Invest korea annual report 2013 eng by KOCIS

Publishing address Invest KOREA is a national IPA(Investment Promotion Agency) that has been contributing to national economic development by creating employment and increasing exports through attraction of foreign investments. In 2013, Invest KOREA performed FDI attraction activities by establishing customized investment attraction strategies by region and by industry with the help of the global economic recovery. First of all, in Japan which is one of the major investing countries, Invest KOREA did customized investment attraction business in parts and materials, found potential investment enterprises cooperated with domestic industrial clusters, and actively engaged in public relations by attracting investors in high-tech industry areas in order to respond to shrinking investment by Japanese companies owing to the weak yen. In China, Invest KOREA performed investment attraction activities in response to the policy on vitalizing foreign investment made by the Xi Jinping government, which took office in 2013. Invest KOREA performed strategic investment attraction activities between Korean and Chinese enterprises in previous local development-centered investment attraction activities. In addition, Invest KOREA sought diversification in its investment attraction activities by actively establishing converging investment attraction project that utilized export marketing in Beijing and Shanghai based on expanding local market in China. In EU regions, Invest KOREA performed investment attraction activities in various areas. Invest Korea performed investment attraction activities in medicine and medical devices in Germany and Denmark and did active investment attraction activities including holding M&A type investment attraction presentation in London(Korea PE Insight) for financial investors. Invest KOREA(IK) examines its outcome during the previous year and makes a fresh resolution for its activities in the coming one by publishing the annual reports. Invest Korea(IK) sincerely hopes that you will have an opportunity to broaden your understanding of the state of IK s investment attraction and activities in 2013. IK has been attracting FDI investment since its establishment in 2003. I would like to take this page as an opportunity to thank everybody in the head office of Invest Korea, Korea Business Center, local governments, and related organizations, who have all made an effort to increase foreign investment attraction and enhance the quality of attraction even under difficult external conditions.

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November 2014 Commissioner of Invest KOREA

Kiwon Han

CONTENTS Summary / 7 I. 2013 Trend of Foreign Direct Investments(FDI) in Korea and Abroad / 13 1. Trend of Foreign Direct Investments in the World(FDI) / 13 2. Trend of Foreign Direct Investments in Korea / 15

II. Trends of Foreign Investment Attraction by Major Industry / 19 1. Parts and Materials / 19 2. Car component / 22

3. Drug

Medical Device / 25

4. ICT(Semiconductor

Display

Communication) / 30

5. Tourism and Leisure / 34 6. Regional Development / 37 7. Logistics and Distribution / 40 8. Cultural Contents / 45 9. Finance/M&A / 48

III. Research Results on the Management of Foreign Companies / 51 1. Economic Effects of Foreign-Invested Companies / 51

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2. Foreign-Invested Companies

Management Performance / 56

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3. Major Characteristics of Foreign-Invested Companies Management Activities / 58

Ⅳ. Invest KOREA’s Contribution to the Attraction of Foreign Direct Investments / 63

1. Invest Attraction / 63 2. Finding Project / 64 3. Activities of Investment Attraction by Major Industries and Regions / 65 4. Service of Administrative Support for Investors / 74 5. Support for Investment Consultation / 76 6. Support for Foreign-Invested Company Incubation / 76 7. Aftercare for Foreign Companies / 77

▶

Summary

◀

2013 Trend of foreign direct investments

○ Foreign direct investments in the world : USD 1.425 trillion (increase of 9%

compared to the previous year) *based on UNCTAD - The share of the FDI inflows of developing countries(including China, India, and Brazil) accounted for 54%, which led global FDI.

○ Korea’s attraction of foreign direct investments : USD 14.55 billion

(decrease of 10.7% compared to the previous year) *based on reports - EU : USD 4.8 billion (increase of 76.9% compared to the previous year) - USA : USD 3.53 billion (decrease of 4.1% compared to the previous year) - Japan : USD 2.69 billion (decrease of 40.8% compared to the previous year)

<Trend of foreign direct investment in Korea> (Unit : US$ million)

Division Number of cases reported Amount reported Amount arrived

2009

2010

2011

2012

2013

3,131 11,484 6,755

3,109 13,071 5,419

2,708 13,673 6,585

2,865 16,286 10,677

2,608 14,548 9,792

Data : INSC(Investment Notification Statistics Center)

Trends of foreign investment attraction by industry

1. Parts and materials

The parts and materials industry is the major investment attraction area, accounting for 22.5% of the entire amount of investment attraction in a domestic industry. Employment by foreign-invested company is the core industry, accounting for 50% of the entire manufacturing industry. 2. Car component

The car industry recorded 5th place in the world in production and the car component business is equipped with global competitiveness sharing growth with the automobile industry. 3. Drug and medical device

The foreign-investment of the drug and medical device industry recorded 81 cases, or USD 694.32 million accounting for 4.8% of the entire foreign investment amount. Analysis showed that the foreign medium-sized drug and medical device businesses are actively entering Korean industry through joint ventures of the biopharmaceutical sector and research development cooperation.

Summary

4. ICT [Semiconductor

Display

Communication]

Analysis shows that foreign invested companies advanced into the a business model utilizing outstanding domestic IT technology. This order to use excellent IT infrastructure and talented people. As the has been implemented since February in 2014, it is expected that be nurtured by investing KRW 8.5 trillion in ICT R&D projects by

area that could create could be considered in Special Act on ICT the ICT industry will 2017.

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5. Tourism and leisure

Foreign investment in the field of tourism and leisure is varies from hotel and marina sectors to composite resorts intended to be general entertainment businesses. Recently, the investment by the companies related to developing marina resorts has actively increased. In addition, the investment in the tourism and leisure industry has improved with the increase of Chinese tourists, who especially focused on Jeju. 6. Regional development

As part of economic vitality in local regions and efficiency for national land development, large development projects are being implemented, such as the Saemangeum land Reclamation Project, the relocation of public institutions to the provinces, and innovative city development projects. Investors interest in joint ventures with domestic enterprises is growing in order to advance government-led development projects. Neighbouring areas such as Hallyu World in Goyang city, Gyeongi province, and the Cultural Complex in Gwacheon became free from limited development districts, which has made investment attraction projects more active. Investment by Chinese companies has been focused on Jeju, which has led to the issue of whether the local government give will the right of permanent residence to the investors.

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7. Logistics

distribution

With geopolitical superiority located in the center of Northeast Asia, Korea establishes infrastructures, such as world-renowned airports, ports, and traffic facilities. Upon the effectuation of the Korea-EU FTA, taken effect in 2011, and the Korea-USA FTA, taken effect in April, 2012, many global manufacturing and distribution businesses are interested in utilizing airports and sea ports in Korea as trunk routes in the world logistics market. This is expected to play a role in facilitating of Korea s leap to becoming a global logistics hub.

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8. Cultural contents

The amount of foreign investment in cultural contents was USD 820 million and the number of cases was 196. The increasing trend has been maintained since 2009. Among the USD 3.17 billion of foreign investment during the last 5 years, the game industry has accounted for a high proportion, with 42.5%(USD 1.3 billion)

9. Finance

M&A

The amount of M&A type FDI in Korea was USD 4.98 billion with an increase of 152.8% compared to the amount of USD 1.97 billion in 2011. The proportion of M&A type foreign investment has gradually increased from 14.4% in 2011 to 34.2% in 2013.

Invest KOREA Annual Report 2013

Research Result on the Management of Foreign Companies

○

Sales

employment

In 2012, the total sales (excluding finance) of foreign-invested companies was KRW 471 trillion(manufacturing industry was KRW 372 trillion, non-manufacturing industry was KRW 99 trillion), accounting for 13.7% of the nation s total sales.

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○

Added value

The added value was KRW 67 trillion won(manufacturing industry was KRW 47 trillion, non-manufacturing industry was KRW 19 trillion), which decreased approximately by 16.8% compared to 2011.

○

Import and export[Manufacturing industry]

The total amount of export by the manufacturing industry was USD 110 billion, accounting for 20.2% of the total export amount for the whole country. The total import amount by the manufacturing industry was USD 111 billion, accounting for 21.4% of the total import amount for the whole country, which highly contributed to achieving USD 1 trillion in trade.

○

Profitability

stability

’

Foreign-invested companies ratio of operating profit to net sales was 5.88%, their profit margin on sales was 5.50%, and their return on equity was 10.62%. All of these indications were shown to be higher than those of domestic enterprises. With regard to their stability, their ratio of net worth was 1.11 times that of domestic enterprises and their debt ratio was 0.75 times that of domestic enterprises. Therefore, foreign-invested companies were better in both indicators.

○

Growth

’

dividend payout ratio

With regard to growth, foreign-invested companies total asset rate was 10.79%, which was 2.13 times of that of domestic enterprises and their sales increase rate was 8.44%, which was 1.65 times of that of domestic companies. Meanwhile, foreign- invested companies dividend rate was 0.16 times lower than that of domestic companies and the dividend payout ratio was 1.07 times that of domestic enterprise, indicating that foreign-invested companies increase of the ratio of internal reserves to net profits and capital could be the cause.

’

○

’

Investment motive

The major motives for investments in Korea were shown to be the advancement into domestic demand markets and invested assets values, and utilizing the export manufacturing base.

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Invest KOREA s contribution to the attraction of foreign direct investments

○ Amount of investments attracted by IK : USD 11.86 billion

(increase of 11.2% compared to the previous year, based on reports)

○ Degree of IK’s contribution to investment attraction : 81.5% (increase of 16% compared to the previous year)

Summary

Logistics/Distribution

‘

Japan logistics TF( 13.3.)

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North America logistics TF( 13.3.)

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Europe discovering oil hub and distributors TF( 13.4.)

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Busan Port Authority Europe investment attraction presentation( 13.6.)

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Japan logistics TF( 13.9.)

‘

Japan logistics investment environment presentation( 13.11)

‘

Gwangyang port Chinese region round table( 13.12)

Cultural contents

‘

Taiwan cultural contents investment environment presentation ( 13.4.)

Finance

M&A

‘

Hong Kong/Singapore investment environment presentation(Hong Kong/Singapore, 13.1.)

‘

San Francisco clean-tech forum(San Francisco, 13.3.)

‘

Global M&A Plaza(Seoul, 13.5.)

‘

Korea PE Insight (New York/London, 13.6.)

‘

AAMA related investment attraction presentation/consultation meeting (San Francisco, 13.9.)

‘

Korea PE/VC M&A Forum (Seoul, 13.10.)

’

IK s activities record to support foreign invested companies

▶

Administrative support service for investors

- Record of firsthand handling of civil affairs : 3,944 cases

·Immigration-related civil affairs; 3,936 cases of 9 kinds, Business Registration; 4cases, investment in kind completion confirmation; 4 cases

- Support for registration of incorporation; 12 cases - Present state of receipt of foreign investment reports by Inbound investment consulting division: 299 cases, USD 47.16 billion

▶

’

Support for investors

living arrangements

- 1,926 cases(Specialized consulting and life consulting service)

Summary

To review the trend of M&A investment by major economic blocs, the advanced countries(excluding Japan) decreased 10.8% caused by a slump in the U.S. and European markets. Despite the overall downward trend of M&As record, developing countries made advance that the Latin America and Caribbean regions, and the African regions showed increased rates of 156.7% and 416.7% respectively.

