The Many Reasons to Invest in Korea

Due to the policies of the Kim Dae-jung administration to develop democracy and a market economy side by side, investment in Korea by foreign firms has increased since 1998. The amount of aggregate Japanese investment in Korea is $10.07 billion, which accounted for 16 percent of total foreign investment in Korea as of October 2000. The United States ranked first at $16.68 billion. But the amount of foreign investment is decreasing, however slightly, causing worry within the administration. Why is foreign investment faltering?

I participated as a representative of the Seoul Japan Club (SJC) in a debate on foreign direct investment, which was held to commemorate the one-year anniversary of the establishment of the Ombudsman at the end of November 2000.

It was an opportunity to exchange ideas about foreign direct investment with Shin Kook-hwan, minister of commerce, industry and energy, and representatives of the American Chamber of Commerce in Korea, the European Union Chamber of Commerce in Korea and SJC.

Ombudsman and professor Kim Wan-soon, who was the chairman of the meeting, asked, "Japanese investment has been increasing since 1998. What do you think is the reason?"

I answered, "As a subject of investment, first of all, Korea is attractive as a manufacturing base, second, it is a dynamic market and third, its economic environment is changing. Korea's attraction as a manufacturing base is that there are high quality human resources in all industries, personnel expenses are one third of the level of Japan and there are first class infrastructure in communications and energy. Also, favorable investment protocols - foreign investment district designations that offer incentives to foreign investors and the Ombudsman system- have been implemented during the Kim Dae-jung administration. Small and medium-sized firms have been encouraged with the provision of funds for business restructuring and improved access to the Chinese market - starting with expanded port facilities in Pusan - which can be included in Korea's attraction as an investment base.

Second, as a market, Korea appeals to foreign investors since it has a high potential for domestic growth. A large population concentrated in a small territory tends to make Korea's consumption patterns uniform and easy to subdivide as a market. Also, Koreans show a strong preference for foreign brands, and restrictions on imports from Japan were set aside after the dissolution of the system for the diversification import sources in June 1999.

An even greater attraction is changes in the nation's disposition towards Japan after President Kim's first visit there in 1998. Since the opening to Japanese movies and music, the number of Koreans claiming to accept Japanese culture without prejudice has been increasing. Also, the co-hosting of the 2002 World Cup by Korea and Japan will lay the foundation for great change in business and investment.

I think Korea has changed greatly and is still undergoing changes since the inauguration of President Kim and the International Monetary Fund bailout. But Korea should change its perception of the Japanese. I feel it is urgent for Korea and Japan to cooperate as equal partners in leading Asia. Addressing professor Kim's question further, I said, "Korea is an attractive investment site in many ways, but the radical labor clashes have chilled foreign investors. There are concerns that the Korean labor market has not changed.

"In addition, there was an anachronistic incident of Korean union members visiting the headoffice in Tokyo to make their appeal to a Japanese firm, which raised concern. This is what Japanese managers see as a fault in Korea." I hope this reply by an entrepreneur who loves Korea helps improve the investment environment here.

by Nobuya Takasugi