Invest korea annual report 2012 eng

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Publishing address Invest KOREA is a national IPA (Investment Promotion Agency) that has been contributing to national economic development by creating employment and increasing export by attracting foreign investments.

Recently, to qualitatively improve foreign investment attraction, Invest KOREA has established customized investment attraction strategies by region and by industry to perform active investment attraction activities.

Despite the overall decrease in foreign direct investments in the world and the slump of attraction of investments from Europe that fell into a longterm economic recession, Invest KOREA recorded the highest FDI attraction in history in 2012 by attracting USD 16.28 billion with an increase of 19.1% compared to the previous year, including USD 3.67 billion from the USA (increased by 55% compared to 2011) and USD 4.54 billion from Japan (increased by 98% compared to 2011) through the combination of strategic investment attraction activities and IR activities for attracting investments from conventional investment attraction target countries, such as the USA and Japan and emerging capitals, such as the Middle East and Chinese capitals.

In particular, Invest KOREA established a Japan desk (May 2012) to attract Japanese capitals that have been changing its investment markets outside its borders because of the effects of the state of strong yen, which has maintained since 2011, and the newly established a strategic investment promotion team (September 2012) to grasp investment trends of not only Japan but also China and other emerging countries. It is also to preemptively respond to the trends. In addition, Invest KOREA increased the infrastructure of China desks by increasing its existing three desks (Shanghai, Beijing, Guangzhou) to five (adding those in Qingdao and Dalian in 2012) to make efforts to attract investments from neighboring countries.

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In addition, Invest KOREA made great efforts to attract leading companies in the manufacturing industry and foreign companies with innovation capabilities to retain high technologies, such as source technologies, in order to qualitatively enhance investment attractions while making efforts to strengthen the external competitiveness of Korean industries, such as attracting the R&D centers of leading global enterprises, including Solvay and Cisco, through Global Alliance Project Series (GAPS).

Through the yearly publication of annual reports, Invest KOREA (IK) examines its outcome during the previous year and makes a fresh resolution for its activities in the coming one. We sincerely hope that through this report, you will have an opportunity to broaden your understanding of the state of IK s investment attraction and activities in 2012, where the best outcome was recorded since the establishment of IK in 2003.

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I would like to take this page as an opportunity to thank everybody in the head office of Invest KOREA, overseas trade centers, local governments, and related organizations who have made effort to increase foreign investment attraction and enhance the quality of attraction even under difficult external conditions.

October 2013

Commissioner of Invest KOREA Kiwon Han

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Summary

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◀

2012 Trend of foreign direct investments

○ Foreign direct investments in the world : USD 1,351 billion (decrease of 18% compared to the

previous year), based on UNCTAD - The scale of advanced countries FDI in 2012 was USD 561 billion with a decrease of 31.6% compared to the previous year.

- The scale of FDI in developing countries, such as China, India, and Brazil in 2012 was USD 703 billion with a decrease of 4.4% compared to the previous one and accounted for 52% of FDI throughout the world.

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○ Korea’s attraction

of foreign direct investments : USD 16.28 billion (increase of 19.6% compared to the previous year), based on reports.

- Recorded USD 16.28 billion, the largest amount in history despite the aggravation of global economic recession - Investments from advanced countries (USA, Japan) increased greatly, meaning foreign investors recognized the reliability and potential of Korea as a business hub in Asia.

Trend of foreign direct investments In Korea (Unit : case, USD million)

Division Number of cases reported Amount reported Amount arrived

2008

2009

2010

2011

2012

3,744 11,711 8,373

3,131 11,484 6,725

3,108 13,071 5,417

2,707 13,674 6,550

2,865 16,286 10,677

Data source : INSC

Trends of foreign investment attraction by industry

: The amount of foreign direct investments attracted by the parts and materials industry accounted for approximately 25% of the entire amount of investments and maintained an increasing trend from 2007 to 2010; showed a downward trend in the last two years. However, the parts and materials industry still maintains its status as the major investment attraction area.

1. Parts and materials

: The defense industry in Korea shows a high level (90%) of dependence on domestic demand compared to its sales. The causes of this industry s poor export include smallscale defense businesses, insufficient experience in export, and low-bargaining power because of lack of a unified communication window.

2. Aviation and defense

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: The car component industry in Korea has been maintaining high records, placed fifth in the world, of production in 2012 and foreign invested companies are continuously expanding their production facilities in Korea.

3. Car component

Summary

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Contribution of foreign direct investments to Korean economy

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: The sales attributable to foreign direct investments were shown to be KRW 482 trillion in entire industries (excluding finance) consisting of KRW 387 trillion in manufacturing industries and KRW 95 trillion in non-manufacturing industries accounting for 14.7% of the total sales in the entire country. Employment business attributable to foreign direct investments account for 6.2% of the total employment in the entire country.

Sales, employment

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: The added value attributable to foreign direct investments was KRW 80 trillion in the entire industries (excluding finance) consisting of KRW 52 trillion for the manufacturing industry and KRW 28 trillion for the non-manufacturing industry. The scale of the added value decreased approximately by 2.1% compared to 2010.

Added value

○

○

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Import and export in manufacturing industry : The total amount of export by those foreign invested companies that operate the manufacturing industry was USD 100 billion, accounting for 18.1% of the total amount of export of the whole country and the total amount of import by those foreign invested companies that operate the manufacturing industry was USD 120 billion accounting for 23.6% of the total amount of import of the whole country. Therefore, the amount of import by foreign invested companies exceeded the amount of export.

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: Foreign invested companies ratio of operating profit to net sales was 6.04%, their profit margin on sales was 12.78%, and their return on equity was 18.88% and all these indicators were shown to be higher than those of domestic enterprises. With regard to their stability, their ratio of net worth was 1.17 times that of domestic enterprises and their debt ratio was 0.71 times that of domestic enterprises. Therefore, foreign invested companies were better in both indicators.

Profitability, stability

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: With regard to growth, foreign invested companies total asset growth rate was 1.46 times of that of domestic enterprises and their sales increase rate was 32.9%, which was 2.7 times of that of domestic enterprises. Meanwhile, foreign invested companies dividend rate was 0.6 that of domestic enterprises. Their dividend payout ratio was almost the same as that of domestic enterprises, indicating that foreign invested company were increasing the ratio of internal reserves to net profits to be capable of making investments to be prepared for the future.

Growth, dividend payout ratio

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○

: Major motives of investments in Korea were shown to be advancement into domestic demand markets and invested asset values, etc.

Investment motive

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Invest KOREA s contribution to the attraction of foreign direct investments

○ ○

Amount of investments attracted by IK

: USD 10.66 billion (increased by 19.9% compared to the previous year,

based on reports)

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Degree ofIK s contribution to investment attraction

: 65.6% (increase of 0.6% compared to

the previous year)

Summary

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Trend of IK s investment attraction records

Division National investment attraction record (based on reports)

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IK s investment attraction record (based on reports)

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Degree of IK s contribution to investment attraction(%)

(Unit : USD million, %) 2008

2009

2010

2011

2012

11,711 4,929 54.3

11,484 7,393 64.4

13,070 7,892 60.4

13,674 8,892 65

16,286 10,660 65.6

Data source : INSC, Invest KOREA

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Record of IK s project management

: 1,501 cases (increase of 27.2% compared to the previous year)

Present state of projects developed by IK Division

2008

2009

2010

2011

2012

Number of projects managed (case)

810

863

1,094

1,180

1,501

Data source : INSC, Invest KOREA

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IK s investment attraction activities by major area

· ·

BT

Bio cluster investment attraction project(throughout 2012) Investment attraction activities Europe-Seoul cooperation project; cutting-edge industry investment attraction( 12.9.)

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Fine chemistry

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Mitsubishi Chemical joint manufacturing corporation attraction ( 12.5.)

Investment Domestic enterprise anchor type investment attraction IR ( 12.6.) attraction activities Albemale LED material production line attraction ( 12.11.)

·

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New and renewable energy

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Investment attraction activities HUSUM Wind Energy IR 2002 ( 12.9.)

· ·

Semiconductor/display

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Investment attraction activities Taiwan semiconductor investment attraction TFT ( 12.3.)

IT fusion

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Investment attraction activities Global IT leading enterprise investment attraction TFT ( 12.4.)

·

Regional development/Tourism and leisure

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Local government feasibility project TFT ( 12.3) Gyeonggi-do regional development investment attraction TFT ( 12.5.)

Investment Yeosu world exposition linked IR ( 12.6.) attraction activities Chinese capital investment attraction TFT ( 12.7.)

North America regional development TFT ( 12.11)

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Invest KOREA Annual Report 2012

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Logistics and distribution

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FTA linked Americas-Busan port presentation ( 12.3.)

Pyeongtaek port-China IR ( 12.4.)

Busan port-Philippines TFT ( 12.6.)

Investment attraction activities Incheon port-Europe IR ( 12.7.)

Ministry of Knowledge Economy Singapore round table Incheon port-Europe IR ( 12.11)

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Cultural contents

Cultural contents Hong Kong TFT (2 times) Cartoon Connection fusion complex project ( 12.3.)

20th anniversary of Korea-China diplomatic ties establishment Investment investment in Korea conference ( 12.4.) attraction activities Hong Kong Korean Entertainment Business Showcase ( 12.6.)

Taiwan fusion/complex project ( 12.6.)

Cultural contents investor invitation conference (3 times)

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Finance and M&A

Silicon Valley Clean Tech forum (North America) Korea PE Insight (North America) Silicon Valley venture investment road show (North America) Hong Kong AFF Hong Kong/Singapore IR Korea PE/VC forum Busan-financial center Sydney TFT

Investment attraction activities

·

Asia market

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Japan

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: To preemptively respond to the acceleration of Japanese enterprises advancement into overseas markets because of the sixfold distress of Japan (strong yen, aggravated electric power shortage, etc.), IK newly established an strategic investment promotion team to perform activities to reinforce strategic investment attraction, such as the expansion of investment from Japan attraction projects and exclusive Japanese industrial complex formation projects while reinforcing Japan FDI attraction through diverse forms of activities, such as implementing IR (Integrated Japan local government investment attraction, logistics investment attraction etc.), dispatching strategic TFTs (future strategic industry investment attraction, Japanese parts and materials investment attraction), and constructing networks (meetings with Japanese enterprises that have advanced into Korea)

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China

: Through close cooperation between the desks established in Shanghai in 2010, followed by Beijing and Guangzhou in Qingdao in 2012 and the head office, bases for investment region in China were prepared to hold presentations for

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China, beginning with 2011, and Dalian and attraction activities by investments in Korea,

Summary

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operate investor-customized TFTs, and implement strategic M&A projects between Korean and Chinese enterprises.

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IK s activities to support foreign invested companies

▶ Administrative support service for investors - Record of firsthand handling of civil affairs : 4,167 cases (increase of 14.2% compared to

the previous year)

·Immigration-related civil affairs; 4,144 cases of 9 kinds, support for registration of incorporation;

10 cases, Business Registration; 10 cases, investment in kind completion confirmation; 3 cases.

- Present state of receipt of foreign investment reports : 2,865 cases, USD 6.403 billion Received by IK: 319 cases, USD 6.4 billion - Present state of registered foreign invested companies : 14,764 enterprises 10,487 enterprises are corporations and 4,277 are private enterprises. Approximately 800 enterprises registrations were compulsorily cancelled because of foreclosure or liquidation.

쪹 ·

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▶ Support for investors’settlement for living : Specialized consulting and life counseling service : 3,697 cases

▶ Support for foreign invested company incubating - New enterprises : 14 - Graduated enterprises :*10

쪹 Based on accumulated numbers in 2012; 124 enterprises used the service and 103 enterprises graduated

- Amount of incubating investments reported by those enterprises that used the incubating facility

: USD 170 million (Accumulated amount of investments by 2012)

▶ Handing of foreign invested companies’grievances : Present state of grievances handled : 348 cases (decrease of 13.6% compared to the previous year)

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Tax affairs : 39 cases Investment incentive : 46 cases Procedure : 39 cases Tariffs and trade : 19 cases Labor and personnel affairs : 25 cases

Invest KOREA Annual Report 2012

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2012 Trend of Foreign Direct Investments (FDI)

1. Trend of Foreign Direct Investment In The World Progress of foreign direct investments in the world

The scale of foreign direct investments (FDI) in the world in 2012 was USD 1,351 billion with a decrease of 18% compared to that in the previous year, USD 1,652 billion. Economic weakness and policy uncertainty in major markets, including Europe, seem to have negatively affected investors.

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To review FDI records by major economic zones, the scale of advanced countries FDI in 2012 was USD 561 billion with a decrease of as much as 31.6% compared to that in 2011, USD 820 billion. In particular, Europe accounted for approximately 2/3 of the total FDI amount decrease in the world. The scale of FDI by developing countries, such as China, India, and Brazil in 2012 was USD 703 billion with a decrease of 4.4% compared to that in 2011, USD 735 billion, recording 52% the total amount of FDI in the world. This is the first case where the scale of developing countries FDI exceeded that of advanced countries.

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Investments attracted from Asian countries among developing countries generally decreased. In particular, South Asian countries recorded the largest decrease of 22.7% compared to the previous year and the scale of FDI from West Asian countries decreased for 4 successive years. Among East Asian and Southeast Asian countries, China and Hong Kong placed second (USD 121 billion) and third (USD 75 billion) places, respectively, and Singapore placed ninth (USD 57 billion). Meanwhile, despite the global shrinkage of FDI, Africa showed increasing trends in FDI for 3 successive years although the rates were small.

[Table 1-1] Trends of foreign direct investments from regions in the world and from major economic blocs (based on FDI Inflows) (Unit : USD billion, %)

Regions and major economic blocs

World Advanced countries Developing countries Africa Latin America and Caribbean Sea Asia East Asia and Southeast Asia South Asia West Asia Oceania Transition countries

년

2010

1,409 696 637 44 190 401 313 29 59 3 75

년

2011

1,652 820 735 48 249 436 343 44 49 2 96

년

increase/decrease rates

1,351 561 703 50 244 407 326 34 47 2 87

-18.2 -31.6 -4.4 4.2 -2.0 -6.7 -5.0 -22.7 -4.1 0.0 -9.4

2012

11/12

Data source : UNCTAD, World Investment Report 2013

2012 Trend of Foreign Direct Investments (FDI)

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[Figure 1-1] Comparison of scales between world M&As and Greenfield FDIs

Data source : UNCTAD, World Investment Report 2013

Prospect of foreign direct investments in 2013

World FDIs in 2013 are expected to record USD 1.45 trillion, a level similar to that of 2012. According to a questionnaire survey on prospects of world investments conducted by UNCTAD with major multinational corporations, the scale of world FDIs is expected to show a slow recovery trend to a record of USD 1.6 trillion in 2014 and USD 1.8 trillion in 2015. IMF forecasted the scale of investment inflows into newly emerging markets in 2013 as USD 477 billion with a small increase from USD 466 billion in 2012. The cash holding levels of major multinational corporations in the first quarter of 2013 was lower compared to the same quarter in the previous year that suggests that these corporations may begin overseas investments in the near future.

Investment fund inflows into developing countries are expected to continue for three years thereafter (2013~2015). This is proven by the fact that according to the results of a questionnaire survey conducted

by UNCTAD among enterprises, China, the USA, India, Indonesia, and Brazil were selected as five major investment-attractive countries in the world; four of which, except for the USA, are developing countries.

