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Korea 2008


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-ETP Japan / Korea - Palazzo dei Giureconsulti, Milano July 2008

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Korea 2008

  1. 1. Korea 2008 Claudio PellegattaETP July 08- Palazzo Giureconsulti, Milano
  2. 2. Table of Contents Korean Economy FDI in Korea Deciding Factors Invest KOREA
  3. 3. Korean Economy
  4. 4. Key Economic Indicators (as of 2007) Statistics 2007 est. Agriculture Others Population 49,044,790 Others 3.30% 7% 15.7% GDP (Nominal) US$969.9 billion Manufacturing 19% Real GDP Growth 4.9% Manufacturing Services Per capita GNI (Nominal) US$20,045 56% 25% Services 74% Labor force 24 million Unemployment rate 3.1% Inflation rate 2.5% GDP Composition by Sector Labor Force by Occupation (2006 est.) (2006 est.) Trade 2007 est. Export US$371.5 billion Displays, Hong Kong Saudi Arabia Major Export Items Semiconductors, Automobiles Japan 5.02% 5.02% US 5.93% Import US$356.9 billion 7.10% 10.43% US Major Import Items Petroleum 12.32% Others Others China 53.49% 17.66% 50% Finance 2007 est. China Investment (gross fixed) 28.8% of GDP 22.07% Japan 15.76% Foreign Exchange Reserves US$262.2 billion Government debt 33.4% of GDP Export Destination Import Source External debt US$380.7 billionSource: The World Bank/Korean Statistical Information System/The Bank of Korea 9
  5. 5. Economic Policy Direction for the New Government 4
  6. 6. Economic Policy Direction for the New Government 2008 has been designated as the “take-off period” for FDI Establishing “business-friendly environment” More favorable place Globalize finance sector for foreign investors Capital Markets Consolidation Act (as of 2009) Encouragement of PEF as well as hedge funds Minimize regulations One-stop service for foreign investors Introduction of the “Sunset Law” Negative-list approach to regulation Lower tax rate Reinforcing administrative assistance: Tax, immigration, Reduction of corporate tax rate to the 20% level by 2012 etc. Introduction of “Advance Ruling” Improve labor relations Improvement of living Strengthening of “Rule of Law” environment Provision of incentives for healthy labor relations 5
  7. 7. Industrial Policy Direction for the New Government Automobiles Software Biotech Semiconductors Engineering Robotics Nanotech Displays Design Medical devices Mobile communications Testing & analysis LED Shipbuilding Photovoltaic power 6
  8. 8. Developing Service Industry Globalizing through pioneeringGlobal Competitiveness overseas markets Raising competitiveness through specialization and economies of scale Creating markets through the activation of outsourcing and fostering specialized companies Industrialization 2008: Mitigation of obstacles in industrialization and expansion of R&D investment (KRW123.4 billion) 2012: Cultivation of 1,000 small and medium enterprises specializing in services 7
  9. 9. Creating New Industries Bio chips, Bio, Nano, Robots Intelligent robots Next Generation MRI, Medical, Security Encoding Technology Photovoltaic, Photovoltaic Elements, Hydrogen Energy Secondary Batteries Technology development / Market creation / Regulatory Reform 2008: R&D fund investment of KRW396billion – US$426.2 million – into 12 technology areas* * 929.20 won/US$1 (2007) 8
  10. 10. Noteworthy Numbers Global Competitiveness Index (2007/2008)1 Global Competitiveness (2007/2008)1 Sophistication of company operations and strategy Country Score Rank Country Rank USA 5.67 1 US 1 Korea 5.40 11 Netherlands 7 Hong Kong 5.37 12 Korea 10 Taiwan 5.25 14 Singapore 14 Ireland 5.03 22 Hong Kong 16 Korea OECD Avg. Country Score Rank Total Tax-rate 34.9% 46.2% Denmark 8.88 1 Disclosure 7% Korea 8.08 16 Index 6.4% Shareholder 7% Japan 8.01 18 Suits Index 6.5% Germany 8.00 19 Non-wage 13.0% Labor Cost 20.7% Ireland 7.86 21 Doing Business in Korea (2008)2 E-Readiness Ranking (2007)3Source: 1. WEF Global Competitiveness Report 2007-2008 2. World Bank, Doing Business 2008 3. Economist Intelligent Unit, 2007 10