[Table 1-2] Trends of Global M&A (Unit : US$ billion, %)

Regions and major economic blocs

2010

World Advanced countries Europe North America Japan Developing countries Africa Latin America and Caribbean Sea Asia Transition countries

2011

349.4 260.4 127.6 97.8 7.3 84.9 7.4 30.0 38.7 4.1

556.1 438.7 214.4 180.3 4.7 84.6 8.6 19.2 56.7 32.8

2012

331.7 268.7 144.7 95.7 1.8 56.1 -1.3 24.1 33.4 6.9

2013

348.8 239.6 133.0 82.9 4.3 113.0 3.8 61.7 47.5 -3.8

12/13 increase/decrease rates

5.2 -10.8 -8.1 -13.4 147.1 101.4 416.7 156.7 42.2 -155.9

Data : UNCTAD, World Investment Report 2014

[Figure1-1] Comparison of scales of between Global M&A, Greenfield FDI

Data : UNCTAD, World Investment Report 2014

The scale of M &A type investment decreased to USD 348 billion after it peaked in 2011 with USD 556 billion. Greenfield FDI still leads global FDI considering that M&A type investment accounted for 34% of M&A Greenfield FDI in 2013.

路

Invest KOREA Annual Report 2013

2014 Prospect of Foreign Direct Investment(FDI) in 2014

According to a report by UNCTAD, global FDI is expected to rise from USD 1.45 trillion in 2013 to USD 1.60 trillion in 2014 with the help of the economic recovery trend of advanced countries. However, the risks in emerging countries such as vulnerability, policy uncertainty, and regional conflict stand as an obstacles in the increase of global FDI. Therefore, conventional aspect , showing more proportion in the advanced countries in global FDI, is expected.

“

”

2. Trend of Foreign Direct Investments in Korea Progress of foreign direct investments

Characteristics of FDI in Korea in 2013

① Increase in the share of FDI of the service industry ② Continuous increase in M&A-type investments ③ Decrease in long-term loan investments The amount reported of FDIs in Korea recorded USD 14.55 billion with a decrease of 10.7% compared to the previous year, which has been the first decrease since 2009. The major cause of this was that investment by Japan, a major investor, recorded USD 2.69 billion with a decrease of 40.8% compared to the previous year. With regard to the FDI by type, M&A type investments recorded USD 4.97 billion with an increase of 32.8% compared to the previous year. M&A-type investments have been consistently increased since 2011, which is analyzed that the increase of the investment especially from China could affect all M&A-type investments. Greenfield-type investments recorded USD 9.56 billion with a decrease of 23.7% compared to the previous year. Characteristics by industry could be summarized in the reversal of maintaining the increase of investment in the service industry and the decrease of investment in the manufacturing industry. The service industry recorded USD 9.8 billion with a slight increase of 2.6% and its share of the entire FDI rose to 67%. On the other hand, the investment in the manufacturing industry which had shown an increasing trend in 2012 recorded USD 4.6 billion with a decrease of 23.8% compared to the previous year and the share of the entire FDI shrank in 32%. In particular, electrical electronic area and chemical area sharply decreased by 59.9%, 32.6% respectively.

Long-term loans recorded USD 1.4 billion with a decrease of 26.5% compared to the previous year and the share in the amount of the entire foreign investment shrank from 11.7% in 2011 to 9.7%.

Ⅰ

. 2013 Trend of Foreign Direct Investment(FDI) in Korea and Abroad

[Table1-3] Trend of foreign direct investment in Korea (Unit : case, US$ million)

Division Number of cases Amount reported Amount arrived

2009

2010

2011

2012

2013

3,131 11,484 6,755

3,109 13,071 5,419

2,708 13,673 6,585

2,865 16,286 10,677

2,608 14,548 9,792

Data : INSC(Based on reports)

Progress of investment attraction by region(nation)

Investment from the EU recorded USD 4.8 billion with an increase of 76.9% compared to the previous year. The amount of investment from the USA and Japan recorded USD 3.52 billion, 2.69 billion with a decrease of 4.1% and 40.8% respectively. It s worth noting that the amount of arrival from Japan s investment in Korea in 2013 was USD 2.87 billion, which was higher than the amount reported.

’

[Table1-4] Trend of foreign direct investments in Korea by region (Unit : US$ million, %)

2010 Division

Amount invested

USA Japan E U

Others Total

1,974 2,083 3,196 5,818 13,071

2011

15.1 15.9 24.4 44.5 100

Amount invested

2,372 2,289 5,031 3,982 13,674

2012

17.3 16.7 36.8 29.1 100

Amount invested

3,674 4,542 2,714 5,356 16,286

2013

22.6 27.9 16.7 32.9 100

Amount invested

12/13 increase/

3,525 2,690 4,802 3,531 14,548

24.2 18.5 33.0 24.3 100

decrease rate

-4.1 -40.8 76.9 -34.1 -10.7

Data : INSC(Based on reports)

Progress of investment attraction by industry

The characteristics of FDIs by industry in 2013 can be summarized by maintaining an increasing trend in the service industry and a decreasing trend in investments in the manufacturing industry. In particular, the service industry recorded USD 9.8 billion, showing an increasing trend since 2010 and its share of the entire FDIs rose to 67% accounting for half of the total investment amount for three years in a row followed by 53% in 2011 and 59% in 2012. On the other hand, investments in the manufacturing industry showed an increasing trend in 2012, recording USD 4.6 billion with a decrease of 23.8% compared to the previous year and its share of the entire FDIs shrank by 32%. In particular the electric electronic area and the chemical area decreased sharply by 59.9% and 32.6% respectively.

Invest KOREA Annual Report 2013

[Table 1-5] Trend of foreign direct investments in Korea (Unit : US$ million, %)

2010 Division

Amount

invested Primary industries Manufacturing industry (Transporting machines)

Âˇ

(Electricity

Electronics)

(Chemical industry) (Others) Service industry Others Total

4 6,659 (2,483) (1,562) (927) (1,687) 6,302 107 13,071

2011 Amount invested

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

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

2012 Amount

invested

4 6,097 (1,264) (1,307) (1,286) (2,240) 9,602 583 16,286

2013

12/13 increase/

Amount

invested

6 4,648 37.4 (7.8) (1,091) (8.0) (524) (7.9) (867) (13.8) (2,166) 9,848 59.0 46 3.6 100 14,548

decrease rate

31.9 (7.5) (3.6) (6.0) (14.9) 67.7 0.3 100

47.0 -23.8 (-13.7) (-59.9) (-32.6) (-3.3) 2.6 -92.1 -10.7

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

Progress of investment attraction by form

The FDI by form in 2013 was that M&A-type investments recorded USD 4.97 billion with an increase of 32.8% compared to the previous year. Greenfield-type investments recorded USD 9.56 billion with a decrease of 23.7%.

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

2010 Division

Amount

invested M&A type Greenfield type (Factory establishment) (Business place establishment) Total

2,015 11,056 (5,064) (5,992) 13,071

2011 Amount invested

1,971 15.4 84.6 11,702 (38.7) (4,177) (45.8) (7,525) 100 13,673

2012 Amount invested

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

2013 Amount invested

4,979 23.0 9,569 77.0 (22.5) (1,558) (54.5) (8,011) 100 14,548

12/13 increase/

34.2 65.8 (10.7) (55.1) 100

decrease rate

32.8 -23.7 (-57.4) (-9.8) -10.7

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 : INSC (Based on reports)

Progress of investment attraction by scale

To review investment progresses in 2013 by the FDI scale, large investments not smaller than USD 100 million recorded USD 7.33 billion with a decrease of 11.3% compared to the previous year, and investments smaller than USD 100 million recorded USD 7.21 billion with a decrease of 10%. Large investments not smaller than USD 100 million accounted for 50.4% of the entire investments showing similar levels to that of the previous year. Medium sized investments not smaller than USD 10 million but smaller than USD 100 million accounted for 37.3% which was a 1.4 decrease compared to that of 2012, but small and medium sized investments which are from USD 1 million to USD 10 million accounted for 9.5% with a increase of 1.5% in its share.

â&#x2026;

. 2013 Trend of Foreign Direct Investment(FDI) in Korea and Abroad

[Table 1-7] Trends of foreign direct investments in Korea by type (Unit : US$ million, %)

2010 Division

Amount invested

7,450 5,621 (4,140) (1,138) (343) 13,071

USD 100 or larger Smaller than USD 100 million (USD 10 million~USD 100 million) (USD 1 million~USD 10 million) (Smaller than USD 1 million) Total

2011 Amount

invested

6,218 57.0 7,455 43.0 (31.7) (5,349) (8.7) (1,689) (2.6) (417) 100 13,673

2012 Amount

invested

2013

8,268 45.5 8,018 54.5 (39.1) (6,295) (12.4) (1,297) (3.1) (427) 100 16,286

Amount invested

7,332 50.8 7,216 49.2 (38.7) (5,434) (8.0) (1,386) (2.6) (396) 100 14,548

12/13 increase/

50.4 49.6 (37.3) (9.5) (2.7) 100

decrease rate

-11.3 -10.0 (-13.7) (6.9) (-7.2) -10.7

Data : INSC (based on reports)

Progress of investment attraction by type

In 2013, new investments recorded USD 6.61 billion with a decrease of 5.0% compared to the previous year and additional investments recorded USD 6.52 billion with a decrease of 11.9% compared to the previous year. The share by type is that new investments accounted for 45.5%, additional investments accounted for 44.9%, and long-term loan accounted for 9.7%. Meanwhile long-term loans recorded USD 1.4 billion with a decrease of 26.5% compared to the previous year-Given that the average share occupied by loans is approximately 6%, large long-term investments have been relatively made a lot.

[Table 1-8] Trends of foreign direct investments in Korea by type (Unit : US$ million, %)

2010

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Amount invested

2011 Amount

invested

2012 Amount

invested

2013

Amount invested

12/13 increase/

decrease rate

New investment

5,521

42.2

6,125

44.8

6,965

42.8

6,616

45.5

-5.0

Additional investment

6,765

51.8

6,939

50.8

7,408

45.5

6,525

44.9

-11.9

785

6.0

609

4.5

1,913

11.7

1,407

9.7

-26.5

13,071

100

13,673

100

16,286

100

14,548

100

-10.7

Long-term loan Total Data : INSC (based on reports)

2012 Division

New investment Additional investment Long-term loan Total

increase/decre 1st

2nd

3rd

4th

quarter

967 (41.2) 1,345 (57.3) 34 (1.5) 2,346

2,459 1,610 1,928 (51.7) (39.3) (37.9) 2,080 2,171 1,812 (43.7) (53.0) (35.6) 221 312 1,347 (4.6) (7.6) (26.5) 4,760 4,093 5,087

Note : Values in ( ) are shares Data : INSC (based on reports)

2013

Invest KOREA Annual Report 2013

Yearly

6,965 (42.8) 7,408 (45.5) 1,913 (11.7) 16,286

1st

2nd

3rd

4th

quarter

1,388 (50.5) 1,030 (37.5) 330 (12.0) 2,747

1,082 (28.5) 2,524 (66.4) 196 (5.1) 3,802

1,202 2,944 (35.4) (63.9) 1,408 1,563 (41.5) (33.9) 783 98 (23.1) (2.1) 3,394 4,604

Yearly

6,616 (45.5) 6,525 (44.9) 1,407 (9.7) 14,548

ase rates

-5.0 -11.9 -26.5 -10.7

Ⅱ Industry

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 and accounted for approximately 44.2% of the entire production by the manufacturing industry in 2012. In 2011, this industry recorded KRW 680 trillion in the scale of production with an increase of 13% compared to the previous year and it recorded a slight decrease of KRW 668 trillion in 2012. The number of persons employed in this industry slightly increased from 1.38 million in 2011 to 1.42 million in 2012 accounting for 51.5% of the entire manufacturing industry. The importance of the parts and materials industry stands out in Korea s import and export sector. The export amount of parts and materials in 2013 was USD 263 billion with an increase of 3.8% compared to the previous year, accounting for 47% of the entire amount of export of Korea and the import amount was USD 165.5 billion with an increase of 1.9% compared to the previous year. Because the import amount decreased more than the export amount, the overall trade recorded a surplus of USD 9.75 billion with an increase of USD 6.6 billion compared to 2012.