Mexico (seventh) and Thailand (eighth) were included in the top 10 to enhance the expectation of future investment attraction.

[Figure 1-2] Flows of world foreign direct investments (FDI)

Data source : UNCTAD, World Investment Report 2013

2012 Trend of Foreign Direct Investments (FDI)

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However, risk factors that disturb the recovery of world FDIs are still in existence, such as the structural weakness of the global financial market, the vulnerability of the fundamentals of macroscopic economy, and policy uncertainty in major regions, such as Europe. In addition, the fact that protectionism recently emerges again in some countries and regulatory policies against foreign capital attraction can also become an obstacle to the activation of FDIs should be noted.

2. Trend of Foreign Direct Investments In Korea Progress foreign direct investments Characteristics of FDI in Korea in 2012

① Continuous increases in investments in the areas of the service industry and the manufacturing industry ② Small increase in Greenfield-type investments and large increase in M&A type investments ③ Increase in large investments exceeding USD 100 million ④ Sharp increase in long-term loan investments The amount of FDIs in Korea in 2012 reached USD 16.28 with a record of being the largest amount of FDIs in history, showing an increase of 19.6% compared to the FDI amount in 2011 at USD 13.67 billion.

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This is meaningful in that advanced countries investments in Korea greatly increased compared to the previous year, such as an increase of 20.2% in investments from the USA and an increase of 9.6% in investments from Japan despite the uncertainty of world economy because of the aggravation of the financial crisis in Europe, the strong yen phenomenon, and the slowdown of economic growth rates of newly emerging countries, such as China and India.

In particular, in the case of Japan, in the midst of increases in overseas investments by Japanese enterprises suffering from sixfold distress (strong yen, tightening regulations, etc.), the rate of increase in Japanese investments in Korea compared to the previous year recorded 98.4%, indicating increased Japanese enterprises interest in investments in Korea.

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M&A type investments increase of 90.2% compared to 2011 recording USD 3.74 billion while Greenfieldtype investments that attracted FDIs, amounting to USD 11.7 billion in 2011, recorded USD 12.53 billion with an increase of 7.1% compared to the previous year to show a stable growth trend.

With regard to areas that attracted investments, investments in the service industry was USD 9.6 billion with an increase of 32.1% compared to the previous year 32.1% and investments in the area of the business service industry increased by 140.7% compared to the previous year. In the area of the manufacturing industry, despite a slump in the areas of the chemical, electric/electronic industry, investments in the manufacturing industry recorded USD 6.1 billion with an increase of 37.4% compared to the previous year, thanks to a great increase in investments in transporting machines.

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One of the characteristics of FDIs in 2012 is an increase in long-term loans. Long-term loans that had occupied one-digit shares from 2009 to 2011 recording USD 600~800 million per year recorded USD 1.9 billion with an increase in their share to 11.7%.

[Table 1-3] Trend of foreign direct investments in Korea (Unit : case, USD million) Division

Number of cases reported Amount reported Amount arrived

2008

2009

2010

2011

2012

3,744 11,711 8,373

3,131 11,484 6,755

3,109 13,071 5,419

2,708 13,673 6,585

2,865 16,286 10,677

Data source : INSC

Progresses of investment attraction by region

The scales of the investment inflows from the USA and Japan increase of 54.9% and 98.4%, respectively, compared to the previous year to reach USD 3.67 billion and USD 4.54 billion, respectively. On the other hand, investments from the EU recorded USD 2.72 billion with a decrease of 46% compared to the previous year.

[Table 1-4] Trends of foreign direct investments in Korea by region (Unit : USD million, %) 2009 Division

Amount invested

USA Japan EU Other countries Total

1,486 1,934 5,297 2,767 11,484

2010

Share

12.9 16.8 46.1 24.1 100

Amount invested

1,974 2,083 4,831 4,183 13,071

2011

Share

15.1 15.9 37.0 32.0 100

Amount invested

2,372 2,289 5,033 3,980 13,674

2012

Share

17.3 16.7 36.8 29.1 100

Amount invested

3,674 4,542 2,717 5,353 16,286

11/12 increase/decrease

Share

22.6 27.9 16.7 32.9 100

rates

54.9 98.4 -46.0 34.5 19.1

Data source : INSC (based on reports)

Progresses of investment attraction by industry

The characteristics of FDIs by industry in 2012 can be summarized into the maintenance of an increasing trend in investments in the service industry and the reversal of investments in the manufacturing industry into an increase. Although primary industries and other industries showed decreases by 92.5% and 12.5%, respectively, other industries share of the entire FDIs showed a slight decrease to 3.6%.

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The service industry recorded USD 9.6 billion showing an increase of 32.1% and its share of the entire FDIs became 59% exceeding a half of the entire FDIs in 2012, following 2011.

On the other hand, investments in the manufacturing industry that showed a decreasing trend in 2011 recorded USD 6.1 billion with an increase of 7.8% compared to the previous year, thanks to a sharp increase of 290% in investments in the area of transporting machines.

2012 Trend of Foreign Direct Investments (FDI)

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[Table 1-5] Trends of foreign direct investments in Korea by business type (Unit : USD million, %) 2009 Division

Amount invested

Primary industries Manufacturing industry (Transporting machines) (electricity/electronics) (chemical industry ) (other) Service industry Other industries Total

16 3,725 (625) (1,798) (204) (1,098) 7,594 149 11,484

2010

Share

Amount invested

0.1 4 32.4 6,658 (5.4) (2,483) (15.6) (1,561) (1.8) (927) (9.6) (1,687) 66.1 6,302 1.3 107 100 13,071

2011

Share

Amount invested

56 50.9 5,657 (19.0) (324) (11.9) (1,746) (7.1) (1,831) (12.9) (1,756) 48.3 7,269 0.8 690 100 13,673

2012

Share

0.4 41.4 (2.4) (12.8) (13.4) (12.8) 53.2 5.0 100

Amount invested

4 6,097 (1,264) (1,307) (1,286) (2,240) 9602 583 16,286

11/12 increase/dec

Share

37.4 (7.8) (8.0) (7.9) (13.8) 59.0 3.6 100

rease rates

-92.5 7.8 (290.5) (-25.1) (-29.8) (27.6) 32.1 -12.5 19.1

Note : Primary industries mean agriculture, livestock, aquaculture, and mining industries; other industries mean electricity, gas, service water, and construction Data source : INSC (Based on reports)

Progresses of investment attraction by form

To review FDIs in 2012 by form, M&A type investments recorded USD 3.74 billion with an increase of 90.2% compared to the previous year and Greenfield-type investments recorded USD 12.53 billion with an increase of 7.1%.

[Table 1-6] Trends of foreign direct investments in Korea by form (Unit : USD million, %) 2009 Division

Amount invested

M&A type Greenfield type (factory establishment) (business place establishment) Total

3,375 8,109 (2,688) (5,421) 11,484

Share

2010 Amount invested

Share

2,015 29.4 70.6 11,056 (23.4) (5,064) (47.2) (5,992) 100 13,071

2011 Amount invested

15.4 1,971 84.6 11,703 (38.7) (4,177) (45.8) (7,525) 100 13,673

Share

2012 Amount invested

14.4 3,749 85.6 12,537 (30.6) (3,657) (55.0) (8,880) 100 16,286

11/12 increase/de

Share

23.0 77.0 (22.5) (54.5) 100

crease rates

90.2 7.1 (-12.5) (18.0) 19.1

Note : Greenfield-type investments in the manufacturing industry include sales facilities, etc., in addition to factory establishment. Therefore, the scale of factory establishment is different from the scale of Greenfield-type investments in the manufacturing industry Data source : INSC (based on records)

Progresses of investment attraction by scale

To review progresses of investments in 2012 by FDI scale, large investments not smaller than USD 100 million increase of 33% compared to the previous year to record USD 8.26 billion and investments smaller than USD 100 million increase of 7.6% to record USD 8.01 billion.

Large investments not smaller than USD 100 million accounted for 50.8% of entire investments, medium sized investments not smaller than USD 10 million but smaller than USD 100 million accounted for 38.7%, and small investments exceeding not smaller than million dollars but smaller than USD 10 million accounted for 8%. The share occupied by investments smaller than USD 100 million decreased to below a half to 49.2% in 2012.

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Trends of Foreign Investment Attraction by Major Industry

①

Parts and Materials

Parts and materials industry in Korea

The parts and materials industry is one of key industries in Korea that accounts for approximately 45.3% the entire production of manufacturing industry. In 2011, this industry recorded a scale of production of USD 680 trillion with an increase of 13%, compared to 2010 the number of persons employed in this industry is 1.38 million, which accounts for 51.3% of employees in all industries (2011).

The importance of the parts and materials industry stands out when the scale of import and export of Korea. The amount of export of parts and materials in 2012 was USD 253.4 billion with a decrease of 0.7% compared to the previous year, accounting for 46% of the entire amount of export of Korea and the amount of import was USD 162.5 billion with a decrease of 3.6% compared to the previous year. Because the amount of import decreased more than the amount of export, the overall trade recorded a surplus of USD 90.9 billion with an increase of USD 4.2 billion compared to 2011.

On reviewing the import and export of parts and materials by country, it can be identified that a specialization structure in the industry is fixed where core parts and materials with high added values are imported from Japan and universal parts and materials are exported to China. As a result, as of 2012, the parts and materials industry of Korea recorded a deficit of USD 22.2 billion in trade with Japan while recording a surplus of USD 43.4 billion with a small increase in trade with China. The fact that the adverse balance of trade was improved and the dependency on Japan for import was relieved in the midst of the expansion of the scale of trade of parts and materials in 2012 is positively evaluated.

[Figure 2-1] Progress of adverse balance of trade of parts and materials with Japan and dependency on Japan for import of parts and materials (Unit : million US$, %)

Note : Dependency on Japan for import means the portion of parts and materials imported from Japan out of the entire imported parts and materials

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Investment attraction environments and policies for the parts and materials industry in Korea

The amount of foreign direct investments attracted by the parts and materials industry had maintained an increasing trend from 2007 to 2010 and has been showing a downward trend for the last two years.

Although the amount of foreign direct investments attracted by the parts and materials industry in 2012 showed a decrease of approximately 18.1% compared to 2011, it still accounts for almost 25% of the total amount of investments attracted so that the parts and materials industry s status as a major investment attraction area is still maintained. In particular, the parts and materials industry attracts many Greenfieldtype investments that create good quality employment. Therefore, investments in this industry are actively attracted.

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[Table 2-1] The state of FDIs attracted by the parts and materials industry over the last six years

(Unit : USD million, %) Year

Amount of FDIs attracted Increase/decrease rate Share of the entire FDIs

2007

2008

2009

2010

2011

2012

2,353 -26.4 22.3

2,548 7.9 21.8

3,008 18.1 26.2

5,283 75.6 40.4

4,825 -9.1 35.3

3.951 -18.1 24.3

Data source : INSC (based on records)

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Meanwhile, as large enterprises in Korea has been recently increasing investments, foreign companies opportunities for business in Korea have been increasing. In particular, the necessity of investments by material and equipment manufacturers for the production of LCD, OLED, DRAM, and NAND Flash memories for which domestic enterprise have approximately 50% world market shares is increasing day by day. Since the Korean government is actively fostering those industries that are the foundations for future growth, such as display, robot, electric vehicle, and next-generation semiconductor industries, investments by foreign manufacturers of related parts and materials are expected.

To attract investments in the parts and materials industry as such, the government is promoting the formation of industrial complexes exclusively for foreign invested companies that manufacture parts and materials. When President Lee Myeong-Bak visited Japan in April 2008, he proposed the formation of industrial complexes for parts and materials exclusively for foreign companies and four regions: Free Economic Zones in Pohang in Gyeongbuk, Gumi, Jeonbuk/Iksan, and Busan/Jinhae were designated as sites for exclusive industrial complexes for parts and materials by July of the following year so that foreign invested companies that will come in the industrial complexes can receive incentives, such as reduction of / exemption from taxes and rental fees and support by cash. From 2010, overseas influential parts and material manufacturers, such as Tsubakimoto Chain, Johnson Controls, Ishizaki Press, and Elring Klinger have begun to come into the industrial complexes.

Foreign invested companies in the area of parts and materials that have advanced into Korea

Those foreign invested companies that have advanced in Korea mainly deal with those parts and materials that are related to LCDs and semiconductors, which are main items of domestic large enterprises.

Representative foreign invested companies include AFK (Asahi Glass Fine Techno Korea, Korea corporation of Asahi Glass) that manufactures glass substrates for TFT liquid crystals, AvanStrate Korea (glass II. Trends of Foreign Investment Attraction by Major Industry

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substrates for LCD), and Magnachip Semiconductor. In 2012, Paju Electric Glass Co., Ltd. (LCD panel glass) made a large investment in Korea, TOK (photo resists for semiconductors) invested in Korea, and Albemarle (chemical materials for displays) in the USA submitted an investment report for establishment of a factory in Korea. In addition, Toray BSF made an additional investment for building additional lines.

In addition, investments in electric vehicle-related parts and materials that have been designated as an industry, the foundation for future growth, are increasing recently. Representative enterprises include Umicore from Belgium, manufacturer of cathode materials for secondary batteries for electric vehicles, which is building additional factories in Chonan, Chungnam, with a view to the operation of the factories in the second quarter of 2014. In addition, BASF from Germany is currently building a highly functional plastic resin factory in Yeosu, Jeonnam, that eyes a full factory operation in January 2014.

In 2012, movements to relocate universal chemical material production facilities that must be replaced appeared and in the sector of textile material manufacturing, Ulsan Aromatics (joint corporation of JX Nippon Oil and Energy in Japann-SK General Chemical Co. in Korea) was established.

Success case of investments in Korea

Nippon Electric Glass Co., one of three largest LCD glass substrate manufacturers in the world, invested approximately USD 260 million to build new production facilities in Paju, Gyeonggi-do. This production base where the first-stage factory was completed in July 2013 will produce OLED (panel glass), a next-generation LCD and supply it to set manufacturers in Korea. The active promotion of commercialization of OLED-related large TV by the set manufacturers in Korea in the midst of rapid changes in display-related markets is making the factory into a major test stage in relation to whether OLED markets would be successful and investments by related businesses are being continued.

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Aviation and Defense

Aviation and defense industry in Korea

As of 2012, the total market scale of the domestic aerospace industry was USD 6,559 million with a decrease of 5.6% compared to the previous year. In the area of supply, the amount of production was USD 2,697 million with an increase of approximately 14.4% compared to the previous year and import reached USD 3,862 million, exceeding domestic production. In the area of demand, the amount of export was USD 1,366 million with an increase of 34.1% compared to the previous year and domestic demand was USD 5,193 million with a decrease of 12.4% compared to the previous year1). The key to the expansion of Korean markets was supplies projects, such as the F-X project, initial bulk production volumes in the KHP project, and follow-up bulk production volumes of T-50 series and civilian demand parts export volumes for Boeing, Airbus, etc.