  11. 11. Capital Markets Consolidation Act (as of 2009) Regulatory Reform & Strengthening Investor Protection Elimination of nearly 60% of existing financial regulations Adoption of global standards in the economy/industry (IPR, investor protection, etc.) Tripartite Capital Market Structure At Present Post-CMCA Banks Banks Asset Mgm’t MBCs* Investment Banks/ Securities PEFs Futures Trusts Insurance Insurance * MBCs: merchant banking corporations 11
  12. 12. Capital Markets Consolidation Act (cont’d.) Category Details Permits combined operation of all financial investment businessesExpansion of business scope - Sales, brokerage, asset management, discretionary investment advisory service,of financial investment and trustcompanies Technically allows small settlement function & foreign exchange dealingsShift to a comprehensiveconcept of financial Includes all new financial investment products to be releasedinvestment productsStrengthening of Strengthens notification obligations: Investment agents to compensateprotection systems for defective sales with companies shouldering the burden of compensationfor investorsExpansion of consolidated Includes all asset-worthy properties as investment objectsinvestment businesses Abolishes restrictions on assets as investment objects by fund type(asset management) 13
  13. 13. FDI in Korea
  14. 14. FDI in Korea for the Past 10 Years “Total FDI for the last ten years since the Asian Financial Crisis is four times greater than that of 1962-1997.” 20 Topped average of US$11 billion for nine consecutive years from 1999. 17. 5 No t i fi c a t i on 15 11.2 (US$ billion) 12. 5 10.5 10 7. 5 5 2. 5 0 19 91 19 92 1 993 19 94 19 95 1 996 1 997 1998 1 999 2000 2001 200 2 200 3 20 04 200 5 20 06 20 07 Source: Ministry of Knowledge Economy 15
  15. 15. FDI in Korea for the Past 10 Years First Stage – Quantitative expansion: Following Asian Financial Crisis Active attraction of foreign capital with liberalization of regulations Second Stage – Qualitative growth: Since 2003 Strategic attraction of FDI by targeting specific industries Full awareness of the critical significance of the attraction of FDI for economic advancement 16
  16. 16. Recent FDI Trends By Industry (US$ million) New vs. Additional FDI (US$ million) 9,000 8,000 8,000 7,000 7,000 6,000 6,000 5,000 5,000 4,000 4,000 3,000 3,000 2,000 2,000 1,000 1,000 900 900 100 100 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 By Type (US$ million) By Country 1962-2007 (%) 28.4 10,000 7,000 15.0 6,000 11.5 5,000 4,000 5.6 3,000 2,000 5.0 1,000 900 3.8 100 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Others 30.7 Total 69.3Source: Ministry of Knowledge Economy 17
  17. 17. Foreign Investors in Korea 2,274 4,880 8,135 13,034 15,137 1997 2000 2003 2006 2008.3 18
  18. 18. The Impact of FDI on the Korean Economy % of GDP, Inward FDI stock (2006) Exports (2005) Employment rate weight of foreign for manufacturing investors in the /major services (2005) stock market (WEF Global Competitiveness Report 2007-2008) Trade surplus (2005) Total revenue from manufacturing (2005) Labor productivity of foreign-invested companies2: 20% higher than that of domestic companies Investors perceive conditions of market demand/degree of development of related industries2 positivelySource: 1. FDI Promotion White Paper 2007 – Ministry of Knowledge Economy, KOTRA 2. KOTRA & Institute for Trade and Investment (2007) 3. UNCTAD ( 19
