16. - Refine cargo handling facilities and equipment to build efficient transportation systems in linkage with logistics hubs. - Build eco-friendly logistics systems.Strengthen software-oriented logistics systems - Push ahead with national logistics informatization and networking in order to promote the efficientcy of national logistics systems and to strangthen the linkage between industries and logistics. - Diffuse standardization systems to enhace the efficiency of national logistics. - Develop and diffuse future-oriented, cutting-edge logistics technologies with potentially great economic ripple effects. - Strengthen system support for fostering logistics experts who will lead the advancement and internationalization of the logistics industry.Activate the logistics industry - Foster specialist logistics companies. - Enhance the transparency of the logistics markets to resolve such problems as market distortion. - Strengthen support for the offorts of domestic logistics companies to globalize their oprations.Establish national logistics base systems - Establish inegrated logistics policy systems. - Refine systems or the compilation of logistical statistics. 3. Foreign Investment Procedures i. Investment form Branch Office and Subsidiary Establishment of a branch office is governed by the Foreign Exchange Transaction Act of Koreaand does not require incorporation in Korea. A subsidiary, however, is established as a Korean corporateentity pursuant to the Korean Commercial Code (―KCC‖) after filing a foreign report inder the FIPA.Under the FIPA, in order to be qualified as a foreign investor, the investor is erquired to invest aminimum of KRW 50 million (approximately $ 51,000) and acquire 10% or more of the total issued andincentives available to foreign dicret investments. In general, a subsidiary would be received both by Korean business partners and by the Koreanpublic more favorably than a branch, because in apprearance, a subsidiary is a Korean company, whereas a branch is a foreign company. Also, the establishment of a subsidiary tends to be considered as asolid long-term commitment to Korea by the foreign investor. Furthermore, a subsidiary may also have amore enhaced local character and indentity than a branch. If the Korean presence of a foreign company is structured as a branch, the liabilities of the branchwill be directly attributable to the foreign company. If, on the other hand, the Korean presence is 16
  17. 17. structured as a subsidiary, the liabilities of the subsidiary generally would not be attributed to the parentcompany. Therefore, investing sub-company is considered as the best choice for us. Other options: - Turnkey operation: The biggest disadvantage of Turnkey opration is that it‘s a lack of long- term market presence, since logistic investing is not getting any return value in short-term but the profit would be huge in long-term. Therefore, Turnkey operation is not a proper choice. - Licensing, Franchising and Joint Venture: The disadvantage of these three is that the investors are lack of management. Because of there are many risks, either systematic or unsystematic risk in the logistic industry, the investors must have control on their investing money. So Licensing, Franchising and Joint Venture are out of the list as Turnkey. - But in order the set up a network of logistic, which is the highly priority, the company must make contracts with other firms in order to have advantage in cheap bounded warehouse, ships and air-crafts maintaining and supplying. In order the do so, we should make subcontracting to have our own supplier and use the exist infrastrutures of Korea, therefore we don‘t have to invest and build up own infrastructures and supply our operating activity in order to lower the cost and time to have everything in ready. The company choose to concentrate on helping its customers in logistic. ii. Service considering There are plenty of professional companies provide consulting services for foreign firms toinvest in Korea since the government issues many regulations and policies to encourage FDI, expeciallyin logistics industry. Firms should seriously consider this posibility. Normally, there is no foreign firm hasunderstading about the country as well as the local consulting companies because of the different inculture, economy, etc. One of the openest gate to invest in an Asian country is through full service.Those consulting companies have understanding about the market, the society and especiallyrelationships with the FIPA. Although we highly likely to apply consulting service, steps in detail should be examined. iii. Foreign Investment NotificationA foreign investor or an agent may report their investment at Invest KOREA (KOTRA), Korea BusinessCenters (KBC) of KOTRA, headquarters and branches of domestic foreign exchange banks, or domesticbranches of delegated foreign banks. 17
  18. 18. Reporting person: A foreign investor or an agent Delegated agency: Headquarters and branches of domestic banks, domestic branches of delegated foreign banks, Invest KOREA (KOTRA), or Korea Business Centers (KBC) of KOTRA. Processing period of foreign investment report: Immediately (The certificate of completion of report is issued without delay)Required Documents Two copies of the foreign investment report form per investment type (new stocks, existing stocks, long-term loans etc.) Documents certifying Thai nationality of the company. o A foreign corporation or group: Certificate of incorporation issued by the government or other authorized organizations of Thailand, or proof that the said corporation or group is based in Thailand. o Foreign individuals: Certificate of citizenship, passport, or other proof of a foreign investors nationality, issued by the government or other authorized organizations of Thailand.Additional documents required when necessary: Documents certifying object of investment Documents certifying share acquisition Letter of attorney (where an agent, a foreign investor confers the right of representation, reports the investment