Korea Loses Ground In Attracting Firms

International businesses are turning away from Korea while China continues to improve the environment for foreign businesses. Ministry of Commerce, Industry and Energy data indicates foreign investment in Korea reversed a quarterly string of double-digit increases in the fourth quarter last year, declining 25.6 percent. The decline in February was 47.5 percent.

A JoongAng Ilbo survey of 76 multinational companies in Korea confirmed that foreign businesses are unhappy. The poll, conducted in association with the Federation of Korean Industries, the European Union Chamber of Commerce in Korea and the American Chamber of Commerce in Korea found nearly half of the respondents felt there has been little or no improvement in the business climate in the past year.

The respondents said the biggest difficulties are labor conflicts, complex administrative regulations, opaque corporate accounting and unfair business practices by domestic companies.

Nearly two-thirds of the companies responding said they have been discriminated against for being foreign companies. Many said the government or public organizations were slow in responding to complaints or requests for help.

One-third of the respondents picked China as the most attractive place to do business, while 21 percent picked Singapore. Only 17 percent of the Korea-based firms said Korea was the most attractive. Statistics on foreign direct investment appeared to support that sentiment; investment in China increased by nearly 52 percent in 2000 from the previous year while investment in Korea rose by 1.3 percent.

The director of trade and investment policy at the Korea Institute for International Economy Policy, Choi Nak-gyoon, said, "Korea has definitely fallen behind China in competitiveness in terms of wages, real estate prices and interest rates."

A subsidiary of a Japanese manufacturer recently experienced labor conflict, Korean style. When the company promoted two managers without consulting the labor union, the union struck and sent a delegate to the Japanese headquarters in protest. The company eventually withdrew the promotions and at the same time "decided to postpone plans to make new investments in the subsidiary." The head of a multinational public relations company found himself recently in an awkward position. "I was in Hong Kong and CNN was showing Daewoo Motor workers throwing Molotov cocktails every 10 minutes. My partners had a lot of questions about the incident."

Unfair competition rankles. A multinational company contracted last year for a year of advertising in a domestic magazine, but was recently told the publication can no longer carry the company's ads. The reason? Domestic companies threatened to pull their ads if the magazine continued to carry the multinational's advertisements.

The automobile industry is still plagued by the perception that imported goods mean luxury. "Imported cars represent 0.4 percent of the domestic market, much lower than Japan's 10 percent," said the chairman of European Union Chamber of Commerce in Korea's automotive committee, Kim Hyo-joon.

Rigid administrative regulations are obstacles. McDonald's hamburger chain is up against a new bylaw that forbids signs with over half the area painted in red. Customs procedures are obsolete, another executive observed, "and you need to run around with papers.

"On top of that, some officials are still asking for bribes to speed up the process," he added.

by Special Reporting Team