  19. 19. FDI Promotion Plan of the New Government Regulatory Reform Pursued by the Ministry of Knowledge Economy 3-Year Plan for Korea’s Establishment of plan to expand special Foreign Investment Environment cases where regulations may be eased Provision of more land sites on a rental Free Economic Zones (FEZs) will be basis granted the initiative to reduce Strengthening of English education regulations with a view to improving Construction of additional international schools conditions for doing business and living Provision of English subtitle service for in Korea Korean TV programs (Full details to be announced on May 30, 2008) (Full details to be announced on April 30, 2008) 20
  20. 20. Deciding Factors
  21. 21. 22
  22. 22. World-Class Human Resources High Educational Zeal and Achievement 49% of Koreans between 25-34 have attained post-high school level education Korean students make up the largest group of foreign students in U.S. and China Technological Competitiveness The information technology skills of Koreans rank in the top three globally Korea ranks 3rd in patents granted to residents and 2nd in patent productivity Great Strides Made in Labor-Management Relations During 2007, the number of working days lost to strikes fell 55.8% from 2006 The Korea Federation of Trade Unions is actively cooperating to promote FDI Information Technology Skills (2007)* Patents Granted to Residents (2003-2005) 1. Iceland 9.39 1. Japan 110,714 2. Israel 9.28 2. USA 80,875 3. 9.07 3. 39,650 4. Singapore 8.85 4. Taiwan 35,599 5. Finland 8.80 5. Russia 19,699 * Based on a scale of tenSource: IMD World Competitiveness Yearbook (2007) 23
  23. 23. Sophisticated Domestic Market Large Market with Sophisticated Spenders Home to 49 million people (2007) / World’s 13th in GDP (2006) Early adopters as a test market for new products The buying power of Korea’s brand-savvy consumers is increasing quickly The presence of over half of Global Fortune 500 firms A Big Trading Nation Korean Domestic Consumption (US$ billion) 500 Trade with Asian neighbors accounts 450 YEAR US$ bn for over half of Korea’s trade volume 400 350 300 2004 338 China, U.S.A., and Japan are Korea’s 250 largest trading partners 200 150 2005 399 100 Korea trades with over 220 50 0 countries 2006 453 1999 2000 2001 2002 2003 2004 2005 2006 24
  24. 24. Global Leading Industries Semiconductors 11.3% share of the global market 2007 exports exceeded US$39 billion No. 1 market share in DRAM, SRAM, LDII, and NAND Exports of Korean ships expected to reach US$30 Shipbuilding billion in 2008 In 2007, Korean shipbuilders ranked 1st globally in terms of new orders, order backlogs and volume of vessels built – 40% of all orders worldwide Automobiles (2006) 1 World’s 5th largest with 5.5% share Parts sector has 6% of Korean employees, 5% of manufacturing output Foreign-invested tier-1 suppliers, 35.5% of all parts sales No. 1 market share in LCD, PDP, and OLED displays Displays (2006) 1 Market share: 36.3% Major players: LG Display, Samsung Electronics, LG Electronics, Samsung SDI1. The data as of 2007 to be released in April. 25
  25. 25. Logistical Powerhouse Incheon Korea’s extensive logistics International Airport network includes 1. Major seaports/int’l connectivity Gyeonggi Gangwon Province 2. Int’l airports linking Korea Province to the world 3. Ground transportation 4. Grand canal proposal North Chungcheong Ranked world’s best freight airport Province (2,555,580 tons of cargo, 2007) South Chungcheong North Gyeongsang Ranked best airport for passenger Province Province service by ACI 2005-2007 KTX North Jeolla Province South Gyeongsang Busan Port Province South Jeolla Province World’s 5th high-speed train After KTX, domestic air traffic between Seoul & Busan KTX 5th largest cargo handling decreased to 25% while rail world-wide in TEU Planned Grand Canal travel increased to 62% (2005) (A total of 540km, 19 gateways) Part of a Free Trade Zone 26