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Although the total sales of 96 defense businesses in Korea exceeded KRW 9.3 trillion (as of 2011), the ratio of domestic demand to the sales is close to 90%, indicating high dependency on domestic demand. As the causes of poor export by defense businesses in Korea, small scales of the defense businesses, insufficient experience in export, and the lack of an unified communication window. As a way to improve these conditions, KOTRA established the Korea Defense Industry Trade Support Center in October 2009 mainly for cooperation between the Ministry of Knowledge Economy (current Ministry of Trade Industry and Energy), the Ministry of Defense, and the Defense Acquisition Program Administration and defense businesses, offset trade in the area of civilian demands, sales between governments, and the preparation of package deals and is reinforcing total directional efforts to support export.

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On reviewing the state of export of defense goods for 5 years, it can be seen that the amount of export increase of approximately 100% in 5 years from USD 1,031 million in 2008 to USD 2,352 million in 2012.2) To review the amount by region, whereas export to the Middle East occupied the highest share in 2008, export to Europe and North America was the largest in 2012. Although the amount of export increased by at least 10 times after the establishment of the Defense Acquisition Program Administration, thanks to the defense goods export activation policy, unlike general product export that grows continuously, yearly export records of defense goods show large variations as export is made by some large contracts.

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Investment attraction environments and policies for the aviation and defense industry in Korea

Foreign direct investments in the aviation defense industry in Korea have not been activated thus far because of low industrial competitiveness of Korea compared to competing countries and the areas of investments have been mainly aircraft maintenance and education instead of the manufacturing industry.

However, since the F-X project was planned in 2013, major aviation enterprises are showing interest in the areas of aviation part manufacturing and finished product assembly. Therefore, investments in these areas are expected to increase. In addition, attraction of investments in Korea is increasing as shown by the fact that Boeing indicated its intention to establish an MRO (maintenance, repair and overhaul) center for combat plane maintenance in Yeongcheon-si, Gyeongbuk-do.

1) Korea Aerospace Industries Association (KAIA) statistical data 2) Defense Acquisition Program Administration statistical data

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[Table 2-2] State of FDIs attracted by the aviation industry over the last five years (Unit : USD million, %) Year

Amount of FDI attracted Increase/decrease rate

2007

2008

2009

2010

2011

2012

0.69 -40

32 4,538

0.5 -98

10 1,900

0.5 -95

0.086 -83

Note : 1) Limited to investments in the manufacturing industry-aviation industry (KSIC 313) 2) In the case of 2010, investments attracted by the area of the aviation industry with different business types reported to INSC were included Data source : INSC (based on records)

To upgrade the aviation and defense industry, the government continuously reinforced foreign investment attraction by offsetting trade since 2006. As a result, foreign investments were designated as one of the methods of performing obligations to offset trade in 2009 through amendments of the Defense Acquisition Program Act and its enforcement ordinance to be equipped with a full-scale frame.

Under a plan to actively utilize the foreign investment attraction using offset trade to induce overseas aviation or defense enterprises investments in Korea, IK is actively performing continuous investment attraction activities, such as investment presentations, business talks with investors who visit Korea, and dispatches of investment delegations to increase investors interest and improve systems. IK will continuously improve this system through discussions with related departments, such as the Ministry of Trade Industry and Energy, the Defense Acquisition Program Administration, etc., so that this system can be effectively utilized as an actual method of providing incentives for investments in the aviation and defense industry and a means of attracting investments.

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Foreign invested companies in the area of aviation and defense that advanced into Korea

[Figure 2-2] Ministry of Trade Industry and Energy: Boeing MOU agreement ceremony

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( 12.02.22)

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Foreign invested companies in the area of aviation and defense that advanced into Korea are 10 enterprises, including multinational enterprise EADS, Thales of France, Boeing, and United Technologies Corporation of the USA. Samsung Thales that was established by Samsung Electronics Co., Ltd. and Thales February 2000 as a 1:1 joint venture is proving the best synergy effects of IT-defense enterprises investments by recording double growths over the last four years. Huneed Technologies where Boeing in the USA invested for a share of 16% in 2006 also succeeded in advancement through investment through stable participations in domestic defense acquisition programs and while showing the effects of technical tie-up for cutting-edge integrated defense systems of Boeing. In addition, in 2010, United Technologies Corporation in the USA and Korean Air made a JV investment for building up an aircraft engine MRO center. GMB USA, a Minesweeper manufacturer, performed a foreign investment through offset trade for the first time in Korea with support by KOTRA and the Defense Acquisition Program Administration. In 2011, Boeing Co. invested USD 5 million to establish a pilot training center.

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Success case of investments in Korea

Boeing Training Service Korea (BTSK) was established in Korea in 2002 as a company completely owned by Boeing in the USA. As new models of airplanes were added, BTSK promoted the establishment of an aviation operation training center and dispatches more than 180 drillmasters to all airlines located in Korea, China, Taiwan, and Mongolia to provide aircraft maintenance and pilot/cabin crew flight training service.

The training center planned to be constructed in 2014 will be equipped with 16 entire flight simulators priced at USD 25 million per unit and pilot training service systems that can be used by 500 persons per day on average and additional investments are expected according to the expansion of Boeing Co. s business.

It is said that the aviation operation training center of Boeing Co. will have approximately 200 drillmasters dispatched by the head office of Boeing Co. in the USA so that approximately 3,000 pilots can be trained per year on average and will employ approximately 350 center operation staff as new employment.

In relation to this, case investments have arrived three times in total over more than a decade, including 2002 and 2011 and Boeing Co. made an investment MOU for MRO center construction for combat planes in Yeongcheon-si, Gyeongsangbuk-do in 2012.

Boeing Co. attended an investment report ceremony in 2013 with a plan to invest approximately USD 20 million in the second half of 2013.

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Car Component

Automobile industry in Korea

In 2012, the overall automobile industry in Korea showed a decrease in production of -1.4% since it experienced a slump, to the extent that Renault Samsung Motors Co., Ltd. executed restructuring for the first time after its foundation. To review in detail, Ssangyong Motor Company was normalized with a production increase of 5.2% and Hyundai Motor Company and Kia Motors Corporation recorded slight production increases while Renault Samsung Motors Co., Ltd., Tata Daewoo, Daewoo Bus, and Korea GM recorded production decreases by -37%, -43.5%, -15.2%, and ?3.1%, respectively. These production decreases seem to be an indicator meaning that the automobile industry in Korea that reached its peak in 2011 is entering into its maturation period.

[Table 2-3] State of production in Korea by major domestic complete vehicle manufacturers over the last four years

Division

2009

년

년

2010

1,606,879 1,137,176 532,191 189,831 34,703 4,037 8,131 3,512,948

Hyundai Motor Company Kia Motors Corporation KoreaGM Renault Samsung Motors Co., Ltd. Ssangyong Motor Company Daewoo Bus Tata Daewoo Total

1,743,375 1,416,681 744,096 275,269 80,067 3,214 9,039 4,271,741

년

2011

년

(Unit : unit, %) 11/12 increase/decrease rates

2012

1,892,254 1,583,921 810,854 244,260 113,249 3,210 9,346 4,623,912

1,905,261 1,585,685 785,757 153,891 119,142 2,721 5,281 4,557,738

0.7% 0.1% -3.1% -37.0% 5.2% -15.2% -43.5% -1.4%

Data source : Korea Automobile Manufacturers Association

Investment attraction environments and policies for the car component industry in Korea

Despite the completed vehicle industry recorded negative growth compared to 2011, the automobile industry in Korea recorded fifth in the world in production in 2012. Component manufacturers in Korea have grown up together with the growth of Hyundai Motor Company/Kia Motors Corporation to be transformed into enterprises equipped with global competitiveness. Thanks to the increases in sales of those enterprises that advanced into foreign countries when Hyundai Motor Company / Kia Motors Corporation established overseas factories, the progress of the total sales of car component manufacturers in Korea shows continuous growth although there are some rapid variations because of exchange rates.

[Table 2-4] Progress of total sales of car component manufacturers Sales volume Year OEM

2008 2009 2010 2011

28,129(77%) 29,759(76.8%) 39,356(75%) 51,629(76.1%)

Total

Service component

Export

1,688(5%) 1,785(4.6%) 2,361(4.5%) 3,099(4.6%)

8,036(18%) 7,190(18.6%) 10,829(20.5%) 13,091(19.3%)

US$ US$ US$ US$

37,852 38,735 52,546 67,813

Foreign invested companies also have grown together with domestic complete vehicle manufacturers and are extending production facilities in Korea. A characteristic of investments in the car component industry 26

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To foster the new and renewable energy industry, the Ministry of Trade Industry and Energy (former Ministry of Knowledge Economy) enforced the Renewable Portfolio Standard (RPS) instead of the Feed in Tariff (FIT) system. Not only recognition about investments in new and renewable energy was improved but also the installed capacity was enlarged. The installed capacity in 2012 reached 620MW, approximately a half of the installed capacity under the Feed in Tariff (FIT) system to affect the expansion of the scale of the new and renewable energy market.

Meanwhile, to review detailed sectors of the area of new and renewable energy, whereas the sector of solar energy achieved the goal of the obligatory supply amount, the sector of non-solar energy faltered a little because constraints by some sectors (wind power: licensing issue, bio: delay in the rearrangement of waste-related systems, water power: insufficient precipitation) were substantial.

The government plans to prepare measures to efficiently compensate for the cost to perform RPS obligations through the electric power market, support the performance of the obligation to supply by improving various regulations and permission procedures, etc., and promote the activation of the transaction market and the substantialization of the system through efficient operation of the supply certificate transaction market.

In addition, in the area of treasury investment, the government will decrease direct subsidies and concentrate on project promotion infrastructures. In the area of R&D, the government will try to change single product, single system centered R&D into a business model type R&D through fusion technologies, etc., and the portion of support for small and medium companies and strong medium companies in R&D support budgets to induce the development of technologies for parts and materials, and equipment for shared growth between large enterprises and small and medium enterprises thereby promoting outcome creating R&D projects.

Investment attraction environments and policies for the new and renewable energy industry in Korea

Various countries in the world have fostered the new and renewable energy industry under the government s leadership in order to prevent environmental pollution and respond to global warming; the government s support for the new and renewable energy industry has been reinforced further as a way to create employment and as a new growth engine to overcome the global economic crisis of 2008. In line with this global trend, the Korean government set low-carbon green growth as a first-priority government policy agenda in 2008 and intensively fostered the new and renewable energy industry as an effective measure to achieve low-carbon green growth. Therefore, the new and renewable energy industry grew further compared to other industries even in the global crisis. However, the new and renewable energy industry in the world that grew under the leadership of the USA and Europe lost growth engines because of the financial crisis of 2008 began from the USA and the financial crisis of Europe in 2010 and investment attraction by Korea was greatly affected by these situations. In the aftermath of the continued world economic recession, the record of investments attracted by the area of the new and renewable energy industry centered on European advanced countries was very poor.

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To review the state of investment attraction by the areas of solar energy, wind power and bio energy on which the government concentrates in the areas of the new and renewable energy industry, investments in the sector of solar energy supported by relatively more developed-related industries in Korea accounted for major part of investments attracted while the sector of wind power has no record of investment attraction because of licensing issues and the market scale in Korea and the sector of bio energy showed investment attraction activities only in some special areas, such as the area of waste treatment.

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Medical and Bio

Drug/medical industry in Korea

The health care market that includes BT-based drug, medical device, and medical service industries is two times of the IT market in size and attracts attention as a basis future growth with high added value because demand for medical services is increasing because of aging global population and increases in chronic diseases. In fact, according to the OECD Health Data 2012, the health care expenditure increase rate of Korea from the integration of national health insurance in late the 1980s to 2010 is 9% per year on average, twice the OECD average, which is 4.5%. Therefore the growth potential of the medical industry in Korea can be said to be very high.

The market scale for the drug industry in Korea was USD 16.5 billion in 2011, approximately 1.7% of the world market. However, drug production in Korea (medicine and medical supplies, sanitary aids, medicinal herbs, cosmetics, etc.) accounts for 1.44% of gross domestic production and 5.22% of gross production in the manufacturing industry. The scale of gross production of drugs in Korea is approximately KRW 15.4 trillion and the production of finished drugs accounts for 91% of the gross production. The amount of drug export in 2011 was USD 1.75 with an increase of drug material export by 22.6% and an increase of finished drug export by 7% compared to the previous year. In the case of drug import, finished drug import increased by 16.4% compared to the previous year. That is, the domestic drug industry is centered on finished products for domestic demand and is planning to increase the advancement of its technology to become a high added value cutting-edge industry, expand global cooperation to visualize new drug development, and drug prices and distribution structures.

The scale of domestic markets for the medical device industry reached KRW 4,306.4 billion in 2011 showing a clear increasing trend with an increase of 10.3% compared to the previous year, accounting for 1.3% of the world medical device market. (Annual average growth rate during 2006~2011 was 8.3%).

The amount of domestic medical device production was KRW 2,964.4 billion with an increase of 7.2% compared to the previous year, the amount of medical device export was KRW 1,681.6 billion with an increase of 10.7% compared to the previous year, and the amount of medical device import was KRW 2,619.9 billion with an increase of 11.1% compared to the previous year. The number of domestic medical device manufacturers that reported production in 2011 was 1,958 with an increase of 5.4% compared to the previous year and the number of importers in 2011 was 1,570 with an increase of 4.9% compared to the previous year. In particular, the annual average growth rate of the amount of export between 2006 and 2011 was high 18.9% because the export of digital x-ray apparatuses, ultrasonic imaging diagnostic apparatuses, and dental implants produced in Korea sharply increased. The import of major import items, such as stents, expensive diagnostic imaging devices, such as CT/MRI, and artificial knee joints has continued and the scale of trade deficits has been maintained at approximately USD 850 million. Therefore, to enhance profitability and reinforce competitiveness, domestic medical device enterprises are interested in the expansion of global research and development and the cultivation of experts in the industry.

Infrastructures for the drug/medical device industry in Korea

Although the scale of drug and medical device markets in Korea is limited, the stable foundations of local drug and medical device industries established in Korea located in the center of the Northeast Asian markets, the outcomes of active research and development, excellent manpower, and the government s will to foster the industries are acting as positive elements to attract investments.

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The number of clinical trials conducted in Korea in for development of new drugs increased by 33.2% from 503 in total in 2011 to 670 in total in 2012. Global clinical trials accounted for 45% (303 cases) of them because Korea is trusted as an optimum place for global clinical trials equipped with increased numbers of research-oriented hospitals and clinical experts and patient management and medical systems.

In addition, Korea has been identified to have excellent manpower essential for research and development and infrastructures, such as a large number of papers published and patent outcomes. In fact, the number of graduates from BT-related departments (including masters and doctorates) in 2012 was 52,811 in total and at least 20% received a masters or doctorate degrees. The number of workers who were working in the bio-industry was 22,817 with an increase of 11.1% compared to the previous year 11.1% and a highly educated person oriented manpower structure was maintained as 36.7% of the workers had a master s degree or doctorate. The number of papers published in the bio area in 2012, including those published in NSC (Nature, Science, Cell) which is one of three major scientific journals in the world was 8,082 with an increase of 13% compared to the number in 2010, which was 7,060, placed 10th in the world. In addition, according to the results of counting of the numbers of patents acquired in 2010 by country by World Intellectual Property Organization (WIPO), Korea placed fifth in the world with 9,689 cases. The number of Korean patents in the bio area registered in the USA during 2006~2010 was 520 and the national technology strength index of Korea was 166, which placed 14th in the world.