and applies for permission) iv. Investment Fund Remittance In principle, investment funds shall be remitted through a foreign currency bank under the nameof the foreign investor. Funds from domestic sources are not recognized as foreign investments. In theprocess of paying up for stocks, a bank issues a certificate of paid-up stocks (required in case ofregistration of incorporation) and a certificate of foreign currency purchase (required in case ofregistration of a foreign-invested company). v. Incorporation registration and Incorporation Notification & Business Registration After the report of the foreign investment is accepted by the foreign exchange bank, steps may betaken to establish the foreign invested enterprise. The following documents are required to incorporateand register the foreign invested enterprise with the court registry office which has jurisdiction over thelocation where the foreign invested enterprise is to be located: a. Articles of incorporation of the foreign invested enterprise b. Names, addresses, date of birth and nationality of the directors of the foreign invested enterprise and the copies of their passports. c. Name, address, date of birth and nationality of the representative director of the foreign invested enterprise (from among the directors). Therepresentative director is the person who is authorized 18
  19. 19. by Korean law and the Articles of Incorporation to represent the company. If there will be more than one representative directors, foreign invested enterprise has to identify such directors and whether they will be acting only jointly or separately. d. Name, addresses, date of birth and nationally of the statutory auditor of the foreign invested enterprise and the copy of the passports. There must be at least one statutory auditor for a chushik hoesa (who must be a natural person and an accounting firm may not serve as a statutory auditor). The statutory auditor performs certain statutory supervisory functions, separately from independent auditors (who are usually accountatns). There is no restriction regarding nationality of the statutory auditor. e. Notarized acceptance letters to be signed by each of the directors (and representative director) and the statutory auditor (and representative director) and the statutory auditor (if required) and the report on seal impression by the representative director(s) of the foreign invested enterprise. With the above information and documents, an inaugural meeting of the foreign investedenterprise will be held, where the directors, representative director(s) and the statutory auditor( ifrequired) will be appinted. Since a certificate of full payment of capital contribution issued by theforeign exchange bank is one of the documents necessary for court registration, the foreign investormust remit the investment funds after the report on the foreign investment is accepted by the bank andbefore the court registration is to be effected. vi. Registration with the Tax office The foreign invested enterprise must be registered with the local tax office to obtain a businessID number. This can be completed within 1-2 weeks after court registration of the foreign investedenterprise. The tax office registration requires a copy of a lease agreement evidencing the foreigninvested interprise‘s actual presence in Korea. vii. Paid-in Capital Transfer to Corporate’s Account When registration of incorporation and business is completed, a new company becomes a legallyvalid corporation. A bank requests required documents and transfers paid-in capital to the account of thenewly established corporation. viii. FDI Company Registration A foreign investor (or an agent) or a foreign-invested company shall register the foreign-investedcompany at delegated authorities within 30 days after the occurrence. The registration will be made atFIPA and consist of three procedures: Finished the report on foreign investment with a foreign exchange bank Incorporation and registration with the court registry office Registration with the competent tax officeRequired Documents 19
  20. 20. Registration form of a foreign-invested company Copy of the certificate of incorporation and business registration of a foreign-invested company Copy of foreign exchange purchase certificate or foreign currency deposit certificate Shareholders list (corporate seal, certified copy of the original) or documents certifying that payment of stocks is transferredAdditional documents required when necessary Documents certifying object of investment Copy of documents certifying that the transfer of assets has been completed (where a foreign investor makes an investment in kind with capital goods) Copy of an investigation report by an inspector or a written statement by an appraiser, in accordance with the Commercial Act (where a foreign investor makes an investment in stocks or domestic real estate) o Documents pertaining to acquisition of stocks o Letter of attorney where an agent makes the report i. Financial expectancyInvestment Outlay (Millions Won)Construction………………… 4,000Land…………………………. 2,000Equipment……………….…. 1,000Legal fees & other fees….… 200Total………………………. 7,200 Income statement (Millions Won) 1 2 3 4 5 Total Sale Revenue 20,000 25,000 26,000 27,000 30,000 Material cost 4,000 7,000 7,000 7,500 8,500 Labor cost 5,000 5,000 5,000 5,000 6,500 Total variables cost 9,000 12,000 12,000 12,500 15,000 Gross Profit 11,000 13,000 14,000 14,500 15,000 G&A 3,000 3,000 3,000 3,000 3,000 20
  21. 21. Depreciation 500 500 500 500 500 EBIT 7,500 9,500 10,500 11,000 11,500Korean Income Tax 2,250 2,850 3,150 3,300 3,450 Net Income 5,250 6,650 7,350 7,700 8,050 Net Present Value - NPV 1 2 3 4 5 Net Income 5,250 6,650 7,350 7,700 8,050 Depreciation 500 500 500 500 500 Working Capital 1,000 400 300 300 300 Net cash flow 4,750 6,750 7,550 7,900 8,250Net profit in Baht 132 187 209 219 228 Presence Value 0.82 0.67 0.55 0.45 0.37 factor 0 1 2 3 4 5 Year Million Bath (200) 108 125 114 99 84 Total: 530 million Bath NPV = 330 million Bath (Accept project) -oOo- THE END 21