  26. 26. Free Economic Zones Korea’s Free Economic Zone (FEZs) are Incheon FEZ Songdo, Cheongna, and self-contained living and business districts Yeongjong are positioned featuring air and sea transportation, to become the Asian center logistics complex, international business center, of logistics, int’l business, financial services, residences, schools and tourism and leisure. hospitals, shopping and entertainment. Busan-Jinhae FEZ BJFEZ offers direct access to Busan Port and world-class shipbuilding, auto parts, machinery, and components industries. Gwangyang FEZ GYFEZ is well-suited for the steel, petro-chemical and logistics industries with direct access to China, Japan, and ASEAN. To be added later in 2008 27
  27. 27. ClustersIndustrial clusters located throughout Korea allow foreign and domestic companies tocreate linkages and new opportunities for growth and synergy. Dandong High-Tech Geumui Biotech Digital Electronics Jangan Inju Aerospace Cheonan Osong Electronics, Petrochemicals Pohang LCD Gumi High-Tech, Machinery Ulsan Jisa Automobile Jinsa Daebul Geoje Island Shipbuilding Pyeongdong 28
  28. 28. FTA-Led Strategy FTA Policy Expected Results Korea’s FTA Network Globalization of Korea’s markets Concluded FTAs Chile Apr. 2004 Singapore Mar. 2006 EFTA Sep. 2006 U.S. FDI inflows into Korea expected ASEAN Goods – 06/07, Services – 11/07 to increase by US$3 billion annually United States Awaiting ratification Negotiations underway FDI from Japan, Europe, and elsewhere expected to grow in order to export to EU Japan the U.S. Canada Mexico ASEAN (Investment) India Additional FTAs distinguish Korea, creating strategic edge On the horizon MERCOSUR (Joint study) Vast improvement of Korean investment China (Joint study) environment with regulations lifted and GCC (Joint study) living conditions upgraded Australia (Joint study) 29
  29. 29. Invest KOREA
  30. 30. One-Stop Service Government agencies Local governments After-care Overseas Network 40 KTCs Execution Resolution of investor grievances Guidance on Improvement of investment targeting business & living Pre-Investment Seeking of partners environment Consultation Notification of relevant Provision of incentives information and administrative services 31
  31. 31. Project Manager System Provide information Assist in plant site selection Assist in seeking on markets and business partners industries Provide Consult on administrative Arrange meetings FDI incentives support with government officials 32
  32. 32. FDI Incentives and Deregulation Amended in Nov. 2007 Tax Reduction Cash Grant Corporate tax, income tax: 7 yrs To finance the construction Acquisition tax, registration of facilities or the purchase tax, property tax: 5-15 yrs of equipment related to the Tariff: 3 yrs investment Reduction or exemption Subsidies for employment of rent and training Support for the improvement of Support for building of living and business infrastructure environment Location Support Others Nurturing of R&D Workforce For 2 years after the start of R&D activities Subsidies of 50% of annual salary (limit of KRW30 million/employee) 33
  33. 33. Investment Partnership Support Investment Partnership Support Team Sources for Korean companies looking for strategic foreign investors/partners from Primary Working Partners (banks, securities, consulting firms, etc.) AND/OR Searches for eligible Korean companies upon requests from foreign companies interested in finding strategic partners Provides match-making services and administrative/procedural support 35
  34. 34. Invest Korea Plaza Opened October 2006 Major Services include: Secretarial and reception services and dedicated office space All administrative services related to business consultation and investment Target tenants: new investors and existing investors who are set to make increased investments Investor Support Center • Support the G4F Portal for Life Officials from the Ministry of Convenience Information Justice, the National Tax • Expand the use of labor- Service, Korea’s Customs management cooperative Service, and the Courts of Law program 36