’

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. However, the Korean parts and materials industry decreased a trade deficit with Japan, decreasing from USD 22.2 billion in 2012 to USD 20.5 billion in 2013 by consistently developing technology. On the other hand, the surplus in trade with China increased from USD 43.4 billion in 2012 to USD 46.9 billion in 2013. The fact that the adverse balance of trade was improved and the dependency on Japan for import was relieved in the midst of an expansion in the trade of parts and materials in 2013 is positively evaluated.

[Table 2-1] The state of export and import of parts and materials by major countries in 2013 Nation

Export

Import

Trade balance

China

91,492

44,530

46,962

USA

23,884

18,655

5,229

Japan

13,908

34,440

-20,532

Hong Kong

14,715

1,356

13,359

Vietnam

11,833

1,696

10,138

Ⅱ

. Trends of Foreign Investment Attraction by Major Industry

[Table 2-1] Progress of adverse balance in the trade of parts and materials with Japan and dependency on Japan for import parts and materials (Unit : US$ 100million, %)

Note : Dependency on Japan for imports means the portion of parts and materialsimported form Japan out of the entire imported parts and materials.

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 maintained an increasing trend from 2007 to 2010 but has shown a decreasing trend in the last 3 years. Although the amount of foreign direct investments attracted by the parts and materials industry in 2013 showed a decrease of approximately 17.21% compared to 2012, it still accounts for almost 22.5% 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 Greenfield-type investments that create high quality employment. Therefore, investments in this industry are actively attracted.

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[Table 2-2] The state of FDIs attracted by the parts and materials industry over the last six years (Unit : US$ million, %)

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

2008

2009

2010

2011

2012

2013

2,548 8.3 21.8

3,008 18.1 26.2

5,284 75.7 40.4

4,825 -8.7 35.3

3,951 -18.1 24.3

3,273 -17.2 22.5

Data : INSC (based on reports)

Meanwhile, as large enterprises in Korea have recently been 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 enterprises have approximately of 50% world market shares is increasing daily. 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.

â&#x20AC;&#x2122;

To attract investments in the parts and materials industry as such, the government is 20

Invest KOREA Annual Report 2013

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 Gyeongsangbuk, Gumi, Jeonbuk/Iksan, and Busan/Jinhae. These four were designated as sites for exclusive industrial complexes for parts and materials by July of the following year so that foreign- invested companies that move into the industrial complexes can receive incentives, such as reduction of/ exemption from taxes and rental fees and cash support. From 2010, influential overseas parts and material manufacturers, such as Tsubakimoto Chain, Johnson Controls, Ishizaki Press, and Elring Klinger have begun to move into the industrial complexes. Foreign-invested companies in the areas of parts and materials that have advanced into Korea

Those foreign-invested companies that have advanced into Korea mainly deal with those parts and materials that are related to LCDs and semiconductors, which are the 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 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 establishing 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. A representative enterprise include Umicore from Belgium, manufacturer of cathode materials for secondary batteries for electric vehicles, which built additional factories in Cheonan, Chungnam in order to operate the factory in 2014. In addition, BASF from Germany built a highly functional plastic resin factory in Yeosu, Jeonnam in January 2014.

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 on July 11, 2013, will produce OLED (panel glass), a next-generation LCD, and supply it to set manufacturers in Korea. The active commercial promotion of OLED-related large TVs by set manufacturers in Korea in the midst of rapid changes in display-related markets is turning 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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. Trends of Foreign Investment Attraction by Major Industry

Industry

②

Car Components

’

Korea s Automobile Industry

In 2013, the automobile industry in Korea showed an increase in production, especially by struggling complete vehicle manufacturers such as Ssangyong Motor Company, Daewoo Bus, and Tata Daewoo. Meanwhile Renault Samsung has not been out of its slump for 3 years. Its production decreased by 15.8% in 2013 following -1.4% in 2012. According to review by manufacturer, Ssangyong Motor Company seems to be normalized with a production increase of 20.5% Tata Daewoo showed a large production increase by 96.9%, and Daewoo Bus also showed a production increase by 41.7%. Hyundai Motor company recorded a production decrease by 2.8%, Kia Motors Corporation recorded production increase by 0.8%. Renault Samsung Motros Co., Ltd. recorded a production decrease by -15.8%, and Korea GM recorded a production decrease of -0.4%. These production decreases seem to be indicators meaning that the automobile industry in Korea reached its peak in 2011 and is now entering its maturation period.

[Table 2-3] State of production in Korea by major domestic complete vehicle manufacturers over the last four years (Unit : unit, %)

Division

2010

2011

2012

2013

12/13 increase/decrease rate

Hyundai Motor company

1,743,375

1,892,254

1,905,261

1,852,456

-2.8%

Kia Motors Corporation

1,416,681

1,583,921

1,585,685

1,598,863

0.8%

Korea GM

744,096

810,854

785,757

782,721

-0.4%

Renault Samsung Motors Co., Ltd.

275,269

244,260

153,891

129,638

-15.8%

80,067

113,249

119,142

143,516

20.5%

Daewoo Bus

3,214

3,210

2,721

3,855

41.7%

Tata Daewoo

9,039

9,346

5,281

10,380

96.6%

4,271,741

4,657,094

4,557,738

4,521,429

-0.8%

Ssangyong Motor Company

Total

Data: Korea Automobile Manufacturers Association

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

Despite the fact that the completed vehicle industry recorded negative growth compared to

’

2012, Korea s automobile industry recorded fifth in the world in production in 2013 as well. Component manufacturers in Korea

have grown up together with the growth of Hyundai

Motor Company/Kia Motors Corporation, and transformed into enterprises equipped with global competitiveness. Thanks to the increases in sales by those enterprises that have 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. 22

Invest KOREA Annual Report 2013

Success case of investments in Korea

ElringKlinger, a global car component enterprise, held a ground-breaking ceremony in the parts and materials complex in Gumi-si, Gyeongsangbuk-do on June 17, 2013. lringKlinger expects an import substitute effect of USD 10billion annually by operating a manufacturing plant whose size is 26,000 at the 4th zone of the complex in Gumi and domestically producing part and material of casket for vehicle engines.

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Founded in 1879, ElringKlinger, located in Baden-W?rttemberg, specializes in car components and it produces secondary battery and fuel cells as well. It is a global company that has overseas branches in 21 countries such as Europe, the Americas, and Asia. The company was introduced to Gumi-si by getting support from KOTRA during doing its business after the advancement into Changwon as a type of joint venture in 1990. As the company knew that there were benefits from reducing rental fees and taxes when getting in the complex, the company decided to build a plant with cutting-edge equipment using the benefits as much as it could. The company decided that Gumi is the best place during the process of expanding its business and invested in the complex by acquiring the share from Korea as a type of corporation sole.

Invest KOREA Annual Report 2013

Industry

③

Drug

Medical device

Drug

Medical device

The health care market that includes BT(BT: Bio Technology)-based drug, medical device, and medical service industries is twice the size of the IT market and attracts attention as the basis of future growth with high added value because demand for medical services is increasing because of an aging global population and increases in chronic disease. In fact, according to OECD Health Data 2013, the healthcare expenditure increase rate of Korea from the integration of national heath insurance in late the 1980s to 2010 is 9% per year on average, twice the OECD average, which is 4.5% and life expectancy of Korea is 81.1 years old which is higher than the average life expectancy of OECD countries, which is 80.1 years old. 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 KRW 19 trillion in 2012, expanding an annual average growth rate of 2.9% over the last 5 years and accounting for approximately 2% of the world market. The production of specialized medicine in domestic medicine(finished products, raw materials, narcotics, psychotropic) has accounted for more than 80% since 2009 and recorded 83% in 2012. The amount of drug exports in 2012 was USD 2.05 billion with an increase of USD 300 million compared to the previous year, which showed increase of 16.9%. However, a trade deficit still existed because USD 5.08 billion for imported drug centered on the importing of finished drugs. Therefore, the domestic drug industry is centered on finished products for domestic demand with the participation of 700 companies and keeps its growth trend thanks to the recent recovery of consumption, increase of the aging population, structural growth of demand on prescription caused by the increase of chronic disease, and the good export condition. The drug industry is to increase export production and investment intensity in its research development on high added value drugs, visualize new drug development by expanding global cooperation, and improve drug prices and distribution structures. The scale of domestic markets for the medical device industry reached KRW 4,592.3 billion in 2012 showing an increasing trend with an increase of 6.6% compared to the previous year, accounting for 1.3% of the world medical device market. (The average annual growth rate during 2005~2012 was 8.9% showing a high growth rate). The amount of domestic medical device production was KRW 3,877.4 billion with an increase of 15.2% compared to the previous year, the amount of medical device export recorded a high growth rate with an increase of 19.5% compared to the previous year. In 2012, the dependence on imports according to the increase of the amount of production decreased by 1.1% compared to the previous year, but the dependence on imports was still high, showing 64%. In 2012, the number of domestic medical device manufacturers which reported production performance was 2,277 with an increase of 16.3% compared to the previous year, the number of medical importers was 1,762 with an increase of 12.2% compared to the previous year, and the number of persons in the industry was 35,226 in manufacturing and 18,024 in importing. In domestic production performance by the type of medical device, imaging diagnostic apparatuses such as digital X-ray apparatuses, ultrasonic imaging diagnostic apparatuses were the highest performers, and the share of producing dental implants was high. Recently the production growth of artificial internal organ apparatuses, dental materials, and anesthesia and respiratory has been increasing. In exports of medical devices by level, the share of the products in level 3 and level 4 increased to 51.5%. However, the major import items, such as Stent, expensive diagnostic imaging devices, such as

Ⅱ

. Trends of Foreign Investment Attraction by Major Industry

CT/MRI, and artificial knee joints have continued to import 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. Infrastructure 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 all acting as positive elements to attract investment.

