KOTRA Express talks to Hwy-Chang Moon and Jin-chul Kim, newly appointed Honorary Ambassadors of Foreign Investment Promotion for Korea, to hear more about their insight on Korea’s investment environment.
Hwy-chang Moon and Jin-chul Kim were newly appointed as Honorary Ambassadors of Foreign Investment Promotion for Korea on August 28, 2019. With abundant expertise and experience in their respective fields, they were both considered to be well-suited candidates to effectively promote Korea’s vibrant investment environment. KOTRA Express sat down with them to get their insight on Korea as an investment destination.
Professor Moon, based on your extensive research on Korea’s national competitiveness, what do you think Korea’s main advantages are as an investment destination?
Hwy-Chang Moon (Prof. Moon) : First of all, Korea has a locational advantage. It’s actually the gateway to Asia from America, since it’s the first location you hit when you’re coming from the Pacific Ocean. This makes it an ideal location for expanding business in Asia. Also, Korea is between Japan, China and Russia, which makes it a good business hub, and in fact, the smaller the better. For instance, Belgium, Switzerland or Austria actually act as the centers of business in Europe, because with large countries and corporations, there is always the issue of hegemony. Indeed, tension exists between Korea and Japan, but there’s even more tension between China and Japan. In that sense, Korea is the more ideal business hub.
Secondly, Korea has great potential for further growth. There’s a lot of talent in Korea, and Korea has many competitive industries. There are five major manufacturing industries here: steel, automobile, shipbuilding, electronics and petrochemical. In the major league of these flagship manufacturing sectors, Korea is probably the only country which has major league players. Korea’s big players are global big players including top names like Samsung, Hyundai and POSCO, and even though Korea doesn’t produce a single drop of petroleum, there is a huge chemical complex in the southern part of the country. So, it’s very interesting that Korea has such strong industries, which provides a broad scope for attracting foreign investment.
Last but not least, the Korean culture is very attractive, and we can now see this through K-Pop and media. Korea is the only example of a country which has moved from a very underdeveloped country to a developed country. It’s common to see that when you grow economically at a fast pace, cultural growth cannot follow as rapidly. However, Korea’s cultural aspects are now surpassing economic development, which really makes Korea’s case an exception to the norm, and therefore, I see a bright future for the nation. Korea recently joined the so-called 30:50 club, which refers to countries with a population of over 50 million, and income per capita which exceeds USD 30,000. Originally, there were only six countries meeting these two criteria: the UK, France, Germany, Italy, U.S. and Japan, but Korea has now joined the ranks of these countries, and can essentially say that it’s virtually part of the G7.
Mr. Kim, based on your expertise in business and industry, what are Korea’s main advantages as an investment destination?
Jin-chul Kim (Mr. Kim) : Korea has excellent industrialization skills, although its basic research skills are a little weak. Still, I think the ability achieve industrialization is one of Korea’s greatest strengths.
In the last 30 years, Korea has developed its own technology by digesting technologies introduced from advanced countries. What’s important is that, instead of being government-led like China, each business organization accomplished this on their own. Each Korean company wanted to create something new based on its entrepreneurial spirit, and had a strong desire to acquire outstanding skills of foreign companies. Today’s Samsung, Hyundai and LG have all developed in this context.
I remember when I worked at Hyundai engineering. In the early years of our service, marine oil acquisition technology was designed by advanced countries, but we tried to design our own basic technology for several years. I think these efforts paid off, and in the 2000s, we were able to win 100 percent of the world's offshore oil fields’ orders.
Professor Moon, in your opinion, what about Korea’s history/economy/culture is most appealing?
Prof. Moon : Some refer to Korea’s culture as a speedy, or a “ppalippali” culture. Some would argue that this isn’t a good thing, but I believe it’s an important, positive cultural factor in the economic aspect. In terms of labor costs, let’s say that labor costs for the same quality of work are the same, yet one country provides it at a faster pace; this will essentially reduce the labor costs overall. Of course, just being speedy is not good—you have to be precise enough for good outcomes. So, speed plus precision is ideal, and is something that Korea can offer.
Also, Korean people are highly motivated. In the past, we had something called “Korean time,” referring to the lack of punctuality of Koreans. However, for the last half a century or so, Korean people have been very motivated with the desire for a better life, which has then led to the high-level of education we see now. The high level of productivity and motivation of Koreans are deeply rooted in the country’s culture, having a favorable impact on the economy.
Do you feel that companies from other countries are interested in investing in Korea? What sort of opportunities/sectors are they most interested in?
