Economic Environment andInvesting in Korea

Economic Environment andInvesting in Korea

20062006

Korea Institute for International Economic PolicyKorea Institute for International Economic Policy

Introduction to KoreaIntroduction to Korea

Introduction to KoreaIntroduction to Korea

China

North Korea

Japan

Pacific Ocean

East Sea

Republic ofKorea

Republic ofKorea

Mongolia

VietnamPhilippines

Thailand

Burma

LaosHongkong

Indonesia

India

Population : 48 million

Industry Breakdown :57%

Services Services

39%

ManufacturingManufacturing AgricultureAgriculture

4%

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04

Imports Exports

25,000

20,000

15,000

10,000

(Unit: US$ bn)

Dec-04

800

600

400

200

1970 1980 1990 2000 2001 2002 2003 2004

(Unit: KRW tn)Source: Bank of Korea

Real GDP Growth (1970-2004) Export / Import Trends

Economic OverviewEconomic Overview

Trade amount in 2004: US$ 478 bn (WR: 12TH 28% )

GDP in 2004 : US$ 679 bn (WR: 10TH 4.6% )

Foreign currency reserves in 2004: US$ 199 bn (WR: 4TH 28% )

Economic Environment:The Korean AdvantageEconomic Environment:The Korean Advantage

Source:1. Incheon International Airport Corporation2. IMD World Competitiveness Yearbook 2004, Korea International Trade Association 3. ASEAN, Korea International Trade Association

Trade w/KoreaTrade w/KoreaPopulationPopulationGDPGDP

542 mn542 mnUS$ 39 bnUS$ 39 bn

US$ 686 bnUS$ 686 bn

ASEAN3

Trade w/KoreaTrade w/KoreaPopulationPopulationGDPGDP

128 mn128 mnUS$ 54 bnUS$ 54 bn

US$ 4,302 bnUS$ 4,302 bn

Japan2

China2*

Trade w/KoreaTrade w/KoreaPopulationPopulationGDPGDP

1,299 mn1,299 mnUS$ 57 bnUS$ 57 bn

US$ 1,569 bnUS$ 1,569 bn

* Hong Kong included* Hong Kong included

44 cities with populations of more than 1 millionare within 4 hours’ flying time1

44 cities with populations of more than 1 millionare within 4 hours’ flying time1

32% of World Population32% of World Population20% of Global GDP20% of Global GDP

Geographical AdvantageGeographical Advantage

Well Educated Human Resources2 Well Educated Human Resources2 % of population with higher education

International Experience1International Experience1

Senior Managers’ International ExperienceCountry % RankCanada 51 1Japan 50 2

Norway 40 4US 39 5

Korea 41 3

Country Rank

HK 2Singapore 3

Japan 58China 59

Korea 5

Country Hours

1,801JapanUS 1,792

1,673UK1,446Germany

Korea 2,390Korea 4.1%

Japan 1.4%

OECD 1.8%

US 2.1%

Finland 2.6%

High Quality Human ResourcesHigh Quality Human Resources

Diligent Workforce2 Diligent Workforce2 Working hours per year per person

Source:1 IMD World Competitiveness Yearbook 2004 2 OECD Fact Book 2005

Productivity Improvement2 Productivity Improvement2

Avg. annual growth (1994-2003)

Logistical Infrastructure Logistical Infrastructure

ICT InfrastructureICT Infrastructure

- One of the top 6 airports- No. 3 in cargo handling volume- No. 10 in passenger capacity

- No. 5 commercial port- Easy connectivity w/ the U.S.

- 5th high-speed train (KTX)- Future connection w/China, Siberia, and Manchuria

Source:ITU, IMD World Competitiveness Yearbook 2004 , World Telecommunication Indicator

Mobile Phone Subscriber Ratio (2002)

Korea Japan CanadaU.S.AAustralia

0.00%

20.00%

40.00%

60.00%

80.00%

64%68%

38%50%

64%

Internet Use

Country

Iceland

SwedenUSNew Zealand

Korea

%

67%

57%55%53%

60%

Rank

1

345

2

Broadband Subscribers

(# of subscribers per 1,000 inhabitants)

Country

HKCanadaTaiwanBelgium

Korea

#

1531129384

218

Rank

2345

1

“Most competitive in IT industry among OECD countries”“Most competitive in IT industry among OECD countries” - 2004 (Source: OECD)