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In particular the Korean government s active support activities for the bio industry are also becoming an important element for investment attraction. The outcomes of commercialization of research and development are accelerated on the strength of the government s full support and active investments, such as the establishment of the pan-department new drug development project group at the end of 2011 based on agreement among three departments: the Ministry of Health and Welfare, the Ministry of Knowledge Economy, and the Ministry of Education, Science and Technology (in 2011~2019, the government will input KRW 600 billion and private entities will input KRW 600 billion as project funds), bio fund raising, and the selection of innovative pharmaceutical industries. Detailed focused areas are specialized into the areas of biomedicines (bio-similar), herbal medicines, BIT fusion/composite medical devices, customized drugs and regenerative medicine for development.

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Present state of investments attracted by the drug/medical device industries in Korea and investment attraction policies

The total amount of foreign investments in the drug and medical device industries (excluding foods/cosmetics) in Korea in 2012 was USD 243.5 million in 49 investment reports, accounting for 1.7% of the total amount of foreign investments attracted in the entire country. Although the amount is a little smaller compared to the previous year, it is meaningful because joint investments or cooperation for research and development among biomedicines manufacturers account for most of the investments even in the depressed situation of the industry because of the limit of growth of the domestic market, insurance drug policies, and the dual punishment system for rebates and overseas strong medium drug/medical device manufacturers are advancing into Korea. According to the analysis of the annual average growth rate (CAGR) for five years of 2008~2012, the amounts of foreign investments in theses industries have been showing a steady increasing trend at 21.9%. Therefore, through the attraction of foreign investments based on global commercialization in the area of biomedicines and the potential of the area of research and development, effects to contribute to the entrance into global markets, the creation of the employment of domestic high-grade manpower, and the securing of national competitiveness of the bio-industry are expected.

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Foreign invested companies in the medical/bio area that advanced into Korea

Among those global pharmaceutical companies that have advanced into Korea, 13 of the top 30 companies in terms of domestic sales in 2012 and global medical device manufacturers, such as Simens, J&J, and GE health care greatly contributed to the production/export and import of medical devices.

Although existing global pharmaceutical companies were active in expanding clinical trials and performing joint research and development activities in Korea, cases of large investments, such as direct investments in production facilities were rare. However, foreign investments through quota investments in domestic companies and M&A sharply increased in 2010, such as the cases of GSK, a global pharmaceutical company; Dentsply, a German medical device manufacturer; and Inverness Medical Innovation (Alere), a USA health care diagnosis company. Thereafter, a trend of foreign enterprises joint investments with domestic enterprise became prominent in 2011, such as the cases of Quintiles and Samsung BioLogics, Nichi-iko Pharmaceutical and Aprogen, Teva, a global generic manufacturer and Handok.

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In particular, in 2012, after the establishment of Samsung BioLogics (a joint venture company of Quintiles, a global CRO in the USA and Samsung), a biomedicines manufacturer in Samsung Group, a joint investment was made by Samsung BioLogics and Biogen Idec for full-scale biomedicines research and development and commercialization followed by investments by strong medium medical device manufacturers, such as active additional investments by Takeda Pharma, a global pharmaceutical company in Japan; a new joint investment by Genexine, a domestic bio-venture enterprise; and Ajinomoto Co., Inc., a Japanese enterprise; an investment by Abbott, a USA global pharmaceutical company to establish Korea AbbVie Co., Ltd.; and investments by GN resound, Air liguide, and Quiagen. In addition, as a case of an investment by a stem cell based medicine research and development company, Pocastem (a venture company of POSTECH-medicine and biotechnology research center of Catholic University of Korea) which is the first joint research institute between universities in the area of biotechnology in Korea attracted an investment and there was a case where an investment was attracted for research and development in the area of regenerative medicine.

Success case of investments in Korea

In November 2012, Ajinomoto Co., Inc., a Japanese manufacturer of foods, amino acid, and compounds made in investment for the establishment of production facilities for culture media for cell culture necessary for production of biomedicines. Ajinomoto Genexine , a new joint corporation founded together with Genexine; a domestic bio-venturer company was established in Songdo, Incheon, to produce and sell serum-free media utilizing the high purity amino acid production technology of Ajinomoto.

Ajinomoto decided to make an investment in Korea as a production base in Asia as biology studies and demand for biomedicines increased and the biomedicine research infra and development networks of Genexine; a promising bio-company in Korea became a base of the successful investment in Korea. This is a case where a decision to make an investment in a new business area was made through two companies cooperation for joint research and development that gave a great meaning to the Korean bio-industry s investment attraction activities.

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In the times of LTE that has been fully opened, the necessity for our government to prepare policies to enhance network competitiveness and promote investment is increasing and the establishment of a smart ecosystem that encompasses networks, terminals, platforms, and services has emerged as a main concern of the broadcast and communication industry. Therefore, security, personal information protection, patents, and intellectual property rights, etc., are emerging as issues of the industry.

Investment attraction environments and policies for the broadcast and communication industry in Korea

The amount of foreign direct investments (FDI) attracted by the broadcast and communication industry has been decreasing in scale since the 2008 global economic crisis. On the strength of the universalization of smartphones and tablet PCS, FDIs gradually showed an increasing trend since 2010. However, as mentioned at the beginning because of the saturated state of related markets, the number of cases and amount of FDIs decreased a little in 2012.

[Table 2-10] State of FDIs attracted by the broadcast and communication industry over the last five years [Unit : million US$, case, %) Division Area of broadcast and communication (number of cases) Entire industry (number of cases)

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Broadcast and communication s share (%)

2007

2008

2009

2010

2011

174 (67) 11,712 (3,745) 1.49

141 (54) 11,484 (3,131) 1.23

192 (55) 13,071 (3,109) 1.47

306 (54) 13,674 (2,707) 2.24

252 (50) 16,256 (2,863) 1.59

Data source : INSC (the manufacturing industry-communication equipment and broadcast equipment, service industry-communication industry/culture and broadcast industry)

Korea is an attractive investment market to foreign investors who are interested in the broadcast and communication industry in that it has secured world highest level IT infrastructure bases and customers sensitive to IT service and is evaluated to have high potential of future development. In particular, the expansion of demand for D-TV (Digital TV) following the termination of analog broadcast in 2012 and the necessity of test beds following the intensification of competition among smartphone and tablet PC manufacturers indicate not only short-term expansion of the market but also the growth potential of the Korean market.

However, the development of new services and the media industry is restricted by the dualistic division between broadcast and communication and the limitation that the competitiveness of the area of SW and contents that can produce high added value is weak acted as a factor that hinders growth.

Meanwhile, business foundations continuously increased as various foundation support policies of the government and the smartphone fever that began to appear in 2009 became catalysts and 74,162 enterprises were born in 2012 as a result. This value is well over the number of business foundations which was 62,168 in 2002 when start-up fever appeared because of an IT boom. However, the businesses could not properly grow after its establishment because the business founders or the investors retrieved their investments and exit the market due to lack of finance. Exit markets are largely divided into M&As that are for the intermediate stage and initial public offering (IPO), which is for the final stage and Korea is known to have poor M&A markets that are for retrieval in the intermediate stage.

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[Figure 2-4] Opening of the global M&A support center ( 12.02.04)

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Meanwhile, KOTRA established a Global M&A support center in February 2013 to support small- and mediumand strong-medium enterprises overseas market finding and globalization utilizing M&A through this center.

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Present state of foreign invested companies in the area of broadcast and communication that advanced into Korea

Major foreign invested companies in the area of broadcast and communication that advanced into Korea during the last five years include Nortel (Canada), Nokia-Simens (Finland-Germany), and Intel (USA) that are wireless communication equipment manufacturers and Amphenol (Netherlands); a global industrial and communication connector manufacturer. In 2011, in the aftermath of the big earthquake, attraction of investments from IDC (Internet Data Center) relocation-related Japanese enterprises. A representative one is the establishment of KT SB Data Service ; a joint venture company established in the Kimhae, Gyeongnam region by KT and Soft Bank Telecom (Japan) and other investments include those by Dassault Systems in Japan and Ticket Monster , a front-runner in the, domestic social commerce market.

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Meanwhile, in 2012, CISCO (USA), the largest communication network equipment manufacturer in the world, established a U-city project-related international joint R&D center. This R&D center is meaningful in that it is operated with a view to pursuing shared growth of foreign invested companies and domestic small and medium enterprises rather than simply being operated as a profit making R&D center.

Success case of investments in Korea

Cisco is the largest company in the world in the area of communication networks, which has been continuously making investments in Korea after the establishment of Cisco Systems Korea.

Cisco is expected to find cooperative companies for U-city construction in the Asia region as a target market to conduct joint R&D, thereby transferring technologies and creating employment as well as preparing a foundation for accompanied advancement with domestic small and medium enterprises. A matching fund (The Ministry of Trade Industry and Energy-IFEZ) amounting USD 10 million was received from this company in December 2012. The actual scale of investment by this company is USD 21 million.

The project is being implemented with a view to opening the Global Center of Excellence (GCoE) in Songdo, Incheon in August 2013 and this company is recruiting domestic businesses to cooperate with it through the KOTRA GAPS project (an opening ceremony was held in September 2012).

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Industry

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Tourism and Leisure

Tourism and leisure industry in Korea

The tourism industry is a 21st century high added value service industry with competitiveness that tows the low growth times without employment through the acquisition of foreign currencies, the creation of employment, and the promotion of investments. Not only Korea but various countries in the world are also making efforts to foster the tourism industry.

According to statistics by United Nations World Tourism Organization (UNWTO), 2012 was a year of the best tourism industry boom in history and the number of international tourists was counted to be 1,035 million with an increase of 4% compared to the previous year. The world tourism market that rapidly recovered in the unstable economic situations after the global financial crisis continued a growth trend in 2012 following 2011. The Asia Pacific region recorded the highest growth rate (7%). In particular, the scale of Chinese overseas travel consumption expenditures increased to USD 102 billion so that China emerged as the number one overseas travel consumption country in the world. Therefore, the Korean government should reinforce the tourism industry s international competitiveness to be systematically prepared for the China market.

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[Table 2-11] Tourism and leisure-related major indicators (Unit : %) Division

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Tourism s share of GDP

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Tourism s share of total employment

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Tourism s share of total capital investment

Korea

5.9 6.4 2.2

Japan

6.7 7.0 2.9

China

USA

World average

9.3 8.3 2.8

8.6 10.0 6.4

14.1 13.9 8.1

Data source : World Travel and Tourism Council (2013), country rankings: Relative contribution, 2012

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Meanwhile, according to the 2013 World Economic Forum (WEF), the Korean tourism industry s competitiveness placed 25th among 140 countries in the world and placed 6th among 25 countries in the Asia Pacific region. Areas where the Korean tourism industry shows competitive advantages are cultural resources (10th), information communication technology infrastructure (1st), and areas where inferior competitiveness is shown are tourism infrastructure (69th), price competitiveness (96th), etc.

[Table 2-12] Analysis of tourism and leisure investment environments Superior competitiveness

Inferior competitiveness

Information communication technology infrastructure 1st Tourism infrastructure 69th

Rich cultural resources 10th Overland traffic infrastructure 16th

Price competitiveness 96th

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Data source : World Economic Forum (WEF) 2013 The Travel & Tourism Competitiveness Report 2013

According to World Travel and Tourism Council (2013), in 2012, the world tourism industry contributed to 9% (USD 6.6 trillion) of the entire world GDP, accounted for 5% (USD 760 billion) of the entire amount of investment, and created a total of 260 million direct/indirect employments. The world tourism industry is expected to contributed to USD 10.5 trillion of GDP, create 340 million employments, and attract investments of USD 1.3 trillion in 2023.

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[Table 2-13] Records of investment attraction by area of tourism and leisure

regional development (Unit : USD million, %)

2008

Division

Amount

Total result Service industry Total Food accommodation Culture entertainment

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11,711 8,387 188 (37) (151)

2009

Share

Amount

71.6 2.2 (0.4) (1.8)

11,484 7,594 231 (176) (55)

2010

Share

66.1 3 (2.3) (0.7)

Amount

13,071 6,302 168 (58) (110)

2011

Share

48.21 2.6 (0.9) (1.7)

Amount

13,673 7,269 596 (127) (469)

2012

Share

53.16 8.2 (1.7) (6.5)

Amount

16,286 9,601 1005 (908) (97)

Share

58.96 10.4 (9.4) (1)

Data source : INSC (based on records)

Trend of tourism and leisure policies of Korea

Recent world trends of the tourism industry are pursuing Multi-functions instead of single functions by industry and are characterized by enlargement, complexation, and themes through mutual linkages between facilities with attraction and the maximization of synergy effects.

In September 2012, to activate investment attraction in Free Economic Zones, a preliminary examination system was introduced to reduce investors economic/time burdens by allowing foreign investors who with to invest in large-scale composite resorts to request for a preliminary examination with simple documents before applying for a formal permission.

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In addition, the government has a plan to designate six strong point type marinas to form two each international marina facilities in each of the east, west, and south coasts in order to foster marine tourism and leisure sports as new growth engine industries that will create employment, activate domestic demand through the attraction of domestic/foreign tourists, and lead regional development.

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In addition, as a way to promote foreign tourist attraction, the Korean government has implemented a 72 hour no visa entry program for foreigners for transfer tourism. Since foreign transferring tourists who are to go to third countries or Jeju island through Incheon or Kimhae International Airport can enter Korea for 72 hours without any visa, tourism and leisure investment attraction is expected to be positively affected along with increases in the number of Chinese tourists.

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Foreign invested companies in the area of tourism and leisure that advanced into Korea

Foreign invested companies in the area of tourism and leisure that advanced into Korea are divided into those that invested in hotels or marinas which are unit businesses and those that invested in composite reports for the operation of general entertainment business. In addition to existing Banyan Tree Hotel, Oriental Mandarin Hotel will advance into Seoul. Recently, as interest in the marine tourism industry in Korea has increased, marina resort development-related enterprises, such as Florida Marina Development in the USA and BP Development in Australia, are showing interest in Korea. SUTL Co. in Singapore advanced into Korea as an investor and operating company of a marina resort in Busan and is under fullscale negotiation. In addition, as Chinese tourists are increasing, investments in the area of tourism and leisure targeting them are increasing. However, these investments are mainly concentrated on Jeju island.

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Berjaya Co., a Malaysian company has invested in Yere resort zone and Bunma Group in China is participating in the Iho Land formation project.

Success case of investments in Korea

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SUTL Co in Singapore, a marina resort investment operation company was selected as a subject of preferential negotiation for the marina resort in the Busan north port redevelopment project (approx. 1,527,247 ), which is one of 10 major Korean style new deal project and reported an investment of USD 100 million to implement the project in full-scale in 2013. As the first international marina resort company has advanced into the Korean market, global marina resort investment attraction is expected to be activated with the implementation of six strong point marina project.

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Regional Development

Regional development industry in Korea

Because of the effect of the global economic recession, the world real estate industry participates in stable markets (house, bonds) rather than new development markets. The growth recession of world development markets will be unavoidable because of the Europe financial crisis and the quantitative expansion of the USA and the retrenchment in economy of China are considered to weaken the private investment sector of developing countries. This will make investment development markets give weight to the risk of investments, collection, and conversion so that funds are concentrated on short-term loans rather than longterm loans and the market will be distorted to increase the gap between the rich and the poor.