’

The number of clinical trials conducted in Korea in for the development of new drugs was 670 cases in 2012 with an increase of 32.2% compared to the previous year, and global clinical trials accounted for 45%(303cases) of them. Korea is trusted as an optimum place for global clinical trials equipped with increased numbers of research-oriented hospitals, clinical experts, patient management ,and medical systems, which made Korea place 10th among nations and Seoul place 1st among cities in the rankings of the most optimized sites for clinical trials. In addition, Korea has been analyzed to have excellent manpower, which is essential for research and development and infrastructures, such as a large number of papers published and patent outcomes. The number of graduates from BT-related departments in 2012 was 52,811 in total and at least 20% received a masters or doctorate degree. The number of workers who were working in the bio industry was 35,596 with an increase of 9% compared to the previous year and 30% of them worked in research. The number of papers published in SCIE including major scientific journals in the world, was 8,802 in 2012 with an increase of 13% compared to the previous year, placing Korea 10th in the world. In addition, Korea s national technology strength, showing the amount and quality of patents, was ranked 14th place in the world. The quality level of the patents such as the use of antibodies, biopharmaceutical development, development of transgenic animals and plants has shown relatively rapid improvement.

’

In particular, the Korean government s active support activities for the bio industry are also becoming an important element for investment attraction. The amount of the government s investment in BT was KRW 2,750.9 billion accounting for 19% of the government s investment in research and development and mainly focused on the research and development of healthcare and bioengineering. In particular, the government s full support and active investments have accelerated, such as the launch of the pan-department new drug development project group based on the agreement among three departments: the Ministry of Health and Welfare, the Ministry of Trade, Industry, and Energy, and the Ministry of Education(in 2011~2019, the government will input KRW 600 billion and private entities will input KRW 600 billion as project funds), expanding tax relief on R&D investment in new drug development through selecting innovative pharmaceutical enterprise, rationalization of the drug pricing system and the approval process of drug with new technology, financial support on R&D funds for overseas exports, raising public-private bio funds and funds for nurturing the drug industry, upgrading the department status from the Food and Drugs Administration to the Ministry of Food and Drug safety. Detailed focused areas are specialized into the areas of technology related to tangible public welfare such as chronic disease, BIT convergence/composite medical advancement using ICT infrastructure, customized drugs and regenerative medicine.

“

Invest KOREA Annual Report 2013

’

’ ”

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 2013 was USD 694.2 million in 81 investment reports, accounting for 4.8% of the total amount of foreign investments attracted in the entire country. The amount is highly increased from the decrease in 2012, the reason of the increase is analyzed that joint investments or cooperation for research and development among biomedicines manufacturers account for most of the investments and the advancement of overseas medium drug/medical device manufacturers even in the depressed situation of the industry because of the decrease of the number of patients visit, insurance drug policies, and enhancing regulations on rebates. According to analysis of average annual average growth rate(CAGR) from 2009 to 2013, the amounts of foreign investments in these industries showed a steady increasing trend at 41%. Therefore, there are limitations in market size and regulated industry, but if there is more attraction of foreign investments based on global commercialization in the area of biomedicines and the potential of the area of research and development, the effect of securing national competitiveness of the bio-industry will be expected through early entrance into the global market, the creation of the employment of domestic high-grade manpower.

â&#x20AC;&#x2122;

The Korean government is placing emphasis on the development of biomedicines(antibodies, vaccines, etc.) and gene medicines, the research and development of elderly friendly medical devices and convergence/composite cutting-edge medical devices, and the reinforcement of the CRO/CMO industries as foundations for future growth. In addition, to foster these industries, the Korean government supported the development of specialized complexes by major industries, such as cutting-edge composite medical complexes(Daegu, Osong), bio-medical complexes(Incheon Songdo, Gyeonggi), a medical device valley(Wonju), Daedeok Research Complex, a health care town(Jeju) with a view to making a huge bio-cluster where universities, bio-venture enterprises, pharmaceutical companies, and clinical trial centers are originally linked with each other. In addition, institutional improvement such as eliminating tariff and enhancing patent protection systems through FTAs and expanding investment in research and development are getting realized.

[Table 2-6] State of foreign investments in the drug/medical device industries over the past five years (Unit : US$ million)

Division

2009

Whole sale and retail industries (including drugs/medical supplies/medical devices) Drug manufacturing industry Medical device/supplies manufacturing industry Medicine/pharmacy research and development business Total amount(number of cases) reported in the area of the drug/medical industries

â&#x20AC;&#x2122;

The industries share (of entire industries)

2010

2011

2012

2013

84.3

22.0

261.2

149.8

71.3

0.2 0.7 38.6

38.4 360.7 14.7

89.8 13.0 23.8

80.9 14.5 3.7

504.3 86.2 32.0

123.8(40)

781.3(53)

387.8(42)

248.9(68)

694.3(81)

1.1%

6.0%

2.8%

1.5%

4.8%

Data : Analysed by INSC, KOTRA (2014)

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. Trends of Foreign Investment Attraction by Major Industry

Âˇ

[Figure 2-2] Investment trend of the drug medical device industry in 2009-2013

Data : Analyzed by INSC, KOTRA (2014)

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

In 2013, the total mount of the sales by the 30 major global pharmaceutical companies already advanced into Korea was KRW 5.807 trillion with an increase of 7.2% compared to the previous year and the operating profit and net profit also increased by more than 120%. In particular, Pfizer increased its sales by 43% through foreign investment with the amount of USD 16 million. Global medical device manufacturers, such as Siemens, J&J, and GE healthcare have greatly contributed to the production/ export and import of domestic 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; Dentsplay, 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. In 2012, after the establishment of Samsung BioLogics, a biomedicines manufacturer in the 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 sized 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 bioventure enterprise; and Ajinomoto Co., Inc., a Japanese enterprise; and investments by

â&#x20AC;&#x2122;

Invest KOREA Annual Report 2013

Pharmascience, GN resound, Air liguide, Quiagen. In addition, as a case of an investment for 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. In particular, in 2013, it is impressive that LFB, a French state-owned pharmaceutical company and the largest blood preparation enterprise in France, decided to invest in the joint venture with a domestic medium pharmaceutical company.

Success case of investments in Korea

â&#x20AC;&#x2122;

LFB Biotechnologies SA(LFB), France s largest blood preparation company, and Shin poong Pharm Co., Ltd. decided on a joint venture for manufacturing biomedicine on November, 2013. LFB, a state-owned company in which the French government holds 100 % of the company share, manufactures and sells the pipeline of many biopharmaceutical products such as monoclonal antibodies drug and a genetically modified protein drug. The new manufacturing facility is established in Osong, Chungcheongbuk-do and the company will have the right of production by manufacturing tablets and finished products of medicine for thromboembolism(Atry) and medicine for haemophilia(FVIIa), holding exclusive right for sales in Asia. The total amount of the investment is EUR 34.4 million(approximately KRW 51.1 billion) and LEF hold 45% of the share, which will play a role as the head office of LFB in Asia. The joint venture was made based on a confidential relationship between LFB, the largest French state-owned company, and Shin poong Pharm Co., Ltd., a domestic medium company, for several decades in order to secure the Asian market of biopharmaceutical products. In the view of the development of the domestic bio industry, the joint venture can be evaluated as an efficient model for foreign investment attraction in order to introduce advanced technology in pharmaceutical products and secure a global network. In particular, this case is very meaningful as the first foreign investment in Osong Bioscience Technopolis in Chungcheongbuk-do, a major bio cluster. Therefore it is expected that this will be helpful in investment attraction activities for the Korean bio industry.

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. Trends of Foreign Investment Attraction by Major Industry

Industry

④

ICT(Semiconductor

Display

Communication)

IT Industry

The IT industry has played a major role in economic development and macroeconomic stability such as job creation, improvement of trade balance, and decline in prices for the past 40 years. In particular, the IT manufacturing industry including semiconductor, mobile phones, and LCDs, secured the status from 1st to 3rd based on the development of cutting-edge products and the technology of manufacturing and production. Based on this excellent technology, the amount of export(30% of the entire industry export, USD 169.4 billion) and the surplus of the trade balance(USD 88.6 billion) of the domestic ICT industry reached the highest record, owing to a record-high increase in the scale of the export volume of mobile phones, semiconductors, and digital TVs.

[Table 2-7] Status of export and import of the entire industry and the ICT industry in 2013 (Unit : USD 100 million)

Division

Entire industry

Export(increase/decrease rate)

5,597 (2.2)

1,694 (9.1)

30.3

Import(increase/decrease rate)

5,155 ( 0.8)

808 (3.7)

15.7

Trade balance

442

886

ICT

△

Data : Provided by the Ministry of Trade, Industry, and Energy Note : The above table is the present status of export and import of

“

the entire industry and the ICT industry and the bracket indicates

”

% compared to the previous year

In the area of ICT, when analyzing the semiconductor sector, the memory semiconductor industry, which had severe chicken game finished and reorganization into 4 companies-Samsung Electronics Co., Ltd., SK Hynix, Toshiba, and Micron. Therefore, the expectation that supplier s status would be higher than that of the buyer and the restructuring of the industry would revise unit price, reaching USD 57.1 billion in export with an increase of 13.3% compared to the previous year.

’

The amount of mobile phones recorded USD 24.8 billion with an increase of 23% in exports, in particular, the export on components of smart phones and mobile phones mainly increased, which led to an enhanced status of Korea in the world market. Meanwhile, the amount of exported digital TVs was USD 7.43 billion with and increase of 18.0% compared to the previous year, and the export amount of software recorded USD 3.45 billion with an increase of 54.3% compared to the previous year. By country, the size of the export to China was USD 85.55 billion, ASEAN countries was USD 21.33 billion, the USA was 16.24 billion, and the EU was USD 13.48 billion. The export to China has continued to be an increasing trend for 12 years, surpassing half of the amount of the entire export of the ICT.

Invest KOREA Annual Report 2013

The import amount of ICT recorded USD 80.8 billion with an increase of 3.7 compared to that of 2012. The amount of the import of semiconductors(USD 3,4620 million) and mobile phones(USD 3.9 billiion), computer and computer peripheral equipment(USD 9.07 billion), TVs(USD 304 million) increased while the import amount of display panels(USD 5.58 billion) and wired communication devices(USD 1.56billion) decreased. Promotion strategy and policies for the ICT industry

“Special Act on ICT”has been implemented since February in 2014. According to the Act,

the institution for ICT R&D was integrated into NIPA under the Ministry of Science, ICT, and future planning, investing KRW 8.5 trillion in the ICT R&D project by 2017. The technologies for the investment are hologram, Contents 2.0, Smart SW, machine to machine platform, big data cloud, the 5th generation mobile communication, smart network, emotional terminal technology, intelligent ICT convergence module, cyber attack response. Those 10 technologies are mainly developed and fifteen future services are planned.

[Figure 2-3] Medium and long term strategy of ICT R&D

‘

’ ‘ ’

Meanwhile, the road map for localizing the mobile CPU core, which is necessary for smart phones, one of the major exports, was established. The government input KRW 35 billion with public-private joint fund in order to focus on localizing mobile CPU core . The road map is prepared as a reforming strategy of the semiconductor industry. The Ministry of Industry will develop the products focusing on intermediate level of the CPU core that could apply to wearable devices or the Internet of things, considering the technical gap between domestic and overseas businesses.