Prof. Moon: In general, Korea has advantages in location, diversified industries, a talented workforce, and a dynamic culture, which all make up an attractive investment destination. Even now, the Korean government is more concerned about the manufacturing sector and greenfield investment, thus putting more emphasis on attracting investment into such areas. However, manufacturing is more pronounced in less developed, emerging countries, such as in Vietnam and Indonesia, and I think Korea has reached the level of advancement to the point where manufacturing should not be the main focus any longer. Greenfield investment is also the initial stage of manufacturing, where companies establish factories and plants here, but then again, Korea already has enough of them, and so now, investors are seeking to invest a little differently from the past. Specifically, investors may now be more attracted to Korea’s service sector rather than manufacturing, because services aren’t as developed as the manufacturing sector yet. Also, investors may be interested in M&A rather than establishing factories for greenfield investment.
Mr. Kim: Korea is a technologically advanced country. Therefore, most companies that invest in Korea will have demand related to Korean technology. One case of investment could be that the company hopes to deliver its products to the best-in-class Korean market. Currently, the semiconductor and automobile industries are the prime examples. If a particular industry is leading world-class technology, a number of companies in related fields such as materials, software, technology, machinery, electronics and robots will try to tap into the Korean market. In this case, however, there’s a risk that if the industry regresses or if local competitors grow, they may be reeling together.
Another case could be that a well-funded but under-skilled company or country wants to receive Korea's advanced technology. In the future, I think it will be promising to attract investment in the form of providing Korea's outstanding technology to countries with lots of capital such as oil-producing countries, China, India and etc., and attracting funds in that way instead.
Since future investment in Korea is closely related to technology, we need to understand which industries in Korea are at the apex of the technology chain. If we take advantage of Korea's promising global technology industry, we will be able to attract foreign investment. In addition, with the advent of the fourth industrial revolution, we need to look at what new industries can grow and lead the world.
Personally, I’m paying attention to the environmental industry. In the long run, industries seeking to preserve the environment will lead the world and achieve sustainable development. I anticipate that aviation and water treatment will grow to become major industries, and the materials, electronics, and machinery industries which support them will also be in the spotlight.
Professor Moon, what is it that makes Korea such an innovative country?
Prof. Moon : We have a bit of a misunderstanding about what it is to be innovative. Many people say that out-of-the-box thinking is necessary to achieve disruptive innovation. But true innovation is learning the best practice of today and adding something to it. Let’s take the iPhone for example. Steve Jobs did not create the phone, nor the camera, nor the Internet. He just improved the functions of each and combined them to create a new product. As such, the components of creativity are benchmarking and convergence. Innovation can be achieved by learning the best global practices, and adding good features to them, and I think Korea does this very well.
American firms created and introduced new items, and Japanese firms like Sony, for example benchmarked them. Then Samsung caught up with Sony by learning and adding other features, and now, Chinese firms are catching up with Samsung. This isn’t because Korean and Chinese firms are more creative, but they are good learners. You have to be a good enough learner to be able to overtake your teachers.
One reason why so many startups fail is that they are sometimes too creative. While the creators and suppliers of those products may understand the idea and quality of the products, the market may not yet be able to. At times, it’s not necessarily best to be too creative for achieving success.
Mr. Kim, what advice would you give investors or companies from foreign countries seeking to do business in Korea?
Mr. Kim: Korea is a very dynamic country. It is also an export-driven country. The economy may slow down for a while in the future, but I think it will continue to grow in the long run. I recommend investing in the high-tech industry since it is very likely to continue to grow. Also, if you invest in Korea, you can receive consistent support from the government, and therefore, I highly recommend investing in Korea.
How can Korea become a more ideal country for foreign-invested companies?
Prof. Moon: This is a very important question. Even if Korea has great potential for foreign investors, it’s just potential until we realize it. The government’s role is critical. It is more focused on giving incentives to prospective investors, but investors actually like low costs, minimal regulations, and better infrastructure.
When I ask investors, “What are the steps in making a decision for foreign direct investment?” they usually answer with three steps. First, potential merchants and firms evaluate whether the host country has the following economic or business opportunities: resource-seeking FDI, or finding natural resources such as petroleum, in which case, they would go to Saudi Arabia or Iraq; efficiency-seeking FDI, which means they’d like to have cheaper manufacturing in places like China and Vietnam; market-seeking FDI, which is when they already have a product and are looking for a new market; or strategic, asset-seeking FDI, which for instance, could refer to firms like Amore Pacific, which, 20-30 years ago, invested in France, the center for the cosmetics industry at the time and when the “made in Korea” brand didn’t hold as much value as it does now. Secondly, they look at whether there is significant regulation, or political instability of some sort, which would affect their decision to go. Thirdly, they would compare the incentives between candidate countries, whether the country would provide monetary incentives and so on. This is to say, if a host country meets the first two phases—business opportunities and low regulations—a firm would go even without incentives. But if the first two conditions are not met, yet a country has great incentives for investment, the firm would not go. As such, the government must focus on creating a good business environment first, then think about the regulations, and finally think about the incentives.