The real estate development market in Korea makes independent advancement into new projects difficult because of finance institutions PF loan regulations, the uncertainty of investment collection, and changes in money market rates. Therefore, overseas investors are reducing the subjects of investments to office buildings with high securitization rates, SOC projects, and guaranteed investment projects and are changing development methods from independent or leading type development into development through collaboration and cooperation. With the Korea-USA FTA and Korea-EU FTA as a momentum, foreign investors show interest in the area of distribution, integration of R&D Centers, etc., and high added value real estate markets so that changes in the regional development market are expected.

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Investment attraction environments and policies for regional development in Korea

Currently, in investment report statistics, investment records for the tourism industry and regional development are divided into foods, accommodations, real estate, lease, culture, entertainment, etc. Over that last five years, investment records in the relevant areas have been accounting for approximately 20% of service industry records. The records in 2011 and 2012 decreased to the level of those in 2009 but are expected to gradually increase in 2013.

[Table 2-14] Records of investments attracted by regional development and the shares (Unit : USD million, %) 2008

Division

Amount Entire result Service industry

ㆍ

Real estate

2009

Share

11,711

Amount

2010

Share

11,484

Amount

2011

Share

13,071

Amount

2012

Share

13,673

Amount

Share

16,286

8,387

71.6

7,594

66.1

6,302

48.21

7,269

53.16

9,601

58.96

689

8.2

1,420

18.7

2,687

42.6

1,474

10.8

1,752

10.7

lease

Data source : INSC (based on records)

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Korean government s regional development policies and the trend of related organizations

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[Figure 2-5] Invest KOREA-local government

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FEZ investment attraction conference ( 12.10.24)

Through new designation of Chungbuk FEZ and East Coast region FEZ, Korea became to have eight FEZs, two enterprise cities, one tourism and leisure city, one special self-governing province, and eight innovation cities. This indicates that the central government and local governments intend to put emphasis on region oriented models in national land development projects. Meanwhile, since inflows of private capitals are essential for the finalization of development districts and the establishment of concrete project plans, friction with depressed domestic private development projects is expected.

Large development projects, such as the Saemangeum land reclamation project, the relocation of public institutions to provinces, innovation city development projects, and the attraction of the Winter Olympic Games to Pyeongchang are implemented in terms of regional economy activation and the efficiency of national land development. These government-led development projects are implemented simultaneously creating an adverse effect of dispersing the interest of foreign and domestic investors.

Foreign invested companies in the area of regional development that advanced into Korea

Currently, diverse enterprises have advanced into Korea in relation to tourism and leisure-regional development and the Korea-USA FTA and the Korea-EU FTA have direct/indirect effects on investments. In relation to regional development, TAUBMAN, Simon Property, Triple Five, KOZAR LLC from the USA, GreenLand from China, and Berjaya from Malaysia have participated in the projects. In addition, Gyeonggi-do Goyang Korean wave wood, Gwacheon cultural composite complex, and Hanam Union Square are implementing active investment attraction projects for regional development projects lifting development restrictions. Investments by Chinese enterprises have been concentrated on Jeju island and the investors are showing interest in the grant of investment permanent residency (Jeju island, Alpensia resort in Gangwon-do, Yeosu, Midan City in Yeongjong-do in Incheon, Sky City). Recently, to create employment and solve the problem of youth unemployment, local governments are performing active 42

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investment attraction activities for R&D Centers, total distribution centers, and the cutting-edge material industry and implementing investment attraction projects specialized by local government.

Success case of investments in Korea

Kumesekei Co. in Japan participated in the development consortium for the Sihwa MTV development project of Ansan-si, Gyeonggi-do with support by KOTRA and Ansan-si government to visualize its participation in the said project.

Kumesekei Co. is a private company established in 1932 that mainly works for real estate development and design. Currently, it organized a consortium with Japanese enterprises located in the vicinity of Ansan-si with a view to investing USD 100 million in the Bandal Island development project and the Lake Shihwa development project and participating in at least two more regional development projects.

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Logistics and Distribution

Logistics industry in Korea

The scale of the entire world logistics market was approximately USD 3.7 trillion (13% of entire world GDP) in 2010 and is expected to reach USD 8 trillion by 2020. As of 2010, the container cargo volume (185 million TEU) in Northeast Asia was approximately 38.5% of that of the world (481 million TEU) and has been continuously increasing since 2000. The total sales in the domestic logistics market is estimated to have been KRW 38.2 trillion and recorded a growth rate of 2.3% showing steady growth despite the economic recession following the financial crisis began in Europe and oil price increases.

In 2012, the container cargo volume reached 2,300 TEU with an increase of 6.8% compared to 2011, the import and export cargo volume increased by 4.9% compared to the previous year because newly emerging markets share of export increased, and the transshipment cargo volume increased by 9.9% than 2011 because global shipping companies increased services.

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[Table 2-15] Major statistics for the logistics industry Division Sales (KRW million) Operating costs (KRW million) Logistics enterprise (ea) Average sales (KRW million)

2007

2008

2009

2011

102,438,350 91,940,062 341,789 299

127,745,306 117,017,948 339,992 375

111,981,875 105,417,240 340,529 328

136,161,780 94,052,148 346,079 393

Data source : Korea Chamber of Commerce and Industry (2013) Note : 2010 statistics were not reflected as no survey was conducted in that year

Investment attraction environments and policies for the logistics and distribution industry in Korea

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[Figure 2-6] FTA linked 2012 Americas Busan port presentation ( 12.03.15)

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Along with its geopolitical excellence that enables linkage with not only China, a factory of the world and economic giant Japan, but also the Far East Maritime Provinces and Taiwan in short distances, Korea has established excellent infrastructures, such as world-class airports and seaports, including Incheon Airport (second in the world based on cargo volumes) and Busan port (world fifth container port), well-organized expressway networks and railways, and inland logistics base facilities to brighten prospects for future investment attraction.

Meanwhile with the effectuation of the Korea-USA FTA and the Korea-EU FTA as a momentum, Korea is attracting attention from many global manufacturing and distribution businesses to utilize Korean airports and seaports as Trunk Routes for the world logistics markets. This seems to play the role of driving force for the Korean market to leap forward to become a global logistics hub.

To reinforce the competitiveness of the logistics industry in line with this, the Korean government selected the area of port terminal operation and construction and the area of core distribution centers to be located in logistics complexes as promising areas for investment attraction and actively searches for promising investors in the area of logistics in Europe, North America, and Japan markets while improving systems that impede the growth of the logistics industry.

Meanwhile, the amount of investments attracted by the logistics industry (transportation and warehousing) reported in 2011 was USD 143 million with a decrease compared to the previous year.

However, since investments in the logistics industry are made in linkage with the wholesale/retail distribution industry in many cases because of the nature of the logistics industry, the state cannot be safely concluded as meaning a decrease in investments. Reviewing the present state of foreign investments in logistics in linkage with the distribution industry should be reasonable and regarding that the ratio of investments in Korea is interlocked with major investors M&As, etc., should be accurate. In the case of the year before the last year, foreign investments in the logistics and distribution industry was USD 2.34 billion accounting for 21.4% of entire foreign investments.

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[Table 2-16] State of FDIs attracted by the logistics and distribution industry over the last five years (Unit : USD million, %) Year Total amount of FDIs Transportation and warehousing (logistics) A : ratio (%) Wholesale/retail distribution B : ratio (%) A+B : ratio (%)

2008

2009

2010

2011

2012(3/4)*

11,705 704 6.0 499 4.4 10.4

11,483 265 2.3 1,827 17.3 19.6

13,072 197 1.5 938 8.0 9.5

13,673 143 1.0 2,203 19.1 20.1

11,199 62 0.5 901 8.0 8.5

Data source : National Statistics Office Note : In the case of 2012, data were aggregated only up to the 3rd quarter

The ratios of logistics costs to sales of the manufacturing industry and the distribution industry in Korea are relatively high compared to Japan, and this is identified to be a factor that weakens the competitiveness of entire industries in Korea. In particular, although the ratio of utilization of third party logistics (3PL) in Korea is 59.6% and is steadily growing, the reinforcement of the competitiveness of domestic industries through the expansion of investment attraction in this area is identified to be urgent.

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Progress of 3rd party logistics utilization rates 70 59.6% 56.0%

60

38.8% 40

52.1%

48.2%

46.3%

50 42.2%

35.6%

30

20

10

0 2005

2006

2007

2008

2009

2010

2011

2012

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Data source : Ministry of Trade-Industry-Energy 2012 survey of the actual state of utilization of third party logistics

Ratio of logistics costs to sales

▲

20

15

10

▲

■

Entire logistics cost (including intemational)

Domestic logistics coat

12.50%

■

9.40%

▲

11.10%

■

8.60%

▲

9.90%

▲

9.70%

■

■

7.30%

6.80%

5

9.10%

▲

8.37%

▲

8.03%

6.50%

6.63%

6.47%

■

■

▲

■

0 1999

2001

2003

2005

‘

2007

2009

2011

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Data source : Ministry of Trade-Industry-Energy 2011 survey of the actual state of corporate logistics costs

As shown in the above graph, as of 2011, the ratio of Korea was 6.47% higher than that of Japan (4.90%, based on domestic logistics costs), indicating that there is much room for higher efficiency of logistics and improvement.

Foreign invested companies in the area of the logistics and distribution industries that advanced into Korea

Foreign invested companies in the area of logistics that advanced into Korea are mainly in the international logistics brokerage industry, the port operation industry, international special transportation, and the logistics real estate industry. To review by area, foreign invested companies that advanced into the port operation industry include HPH (Hutchison) in Hong Kong, PSA in Singapore, and DP World in Arab Emirates, which are terminal operating companies, and Evergreen/Uniglory in Taiwan and Zim in Israel. In the area of the international special transportation industry, after the advancement of DHL into Korea in 1977 for the first time, TNT (1983), FedEx (1988), and UPS (1988) advanced and thus all four major global special transportation companies have advanced. Investments by foreign real estate funds intended to invest in real estate instead of providing logistics service for construction of domestic logistics centers are increasing and approximately 30 foreign investment have advanced, including Mapletree, Prologis, and Asendas Korea.

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[Figure 2-7] Vice chairperson of TESCO Group visited Korea ( 12.12.17)

In the case of distribution industry, TESCO in the UK has opened more than 300 shops by investing largely in Korea and COSTCO in the USA is also expanding its investments in Korea. These companies have established large shops and logistics centers in major and secondary logistics hubs and port in Korea to show close linkage with the logistics industry.

Success case of investments in Korea

Investments in the area of logistics and distribution are attracted in diverse areas. First, in the area of logistics real estate development, Mapletree in Singapore and others made a large investment amounting to USD 23 million and third party logistics companies (Schenker: USD 14 million, 07.5) invested in Incheon Airport. In addition, multi-angle investments are continuously made in the area of port development, operation, and CFS (Container Freight Station), such as investments by Amway corporation in the USA, M Co. and NICE Co., which are leading companies in Japan in the new Busan port to establish East Asia logistics bases.

In the area of distribution, large-scale investments are attracted recently. I Company, a worldclass furniture company having its head office in Europe secure a site for establishment of a flagship store in 2011 and invested a total of USD 230 million.

Decathlon Co., a French sport distribution company reported an investment of USD 100 million to establish multiple shops in the capital area.

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Cultural Contents

Cultural contents industry in Korea

The cultural contents industry in Korea in composed of 12 areas: publishing, comics, music (including music performance), game, movie, animation, broadcast (including independent production companies), advertisement, character, knowledge & information, contents solution, and performance (excluding music performance). As of 2012, the scale of cultural contents industry markets in Korea excluding performances was KRW 88 trillion with a growth rate of 5.9% compared to the previous year and has been recording a high annual average growth rate of 9% since 2008. Performances are not included in the industrial statistics because they have not yet been clearly defined with regard to the industry.

To review market scales by area as of 2012, publishing, broadcast, advertisement, game, and knowledge & information industries were forming large markets exceeding KRW 10 trillion each. Industries that recorded at least two digit annual average growth rate from 2008 to 2012 are knowledge and information (19.1%), game (15.6%), contents solution (13.7%), music (12.5%), character (11.8%) industries and the high growth of the contents solution market (writing tool, mobile solution, CMS, CDN, etc.) that are the foundation of digital contents distribution is expected to lead to the growth of not only the digital contents market but also the entire cultural contents market.

[Table 2-17] Scales of domestic cultural contents markets by area (Unit : USD 100 million) Division Movie Animation Music Game Character Comics Publishing Broadcast Advertisement Knowledge and information Contents solution Total

2008

2,886 405 2,602 5,605 5,099 723 21,053 9,355 9,312 4,777 1,866 63,682

2009

3,307 419 2,741 6,581 5,358 739 20,609 9,885 9,187 5,255 2,036 66,116

2010

3,433 514 2,959 7,431 5,897 742 21,244 11,176 10,323 6,204 2,196 72,120

2011

3,773 529 3,817 8,805 7,210 752 21,245 12,752 12,173 9,046 2,867 82,968

2012

4,175 511 4,173 10,010 7,965 715 20,819 13,411 13,379 9,607 3,116 87,881

CAGR

9.7% 6.0% 12.5% 15.6% 11.8% -0.3% -0.3% 9.4% 9.5% 19.1% 13.7% 9.0%

Data source : Ministry of Culture, Sports and tourism

The amount of export by the cultural contents industry of Korea in 2011 was USD 4.3 billion with an increase of as much as 34% compared to the previous year while the amount of import was USD 1.8 billion with an increase of only 6% compared to the previous year, indicating that the aspect of Korea as a cultural contents export country is reinforced. The amount of import of cultural contents was larger than the amount of export from 2005 to 2007 but the amount of export continuously exceeded the amount of import since 2008.

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[Figure 2-8] Yearly scales of import and export by the domestic cultural contents industry (Unit : USD million)

Data source : Ministry of Culture, Sports and tourism

As of 2011, the scale of the domestic cultural contents market in Korea was USD 39 billion and it was 10th in the world. The expansion of export of cultural contents to high-ranking countries is important for further growth. The fact that when the portions of export by the cultural contents industry by region in 2011 are seen from that viewpoint, Japan (USD 192.8 billion) as the second largest market in the world and China (USD 109 billion) as the third largest market in the world accounted for the largest portions at 12% and 6.8%, respectively, brightens the possibility of growth of the cultural contents market in Korea, including export.

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[Figure 2-9] Cultural contents domestic market shares of countries in the world (Unit : USD billion, %)

Data source : PWC

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Investment attraction environments and policies for the cultural contents industry in Korea

As of 2012, the total amount of FDIs in the cultural contents industry was USD 950 million and the number of cases of investments was 157 and these values have been in a continuous increasing trend since 2009. In 2012, whereas the number of cases of FDIs increased by only 5% compared to the previous year, the amount increased by as much as 47%. This indicates that the amount of each FDI is becoming larger, following the continuous growth of the domestic cultural contents industry.