‘

Ⅱ

’

. Trends of Foreign Investment Attraction by Major Industry

[Figure 2-4] Structure of application process

The strategy aims not to develop original technology for the new CPU Core but to make a commercial SoC based on four CPU Cores secured by domestic institutes and companies. The strategy is that the core should be commercialized first and its specifications upgraded to advance into the market. The four CPU Core which are already developed, are: EISC developed by adc(Advanced Digital Chips Inc.), Core-A developed by KAIST, Aldebaran introduced by ETRI and MENSA which is in developing stage.

‘

’

‘

’

‘

’ ’

Foreign-invested companies in ICT

In analyzing the trend of foreign investments in ICT in 2013, the investments mostly are advanced into areas that could establish business models using excellent domestic IT technology. For example, GCoE(Global Center of Excellence), established by Cisco in Songdo on October 2013, is an advanced base for developing smart city solution and the company is going to find an overseas market with the related solutions. This is the case that the foreign investment was advanced into Korea to utilize excellent domestic IT infrastructure and manpower. Another case of the advancement was the completion of the plant of TOK Advanced Material, producing electronic materials for semiconductors, in Songdo, Incheon. Production and research for photo resists for semiconductors and LCDs will be done in this plant, and the company invested KRW 200billion to complete the plant. 32

Invest KOREA Annual Report 2013

In conclusion, foreign investment in ICT is thought to be mainly focused on capital areas, the companies in the anchor, or the areas that could utilize excellent infrastructures. In addition, investment sentiment that was constrained after the financial crisis has been recovered, which leads to circulate investment from building an additional foundry plant to advancing into a parts and materials company or from investing in facilities for test equipment to building additional semiconductor packaging(Back-End) plants. Investment circulation that leads to expand foundry plant and build additional manufacturing facility for part and material seems to be active from this year because of the increase of the demand for changing PCs caused by the end of service of Windows XP. In fact, the expansion of the semiconductor equipment market is expected to continue after 2014.

Success case of investments in Korea

Amkor Technology, the second largest semiconductor packaging manufacturer, recorded USD 250 million for its report in February, 2013 and held a ground-breaking ceremony for its global R&D center and K5 business site in the cutting-edge industrial cluster(the 5th zone)in Songdo. In its first phase, it will be operated as a Turnkey Business by integrating the producing line and test line, which were operated separately in the past, into one place by building an R&D and production facility with a total investment of KRW 1.5 trillion by 2019. In addition, this project will contribute to develop the Korean semiconductor industry not only by developing the local economy (creating 5,000 jobs) and increasing the floating population but by enhancing the capability of cutting-edge semiconductor packaging, testing, and competitiveness.

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. Trends of Foreign Investment Attraction by Major Industry

Industry

⑤

Tourism and Leisure

The tourism industry is a 21st century high added value service industry with competitiveness that tows low growth times without employment through the acquisition of foreign currencies, the creation of employment, and the promotion of investments. Not only Korea but also various countries in the world are making efforts to foster their tourism industries. According to statistics by United Nations World Tourism Organization(UNWTO), the number of international tourists in 2013 was 1,870 million, with an increase of 5% compared to the previous year, which was a good year for the tourist industry following 2012, which recorded 1,000 million in the number of international tourists. The world tourism market rapidly recovered from the unstable economic situations after the global financial crisis and continued its growth trend in 2013 followed by 2012. The Asia Pacific region recorded the highest growth rate(6%), in particular, the scale of Chinese overseas travel consumption expenditures increased to USD 129 billion so that China confirmed its status as the number one country in overseas consumption expenditure, which makes the reinforced Korean tourism industry s international competitiveness to be systematically prepared for the Chinese market.

’

[Table 2-8] Tourism and leisure-related major indicators (Unit : %)

’

Division

Korea

Japan

China

USA

World

5.8 6.3 2.3

6.9 7.1 3.3

9.2 8.4 2.8

8.4 3.8 4.6

9.5 8.9 4.4

Tourism s share of GDP

’

Tourism s share of total employment

’

Tourism s share of total capital investment

Data : World Travel & Tourism Council(2014), Economic Impact Report 2014

’

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). Areas where inferior competitiveness is shown are tourism infrastructure(69th), price competitiveness(96th), etc.

[Table 2-9] Analysis of tourism and leisure investment environment Superior competitiveness Information communication technology infrastructure 1st Rich cultural resources 10th

Inferior competitiveness Tourism infrastructure 69th Price competitiveness 96th

Overland traffic infrastructure 16th

『

Data : World Economic Forum(WEF) 2013

』

The Travel & Tourism Competitiveness Report 2013

According to World Travel & Tourism Council(2014), in 2013, the world tourism industry contributed 9.5%(USD 6.9 trillion) of the entire GDP, accounted for 4.4%(USD 754.6 billion) of the entire amount of investment, and created a total of 260 million direct/indirect employments. In addition, it is expected that the industry will contribute USD 10.9 trillion of the entire GDP, create 340 million jobs, and reach USD 1.3 trillion in investment in 2024.

Invest KOREA Annual Report 2013

[Table 2-10] Records of investment attraction by area of tourism and leisure regional development

(Unit : US$ million, %)

Division

2009 Amount

Total result Service industry Total

· ·

Food

Culture

accomodation entertainment

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

2010

Amount

66.1 3 (2.3) (0.7)

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

2011

48.2 2.6 (0.9) (1.7)

Amount

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

2012

53.2 8.2 (1.7) (6.5)

Amount

16,286 9,601 1,005 (908) (97)

2013

59.0 10.4 (9.4) (1)

Amount

14,548 9,848 1,019 (938) (81)

67.7 10.3 (9.5) (0.8)

Data : INSC (based on reports)

Trend of tourism and leisure policies of Korea

Recent world trends of the tourism industry are pursuing Multi-function instead of single function by industry and are characterized by enlargement, complexation, and themes through mutual linkages between facilities with attraction and the maximization of synergy effect. In September 2012, to activate investment attraction in Free Economic Zones, a preliminary examination system was introduced to reduce investors economic/time burdens. The consortium of US Caesars-Hong Kong Lippo Group passed its 1st project under the examination system( 14.03) and its resort complex is scheduled to open in 2018.

’

‘

In addition, the government has a plan to designate six base type marinas to form each international marina facilities with two each in 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. In addition, in 2013, the Ministry of Justice newly designated the tourism resort in Haeundae, Busan and tourism complex in the eastern area of Busan as the area applied by Real Estate Investment and Immigration System in order to activate the local economy by attracting foreign capital. Nowadays, there are 5 regions applied by Real Estate Investment and Immigration System-Jeju island, Gangwon, Pyeongchang, Incheon Free Economic Zone(IFEZ), Gyeongdo in Yeosu, and Busan.

‘

In addition, the Ministry of Culture, Sports, and Tourism has implemented a 72-hour no visa entry program for foreigners for transfer tourism since May, 2013. Since foreign transferring tourists who are planning to go to third country or Jeju through Incheon or Gimhae International Airport can enter Korea for 72 hours without any visa, the number of Chinese tourists increased, recording 4.32 million(accounting for 35% of the number of the total tourists) in 2013. Since January in 2014, no-visa sightseeing will have been possible between Korea and Russia and tourists from the both countries can enjoy sightseeing for 60 days, which is expected to increase the number of tourists approximately by 200% compared to the previous year. This is also expected to be positively affected along with investment attraction.

’

Ⅱ

. Trends of Foreign Investment Attraction by Major Industry

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 resorts for the operation of a general entertainment business. In the case of Seoul, investment in business hotels including the existing Banyan Tree Hotel, will be activated and as interest in the marine tourism industry in Korea increases, marina resort development-related enterprises, such as Bellingham in Australia are showing interest in Korea.

[Figure 2-5] Invest KOREA-China Real Estate Chamber of Commerce, Beijing service industry Investment attraction presentation ( 13.09.25)

â&#x20AC;&#x2DC;

In addition, as Chinese tourists are increasing, investments in the areas of tourism and leisure that target them are also increasing, but these investments are mainly concentrated on Jeju island. Green land group, a Chinese enterprise included in Fortune Global 500, is developing a project on healthcare town in Seogwipo-si and Dream tower in Nohyeong-dong, Jeju. Macrolink Group, a Chinese enterprise, is also going to invest in the tourism facility, with Blackstone resort. Ran Ding, a Chinese company, and Kenting, a Singapore company, plan to have joint construction of a family integrated resort on the site of Jeju Myths and History Theme Park. Success case of investments in Korea

Ran Ding, a Chinese company, and Kenting, a Singapore company, will jointly construct a family integrated resort on the site of Jeju Myths and History Theme Park. The companies concluded JDC and MOA( 13.08) for the development and they will start the project by reporting investment of approximately USD 730 million. This project is expected to activate the local economy in Jeju island and turn the island into an economically efficient tourist attraction by developing facilities for gathering, such as a family theme park in Jeju.

â&#x20AC;&#x2DC;

Invest KOREA Annual Report 2013

⑥

Industry

Regional Development

Regional Development Industry in Korea

The international Monetary Fund(IMF) announced that global economic growth increased from 3.3% in 2012 to 3.5% in 2013 and the Organization for Economic Cooperation and Development(OECD) announced that global economic growth steadily increased from 2.9% in 2012 to 3.4% in 2013. In 2013, the Bank of Korea(BOK) kept the base rate at 2.5% per annum and the Korean real estate market was led by domestic investors, owing to the increase in the amount of liquidity funds. The vacancy rate of the office market, a barometer of real estate, was 12.2% and the scale of investment in commercial buildings in Seoul was KRW 2.4 trillion. The regional development market shows the gap between the rich and poor depending on the investment area and stabilized price and the expansion of the land transaction permission area shows that the local governments commitment on the development is strong.

’

[Figure 2-6] Progress of fluctuation rate of land price consumer price index and lifting status of the land transaction permission areas

Data : Ministry of Land, Infrastructure, and Transport

In 2013, orders for construction decreased by 21.7% while the establishment of construction kept an increasing trend of 11.6% and the size of building permit areas was approximately 98,963 by October with a decrease of 8.7% compared to the same period last year. In the thousand real estate development market, the credit rating was downgraded due to the cancellation of the development project on Yongsan International Business District, the increase of household debt, and maintaining low interest rate were big issues.

㎡

Ⅱ

. Trends of Foreign Investment Attraction by Major Industry

’

Foreign investors payback by selling single invested office buildings and their shares, Greenfeild investment operated by domestic enterprises, JV, and equity participation shows the form that require market stability on uncertainty of payback and development projects. Also, overseas investors reduce the subjects of investments to office buildings with high securitization rates, SOC projects, and guaranteed investment projects. In addition, with the Korea-USA FTA, Korea-EU FTA, and Korea-China FTA as a driving force, foreign investors showed interest in the area of distribution, integration of R&D Centers, and high added value real estate markets so that changes in the regional development market are expected. 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, accomodations, real estate, lease, culture, entertainment, etc. Over the last five years, investment records in the relevant areas have accounted for approximately 20% of service industry records. The records in 2011 and 2012 decreased to the level of those in 2009 but have been increasing since 2013 and are expected to gradually increase in 2014.