Superb InfrastructureSuperb Infrastructure

R&D Capability R&D Capability Patent Related FiguresPatent Related FiguresPatents Granted to ResidentsCountry Number Rank

Japan 118,535 1 USA 85,528 2 Korea 29,363 3 Taiwan 24,700 4 Germany 18,318 5

Business Expenditure on R&DCountry US$ millions Rank

USA 200,525 1Japan 94,264 2

3Germany 34,426 4France 19,491 5UK 18,246

KoreaKorea 10,15210,152 66China 9,518 7 Patent Productivity

Total Expenditure on R&D

Country % of GDP Rank

Korea 2.5 10U.S.A. 82.7Japan 6 3.1 France 4 3.1 Israel 1 4.8

Source:IMD World Competitiveness Yearbook 2004

Country Number Rank

Taiwan 446 1

195Japan 2

Korea 187 3 South Africa 95 4 Thailand 81 5

(patents granted to residents / R&D personnel in business : in '000s)

Legal Framework and Enforceable Judgement in Support of Intellectual Property ProtectionLegal Framework and Enforceable Judgement in Support of Intellectual Property Protection

R&D CapabilityR&D Capability

DeregulationDeregulation RestructuringRestructuring BalancedDevelopment

BalancedDevelopment

InternationalSchoolsInternationalSchools

InternationalHospitals

InternationalHospitals

5 Year Plan to Improve Foreigners’ Living Conditions5 Year Plan to Improve Foreigners’ Living Conditions

Bilingual PublicServices

Bilingual PublicServices

Improving Investment EnvironmentImproving Investment Environment

Overview of FDIOverview of FDI

FDI OverviewFDI Overview

Total FDI amount of US$ 12.8 billion (98% increase from 2003)Total FDI amount of US$ 12.8 billion (98% increase from 2003)

0

5

10

15

20

91 92 93 94 95 96 97 98 99 00 01 02 03 04

(Unit: US$ bn)

ArrivalNotificationFDI Inflow (1991- 2004)FDI Inflow (1991- 2004)

1.41.4

6.56.5

12.812.8

1.21.24.84.8

8.68.6

44%

5%5%

FDI Breakdown by Industry

1%1%

Agriculture,Livestock and FisheryUS$ 0.4 bnUS$ 0.4 bn

ManufacturingIndustryUS$ 45 bnUS$ 45 bn

Electricity, Gas,and ConstructionUS$ 5 bnUS$ 5 bn

50%

ServiceIndustryUS$ 52 bnUS$ 52 bn

FDI BreakdownFDI Breakdown

Note: Total amount accumulated between 1962 and 2004 China figures include Hong Kong

Source: Ministry of Commerce, Industry, and Energy

FDI Breakdown by Country FDI Breakdown by Country Amount (US$ bn)Country

U.S.A

Japan

Netherlands

Germany

France

UK

Canada

China

Others Total

3232

1616

1212

66

33

33

33

33

1041042525

2001 2002 2003 2004

Fortune 500 Companies in KoreaFortune 500 Companies in Korea

Major InvestorsMajor Investors

Europe North AmericaAsia

Business OpportunitiesBusiness Opportunities

Automotive Industry

Automotive and Automotive PartsAutomotive and Automotive Parts

6th Biggest Auto-Producing Country in the World6th Biggest Auto-Producing Country in the World

France

United States

Japan

Germany

China

Korea

12 (-1.1%)

11 (2.2%)

6 (1.1%)

5 (14.1%)

4 (2.2%)

3 (9.2%)

Million vehicles, Growth rate (%)

Restructuring Restructuring

Acquired controlling share (36.3%) (Nov. 1998)

Merged

Acquired (48.9%)

(Jan. 2005)

Acquired (70.1%)

(Apr. 2000)

(Apr. 2002)

Hyundai MotorsHyundai Motors

Kia MotorsKia Motors

GM DaewooGM Daewoo

SsangYongSsangYong

Renault-Samsung Renault-Samsung

GM GM

SAICSAIC

RenaultRenault

Automotive Parts Industry(Unit : US$ bn)

