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Economic Environment and Investing in Korea

Economic Environment and Investing in Korea. 2006. Korea Institute for International Economic Policy. Introduction to Korea. Introduction to Korea. Manufacturing. Agriculture. Services. 57%. 39%. 4%. Mongolia. East Sea. North Korea. Japan. China. Republic of Korea. Pacific Ocean.

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Economic Environment and Investing in Korea

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  1. Economic Environment and Investing in Korea 2006 Korea Institute for International Economic Policy

  2. Introduction to Korea

  3. Introduction to Korea Manufacturing Agriculture Services 57% 39% 4% Mongolia East Sea North Korea Japan China Republic of Korea Pacific Ocean India Burma Hongkong Population : 48 million Laos Industry Breakdown : Thailand Philippines Vietnam Indonesia

  4. Economic Overview GDP in 2004 : US$ 679 bn (WR: 10TH4.6% ) Trade amount in 2004: US$ 478 bn (WR: 12TH28% ) Export / Import Trends Real GDP Growth (1970-2004) 25,000 800 20,000 600 400 15,000 200 10,000 1970 1980 1990 2000 2001 2002 2003 2004 Dec-04 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Imports Exports (Unit: US$ bn) (Unit: KRW tn) Foreign currency reserves in 2004: US$ 199 bn (WR: 4TH28% ) Source: Bank of Korea

  5. Economic Environment: The Korean Advantage

  6. Geographical Advantage China2* GDP US$ 1,569 bn Population 1,299 mn Trade w/Korea US$ 57 bn * Hong Kong included Japan2 GDP US$ 4,302 bn Population 128 mn Trade w/Korea US$ 54 bn ASEAN3 GDP US$ 686 bn Population 542 mn Trade w/Korea US$ 39 bn 20% of Global GDP 32% of World Population 44 cities with populations of more than 1 million are within 4 hours’ flying time1 Source: 1. Incheon International Airport Corporation 2. IMD World Competitiveness Yearbook 2004, Korea International Trade Association 3. ASEAN, Korea International Trade Association

  7. High Quality Human Resources Well Educated Human Resources2 International Experience1 % of population with higher education Senior Managers’ International Experience Country Rank Country % Rank HK 2 Canada 51 1 Singapore 3 Japan 50 2 Korea 41 3 Korea 5 Norway 40 4 Japan 58 US 39 5 China 59 Productivity Improvement2 Diligent Workforce2 Avg. annual growth (1994-2003) Working hours per year per person Country Hours Korea 4.1% 1,801 Japan Finland 2.6% Korea 2,390 US 1,792 US 2.1% UK 1,673 OECD 1.8% Germany 1,446 Japan 1.4% Source: 1 IMD World Competitiveness Yearbook 2004 2 OECD Fact Book 2005

  8. Superb Infrastructure - One of the top 6 airports - No. 3 in cargo handling volume - No. 10 in passenger capacity - 5th high-speed train (KTX) - Future connection w/China, Siberia, and Manchuria - No. 5 commercial port - Easy connectivity w/ the U.S. - 2004 (Source: OECD) “Most competitive in IT industry among OECD countries” Broadband Subscribers Mobile Phone Subscriber Ratio (2002) Internet Use Country Rank # Rank Country % 80.00% 68% 64% 64% Korea 1 218 1 Iceland 67% 60.00% 50% 38% 2 60% Korea HK 2 153 40.00% Canada 3 112 3 Sweden 57% 20.00% Taiwan 4 93 4 US 55% 0.00% 5 New Zealand 53% Belgium 5 84 Korea Japan Australia U.S.A Canada (# of subscribers per 1,000 inhabitants) Logistical Infrastructure ICT Infrastructure Source: ITU, IMD World Competitiveness Yearbook 2004 , World Telecommunication Indicator