[Table 2-11] Records of investments attracted by regional development and the shares (Unit : US$ million, %)

2009

Division

Amount

Entire result Service industry Real estate lease

Food

Accomodation

Culture

entertainment

2010

11,484 7,594 1,420 176 55

66.1 18.7 2.3 0.7

Amount

13,071 6,302 2,687 58 110

2011

48.21 42.6 0.9 1.7

Amount

13,673 7,269 1,474 127 469

2012

53.16 10.8 1.7 6.5

Amount

16,286 9,601 1,752 908 97

2013

58.96 10.7 9.4 1

Amount

14,548 9,845 2,550 938 81

68 26 9.5 0.8

Data : INSC (based on reports)

’

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

Through the new designation of Chungbuk FEZ and East Coast region FEZ, Korea has 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 the balance of the 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, it is expected that depressed domestic private development projects will be an obstacle. Large development projects, such as the Saemangeum land reclamation project, the relocation of public institutions to provinces, and innovation city development are implemented in terms of regional economy activation and the efficiency of national land development. Furthermore, 38

Invest KOREA Annual Report 2013

investors show interest in joint ventures with domestic enterprises by considering governmentled development projects as opportunities. Foreign-invested companies in the areas of regional development that advanced into Korea

Currently, various enterprises have directly or indirectly advanced into various areas in Korea in relation to regional development: Merin Entertainment from UK, TAUBMAN, Simon Property, Triple Five, Kume sekkey from the USA, GreenLand, Shanghai Holdings from China, and Berjaya from Malaysia have all invested in the regional projects. In addition, Gyeonggi-do Goyang Korean wave world, Gwacheon cultural composite complex, and Hanam Union Square are implementing active investment attraction projects for regional development projects, lifting development restrictions. Meanwhile, investments by Chinese enterprises have concentrated on Jeju, and investors are showing an interest in the grant of investment permanent residency(Jeju island, Alpensia in Gangwon-do, Yeosu, Midan City in Yeongjong-do, Incheon, Sky city, a tourism complex in the eastern area of Busan, Haundae). Recently, to create jobs and solve the problem of youth unemployment, local governments are performing active investment attraction activities for R&D centers, complex multiplexes, and the cutting-edge material industry, and implementing investment attraction projects specialized by local government.

Success case of investments in Korea

Simon property, which began investing in a premium outlet mall in Yeoju-si, Gyeonggido, stably advanced into the market in Korea by opening outlet malls in Paju, Gijang in Busan and invested in JV with Shinsegae Korea. Simon property is also planning to invest in Uijeongbu, Naju, Gunpo-si and to invest in the expansion of Yeoju, competing with Korea s Lotte Outlet by forming a new paradigm in distribution.

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Simon property Group, established in 1960, is a company specializing in developing commercial real estate.

â&#x2026;Ą

. Trends of Foreign Investment Attraction by Major Industry

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Industry

Âˇ

Logistics

Distribution

Logistics industry in Korea

The logistics industry in Korea has been growing at an average rate of 6% per year. The scale of the logistics market was USD 4.2 trillion in 2012, which increased from USD 3.6 trillion in 2008 and the amount is expected to reach USD 8 trillion in 2020. In addition, the cargo volume of the world logistics market is expected to increase by approximately 27% by 2017 and the world cargo volume in 2013 was 490 million TEU, which is expected to reach 626 million TEU with an increase of approximately 27% compared to that of 2013. In this global trend, the container cargo volume in Northeast Asia is also expected to reach 349 million TEU with an increase of 23% compared to 259 million TEU in 2013.

[Figure 2-7] Value of the logistics industry in Korea

Note : The value was calculated on the basis of cost price Data source : Korea International Trade Association, Deutsche asset management report in June 2013

In the case of the domestic logistics market, the total sales in 2012 is estimated to be KRW 47.1 trillion, recording a growth rate of 5.5% compared to the sales amount of 2011, which was KRW44.6 trillion, despite the economic recession following the financial crisis begun in Europe and the increase of oil price. As shown in [Figure 1], the value of the domestic logistics market has been on the rise from 1995 to 2012 and the value is expected to be over KRW 250 trillion in 2017.

Invest KOREA Annual Report 2013

[Table 2-12] Major statistics for the logistics industry Division Sales(KRW million) Operating costs(KRW million) Logistics enterprise(ea) Average sales(KRW million)

2007

2011

2012

111,981,875 105,694,653 340,529 328

136,161,780 126,678,743 346,079 393

141,568,255 131,858,033 343,696 412

Data : Korea Chamber of Commerce and Industry (2013) and Statistics Korea 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

‘

[Figure 2-8] FTA linked 2013 port logistics presentation ( 13.11.22)

Located in the middle of Northeast Asia, Korea can rapidly link up with many cities and countries around the world. Incheon International Airport, a hub airport in Northeast Asia, directly connects to 88 airlines, 56 countries, and 184 cities and has non-stop flights to 43 cities in China and 24 cities in Japan(as of July, 2013). In particular, along with its geopolitical excellence that enables linkage with not only China, the factory of the world, and the economic giant Japan, but also the Far East Maritime Provinces and Taiwan are within in short distances, Korea has also established an excellent infrastructures, such as world-class airports and seaports, including Incheon Airport(second in the world based on cargo volumes) and Busan port(world s fifth largest container port), well-organized expressway networks and inland logistics base facilities. For example, the number of regular lines passing by Busan port, a hub port, reached 368 ports around the world- 45 ports in China, 70 ports in Japan, 72 ports in Southeast Asia, and 46 ports in North America.

’

In addition, the Korea-EU FTA, taken effect in the third quarter of 2011, and the KoreaUSA FTA, taken effect in April in 2012, are attracting attention from many global manufacturing and distribution businesses, which want to utilize Korean airports and seaports as Trunk Route: this seems to be a driving force for the Korean market to become duty-free and a global logistics hub.

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. Trends of Foreign Investment Attraction by Major Industry

To reinforce the competitiveness of the logistics industry in line with this Trunk Route, the Korean government selected the area of the port terminal operation and construction and the area of the 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 European, North American, and Japanese 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 2013 was USD 755 million with a decrease compared to the previous year.1) However, since investments in logistics are made in connection with the wholesale/retail distribution industry in many cases because of 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 connection with the distribution industry should be reasonable. Likewise, it should be accurate since the ratio of investments in Korea is interlocked with major investors M&As, etc.,

â&#x20AC;&#x2122;

[Table 2-13] State of FDIs attracted by the logistics and distribution industry over the last five years (Unit : US$ million, %)

2009

2010

2011

2012

2013

11,483 265 2.3 2,204 19.2 21.5

13,072 197 1.5 965 7.4 8.9

13,673 143 1.05 1,743 12.7 13.8

16,286 66 0.40 1,237 7.6 8

14,548 98 0.67 657 4.5 5.17

Year Total amount of FDIs Transportation and warehousing(logistics)

A : ratio(%) Wholesale/retail distribution B : ratio(%) A+B : ratio(%)

Data : Ministry of Industry, Trade and Energy, State of FDIs attracted by logistics and distribution industry

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

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

60 46.3%

50 38.8% 40

48.2%

52.1%

42.2%

35.6%

0 2005

2006

2007

2008

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Data : Ministry of Trade, Industry & Energy

2009

2010

2011

Survey on the status of third party logistics use in 2012

2012

â&#x20AC;&#x2122;

1) Ministry of Trade, Industry & Energy, Record amount of investment performance by industry

Invest KOREA Annual Report 2013

Ratio of logistics costs to sales

▲

■

Entire logistics cost (including intemational)

Domestic logistics coat

12.50%

■

9.40%

▲

11.10%

■

8.60%

▲

9.90%

■

7.30%

▲

9.70%

■

6.80%

9.10%

▲

8.37%

▲

8.03%

6.50%

6.63%

6.47%

■

▲

■

0 1999

2001

2003

‘

Data : Ministry of Trade, Industry & Energy

2005

2007

2009

Survey on the status of business logistics costs in 2011

2011

’

As shown in the graph above, 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 more room for higher efficiency in logistics and improvement. Foreign-invested companies in the are of the logistics and distribution industries that have 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, DP World in the Arab Emirates, Evergreen/Unigloty in Taiwan, which is an ocean carrier, and Zim in Israel. In the area of international special transportation industry, after the advancement of DHL into Korea in 1977 for the first time, TNT(1983), FedEx(1998), 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 major investment companies such as GIC, Asendas Korea have advanced into Korea. In the case of the distribution industry, IKEA in Sweden, the largest DIY furniture distributor in the world, is preparing to launch its first, second stores. 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 ports in Korea, showing close connection with the logistics industry. In addition, D company in France, a leading distributor for sporting goods in Europe, plans to advance into the capital area and the Southeast Asia market with the goal of establishing 100 shops within 5years.

Ⅱ

. Trends of Foreign Investment Attraction by Major Industry

Success case of investments in Korea

Investments in the area of logistics and distribution are attracted to diverse areas. First, in the area of logistics real estate development, Mapletree in Singapore and other companies made a large investment amounting to USD 7 million, and a third party frozen food logistics company in Canada(BL Int l: USD 14 million, 13) invested in the new Busan port. In addition, multi-angle investments are continuously being made in the area of port development, operation, and CFS(Container Freight Station), such as investments by the Amway corporation in the USA, M Co. and NICE Co., which are leading companies in Japan. These investments in the new Busan port are being made to establish East Asia logistics bases.

’

‘

‘ ’

In the area of distribution, large-scale investments have recently been made. In the case of J company, a world-class furniture company, which has its head office in Europe, secured a site for the establishment of a flagship store in 2011 and invested a total of USD 230 million.

‘’

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

Invest KOREA Annual Report 2013

â&#x2018;§

Industry

Cultural Contents

Cultural contents industry in Korea

The cultural contents industry in Korea is 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 2013, the scale of the cultural contents industry markets in Korea excluding performances was KRW 91 trillion with an increase of 4.5% compared to the previous year and has been recording a high average annual growth rate of 8% since 2009. 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 2013, publishing, broadcast, advertisement, game, and knowledge and information industries were forming large markets exceeding KRW 10 trillion each and industries that recorded at least two digit average annual growth rates from 2009 to 2012 are knowledge and information(15.7%), music(12.8%), contents solution(12.3%), game(12.0%), character(11.6%), movie(10.8%), and advertisement(10.1%). In particular, the high growth of the knowledge and information market(portal, edutainment, etc.) is a driving force of the entire cultural contents market caused by the further of advancement into the mobile market by major portal companies and the demand growth on smart learning from home and abroad.

[Talbe 2-14] Scales of domestic cultural contents markets by area (Unit : KRW million %)

Division Publishing Comics Music Game Movie Animation Broadcast Advertisement Character Knowledge and information Contents solution Total

2010

2011

21,243,798 741,947 2,959,143 7,431,118 3,432,871 514,399 11,176,433 10,323,172 5,896,897 7,242,686 2,359,853 73,322,317

21,244,581 751,691 3,817,460 8,804,740 3,773,236 528,551 12,752,484 12,172,681 7,209,583 9,045,708 2,867,171 82,967,886

2012

21,097,287 758,524 3,994,925 9,752,538 4,404,818 521,005 14,182,479 12,483,803 7,517,640 9,529,478 3,029,140 87,271,637

2013

20,017,201 767,655 4,441,913 10,367,015 4,983,815 522,104 13,901,597 13,523,816 8,300,740 10,889,994 3,467,460 91,183,310

CAGR

-0.7% 1.0% 12.8% 12.0% 10.8% 5.7% 8.9% 10.1% 11.6% 15.7% 12.3% 8.0%

Data : Ministry of Culture, Sports, and Tourism

The import amount by the cultural contents industry in Korea in 2012 was approximately USD 1.7 billion with a decrease of 9.4% compared to the previous year while the export amount was USD 4.6 billion with an increase of 7.2% compared to the previous year, indicating the strength of Korea as a cultural contents export country. The import amount of cultural contents was larger than the export amount from 2005 to 2007, but the export amount has continued to exceed the import amount since 2008.