USA Japan Germany China France Spain Canada Others Total

91 78 42 33 25 23 19 122 459

KoreaKorea

2727

Semiconductor and DisplaySemiconductor and Display

World’s No.1 DRAM Producer (45%)

Semiconductor Market ShareSemiconductor Market Share

Source: IC Insights, 2004

Intel

Samsung Electronics

Texas Instruments

Infineon

Renesas

31.1

15.1

10.3

9.4

9.0

14%

7%

5%

4%

4%

Company %Revenue (US$ bn)

Major DRAM ProducersMajor DRAM Producers

Source: iSuppli, 2004

Samsung Electronics

Micron

Hynix

Infineon

Elpida

7.6

4.2

4.2

3.7

1.6

29%

16%

16%

14%

6%

Company %Revenue (US$ bn)

World’s No.1 PDP Producer

Samsung SDI :28.7%

LG Electronics : 27.0%

World’s No.1 Large TFT-LCD Producer

First to develop 82” LCD Panel (Samsung SDI)

First to commercialize 5’7” LCD panel (LG Philips LCD)

OLED & CRT Market Share (2004) : 40%(Samsung SDI)

ShipbuildingShipbuildingWorld leader - 44% of world marketWorld leader - 44% of world market

Advanced design and production capabilityAdvanced design and production capability

Hyundai Heavy Industries

- Largest shipbuilder in the world (15 % mkt share)

Hyundai Heavy Industries

- Largest shipbuilder in the world (15 % mkt share)

Steel Steel No. 5 in the world - 45.4 million tons of crude steelNo. 5 in the world - 45.4 million tons of crude steel

1st and 2nd largest single production sites both located in Korea (POSCO)1st and 2nd largest single production sites both located in Korea (POSCO)

PetrochemicalsPetrochemicalsWorld’s 3rd largest producerWorld’s 3rd largest producer

Leading know-how and advanced technology Leading know-how and advanced technology

Other Major IndustriesOther Major Industries

World leader in mobile phone manufacturingWorld leader in mobile phone manufacturing

World leader in VDSL use

Internet & telecom infrastructure – one of world’s most advanced

Satellite DMB services to be commercialized in July 2005

Source: StrategyAnalytics, February 2004

Rank

5.35.3LG ElectronicsLG Electronics

10.810.8Samsung ElectronicsSamsung ElectronicsMotorolaNokia

World Mobile Phone Makers

Siemens

Sony Ericsson

Company

2003(Unit: %)

55

3321

4

6

14.534.8

8.4

5.3

Market Share

“Most Competitive in IT Industry among OECD Countries” - 2004“Most Competitive in IT Industry among OECD Countries” - 2004(Source: OECD)

Information Communication TechnologyInformation Communication Technology

Private sector participation – encouraged through strong incentives,e.g., guarantees, risk-minimization schemes, etc.

Private sector participation – encouraged through strong incentives,e.g., guarantees, risk-minimization schemes, etc.

Geographic advantage – gateway to Asian markets Strong public sector support & incentives for foreign investorsFedEx and DHL are expanding facilities in Korea

Geographic advantage – gateway to Asian markets Strong public sector support & incentives for foreign investorsFedEx and DHL are expanding facilities in Korea

SOCSOC

LogisticsLogistics

SOC Logistics & Real EstatesSOC Logistics & Real Estates

Total deregulation of real estate market in May 1998Foreigners' real estate purchasing shifting from short-term office building purchases

to long-term development type projects

RealEstateReal

Estate

BP has set-up a power plant JV with SK - Korea’s first privately owned generation facility

BP has set-up a power plant JV with SK - Korea’s first privately owned generation facility

Investment TrustInvestment Trust

Life InsuranceLife InsuranceBankingBankingOne of the largest markets in Asia : US$ 6.34 b profit from insurance operation - 23 insurers (Feb.2005)

Continuous deregulation in the market

Level playing field

Gov’t’s restructuring effort in final stage

Recent enactment of “Indirect Investment Asset Management Business Act” expected to increase business opportunities

FinanceFinance

Recent “mega-deals” :Standard Chartered Korea First Bank (Jan. 2005) : USD 3.3 bilCitibank Koram (Feb. 2004): USD 2.8 bn for 91%

Fully deregulated industry :Foreign ownership: Kookmin (78%), KEB (73%)