[Figure 2-10] Number of cases and amounts of cultural contents FDIs (Unit : USD million (bar graph), number of cases)

Data source : Minister of Trade, Industry and Energy Present state of foreign invested companies in the area of cultural contents that advanced into Korea

Major foreign invested companies in the area of cultural contents that have advanced into Korea over the last five years include Sony (Japan), a global total cultural contents enterprise, Tencent (China), the third largest Internet contents enterprise in the world, and Warner Brothers (USA), a Hollywood movie investment/distributing company as well as a game enterprise. In particular, Sony has advanced into many areas, such as movies, music, games, and broadcast. In addition, Goldman Sachs, a global investment bank; White Cloud Capital, a venture capital in the UK; BlueRun Ventures; a venture capital in the USA; and Excelcior Capital in Excelcior Capital have made financial investments in domestic cultural contents companies.

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Success case of investments in Korea

In 2004, when the domestic cable broadcast industry was not yet activated, Goldman Sachs judged that the domestic cable broadcast would grow, as with previous cases in advanced countries, and took over 30% of the shares of C&M Communication, a cable broadcast company, at USD 140 million to earn a large investment profit by selling the shares in 2007 at USD 840 million.

Sony has invested in Sony Pictures Korea, a movie distribution company; AXN Korea, a cable broadcast company; GamePot, an online game company; Funny Glue, a mobile game company; and Pledis, an entertainment management company in Korea to obtain by directional outcomes by distributing its contents in the Korean market while distributing Korean investee companies contents to Japan, etc.

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Finance and M&A

Finance and M&A industry in Korea

FDIs in the entire world greatly shrank after the global financial crisis of 2008 and has been showing a gradual recovery trend thereafter. UNCTAD estimated that world FDIs in 2011 were recovered to the level before the financial crisis. Among the types of investments, whereas cross border M&As of enterprises in advanced countries increased because of the restructuring of those enterprises implemented in the process of overcoming the financial crisis, Greenfield M&As have not yet been recovered as the uncertainty of world economy has persisted because of the Europe financial crisis and other conditions.3) On the other hand, the number of cases of M&As between domestic enterprises in 2012 was 543 with an increase of 26% compared to 2011 but the amount of transactions was KRW 19.7 trillion with a decrease of 35% compared to the previous year. The ratio of M&As between affiliates increased greatly compared to the previous year and thus the number of cases of transactions increased approximately twice from 113 in 2011 to 220 in 2012.4) The quarterly number of cases of examinations was 651 with an increase of 19.9% compared to the previous year.

[Table 2-18] Progress of quarterly number of cases of examinations [Unit : case] Division

1st quarter

2nd quarter

3rd quarter

4th quarter

2009 2010 2011 2012

91 120 131 127

97 122 156 182

114 124 123 167

111 133 133 175

Total

413 499 543 651

Data source : Fair Trade Commission

’

Major M&As between affiliates in 2012 include Samsung Display s acquisition of Samsung Mobile Display and Lotte Shopping s acquisition of Lotte Midopa and M&As between companies in the same business type include those in the area of wholesale/retail distribution, such as Lotte Shopping s acquisition of Hi Mart Co., Ltd. (KRW 1.2 trillion) and Interpark s acquisition of iMarketKorea (KRW 421.8 billion).

’

’

’

In 2012, whereas M&As in the area of the manufacturing industry were similar to the previous in number (202 219), those in the area of the service industry increased greatly (229 324). In particular, M&As were actively implemented in the area of wholesale/retail distribution (increase of 42 cases) to show an appearance contrary to that in the previous year when M&As in the manufacturing industry prevailed.

→

→

By business type, the service industry led by wholesale/retail distribution accounted for 59.7% for all M&As with 324 cases and the manufacturing industry accounted for 40.3% with 219 cases. (total; 431 cases 543 cases)

→

「

3) Ministry of Strategy and Finance International Economic Affairs Bureau International Economy Department (2012),

The trend,

characteristics, and implications of M&A and Greenfield OFDI in Korea.

“

4) Fair Trade Commission (2013),

“

52

”

2012 M&A trend analysis/presentation , CEO Kim Cheol-Jung of SU&Partners Co., Ltd.

”

Present state of M&A in Korea and measures for activation .

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Meanwhile, to review the forms of combinations, mixed combinations (305 cases, 56.2%) were the most frequently followed by horizontal combinations (160 cases, 29.5%) and vertical combinations (78 cases, 14.3%) in order of precedence. All forms increased compared to 2011 and the order was shown to be the same as that of 2011 as mixed-horizontal-vertical and the ratios did not show any big differences although the number of mixed combinations showed the largest increase rate with 61 cases.

→

To review combining methods, the number of cases of stock acquisition decreased (42% 34%) and that of mergers (between affiliates) increased greatly (35% 68%). Among enterprise combining measures, officers plural offices, business transfer, and company foundations were omitted.

→

’

’

To review domestic enterprises overseas M&As, the number of cases in 2012 was 29 in total with an increase of 5 compared to that in 2011 which was 24 and the amount increased from KRW 0.3 trillion to KRW 1.7 trillion. The total number of cases of domestic enterprises domestic/overseas M&As increased from 431 in 2011 to 543 in 2012 but the amount decreased from KRW 30.3 trillion to KRW 19.7 trillion.

’

Investment attraction environments and policies for Finance and M&A in Korea

The record of M&A type FDIs in Korea had continuously decreased after recording USD 5.26 billion in 2005 until it recovered the level of 2008 in 2012 by recording USD 4.18 billion following USD 1.97 billion in 2011.

The ratio of M&A type foreign investments attracted by Korea also continuously decreased after recording 45.5% in 2005 to become 14.4% in 2011 but it increased to 23.7% in 2012. The point at which the progress of foreign investments attracted by Korea is the most different from global trends can be said to be the ratio of M&As. Whereas the ratio of M&As to foreign investments attracted by the whole world is 60~70%, the ratios of M&A type foreign investments attracted to entire FDIs over the last 5-6 years were very low except for 45.5% in 2005.

[Table 2-19] Records of foreign investments attracted by type of investments and the ratios of M&A types (Unit : million US$) Investment type Amount of investment attracted M&A type Greenfield type Ratio of M&A type

2008

2009

2010

2011

2012

11,711 4,431 7,279 37.8

11,484 3,375 8,109 29.3

13,072 2,017 11,055 15.4

13,675 1,972 11,703 14.4

16,286 3,749 12,537 23

Data source : INSC (based on records)

Since large financing is necessary for M&A type investments, the ratio of M&A type foreign investments attracted is closely related to the development of capital markets. In Korea, the ratio of M&A type investments has been low thus far because of the manufacturing industry oriented investment attraction policies and the competitiveness of the finance sectors relatively lower compared to the manufacturing industry. However, the financial environments and markets in Korea are being gradually improved, thanks to the expansion of the scale of the capital market and increases in liquidity in Korea. In addition, since system improvements for the advancement of financial markets are in progress, such as the II. Trends of Foreign Investment Attraction by Major Industry

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enforcement of the Capital Market Act, the relaxation of the separation between industrial and financial capitals, and the reform of financial public corporation, M&A type foreign investment attraction is expected to increase further hereafter.

Foreign invested companies in the area of Finance and M&A that advanced into Korea

Global financial investors that have advanced into Korea can be divided into venture capitals (VC) and private equity funds (PEF). PEFs mainly make profits by taking over the management rights of enterprises that entered into their mature stage, enhancing their enterprise value and reselling the enterprises to strategic/financial investors. Currently all five global PEFs, Goldman Sachs, The Carlyle Group, KKR, TPG, and Apollo, have made investments in Korea or are reviewing the possibility of investments. In 2012, Headland Capital, a PEF in Hong Kong, took over 96.5% (KRW 1.44 trillion) of the shares of Young Toys, a Korean toy manufacturer.

’

’

Cases of foreign companies M&As of domestic enterprises in 2012 include USA Walt Disney s takeover of Studio EX, a domestic game development company (takeover conditions, such as scale were not disclosed), USA Intel s takeover of Olaworks , a domestic venture enterprise (KRW 35 billion), and USA pharmaceutical company Alvogen s takeover of Kun Wha Pharmaceutical Co., Ltd. (KRW 100 billion).

‘

’

’

‘ ’

’ ‘

’

Venture capitals can be divided into general VCs and CVCs (corporate venture capital) operated by multinational enterprises. Intel Capital, which is operated by Intel Co., invests on start-up enterprises with innovative technologies and has invested approximately 30 venture enterprises in Korea by now. In addition, Qualcomm also advanced into Korea in 2010 and Pulsus, Obzee, etc., are making investments in domestic enterprises. Japan Softbank Ventures has been making investments in Korea from 10 years ago. In addition, more than 10 global VCs have advanced in Korea, including Altos Ventures, Storm Ventures, DFJ Athena, Maverick Capital, Bluerun Ventures, and IDG. Unlike global PEFs, overseas VCs actively invested in Korea in 2011 and scale of investment is growing day by day, such as KRW 20 billion each invested by Maverick Capital, Altos Ventures, and DCM in Kakao and Coupang.

Success case of investments in Korea

Dynam Holdings, the number one pachinko company in Japan, invested USD 8 million (approximately KRW 8.5 billion) in RD-Tech, a screen golf equipment manufacturer in August 2011. Dynam Holdings operates 352 shops under direct control directly and is planning to stably supplied with the screen golf equipment through the strategic capital alliance and sell to equipment in Japan and to the USA. By establishing the strategic partnership with Dynam Holdings through capital alliance, RD-Tech not only secured the capital amounting to USD 8 million but also made a long-term supply contract with the partner Dynam Holdings for 10,000 units (approximately KRW 200 billion) to be supplied for five years hereafter.

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Contribution of Foreign Direct Investments to Korean Economy

1. Economic Effects of Foreign invested companies

5)

6)

Sales

The total sales of foreign invested companies in 2011 was KRW 482 trillion in all industries (excluding financial industry) consisting of KRW 387 trillion in the manufacturing industry and KRW 95 trillion in the non-manufacturing industry with an increase of approximately 20% compared to 2010. Accordingly, foreign invested companies share of the domestic industry became 14.7% with an increase of at least 1% compared to 2010.

’

’

’

[Table 3-1] Foreign invested companies sales scales and domestic companies share (Unit : KRW billion, %) Foreign invested company

Domestic enterprise

Whole industry Manufacturing industry Non- manufacturing industry

Share of domestic sales

2010

2011

2010

2011

2010

2,932,600 1,512,284 1,420,316

3,286,150 1,682,165 1,603,986

399,178 295,901 103,277

482,402 387,334 95,068

13.6 19.6 7.3

’

Note 1) Domestic enterprise indicators are from Bank of Korea s enterprise management analysis data.

2011

14.7 23.0 5.9

’

2) 2010 results of foreign invested companies were cited from the survey of actual states of foreign invested companies management (2011).

3) Financial industry is not included in all industries or the non-manufacturing industry.

’

The the manufacturing industry s share of sales in 2011 was shown to amount to four times of that of the non-manufacturing industry and the manufacturing industry only showed an increase in sales exceeding KRW 90 trillion to lead the entire sales of foreign invested companies. This is not unrelated to the phenomenon that large investment enterprises having relatively large sales are mainly concentrated on the manufacturing industry and suggest the necessity of balanced investment attraction between the manufacturing industry and the service industry.

In fact, on reviewing high rank enterprises in the amounts of sales increases compared to the previous year, it can be seen that all top 12 enterprises are in the manufacturing industry and that many representative foreign invested companies are distributed in industries with large business scales, such as petroleum processing (oil refining), car manufacturing, metal, and chemistry.

‘

5) The part foreign direct investments

’

’

‘

contribution to Korean economy was prepared based on the

of actual states of foreign invested companies

’

’

2012 survey

management . (Superintending organization : Ministry of

Knowledge Economy, Surveying organization : KOTRA, Korea Data Network)

‘

’

6) The records of foreign invested companies are values obtained by summing up the records of existing foreign

‘

invested companies as of the end of 2011 but the

’

foreign investment records are values obtained by multiplying

the records of each foreign invested company by the share ratio of the actual foreign investor to extract the amount attributable to net foreigners

’

counting foreign investments

’

‘

’

share. Therefore, the foreign investment records have a limitation of

contribution to actual enterprise operation and performance as simple amount of

‘

investment. Therefore, in this report, the records of

’

foreign invested companies were reflected as basic values.

III. Contribution of Foreign Direct Investments to Korean Economy

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[Table 3-2] Top 12 enterprise in sales increases compared to the previous year

연번

(Unit : KRW million) Business type

2010 sales

2011 sales

Increment

1

GS-Caltex Co., Ltd

Manufacturing industry

33,039,593

44,954,889

11,915,296

2

S-Oil Co., Ltd.

Manufacturing industry

20,511,068

31,913,863

11,402,795

3

Korea GM Co., Ltd.

Manufacturing industry

12,597,422

15,068,001

2,470,579

4

LS-Nikko Copper Inc.

Manufacturing industry

7,581,034

9,184,537

1,603,503

5

Honam Petrochemical Corp.

Manufacturing industry

7,189,059

8,463,484

1,274,425

6

HYUNDAI HYSCO CO., LTD

Manufacturing industry

5,846,521

6,935,251

1,088,730

7

Samsung Total Corp.,

Manufacturing industry

5,626,041

6,831,353

1,205,312

8

Hyundai Cosmo Petrochemical Co., Ltd

Manufacturing industry

1,145,084

1,948,878

803,794

9

Ericsson-LG Co., Ltd.

Manufacturing industry

606,593

1,379,695

773,102

10

Ssangyong Motor Company Limited

Manufacturing industry

2,101,432

2,773,120

671,688

11

Dong Kuk Steel Mill Co., Ltd.

Manufacturing industry

5,271,376

5,909,399

638,023

12

Volvo Group Korea

Manufacturing industry

1,735,827

2,360,852

625,026

Enterprise name

Note : Analyzed those enterprises that responded on the sales sector among enterprises that participated in the questionnaire survey

Employment

’

The scale of foreign invested companies employment in 2011 was 500,630 in all industries with an increase of 16,800 compared to the previous year and foreign invested companies employment s share of entire employment in Korea increased a little from 6% to 6.2%. By industry, employment by the manufacturing industry was 270,000 and that by the non-manufacturing industry was 194,000 and both industries showed increases in the number of employees compared to the previous year. As for the shares of entire employment in Korea, only the manufacturing industry recorded a slight increase and the nonmanufacturing industry showed a relative decrease because the scale of the entire employment in Korea increased although the scale of foreign invested companies employment increased.

’

’

’

’

[Table 3-3] Scales of foreign invested companies

employment and

its share of employment in Korea (Unit : person, %) Domestic enterprise

All industries Manufacturing industry Non-manufacturing industry Financial industry

Foreign invested company

Shares of employment in Korea

2010

2011

2010

2011

2010

2011

7,698,676 2,472,717 4,856,906 369,053

8,067,180 2,605,919 5,072,103 389,158

483,817 247,487 190,499 45,832

500,630 270,281 194,057 36,292

6.0 10.0 3.9 12.4

6.2 10.4 3.8 9.3

Note : 1) Indicators for domestic enterprises are from the numbers of workers in the surveys of actual states of labor by employment type in the national statistics portal of the National Statistical Office.

’

2) 2010 results of foreign invested companies were cited from the survey of actual states of foreign invested companies management (2011).

3) Financial industry is not included in the non-manufacturing industry.