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. Trends of Foreign Investment Attraction by Major Industry

[Figure 2-9] Yearly scales of import and export by the domestic cultural contents industry (Unit : US$ million)

Data : Ministry of Culture, Sports and Tourism

As of 2012, the scale of the domestic cultural contents market in Korea was USD 45 billion, making it 7th in the world. The expansion of cultural contents to high-ranking countries is important for further growth.

[Table 2-15] TOP 10 Market scale of contents by country (based on 2012) (Unit : US$ billion)

Ranking

1 2 3 4 5 6 7 8 9 10

Country USA Japan China Germany UK France Korea Italy Brazil Canada

2008

2009

2010

2011

2012

470 182 65 91 80 60 34 43 27 37

443 179 72 90 78 61 35 41 28 36

458 186 84 92 81 64 38 43 32 39

479 190 100 95 83 67 42 43 37 40

499 192 115 97 86 70 45 43 43 42

Data : PwC(2013), Total ranking excluding character

licence and overlapped market

Investment-attraction environment of the cultural contents industry in Korea

FDIs in the cultural contents industry includes culture broadcast industry(movie, comics, performance(music), broadcast, other culture broadcast), specialized technical service industry(advertisement), IT service industry(game, knowledge information, contents solution) in terms of Korea Standard Industry Classification(KSIC). As of 2013, the amount of FDIs in the cultural contents industry was USD 820 million while the number of investment cases was 196, showing an increasing trend since 2009. The area accounting for the highest ratio of the amount of last five years FDI (USD 3.17 billion) is game, which accounts for 42.5%(USD 1.3billion) of the total amount.

’

Invest KOREA Annual Report 2013

[Figure 2-10] Number of cases and amount of cultural contents FDI (Unit : US$ million, cases)

Data source : Ministry of Trade, Industry, and Energy

Foreign-invested companies in the area of cultural contents 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 fourth largest Internet contents enterprise in the world, and Warner Brothers(USA), a Hollywood movie investment/distributing company. In particular, Tencent combines with various investment methods, including direct investment, such as investment in game development company and mobile contents company and investment in domestic fund. 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, a company in Hong Kong, have all made financial investments in domestic cultural contents companies. Success case of investments in Korea

Tencent, the largest internet company in China and the fourth largest internet company in the world, focused on publishing in its domestic market through signing a contract of publication rights on overseas games before 2010 but the company started active investment in the Korean game industry after it ranked 1st place by publishing Korean games such as Cross fire and Dungeon and Fighter .

‘

’

’ ‘

The company raised the size of KRW 50 billion in funds with Capstone Partners LLC, a Korean venture capital, and invested in lots of domestic small and medium game developers, which is a strategy for publishing to the Chinese market again by supporting the growth of small and medium game developers and the completion of the games. In 2012, the company applied the business model(game platform service, etc.) of Kakao Talk to its mobile messenger We chat by investing KRW 72 billion in Kakao. representative mobile messenger in Korea 2012, and this played a role as growth engine for We chat , which reached the first place in the number of subscribers in the world as of the end of 2013.

‘

’

‘

’

‘

’

Global IT game large enterprises investments in domestic game platform market such as Tencent are expected to continue, and the size of the investment is expected to be expanded as well.

Ⅱ

. Trends of Foreign Investment Attraction by Major Industry

⑨

Industry

Finance/M&A

Finance/M&A industry in Korea

FDIs in the entire world shrank after the global financial crisis of 2008 but have been showing a gradual recovery trend thereafter. UNCTAD estimated that world FDIs in 2011 had recovered to the level before the financial crisis. Among the types of investments, whereas cross-boarder 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 European financial crisis and other conditions.2) The number of mergers in 2013 was 585 cases with a decrease of 10.1% compared to the previous year while the amount of the merger was KRW 165.2 trillion with an increase of 9.8% compared to the previous year due to the increase of mergers between foreign companies. The number of mergers related to affiliates of large-scale enterprise groups was 144 cases with a decrease of 26.9% compared to 2012.

[Table 2-16] Progress of the yearly number of examination cases (Unit : case)

2009

2010

2011

2012

2013

413

499

543

651

585

Data : Fair Trade Commission

In the trend by industry, the number of mergers related to the manufacturing industry was 280 cases, accounting for 47.9% of the entire industry, and the number of merger related to the service industry was 305 cases, accounting for 52.1%. The number of mergers related to the manufacturing industry in 2013 decreased a little compared to the number of cases in 2012(291 cases 280 cases) while the share in 2013 increased compared to that of 2012(44.7% 47.9%), meanwhile, the service industry in 2013 decreased in both the number of cases and the share compared to 2012(360 cases, 55.3% 305cases, 52.1%).

→

In the area of the manufacturing industry, the merges between companies was the highest in machine metal(16.8%), followed by petrochemistry pharmaceuticals(12.3%), and electricity electron(8.0%) in order of precedence and in the case of the service industry, the merge between companies was the highest in finance(12.8%), followed by whole and retail distribution(7.0%), and construction(6.3%) in order of precedence.

In the case of the manufacturing area, the number of cases of electricity and electronic businesses highly decreased compared to 2012(95 cases 47 cases), meanwhile the number of cases of petrochemistry businesses highly increased compared to 2012(40 cases 72 cases). In the case of the service area, the number of cases of financial business decreased compared to 2012(99 cases 75 cases). Meanwhile, the number of cases of construction businesses highly increased compared to 2012(20 cases 37 cases).

→

2) 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 .

Invest KOREA Annual Report 2013

To review the forms of combinations, mixed combinations(333 cases, 56.9%) were the most frequent, followed by horizontal combinations(56 cases, 9.6%), and vertical combinations(56 cases, 9.6%) in order of precedence. All forms decreased compared to 2012(horizontal 219 cases 196 cases, vertical 91 cases 56 cases, mixed 341 cases 333 cases) and the number of vertical combinations showed the largest decrease.

→

To review combining methods, the number of cases of stock acquisitions increased(189 cases 218 cases) and that of mergers(178 cases 157 cases) decreased(Among enterprise- combining measures, plural offices, business transfers and company foundations were omitted).

→

In addition, the number of combinations between domestic enterprises and foreign enterprises was 17 cases in total with a decrease of 12 cases(41.4%) compared to 2012(29 cases) and the amount was KRW 0.5 trillion with a decrease of KRW 1.2 trillion(70.6%) compared to 2012(KRW 1.7 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, but it recorded USD 4.98 billion in 2013, which has been continuously increasing since recording 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 2011, but it increased to 23.0% in 2012, 34.2% in 2013. 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 2-17] Records of foreign investments attracted by type of investments and the ratios of M&A types (Unit : US$ million)

Investment type Amount of investment attracted

M&A-type Greenfield-type Ratio of M&A- type

2009

2010

2011

2012

2013

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 23.0%

14,548 4,979 9,569 34.2%

Data : INSC (based on reports)

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 investment- attraction policies are oriented toward the manufacturing industry, and the competitiveness of the finance sectors is relatively lower compared to the manufacturing industry. However, the financial environments and markets in Korea have gradually been improving, thanks to the expansion of the scale of the capital market and the increase of liquidity in Korea. In addition, since system improvements for the advancement of financial markets are in progress, such as the enforcement of the Capital Market Act, the relaxation of the separation between industrial and

Ⅱ

. Trends of Foreign Investment Attraction by Major Industry

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 profits by taking over the management rights of enterprises that entered into their nature stage, enhancing their enterprise value and reselling the enterprise 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.

â&#x20AC;&#x2122;

In 2013, there were two cases of foreign companies M&As of domestic enterprises. The first was CVCI s (City Venture Capital International) takeover of the chicken business, Genesis BBQ Group(restaurant franchise)(KRW 98 million). The second was by financial consortium composed of Peter Thiel/Octave Capital, etc., which took over the share(17.3%) of Hanmi Semiconductor Co., Ltd.(KRW 44 billion).

â&#x20AC;&#x2122;

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 in start-up enterprises with innovative technologies and has invested in approximately 30 venture enterprises in Korea. In addition, Qualcomm also advanced into Korea in 2010 and Pulsus, Obzee, etc., are all making investments in domestic enterprises. Japan Softbank Ventures has been making investments in Korea for 10 years. In addition, more than 10 global VCs have advanced in Korea, including Athena, Maverick Capital, Bluerun Ventures, and IDG. Unlike global PEFs, overseas VCs actively invested in Korea in 2011 and the scale of investment is growing day by day, such as the KRW 20 billion invested each by Maverick Capital, Altos Ventures, and DCM in Kakao and Coupang.

Success case of investments in Korea

The investor consortium composed of, Peter Thiel, who is the founder of Paypal, the global online payment agency, Octave Capital, and Skylake, etc., invested KRW 44 billion(the share is 17.3%) in Hanmi Semiconductor Co., Ltd. in June 2013. Hanmi Semiconductor Co., Ltd., an equipment manufacturer of back-end of semiconductors, is expected to extend its overseas business and trade with global semiconductor businesses such as Intetl and Qualcomm by utilizing the network established by Peter Thiel. In addition, it has a plan to use investment money secured by preparing new investment funds through this investment-attraction in equipment.

Invest KOREA Annual Report 2013

Ⅲ

Research Results on the Management of Foreign Companies3) 4)

1. Economic effects of Foreign-invested companies Sales

The total sales of foreign-invested companies in 2012 was KRW 471trillion in all industries(excluding financial industry). By industry, the manufacturing industry was KRW 372 trillion, and the non-manufacturing was KRW 99 trillion, which slightly decreased compared to 2011. Accordingly, foreign-invested companies share of the domestic industry was 13.7% with a decrease of 1% compared to the previous year.

’

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

산 업

Foreign invested company

Domestic enterprise

Whole industry Manufacturing industry Non-manufacturing industry

Share of domestic enterprises

2011

2012

2011

2012

2011

2012

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

3,450,764 1,750,482 1,700,282

482,402 387,334 95,068

471,429 372,230 99,199

14.7 23.0 5.9

13.7 21.3 5.8

’

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

’

2. 2011 results of foreign invested companies were cited from the survey of actual states of foreign-invested companies

management(2012)

3. Financial industry is not included in all industries and non-manufacturing industry.

In the case of the sales amount of domestic enterprises in 2012, sales in the manufacturing and the non-manufacturing industries were the level of KRW 1700 trillion , showing a similar level in the size. Meanwhile, in the case of foreign-invested companies, the size of sales in the manufacturing industry was 3.87 times higher than the size of non-manufacturing industry, indicating that large scale investment enterprises, which have relatively large sales scales, are mostly in the manufacturing industry. A balanced investment attraction is necessary for the future of investment attraction. In fact, high ranking enterprises sales amounts have increased compared to the previous year. It can be seen that the top 5 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, and chemistry.