Mr. Kim : First, let me talk about the technical aspects. It’s necessary to target the best companies in the technology chain and attract them to Korea. If Korea already has the best technology, such as Hyundai Motor Co., the government should provide comprehensive support to the companies so that they can continue to stay at the top.
Also, the government should make aggressive efforts to support Industry 4.0, the latest, the hottest topic that everyone around the world is talking about. It needs to check and see if Korea has a difficult environment for trying new projects as interested groups are intervening. In particular, it needs to consider lifting regulations to help develop new areas such as the tele-medicine industry and the sharing economy.
In addition, various support policies must be established to attract new investments, and cash grants, which was recently expanded as part of the budget, must be well promoted and utilized. On top of that, I believe if we can lower corporate taxes, Korea will become an ideal investment destination.
What would you like to accomplish during your time as Honorary Ambassador of Foreign Investment Promotion for Korea?
Prof. Moon : I’d like to be a good ambassador for multinational firms; this is my core responsibility. Foreign investors may not have a good understanding of Korea’s investment environment. They just look for larger, more well-known markets like China. Sometimes, smaller economies like Korea’s are more flexible. I’d like to explain to investors that Korea has a lot more advantages than they may think. Also, some incorrectly assume that China has a more diversified economy, but as I mentioned, Korea also has very developed, diversified industries, and really, anything can happen in Korea because of its flexibility. Yes, Korea is smaller, but still, Korea is big enough; a population of 50 million is not small. In that sense, Japan and China are too big to some extent. Korea offers attractive factors like efficiency; this doesn’t mean just cheap labor manufacturing, which they could find in Southeast Asia, but Korea offers skilled labor as well which entails both speediness and quality.
I’d also like to act as a liaison officer between potential investors and the Korean government. Many of the attractive factors of Korea for an investment destination should be well prepared by the government, particularly in terms of favorable tax rates, deregulation and infrastructure.
Mr. Kim : First of all, I plan to strengthen my activities with the foreign chambers of commerce in Korea as well as FORCA, the group of foreign-invested companies doing business in Korea. Also, I’d like to participate in events related to Industry 4.0, such as the electric vehicle expo, which is based on a new industry, to increase contact with companies that are likely to invest in Korea. I hope to contribute to attracting foreign investment by seeking out tech-savvy companies and having discussions with them during their review phase of initial investment.
In other words, rather than waiting for foreign investors to come to Korea, I would like to find business partners in Korea that I can recommend to investors first, and connect companies from starting from the very beginning as well as and provide any type of technical support that I can. Currently, I’m in contact with five companies to support inter-company connections.
What are your hopes for Korea’s future?
Prof. Moon : For Korea to become a true business hub, we need to make Korea provide the best business environment in East Asia. Some years ago, I visited the Economic Development Board (EDB) in Singapore, and they said 2/3 of global business is connected to Singapore. How can 2/3 of the entire global business go through a small city-state? Korea is a lot bigger, and the Korean location may be more important since it connects Asia to the Americas.
In addition, although my primary job is to help attract investment to Korea, outbound investment from Korea is also very important. Some companies want to go abroad, and some companies want to come here; the water should flow smoothly in both directions. I once had a conversation with the person in charge of investment in the state of California in the U.S., and I asked, “What are the advantages and disadvantages for foreign multinational firms in California?” To which he answered, “What do you mean by foreign firms? All firms incorporated in California are California-based firms.” Singapore also refers to all companies in the city-state as “Singapore-based” companies. Eventually, our final goal is not to discriminate against nor to give preferential treatment to Korean or foreign firms. I believe this perspective is the core in developing a global business hub. In the future, I hope the Korean peninsula can become a truly global hub, with both free inflow and outflow of businesses.
Mr. Kim : I have a very positive view of the Korean economy. Given the research capabilities of many Korean conglomerates such as Samsung, SK, and Hyundai Motors, it’s highly likely that they will develop even more new technology industries in the future. Overall, the Korean economy has a very bright future ahead of it and will continue to grow.
Professor Emeritus, GSIS, Seoul National University
Director of Center for International Competitiveness and Chair Professor, aSSIST
Vice Chairman, Korea Engineers Affiliate
President, Solvay Silica Korea, 2001-2017
Chairman, Korea Foreign Company Association (FORCA), 2015-2017
By Grace Park (firstname.lastname@example.org)
Investment Public Relations Team / Invest Korea
Korea Trade-Investment Promotion Agency (KOTRA)