[VIEWPOINT]Investments flow in all directions

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[VIEWPOINT]Investments flow in all directions

Foreign companies want to set up shop in Korea while Korean corporations are looking for a way out. Foreign investment, which was slowing down not long ago, increased by 44 percent in the first four months of this year. But the Korea Chamber of Commerce and Industry says a recent survey shows that 44 percent of Korean manufacturing companies have moved their production facilities overseas, and 34 percent more are planning to do so. Korean foreign direct investment rose by nearly 47 percent in this year's first quarter.

The market presumably tells firms where and when to invest. Why do foreign and domestic firms see the Korean market so differently? Of course there is never a unanimous view of such things. A country where no one wears shoes is either a hopeless case or a golden opportunity, depending on how a shoemaker looks at it.

Foreign companies have several reasons for choosing to invest in Korea. Korean consumers have a lot of buying power, consumption levels are high and there is a skilled labor force. The economy is more transparent because of corporate and financial restructuring, and the nation's international credit rating is improving. Business Week recently designated Korea as the best investment choice, saying China is crowded with foreign investors and most other East Asian countries are politically and economically unstable. Japan's economy has been depressed for years, and investing there would probably be unprofitable. Hence, the magazine said, Korea is the logical choice.

Foreign investment tends to travel in packs. Once a direction has been given, the inflow can be enormous, but if the pack stays away, the flow is no more than a trickle. Once investment turns away, it does not come back despite strenuous efforts by the government. So the recent inflow of foreign investment is a very positive thing, and the government should provide a legal framework to keep it coming. The fact that most of the investment comes from the United States indicates that the ownership structure and management methods of our corporations are changing and becoming more like those of a developed nation's companies. At this point, we should try not only to attract more foreign investment but also improve the quality of that investment as well. The recent decision by the government not to grant any tax benefits to an American tobacco company was a good decision.

But what should we think about the exodus of our companies to foreign locales?

In my opinion, the trend is not entirely a bad idea. According to that Korea Chamber of Commerce and Industry survey, 65 percent of the companies now abroad or planning to invest abroad named China as their investment locale. Compared to other nations, the presence of Korean companies in China has been relatively low. The entrance of our companies is very important in establishing a beachhead in China, which can serve as a center of our companies in future sales, manufacturing and research and development activities. Without such a presence, we might not be able to survive in a business world where China will probably be this century's largest market.

But when domestic manufacturing companies are leaving the country, other types of problems arise. Most of these companies are medium-size firms that have problems hiring workers. They also face many business restrictions here and must cope with high labor costs. Some companies that own profitable technology have to live with the less honorable title, "venture company," and are not taken seriously, it is no wonder that they want to leave. Just when they receive a hard-earned order, the exchange rate goes down and interest rates go up. There are ample reasons for such firms to leave. The numerous scandals involving billions of won may have sickened these companies as well.

The inflow of foreign capital and the establishment of Korean companies in foreign countries is certainly a good thing. We have an opportunity to learn advanced management methods and technology while our companies have a chance to develop new markets. Nevertheless, we do have to create an atmosphere in which manufacturing companies can take pride in manufacturing here in Korea and concentrate on their business.


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The writer is director of the Korea Industrial Technology Foundation.

by Cho Hwan-eik

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