South Korea’s rise to become the world’s 10th-largest economy in the span of a generation is paralleled by its importance as an investment destination.
More than 16,000 foreign companies are now based there, including over 50% of the top 500 global companies listed by Fortune magazine. This is a powerful indication of the emergence of the country as a financial and manufacturing hub for north-east Asia.
Major sources of investment have been the multinational corporations of the US and the EU, complemented in recent years by huge inflows from Japan. Newly emergent economies are also discovering Korea as witnessed by huge investments in manufacturing and infrastructure from India, China and the Middle East.
So what are the precise attractions of Korea for foreign business? According to the 35 CEOs of leading foreign corporations who comprise the Advisory Council of South Korea’s national investment promotion agency Invest KOREA, there is a multitude of attractive elements.
Talent on offer
Korean workers have the know-how and keenness to get the job done. Foreign investors says that human resources is the country’s biggest strength; that the earnestness and dedication of highly educated Korean employees played an important role in their investment decision.
With over 40% of adults having been to university, Korea has one of the world’s most highly educated workforces. Both the IMF and the World Bank single it out as a model for developing countries because it realised impressive economic growth and educational achievements in just 40 years.
All of this translates into a huge market demand. With a GDP of $605.2bn in 2003, accounting for 1.7% of the world total, investors consider Korea’s economic size as a powerful attraction. Current GDP predictions for 2005 of $667.4bn place Korea ahead of Mexico as the world’s 10th-biggest economy. Combined exports and imports of US$480bn in 2004 rank Korea as the world’s 12th-largest trading nation; when countries heavily dependent on entrepot trade are excluded, Korea becomes the world’s ninth biggest exporter of domestically manufactured goods.
Korea’s pattern of export-driven growth continues to deliver results; growth has averaged 4.15% in recent years, the third highest in the Organisation for Economic Co-operation and Development after Ireland and Luxembourg.
Companies operating in Korea exhibit higher profitability than their competitors in China and other Asian countries. The Japan Trade Promotion Organisation announced that 84.2% of Japanese companies that are invested in Korea recorded profits, which is substantially higher than comparable figures for their counterparts in the Association of South-East Asian Nations (70.9%) and China (74.4%).
A study conducted this year jointly by Korea Associates Business Consultancy and the East Asia Institute of the University of Cambridge showed that over 70% of foreign companies in Korea realised higher profitability than their respective holding companies in terms of gross capital profitability.
Among the world’s top 2000 companies selected by Forbes, 13 South Korean companies recorded a net profit of US$1bn or higher, the same number of Japanese or French companies in this grouping.
About 21 out of every 100 people subscribe to broadband internet services, ranking the nation in first place globally. All told, Korea has 603 internet users per 1000, the second-largest number in the world. Government-backed IT initiatives include home networks and next generation PCs, while services such as Digital Multimedia Broadcasting, telematics and internet telephony have laid the infrastructure for a truly ubiquitous IT environment. The International Telecommunication Union placed Korea first in Asia in terms of a digital access index that measures information and telecommunication availability.
Korea lies between the world’s biggest potential market, China, and the second-largest economic superpower, Japan. It is strategically located in the north-east Asian region, which accounts for 20% of world GDP. Korea’s current export boom is being fuelled by growth in China, which is now the primary destination for the country’s exports.
Up to 51 cities are accessible within a three-and-half hour flight from Korea’s capital, Seoul.
Korean ingenuity is a powerful asset that enables foreign investors to build higher value into their operations. It is underscored by the 29,363 domestic patents awarded to Korean nationals in 2004.
Korean investment in R&D is valued at $13.9bn, accounting for 2.5% of GDP to rank the country in seventh and eighth places, respectively. The promise of R&D lured the Pasteur Institute of France and Siemens of Germany, as well as 13 other world-renowned research institutes and R&D centres of big foreign corporations in 2004.
Against this backdrop, Korea is emerging as a marketing testbed in the IT, consumer goods, and cultural sectors because of the phenomenon of Koreans being early adopters.
A healthy economy depends largely on a fast-moving infrastructure, too. On the ground, Korea boasts a highway system comparable to that of southern California or Germany, while it is only the fifth country to launch a high-speed rail service. It also claims the lowest industrial electricity charges, and the world’s 10th-biggest electricity generation capacity and consumption among major industrialised Asian nations.
Korea’s aviation hub, Incheon International Airport, has become the world’s third-biggest airport in terms of cargo processing capacity in just four years of operation. On the passenger front, Global Traveler magazine selected the airport as the world’s best in 2004. Busan, now doubling its capacity through the Busan New Port project, is the world’s fifth-largest container port and on target to become the maritime hub of north-east Asia.
Korea’s shipbuilding, D-RAM semiconductor and TFT-LCD industries are among the world’s biggest. The automobile, steel, petrochemical and textile industries, too, are ranked within the top six in their respective categories, internationally.
The S-LCD joint venture by LG.Philips LCD and by Samsung Electronics and Sony is the largest of its kind ever undertaken. Multinational automobile parts’ companies are expanding their investment in Korea, too, based on the stellar performance of domestic car makers.
Up to 41 Korean businesses were among the world’s top 2000 companies selected by Forbes; the seventh largest figure by country. Eleven Korean businesses were also included among the world’s top 500 companies chosen by Fortune, ranking Korea 10th in this category.
Foreign investors value the services of the renowned Investment Ombudsman system and the national investment promotion agency, Invest KOREA, as well as the designation of three free economic zones at Incheon, Busan/ Jinhae and Gwangyang.
Korea has also become more cosmopolitan than ever. It offers a unique lifestyle that has grown out of the fusion of Eastern and Western cultures, and the hosting of the 1988 Olympic Games and the 2002 FIFA World Cup.