  9. R&D Capability Patents Granted to Residents Business Expenditure on R&D Total Expenditure on R&D Country US$ millions Rank Country Number Rank USA 200,525 1 Japan 118,535 1 Japan 94,264 2 USA 85,528 2 Germany 34,426 Korea 29,363 3 3 France 19,491 Taiwan 24,700 4 4 UK 18,246 Germany 18,318 5 5 Korea 10,152 6 China 9,518 7 Patent Productivity Country Number Rank Taiwan 446 1 Japan 2 Country % of GDP Rank 195 Korea 187 3 Israel 4.8 1 South Africa 95 4 France 4 3.1 Thailand 81 5 Japan 3.1 6 U.S.A. 2.7 8 (patents granted to residents / R&D personnel in business : in '000s) Korea 2.5 10 Legal Framework and Enforceable Judgement in Support of Intellectual Property Protection R&D Capability Patent Related Figures Source: IMD World Competitiveness Yearbook 2004

  10. Improving Investment Environment Deregulation Restructuring Balanced Development International Schools International Hospitals Bilingual Public Services 5 Year Plan to Improve Foreigners’ Living Conditions

  11. Overview of FDI

  12. FDI Overview FDI Inflow (1991- 2004) Notification Arrival (Unit: US$ bn) 20 15 12.8 10 6.5 5 1.4 0 91 92 93 94 95 96 97 98 99 00 01 02 03 04 Total FDI amount of US$ 12.8 billion (98% increase from 2003) 8.6 4.8 1.2

  13. FDI Breakdown Electricity, Gas, and Construction Agriculture, Livestock and Fishery FDI Breakdown by Country US$ 5 bn US$ 0.4 bn 5% 1% Country Amount (US$ bn) U.S.A 32 Japan 16 50% 44% Netherlands 12 Germany 6 France 3 Service Industry Manufacturing Industry UK 3 US$ 45 bn US$ 52 bn Canada 3 China 3 Others 25 Total 104 FDI Breakdown by Industry Source: Ministry of Commerce, Industry, and Energy Note: Total amount accumulated between 1962 and 2004 China figures include Hong Kong

  14. Major Investors Fortune 500 Companies in Korea 2001 2002 2003 2004 Europe North America Asia

  15. Business Opportunities

  16. Automotive and Automotive Parts Automotive Industry Restructuring 6th Biggest Auto-Producing Country in the World Million vehicles,Growth rate (%) Acquired controlling share (36.3%) (Nov. 1998) Hyundai Motors United States 12(-1.1%) 11(2.2%) Kia Motors Japan 6(1.1%) Germany Acquired (70.1%) Renault Renault-Samsung (Apr. 2000) 5(14.1%) China Merged GM GM Daewoo (Apr. 2002) France 4(2.2%) Acquired (48.9%) SsangYong SAIC (Jan. 2005) Korea 3(9.2%) Automotive Parts Industry (Unit : US$ bn) USA Japan Germany China Korea France Spain Canada Others Total 91 78 42 33 27 25 23 19 122 459

  17. Semiconductor and Display World’s No.1 DRAM Producer (45%) World’s No.1 PDP Producer Semiconductor Market Share Major DRAM Producers Company Revenue (US$ bn) % Company Revenue (US$ bn) % 14% 29% Intel 31.1 Samsung Electronics 7.6 7% 16% Samsung Electronics 15.1 Micron 4.2 5% 16% Texas Instruments 10.3 Hynix 4.2 World’s No.1 Large TFT-LCD Producer 4% 14% Infineon 9.4 Infineon 3.7 4% 6% Renesas 9.0 Elpida 1.6 First to develop 82” LCD Panel (Samsung SDI) Source: IC Insights, 2004 Source: iSuppli, 2004 First to commercialize 5’7” LCD panel (LG Philips LCD) OLED & CRT Market Share (2004) : 40%(Samsung SDI) Samsung SDI : 28.7% LG Electronics : 27.0%

  18. Other Major Industries World leader - 44% of world market Advanced design and production capability Hyundai Heavy Industries - Largest shipbuilder in the world (15 % mkt share) No. 5 in the world - 45.4 million tons of crude steel 1st and 2nd largest single production sites both located in Korea (POSCO) World’s 3rd largest producer Leading know-how and advanced technology Shipbuilding Steel Petrochemicals

  19. Information Communication Technology (Unit: %) 2003 World Mobile Phone Makers Company Rank Market Share Nokia 1 34.8 Motorola 2 14.5 Samsung Electronics 3 10.8 Siemens 4 8.4 LG Electronics 5 5.3 Sony Ericsson 6 5.3 Source: StrategyAnalytics, February 2004 “Most Competitive in IT Industry among OECD Countries” - 2004 (Source: OECD) World 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