Increasing presence of major foreign banks in the consumer banking sector

Sector wide restructuring and consolidation

High -net-worth individual asset management : next wave of profitability

Synergies with ITSynergies with IT

Closing gap withworld leadersClosing gap withworld leaders: AIDS vaccine,herbicide-resistant crops: AIDS vaccine,herbicide-resistant crops

Strong Gov’t SupportStrong Gov’t Support

Industrial clusters designatedfor bio-technology companiesVarious incentives such as sitesupport and tax exemptions

Industrial clusters designatedfor bio-technology companiesVarious incentives such as sitesupport and tax exemptions

Bio-TechnologyBio-Technology

First cloned canine, Snuppy the puppy First cloned canine, Snuppy the puppy Aug. 2005Aug. 2005

Next goal : Establishing dog’s embryonic

stem cells through nuclear transfer

Next goal : Establishing dog’s embryonic

stem cells through nuclear transfer

First ever cloning andextracting of embryonic stemcells by Prof. Hwang’s team .

First ever cloning andextracting of embryonic stemcells by Prof. Hwang’s team . Seoul National University Feb. 2004Seoul National University Feb. 2004

Incentives and SupportIncentives and Support

Extensive IncentivesExtensive Incentives

Corporate Income TaxLocal Tax : Acquisition, registration, property &aggregate land tax

Exemption or reduction ofleasing costs for national or local government properties - almost free of charge

Employment and/or trainingNational R&D ProjectsDevelopment for Basic Facilities

Tax HolidaysTax HolidaysTax HolidaysTax Holidays Other Financial Other Financial SupportSupportOther Financial Other Financial SupportSupport

LeasingLeasing

Various incentives provided depending on business area and investment size

- Provide plant sites at inexpensive prices - Also attracts FDI from SMEs

- Local governments authorized to designate a particular area where foreign investors wish to invest

Foreign Investment Zones

- Details : deregulation, labor market flexibility, convenient living conditions

- Provides special legal status to foreign investorsFree Economic Zones

Business activities can be pursued without the legalrequirements demanded under Foreign Trade Act andthe Customs Tax Act

Free Trade Zones

Promotes investments into high-technology andleisure industries

Jeju Free International City

Jeju Island

GangwonProvince

GyeonggiProvince

North GyeongsangProvince

South GyeongsangProvince

South JeollaProvince

North JeollaProvince

South ChungcheongProvince

North ChungcheongProvince

IncheonSeoul

BusanGwangju

Daejeon

Daegu

Commercial Port

Foreign Investment Zones

Free Trade Zones

Free Economic Zones (FEZ)

Jeju Free International CityInt’l Airport

Site SupportSite Support

Gwangyang

Invest KOREAInvest KOREA

Investment Promotion RegimeInvestment Promotion Regime

OrganizationOrganization

※ Invest KOREA is the investment promotion arm of KOTRA

Foreign Investment Committee

Ministry of Commerce, Industry and Energy

Identifying Promotion Support Aftercare

Local

Governments

Central

GovernmentOmbudsman

Invest

KOREA

Invest

KOREA

Overseas Headquarter

Project Manager (PM) System

ServicesServices

PM provides full support to potential foreign investors

Provide necessary information on Korean markets and industries

Help on selecting appropriate plant sites

Assist in seeking and meeting potential business partners

Consult on FDI incentives available for investors’ projects and procedures to obtain them

Arrange meetings with investment related government entity

Provide administrative support - visa extension, registration documents, etc

AftercareAftercare

OIOOffice of the Investment Ombudsman

Appointed by PresidentAppointed by President

- - Resolve difficulties experienced by foreign-invested

companies

- Create a more favorable overall investment environment

Foreign InvestorForeign Investor

Ombudsman+

Aftercare Team

Ombudsman+

Aftercare Team

Government/ Gov’t agencyGovernment/ Gov’t agency

Foreign Investment Committee

Foreign Investment Committee

Report

complaint

Report

complaintProvide

Solution

Provide

Solution

Cooperation

Recommendation

Cooperation

Recommendation

Grievance Resolution

Thank YouThank You

www.kiep.go.kr300-4, Yomgok-dong, Seocho-gu, Seoul, KoreaTel:(82-2) 3460-1001 Fax:(82-2) 3460-1122

This presentation is reproduced with a support from Invest KOREA.