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On reviewing those enterprises that showed increases in the number of employees compared to the previous year, it could be seen that the ratios of the wholesale/retail industries (distribution) were high and the restaurant industry, and the information/technology service industries also showed large increases in employment. Therefore the employment increasing trend was clearer in the service industry than in the manufacturing industry.

[Table 3-4] Representative enterprises that showed increases in employment (Unit : person) No.

Enterprise name

1

Homeplus Co., Ltd.

2

Lotteria Co., Ltd.

Business type

Increment in the employees compared to the previous year

Retail

1,000

Restaurant

785

3

Manpower Korea Inc

Manpower supply

752

4

FRL Korea Co., LTD

Wholesale

739

5

Hotel Lotte Co., Ltd.

6

Transcosmos Korea Co., LTD

7

Dongwoo Fine-Chem Co., LTD

8

Korea SGS Co., LTD

9

Siltron Inc.

10

Hotel

666

Information provision

665

Manufacturing industry

565

Technical service industry

458

Manufacturing industry

299

Wholesale

299

Bogwang Family Mart

11

LOK Inc.

Wholesale

286

12

Edwards Korea Ltd

Manufacturing industry

271

13

STATS Chip Pack Korea Inc.

Manufacturing industry

266

14

Homeplus Tesco Co., Ltd.

Retail

261

15

Seoul Semiconductor Co., Ltd.

Manufacturing industry

254

Added value

The added value of foreign invested company in 2011 was KRW 80 trillion in all industries consisting of KRW 52 trillion in the manufacturing industry and KRW 28 trillion in the non-manufacturing industry with a decrease of approximately 2.1% compared to 2010. Whereas domestic enterprises showed small increases evenly in all industries, in the manufacturing industry, and in the non-manufacturing industry, foreign invested companies showed an increase of approximately 5.1% in the manufacturing industry while showing a decrease exceeding 13% in the non-manufacturing industry indicating that the manufacturing industry achieved relatively high outcomes in terms of profitability and management records.

’

[Table 3-5] Scale of foreign invested companies

added value and

its share of added value in Korea (Unit : KRW billion, %) Domestic enterprise

All industries Manufacturing industry Non-manufacturing industry

Foreign invested company

Shares of employment in Korea

2010

2011

2010

2011

2010

2011

554,872 279,866 275,006

576,116 288,990 287,126

82,370 49,599 32,771

80,639 52,143 28,496

14.8 17.7 11.9

14.1 18.0 9.9

’

Note : 1) The 2010 indicators are the surveyed values for the relevant years from the Bank of Korea s 2012 enterprise management

’

analysis and the foreign invested companies shares were recalculated based on the same data 2) Financial industry is not included in all industriesor the non-manufacturing industry.

III. Contribution of Foreign Direct Investments to Korean Economy

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To review the added value composition ratios of domestic enterprises and foreign invested companies by industry, in the case of the manufacturing industry, foreign invested companies operating surplus ratio was high at 36.71%, indicating a high ratio of added value reverted to the enterprises and their ratio of labor costs was shown to be 31.62%, lower than that of domestic enterprises at 47.66%. In the case of the nonmanufacturing industry too, foreign invested companies operating surplus ratio was shown to be higher compared to domestic enterprises and their ratio of labor costs was lower than that of domestic enterprises.

’

’

’

[Table 3-6] Composition of foreign invested companies

added value by business type (Unit : KRW billion, %)

’

’

Manufacturing industry s added value composition

Non-manufacturing industry s added value composition

Domestic enterprise

Foreign invested company

Domestic enterprise

Foreign invested company

Operating surplus

26.65

36.71

8.99

44.43

Labor cost

47.66

31.62

64.74

35.06

Financial cost

6.68

5.98

11.65

9.71

Tax and dues

1.41

0.99

2.38

2.37

Depreciation cost

17.60

24.70

12.24

8.43

’

Note : 1) The domestic enterprise indicators are the item added value composition from the Bank of Korea s enterprise management analysis.

’

2) Foreign invested companies added value composition is based on the values obtained from those enterprises that participated in the questionnaire survey not from all foreign invested companies.

3) Financial industry is not included in the non-manufacturing industry.

The ratio of financial cost, taxes, and dues to the entire added value was shown to be lower in foreign invested companies both in the manufacturing industry and the non-manufacturing industry, indicating that foreign invested companies have relatively smaller finance/tax-related cost burdens compared to domestic enterprises.

Import and export (manufacturing industry)

The amount of export by foreign invested companies in 2011 was USD 100 billion accounting for 18.1% of the amount of export by the entire country and the amount of import by foreign invested companies was USD 120 billion accounting for 23.6% of the amount of import by the entire country.

’

[Table 3-7] Scales of foreign invested companies

import and export and their shares

of trade by Korea (Unit : USD million, %) Domestic enterprise

Foreign invested company

Share of trade

2010

2011

2010

2011

2010

2011

Export

466,384

555,214

92,329

100,713

19.8

18.1

Import

425,212

524,413

91,157

123,967

21.4

23.6

Note : 1) The 2010 data for foreign invested companies were obtained as the KRW currency data and converted into dollars units.

2) With regard to import and export, whereas import and export values in the national statistics are as of the time point of custom

’

clearance, foreign invested companies

import and export values are as of the time point of accounting treatment. Therefore,

there may be discrepancies in some values.

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’

’

Although foreign invested companies export records (amount) increased, foreign invested companies export amounts share of export by Korea decreased a little because the increase rate of export by the entire country was high. Among 15 enterprises included in the list of export tower receiving enterprises for export exceeding USD 1 billion commemorating the 49th day of trade, December 5, 2012, 6 were identified to be foreign invested companies.

’

[Table 3-8] Companies that received export towers on the 49th day of trade Whether foreign

Kind

Company name

3billion dollars tower

Hyundai Glovis Co., Ltd.

3billion dollars tower

Korea Zinc Company Inc.

2billion dollars tower

Volvo Group Korea

SK Energy Co., Ltd.

2billion dollars tower

Samsung Petrochemical Co., Ltd.

15billion dollars tower

Kia Motors Corporation

2billion dollars tower

Sam Nam Petrochemical Co., Ltd.

8billion dollars tower

Hyundai Oil Bank Co., Ltd.

1billion dollars tower

Hyundai Engineering Co., Ltd.

1billion dollars tower

SK Lubricants Co., Ltd.

Kind

Company name

25 billion dollars tower

GS-Caltex Co., Ltd

20billion dollars tower

Hyundai Motor Company

20billion dollars tower

S-Oil Co., Ltd.

20billion dollars tower

6billion dollars tower

LS-Nikko Copper Inc.

6billion dollars tower

SK Global Chemical Co., Ltd.

invested ompanies foreign invested companies

foreign invested companies

foreign invested companies

Whether foreign invested ompanies foreign invested companies

foreign invested companies

foreign invested companies

Data source : KOTRA

Meanwhile, oil refinery, car, chemistry-related enterprises that were highly ranked for export records showed high import records and oil refinery and import by chemistry-related large enterprises among foreign invested companies greatly affected the import records of all foreign invested companies.

’

[Table 3-9] Foreign invested companies import and export records Import company name

Import amount

Export company name

Export amount

1

GS-Caltex Co., Ltd

29,220,678

GS-Caltex Co., Ltd

31,468,422

2

S-Oil Co., Ltd.

20,437,472

S-Oil Co., Ltd.

26,241,000

3

Korea GM Co., Ltd.

13,561,201

Sam Nam Petrochemical Co., Ltd.

14,009,616

4

Samsung Total Corp.

4,794,508

Samsung Total Corp.

4,301,297

5

S-LCD Co., Ltd.

3,139,249

Dong Kuk Steel Mill Co., Ltd.

3,205,078

5

Renault Samsung Motors Co., Ltd.

2,562,625

SK Shipping Co., Ltd.

2,500,100

7

HYUNDAI HYSCO CO., LTD

2,239,490

Renault Samsung Motors Co., Ltd.

1,655,443

8

SK Shipping Co., Ltd.

2,175,367

HYUNDAI HYSCO CO., LTD

1,445,845

9

Volvo Group Korea

1,955,000

Hewlett Packard Korea

1,336,754

10

Sam Nam Petrochemical Co., Ltd.

1,756,369

Korea GM Co., Ltd.

1,054,760

No.

Note : 1) Ranks among those enterprises that responded in the survey of actual states of foreign invested companies.

2) With regard to import and export, whereas import and export values in the national statistics are as of the time point of custom

’

clearance, foreign invested companies

import and export values are as of the time point of accounting treatment. Therefore,

there may be discrepancies in some values.

Research and development cost (manufacturing industry)

The research and development costs of foreign invested companies in the manufacturing industry was KRW 1.800 billion accounting for 7.1% of the total research and development costs in Korea. The amount was larger by at least KRW 500 billion compared to the previous year. Although the scale of research and III. Contribution of Foreign Direct Investments to Korean Economy

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development costs of domestic enterprises in the manufacturing industry has been steadily increased, the ratio of foreign invested companies research and development costs to the total research and development costs in Korea increased by almost 2% from 5.4% in 2010 because the increase rate of foreign invested companies research and development costs was higher.

’

’

[Table 3-10] The scale of research and development costs of foreign invested companies in the manufacturing industry and its share of the total research and development costs in Korea (Unit : KRW billion, %) Domestic enterprise

Foreign invested company

Share of R&D costs in Korea

2010

2011

2010

2011

2010

2011

24,793

26,132

1,333

1,860

5.4

7.1

Note : 1) The 2010 indicators for domestic enterprises were calculated by summing up the current research and development costs and

’

research costs on the profit and loss statement and the current development cost on the manufacturing cost statement in the Bank of Korea s enterprise management analysis.

2) The 2010 foreign invested company indicators were cited from the survey of actual state of foreign invested companies

’

management (2011).

’

3) Since the calculation formula in the Bank of Korea s enterprise management analysis was changed and thus the 2011 research and development cost was calculated by summing up the increment of development cost on the balance sheet and the current development cost on the manufacturing cost statement. Therefore, there may be discrepancies in values from the results in 2010.

’

2. Foreign Invested Companies Management Performance Profitability

The profitability indicators of foreign invested companies in all industries in 2011 were return on net sales; 6.04%, net profit on sales; 12.78%, and return on equity; 18.88% and all these indicators were shown to be higher than those of domestic enterprises. In particular, foreign invested companies greatly surpassed domestic enterprises in net profit on sales and return on equity by 4.77 times and 2.88 times respectively.

Although the return on net sales decreased by 1.96% compared to 2010, the net profit on sales and return on equity were shown to have been improved compared to the previous year.

’

[Table 3-11] Foreign invested companies profitability indicators (all industry) Division

Return on net sales Net profit on sales Return on equity

Foreign invested company

Domestic enterprise

Foreign invested company/domestic enterprise

2010

2011

2011

2011

8.0 6.9 10.4

6.04 12.78

4.49 2.68

18.88

6.56

1.35 4.77 2.88

’

Note : 1) The domestic enterprise indicators were cited from the related ratios of the profits and losses in the enterprise management analysis of the Bank of Korea s economy statistics system.

2) Financial industry is not included in all industries.

Stability

The stability indicators of foreign invested companies in all industries in 2011 were shown to be the ratio of net worth; 46.27% and debt ratio; 109.03%. When compared to domestic enterprises, the ratio of net worth was 1.17 times and the debt ratio was 0.71 times. Therefore, foreign invested companies were better in both indicators.

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[Table 3-12] Foreign invested companies stability indicators (all industries) [Unit : %, times) Foreign invested company

Domestic enterprise

46.27 109.03

39.57 152.74

Ratio of net worth Debt ratio

Foreign invested company/domestic enterprise

1.17 0.71

’

Note : 1) The domestic enterprise indicators were cited from the related ratios of the asset and capital in the enterprise management analysis of the Bank of Korea s economy statistics system.

2) Financial industry is not included in all industries.

Growth

’

Foreign invested companies total asset growth rate was 14.05% that was 1.46 times higher compared to domestic enterprises and equity growth rate was 15.79%, which was 1.67 times higher compared to domestic enterprises. foreign invested companies sales increase rate was shown to be 32.9%, which was 2.7 times higher compared to domestic enterprises.

’

’

[Table 3-13] Foreign invested companies growth indicators (all industries) (Unit : %, times) Foreign invested company

Domestic enterprise

Foreign invested company/domestic enterprise

14.05 15.79 32.90

9.60 9.45 12.18

1.46 1.67 2.70

Total asset growth rate Equity growth rate Sales increase rate

Note : Financial industry is not included in all industries.

Dividend payout ratio indicator

’

In 2011, foreign invested companies dividend rate was 3.89% and dividend payout ratio was 20.7%.

When compared to domestic enterprises, the dividend rate in 2011 was lower to be 0.6 times and the dividend payout ratio was almost the same. The dividend rate and dividend payout ratio of foreign invested companies in 2011 were lower by 1.11% and 0.4%, respectively, compared to 2010. This can be assumed to be a result of foreign invested companies intention to prepare investments for future by increasing the ratio of internal reserves to net profits.

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[Table 3-14] Foreign invested companies dividend payout ratio indicators (all industries) (Unit : KRW million, times)

Division

Dividend rate Dividend payout ratio

Foreign invested company

Domestic enterprise

Foreign invested company/domestic enterprise

2010

2011

2011

2011

5.0 21.1

3.89 20.7

6.4 20.5

0.61 1.01

Note : Financial industry is not included in all industries

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3. Major Characteristics of Foreign Invested Companies Management Activities

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Foreign investors motive for investment in Korea

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Among foreign investors, the highest percentage 53.1% indicated that they regarded advancement into Korean markets as the most important motive for investment in Korea followed by investment asset value (19.2%), and utilization as a base for export (15.7%) in order of precedence. Compared to the results of the survey in the previous year, the ratio of utilization as a base for export increased by 8.8% indicating that the FTAs between Korea and other countries effectuated recently began to show effects.

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’

‘

’ ‘

’

[Figure 3-1] Foreign investors motive for investment in Korea (Unit : %)

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Foreign investors Asia region headquarters

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Among foreign investors Asia region headquarters, the highest percentage at 29.5% were located in Singapore followed by China (20.4%), Hong Kong (16.8%), Japan (16.5%), and Korea (12.4%) in order of precedence. Among business types, in the case of the manufacturing industry, China showed the highest percentage at 25.9%. In the case of the non-manufacturing industry, Singapore showed the highest percentage at 35.1% and in the case of the financial industry, Hong Kong showed the highest percentage at 60%.

[Figure 3-2] Countries where Asia region headquarters are located (Unit : %)

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Foreign invested companies main markets

Korean markets were main markets of 78.6% of foreign invested companies in Korea. In particular, 36.2%, the highest percentage of foreign invested companies, were selling their products to large enterprises. By business type, 42.1% which is the highest percentage of products sold to Korean markets were being sold to large manufacturers in Korea and foreign invested companies in the financial industry were generating 53.5% of their sales from Korean consumers.

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[Figure 3-3] Foreign invested companies main markets (Unit : %)

’

As foreign invested companies major export markets, China was selected the most frequently at 25.1% followed by Japan (24.7%), the USA (16.5%), and Hong Kong (3.9%) in order of precedence. By business types, China was the most frequently selected as export market at 29.8% in the case of the manufacturing industry and Japan was the most frequently selected export market at 28% in the case of the non-the manufacturing industry.