  20. SOC Logistics & Real Estates SOC Private sector participation – encouraged through strong incentives, e.g., guarantees, risk-minimization schemes, etc. BP has set-up a power plant JV with SK - Korea’s first privately owned generation facility Geographic advantage – gateway to Asian markets Strong public sector support & incentives for foreign investors FedEx and DHL are expanding facilities in Korea Logistics Real Estate Total deregulation of real estate market in May 1998 Foreigners' real estate purchasing shifting from short-term office building purchases to long-term development type projects

  21. Finance Banking Life Insurance One of the largest markets in Asia : US$ 6.34 b profit from insurance operation - 23 insurers (Feb.2005) Fully deregulated industry : Foreign ownership: Kookmin (78%), KEB (73%) Continuous deregulation in the market Recent “mega-deals” : Standard Chartered Korea First Bank (Jan. 2005) : USD 3.3 bil Citibank Koram (Feb. 2004): USD 2.8 bn for 91% Level playing field Increasing presence of major foreign banks in the consumer banking sector Investment Trust Gov’t’s restructuring effort in final stage Sector wide restructuring and consolidation Recent enactment of “Indirect Investment Asset Management Business Act” expected to increase business opportunities High -net-worth individual asset management : next wave of profitability

  22. Bio-Technology Closing gap with world leaders : AIDS vaccine, herbicide-resistant crops Next goal :Establishing dog’s embryonic stem cells through nuclear transfer Strong Gov’t Support Industrial clusters designated for bio-technology companies Various incentives such as site support and tax exemptions Synergies with IT First ever cloning and extracting of embryonic stem cells by Prof. Hwang’s team . Seoul National UniversityFeb. 2004 First cloned canine, Snuppy the puppy Aug. 2005

  23. Incentives and Support

  24. Extensive Incentives Corporate Income Tax Local Tax : Acquisition, registration, property & aggregate land tax Exemption or reduction of leasing costs for national or local government properties - almost free of charge Employment and/or training National R&D Projects Development for Basic Facilities Other Financial Support Tax Holidays Leasing Various incentives provided depending on business area and investment size

  25. Site Support Foreign Investment Zones - Local governments authorized to designate a particular area where foreign investors wish to invest - Provide plant sites at inexpensive prices - Also attracts FDI from SMEs Free Economic Zones - Provides special legal status to foreign investors - Details : deregulation, labor market flexibility, convenient living conditions Free Trade Zones Business activities can be pursued without the legal requirements demanded under Foreign Trade Act and the Customs Tax Act Jeju Free International City Promotes investments into high-technology and leisure industries Free Economic Zones (FEZ) Free Trade Zones Jeju Free International City Int’l Airport Commercial Port Gangwon Province Gyeonggi Province Seoul Incheon North Chungcheong Province South Chungcheong Province North Gyeongsang Province Daejeon North Jeolla Province Daegu South Gyeongsang Province Busan South Jeolla Province Gwangju Gwangyang Foreign Investment Zones Jeju Island

  26. Invest KOREA

  27. Organization Foreign Investment Committee Ministry of Commerce, Industry and Energy Ombudsman Local Governments Central Government Invest KOREA Headquarter Overseas Promotion Support Aftercare Identifying Investment Promotion Regime ※ Invest KOREA is the investment promotion arm of KOTRA

  28. Services Project Manager (PM) System 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

  29. Aftercare Foreign Investor Report complaint Provide Solution Ombudsman + Aftercare Team Cooperation Recommendation Government/ Gov’t agency Foreign Investment Committee Grievance Resolution OIO Office of the Investment Ombudsman Appointed by President - Resolve difficulties experienced by foreign-invested companies - Create a more favorable overall investment environment

  30. Thank You www.kiep.go.kr 300-4, Yomgok-dong, Seocho-gu, Seoul, Korea Tel:(82-2) 3460-1001 Fax:(82-2) 3460-1122 This presentation is reproduced with a support from Invest KOREA.

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