[Figure 3-4] Major export market (1st place) (Unit : %)

Procurement activities-related characteristics

’

The raw materials or services necessary for foreign invested companies business activities were the most frequently procured from domestic small and medium enterprise at 35.8% followed by overseas affiliates of parent companies (18%), domestic large enterprises (17.9%), and overseas parent companies (16.6%) in order of precedence.

III. Contribution of Foreign Direct Investments to Korean Economy

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[Figure 3-5] Financing procurement routes (Unit : %)

As major countries for procurement of foreign invested companies, Japan was selected the most frequently at 28.9% followed by the USA (19.2%), China (15.4%), Germany (9.7%), and Singapore (3.3%) in order of precedence.

’

[Figure 3-6] Foreign invested companies major procurement countries (Unit : %)

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Korea s FTA conclusion-related characteristics

’ ’

’

Foreign invested companies Korea s FTA conclusion recognition score was 6.41 points on average. The percentage of those whose answered moderately was the highest at 40.4% followed by I know (36.9%) and I know well (14.4%) in order of precedence indicating that foreign invested companies recognition of Korea s FTA conclusion was high.

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[Figure 3-7] Recognition of Korea s FTA conclusion (Unit : %)

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With regard to the effects of Korea s FTA conclusion on future investments, the highest percentage of foreign invested companies at 57.3% answered that The conclusion will have no effect followed by will have positive effect on future investment decisions (34.5%), and will promote investments (7.7%) in order of precedence. In particular, in the case of foreign invested companies in the area of the manufacturing industry, the percentage of answers will have positive effect on future investment decisions and will promote investments was close to 49.9%.

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‘ ’

‘

’

’

‘

‘

’

’

[Figure 3-8] The effects of Korea s FTA conclusion on future investments in Korea (Unit : %)

Research and development and technology introduction-related characteristics

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Among major contents of foreign invested companies research and development, the percentage of development of new products or new processes was the highest at 50.8% followed by Improvement of products, processes, or designs at 28.4%.

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III. Contribution of Foreign Direct Investments to Korean Economy

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[Figure 3-9] Major contents of research and development (Unit : %)

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Among the outcomes of foreign invested companies research and development, the percentage of development of independent products or technologies although not novel was the highest at 32.3%, followed by a little enhancement or improvement of existing products or technologies (30.3%) and development of at least one of new product, new technology, and new process for the first time in the industry in Korea (29.5%) in order of precedence.

‘ ‘

’

‘

’

’

’

[Figure 3-10] Outcomes of foreign invested companies

research and development

(Unit : %)

’

Central government/local government s incentive support-related characteristics

Among the foreign invested companies that participated in the survey, 33.6% or approximately 1/3 have been supported by the central/local governments.

As support by the government necessary for business expansion in Korea, the largest number of foreign invested companies selected tax reduction and/or exemption (71.3%) followed by financial aid (35.4%), administrative support (32.4%), financial support (23.9%) and positional support (10.0%) in order of precedence.

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[Figure 3-11] Government support that is the most necessary to foreign invested companies (Unit : %)

Satisfaction with management environment

A questionnaire survey was conducted on satisfaction with various areas, such as markets, manpower, infrastructure, research and development, administration, finance, tax-position, politics, and quality of life and the results showed high satisfaction with infrastructure, such as communication-electricity-water and sewer-transportation-logistics. Besides, relatively high satisfaction was shown with industrial foundation, market growth potential, employees sense of responsibility, living environment, and culture.

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III. Contribution of Foreign Direct Investments to Korean Economy

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In addition, to expand national investment attraction and switch investment attraction to better quality investment attraction, activities customized to domestic enterprises demands were performed. Projects to discover domestic enterprises with demand for attraction of investments by overseas excellent enterprises, R&D cooperation, technology transfer, etc., and support cooperation with global enterprises were implemented to attract investments in 8 companies, including PHOENIX PDE amounting USD 112 million in 2012.

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[Figure 4-2] Cisco-GAPS Launching Conference ( 12.09.25)

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Projects to support Korean small and medium enterprises globalization were also implemented. Through GAPS and GAPS Plus projects, opportunities for domestic enterprises to cooperate with global enterprises that have demand were provided. Through these activities, IK discovered 157 domestic enterprises for cooperation and arranged cooperation with global enterprises in 2012 to attract investments from 9 companies, including BASF, amounting to USD 88 million.

[Table 4-7] Major investment attraction activities in the area of global partnering Priority area

Project name

‘

Merck ( 10.9.)

‘

Dow Chemical ( 11.1.)

GAPS

‘

three companies is in progress

companies is in progress

Gamesa ( 11.11.)

‘ ‘

Companies where investments for LED chemical materials can be made were discovered and due diligence on

Companies where investments for chemical materials can be made were discovered and due diligence on four

BASF ( 11.8.)

‘

Project content Cooperative companies for R&D center establishment were discovered and due diligence is in progress

Companies where investments for renewable energy can be made were discovered and due diligence on 12 companies is in progress

P&G GAPS ( 11.12.)

Cooperation partners in the area of customized cosmetics were discovered and due diligence is in progress

Cisco GAPS ( 12.9.)

U-city-related R&D cooperation partners were discovered and due diligence is in progress

Petronas GAPS ( 12.12.)

Marine equipment and material-related cooperation partners were discovered and due diligence is in progress

‘

Service/culture industry

To satisfy the national policy for employment creation and the reinforcement of the manufacturing industry s competitiveness, Invest KOREA carried out a reshuffle and reinforced attraction of investments in high added value service industries, such as tourism and leisure, logistics and distribution, and cultural contents industries.

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Financial industry

To discover Cleantech industry and IT industry-related potential investors and ventures in Silicon Valley in he USA and have business talks for investments, IK held a North America Silicon Valley Cleantech forum (March), Silicon Valley venture investment road show (Sep) to advertise Korean enterprises technologies and greatly enhance the possibility of actual investments and export. As a result, M company, an energy storage manufacturer succeeded in attracting an investment and exporting its products.

’

In addition, IK supported the globalization of domestic enterprises and the upgrading of the financial industry by attracting financial investors, such as global private equity funds (PE) and venture capitals (VC) through the holding of Korea PE Insight (June, New York / San Francisco) and Korea PE/VC forum (June, Seoul).

Furthermore, IK actively performed investment attraction activities, such as implementing Hong Kong AFF (Jan), Hong Kong/Singapore IR (Nov), etc., to introduce investment attraction environments and technologies in Korea in order to discover Asian financial investors.

[Table 4-9] Major investment attraction activities by region Priority region

Project name Silicon Valley Cleantech forum

North America

Korea PE Insight

’

Content implemented

Six Korean enterprises IR, 22 business talks, 6.46 billion dollar record was made 197 persons participated, visited two companies to have business talks, business talks about 63 investment cases

Silicon Valley venture investment

An investment attraction conference was held, 560 persons participated, business talks for 60

road show

investment cases

Hong Kong AFF

Hong Kong/Singapore IR

Asia Korea PE/VC forum

Busan finance center Sydney TFT

’

2,400 persons participated, 9 Korean enterprises IR, an IB council for advancement into Hong Kong was organized An investment attraction presentation was held, 150 persons participated, visited 4 companies to have business talks Business talks for 76 cases, major investors participated in a roundtable An investment attraction conference was held, 270 companies participated, 36 companies participated in the conference An investment attraction presentation was held, 50 persons participated, major investors participated in a roundtable

Promising market in Asia (Japan)

‘

[Figure 4-4] 2012 Japan local government-integrated investment attraction IR ( 12.05.15)

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Promising market in Asia (China)

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In line with the Chinese overseas investment policy that gathers speed in the 12.5 plan (2011~2015) period, KOTRA IK actively constructed Chinese investment attraction infrastructure, such as expanding the China desk, an organization dedicated to Chinese capital attraction. China desks were established in core cities of China beginning with Shanghai in 2010 followed by Beijing and Guangzhou in 2011. In 2012, China desks were established in Dalian and Qingdao that have control over the northeastern part of China and the Bo Hai rim to prepare investment attraction activity bases by zone in China.

Based on these investment attraction infrastructure, the head office and the five China desks in China closely cooperated with each other to activate the platform to attract Chinese enterprises investments in Korea, such as implementing presentations of investment environment in Korea by zone in China, operating investor customized TFT , and implementing a Korean/Chinese enterprises strategic M&A investment attraction road show project. In particular, in the Beijing-Shanghai circuit national IR held in May, IK extensively publicized investment environments in Korea and formed an atmosphere of Chinese enterprises investments in Korea, such as receiving an investment report for USD 100 million from Nokji Group, a leading real estate investment company in China. As a result, a total of USD 720 million was recorded in 2012 as investments attracted from China. Given that Chinese enterprises make overseas investments via Hong Kong in many cases, the actual amount of investments attracted from China is assumed to be much larger than that.

‘ ’

’

’ ’

‘

’

‘

’

In addition, IK actively induced additional investments and new investments from China through diverse efforts, such as solving difficulties in management and matters that must be improved presented by the council of Chinese investment enterprises in Korea (China Club).

[Table 4-11] Major investment attraction activities in China Project name

Region of holding

Northeastern and northern

National level Beijing investment attraction

Introduction of investment environments, introduction of major projects to more than 250

IR

investors

Dalian investment attraction IR

China Qingdao investment attraction IR

Shanghai investment attraction IR

Eastern China circuit IR

Eastern China

region of China Held in linkage with Beijing IR, Introduction of tourism and leisure projects by industrial complex and theme in Korea Introduction of projects to investors in the eastern China region, such as Hangzhou, Nanjing, Shanghai

’

customized IR

the eastern China region and visit to investors

Shanghai Korean-Chinese enterprise

Performed Chines enterprise investment attraction activities for promising areas, such as IT,

strategic M&A

medical bio Trade conference linked Korea investment environment public relations booth operation

CIFIT linked investment attraction public

China largest international trade investment exhibition linked Korea investment environment

relations booth operation

public relations booth operation

Korea-Chaoan forum linked investment attraction IR

Introduction of promising investment attraction projects of Korea, such as IT, display, PE/VC

’

Jeju island tourism and leisure project

Introduction of Jeju island investment environment, private developers projects to investors in

customized IR

the southern China region and visit to investors

Korea-China diplomatic relations establishment 20th anniversary China investment attraction IR Sichuan investor invitation circuit IR

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region of China Introduction of logistics, real estate investment environments to investors in the Bo Hai rim

Introduction of Jeju island investment environment, private developers projects to investors in

public relations booth operation

Seoul/Jeju

Introduction of logistics, real estate investment environments to investors in the northeastern

Jeju island tourism and leisure project

Zhongshan, Chaoan investment attraction

Southern China

Content implemented

Invest KOREA Annual Report 2012

Introduction of investment environments and major projects in Korea to 66 Chinese investors that visited Korea Introduction of investment environments and major projects in Korea, such as Jeju island to Chinese investors in the inner China region

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[Table 4-12] Major investment attraction activities in emerging capital regions Project name

Project direction

Content implemented

Emerging country expert meeting KOTRA-Mubadala MOU

Infrastructure

agreement (5.21)

KOTRA-Brazil Investment Authority MOU

construction KOTRA-SAGIA (Saudi Investment Authority) MOU

KOTRA-Kuwait Investment Authority MOU

KOTRA-Brazil Investment Authority investment business cooperation agreement (6.20) KOTRA-Saudi Investment Authority investment business cooperation agreement (11.29) KOTRA-Kuwait Investment Authority investment business cooperation agreement (12.12) Saudi, Qatar forums were held, in-depth business talk with two Middle East

Saudi, Qatar investment IR

Sovereign Wealth Funds

Korea-Middle East Business cooperation national IR

IR/TFT

Russia, Brazil, India, Middle East emerging country expert meetings were held KOTRA-Sovereign Wealth Fund Mubadala investment business cooperation

Held in UAE/Kuwait, to develop industry upgrading demand in the Middle East region

Brazil investment cooperation forum/conference

Held in Sao Paulo, 110 investment business talks were implemented

Ulsan Metropolitan City India investment attraction

Pune, Bangalore car component, IT industry investment attraction TF, business

group dispatch

talks with seven companies

Korea-Middle East Business Week linked real estate

Seven companies, including Sovereign Wealth Fund ICD, QIA were invited to

investment attraction IR

Korea

4. Investor Administrative Support Service Record

As of 2012, in the Investment Consulting Center, 18 dispatch officers from a total of 14 organizations (9 government departments, 3 local governments, Ministry of Court Administration, 1 related organization) work to promote foreign investors convenience by handling various civil affairs and contribute to foreign company attraction and regulation improvement. In addition, they make efforts to support smooth investment attraction by reinforcing business cooperation between their organizations and IK.

’

In 2012, foreign direct investment-related civil affair handling records show a total of 4,167 cases of civil affairs handled comprising 4,157 cases of civil affairs handled firsthand, such as investment in kind confirmation, application for business registration, and immigration-related civil affairs and 10 cases of support for registration of incorporation.

[Table 4-13] Foreign direct investment-related civil affair handling record (Unit : case) Division Civil affairs handled firsthand Investment in kind confirmation Immigration-related 9 kinds of civil affairs(Permission for length of stay extension, reentry permission, etc.)

Application for business registration Support for registration of incorporation Total

2008

2010

2009

2011

2012

5,629 4

4,170 7

3,945 4

3,638 1

4,157 3

5,619

4,150

3,941

3,636

4,144

6 4 5,633

13 9 4,179

10 3,955

1 9 3,647

10 10 4,167

Data source : ICC

For foreign investment report management, foreign invested company management, and smooth management of investment statistics, etc., the Investment Consulting Center operates a foreign investment statistics system (INSC, Investment Notification Statistics Center) . In 2012, 2,865 cases of foreign

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Although the purpose of settling foreign invested companies grievance is relieving the difficulties of those enterprise in the short run, the cases of grievance settlement can be accumulated to play an important role in improving enterprise environments in Korea in the mid or long run.

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The foreign investment ombudsman office settled a total of 348 cases of foreign invested companies grievances in 2012 with a decrease of 55 cases compared to the previous year. To review the details by type, 6 system improvement-related grievances, 104 administrative process-related ones, and 238 home doctor treatment-related ones were settled.

[Table 4-19] 2007-2012 Trends of settlements of foreign invested

’

companies grievances by type (Unit : case) State of settlement

Year

Type of settlement

Number of cases

Increase/decrease rate

System improvement

Administrative process

2007

370

4.5

12

60

298

2008

353

-4.5

20

64

269

2009

365

3.4

24

62

279

2010

385

5.4

13

38

334

2011

403

4.6

13

63

327

2012

348

-13.6

6

104

238

Total

3,621

179

676

2,766

(Ratio)

(100%)

(4.9%)

(18.7%)

(76.4%)

-

『

Note : Requests for grievance settlement received were divided into

『

government organizations,

『

』

』

Home doctor treatment

system improvement that requires law amendment in relation to

administrative process that can be settled through administrative actions within the limit of current

』

laws, and home doctor treatment that can be settled by in-house manpower, such as providing consultation Data source : KOTRA

’ ·

To review the 348 cases of foreign invested companies grievances in total by area, 46 cases related to investment incentives, 42 cases were related to standards certification inspection, 39 cases were related to taxes, and 39 cases were related to investment system procedures and home doctors visited the sites of 709 foreign invested companies.

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