‘

3) The part

’

The result of actual states of foreign enterprises

’

states of foreign invested companies

’

‘

was written based on the

2013 survey of actual

management .(Superintending organization : Ministry of Industry, Trade,

and Energy, Surveying organization : KOTRA, Gallup Korea Co., Ltd.)

‘

4) 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

’

limitation of counting foreign investments

‘

share. Therefore, the

’ ’

foreign investment

records have a

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

. Research Results on the Management of Foreign Companies

[Table 3-2] Top 15 enterprise in sales increases compared to the previous year (Unit : KRW million)

No.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Business type

Enterprise name GS-Caltex Co., Ltd.

Manufacturig industry

S-Oil Co., Ltd.

Manufacturig industry

Korea GM Co., Ltd.

Manufacturig industry

Hyundai Glovi Co., Ltd.

Manufacturig industry

Honam Petrochemical Corp.

Manufacturig industry

LS-Nikko Cooper Inc.

Manufacturig industry

Samsung Total Corp.,

Manufacturig industry

Home plus Co., Ltd.

Service industry

Dong Kuk Steel Mill Co., Ltd.

Manufacturig industry

Renault Samsung Motors Co., Ltd.

Manufacturig industry

Samsung Corning Precision Materials Co., Ltd.

Manufacturig industry

Hyundai Rotem

Manufacturig industry

Hotel Lotte Co., Ltd.

Service industry

EUKOR Car Carriers Inc.

Service industry

Ssangyong Motor Company Limited

Manufacturig industry

2011 sales

2012 sales

Increment

44,954,889 31,913,863 15,068,001 7,547,777 8,463,484 9,184,538 6,831,353 6,964,917 5,909,399 4,981,577 4,513,432 2,698,762 2,585,416 2,553,336 2,773,120

46,155,917 34,723,291 15,949,675 9,272,885 9,095,887 8,935,854 7,244,364 7,086,293 4,969,375 3,655,178 3,218,921 3,067,679 3,061,262 2,874,753 2,863,806

1,201,028 2,809,428 881,674 1,725,108 632,403 -248,684 413,011 121,376 -940,024 -1,326,399 -1,294,511 368,917 475,846 321,417 90,686

Note) Analyzed those enterprises that responded on the sales sector among enterprises thatparticipated in the questionnaire survey.

Employment

’

The scale of foreign-invested companies employment in 2012 was 509,925 in all industries with an increase of 9,000 compared to the previous year, and foreign-invested companies employment in Korea decreased a little from 6.2% to 6%. By industry, employment by the manufacturing industry was 285,000 with a little increase compared to the previous year. Despite the increase of the number of total employment, The decrease of the number of employment in the non-manufacturing industry and the finance industry was observed, therefore the share of foreign invested companies employment decreased slightly. This can be seen that the share of foreign investment companies employment relatively decreased as the scale of the entire industry in Korea increased.

’

[Table 3-3] Scales of foreign invested companies employment and its share of employment in Korea (Unit : person, %)

Domestic enterprise

Whole industry Manufacturing industry Non-manufacturing industry Financial industry

Foreign invested company

2011

2012

2011

2012

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

8,569,535 2,780,795 5,390,919 397,821

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

509,925 285,147 193,121 31,656

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. The 2011 indicators were cited from the survey of actual state of foreign invested companies

management(2012).

3. Financial industry is not included in non-manufacturing industry 4. The numbers and ratio on the statistic table could not be accordance with the total and details because of the estimation on total or the difference caused by round offs.

On reviewing those enterprises that showed an increase in the number of employees compared to 2012, In the wholesale/retail industries(distribution), the number of employees in car manufacturing recorded high in the manufacturing industry, which showed the employment increasing trend was clearer in the service industry than in the manufacturing industry. 52

Invest KOREA Annual Report 2013

[Table 3-4] Top foreign-invested companies in employment record No.

Details on business

Business type

Enterprise name

Home plus Co., Ltd.

Service industry

Large retail

GM Korea Company

Manufacturing industry

Manufacturing automobile and passenger vehicle

Lotteria Co., Ltd.

Service industry

Restaurant for pizza, hamburgers, sandwiches, etc.

Amkor Technology Korea Inc.

Manufacturing industry

Manufacturing electronic integrated circuits

Homeplus Tesco Co., Ltd.

Service industry

Large General retailer

Transcosmos Korea Co., Ltd.

Service industry

Providing database and online information

Renault Samsung Motors Co., Ltd.

Manufacturing industry

Manufacturing automobile and passenger vehicle

Manpower Korea Inc

Service industry

Manpower supply

Ssangyong Motor Company Limited

Manufacturing industry

Manufacturing car bodies and special vehicles

Samsung Corning Precision Materials Co., Ltd.

Manufacturing industry

Manufacturing industrial glass products

Hyundai Rotem

Manufacturing industry

Manufacturing locomotives and railroad cars

Hotel Lotte Co., Ltd.

Service industry

Hotel

Costco Wholesale Korea, Ltd.

Service industry

Large General retailer

FRL Korea Co., Ltd.

Service industry

Wholesale of shirts and outer garments

Adecco Korea Incorporation

Service industry

Manpower supply

Note) Organized those enterprises that responded on the employment record among enterprises that participated in the questionnaire survey.

Added value

The added value of foreign-invested companies in 2012 was KRW 67 trillion in all industries, consisting of KRW 47 trillion in the manufacturing industry and KRW 20 trillion in the nonmanufacturing industry with a decrease of approximately 16.8% compared to 2011. Whereas domestic enterprises showed small increases evenly in all industries, in the manufacturing and in the non-manufacturing industries, foreign- invested companies showed a decrease trend, which affected the added value because of the decline of overall records caused by the localization of large foreign invested companies.

’

[Table 3-5] Scale of foreign invested companies added value and its share of added value in Korea[reflecting share ratio) (Unit : KRW billion, %)

Domestic enterprise

Whole industry Manufacturing industry Non-manufacturing industry

Foreign invested company

Share of added value in Korea

2011

2012

2011

2012

2011

2012

576,116 288,990 287,126

609,107 302,745 306,361

80,639 52,143 28,496

67,125 47,251 19,875

14.1 18.0 9.9

11.0 15.6 6.5

Note 1. The domestic enterprise indicators added up composition items of added value on the statement of profit and loss and the statement of the costs of goods manufactured from enterprise management analysis by the Bank of Korea

’

2. The outcomes of foreign-invested companies in 2011 were cited from the survey of the actual state of foreigninvested companies management(2012). 3. Financial industry is not included in all industries and non-manufacturing industry.

To review the added value composition ratio 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 33.63%, indicating a high ratio of added value reverted to the enterprises while their ratio of labor costs was shown to be 40.84%, lower than that of

’

Ⅲ

. Research Results on the Management of Foreign Companies

domestic enterprises at 48.50%. In the case of the non-manufacturing industry, foreign-invested companies operating surplus ratio was also 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 : %)

Composition item of

’

Manufacturing industry s added value composition Domestic enterprise

Added value

Foreign invested company

’

Non-manufacturing industry s added value composition Domestic enterprise

Foreign invested company

2011

2012

2011

2012

2011

2012

2011

2012

Operating surplus

26.65

24.38

36.71

33.63

8.99

7.43

44.43

35.87

Labor cost

47.66

48.50

31.62

40.84

64.74

65.58

35.06

41.23

Financial cost

6.68

6.47

5.98

6.14

11.65

11.25

9.71

8.03

Tax and dues

1.41

1.43

0.99

1.18

2.38

2.50

2.37

2.30

Depreciation cost

17.60

19.21

24.70

18.21

12.24

13.24

8.43

12.57

’

Note 1. The domestic enterprise indicators are citied from the item added value composition from the Bank of Korea s enterprises

’

management analysis 2011, 2012 2. Foreign-invested companies

added value composition is based on the values obtained from enterprises that participated in the

questionnaire survey not from all foreign-invested companies therefore there could be an error. 3. Financial industry is not included in non-manufacturing industry 4. The depreciation cost of domestic enterprises has included intangible asset depreciation cost since 2012 (excluding foreign invested companies)

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 export amount by foreign-invested companies in 2012 was USD 110 billion, accounting for 20.2% of the export amount by the entire country, and the import amount by foreign-invested companies was USD 120 billion accounting for 21.4% of the import amount by the entire country.

’

[Table 3-7] Scales of foreign-invested companies import and export and their share of domestic companies

(Unit : USD million, %)

Domestic enterprise

Foreign invested company

Share of domestic companies

2011

2012

2011

2012

2011

2012

Export

555,214

547,870

100,713

110,584

18.1

20.2

Import

524,413

519,584

123,967

111,034

23.6

21.4

Note 1. The domestic enterprise indicator used trade statistics on export and import by Korea Customs Service, the 2011 data for

’

foreign invested companies were obtained as the KRW currency data and converted into dollars units. 2. The 2011 indicators were cited from the survey of actual state of foreign invested companies

’

management(2012).

3. 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.

Invest KOREA Annual Report 2013

’

As foreign-invested companies export records(amount) increased, foreign-invested companies export share in domestic companies increased by 2.1 compared to the previous year, which was caused by the decrease of the export amount of the entire country excluding a little increase of export records(amount) by foreign-invested companies. Meanwhile, among 22 enterprises included in the list of export tower receiving enterprises for exports exceeding USD 500 million commemorating the 50th day of trade, December 5m 2013, 8 were identified to be foreigninvested companies.

[Table 3-8] Companies that received export towers on the 50th day of trade (extract) Kind

Company name

6 billion dollars tower

Lotte Chemical Co., Ltd.

4 billion dollars tower

Hyundai Glovis Co., Ltd.

1 billion dollars tower

Hyundai Cosmo Co., Ltd.

700 million dollars tower

Heesung Metal Ltd.

700 million dollars tower

Kyungsin Co., Ltd.

700 million dollars tower

Tongsuh Petrochemical Corp., Ltd.

600 million dollars tower

STATS ChipPAC Korea Ltd.

500 million dollars tower

Kumho P&B Chemicals Inc.

Data : Korea International Trade Association

Meanwhile, oil refinery, car, chemistry-related enterprises that were highly ranked for import 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 foreigninvested companies. Research and development costs(manufacturing industry)

In 2012, the research and development costs of foreign-invested companies in the manufacturing industry was KRW 1,975 billion with an increase of KRW 115 billion compared to the previous year but the ratio of foreign-invested companies research and development costs to the total research and development costs in Korea was 6.6% with a decrease of 0.5% compared to the previous year, therefore the total ratio of the foreign invested companies research and development decreased.

’

In addition, it is analyzed that the localization of major foreign-invested companies that recorded high ranks in investment records highly affected the decrease of share of the R&D costs in foreign-invested companies.

[Table 3-9] The scale of research and development costs of foreign-invested companies in the manufacturing industry and the share of domestic companies (Unit : KRW billion, %)

Foreign invested company

Domestic enterprise

Share of R&D costs in Korea

2011

2012

2011

2012

2011

2012

26,132

30,042

1,860

1,975

7.1

6.6

Note 1. The indicators for domestic enterprises were calculated by summing up the current research and development 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 2011 indicators were cited from the survey of actual state of foreign invested companies

Ⅲ

’

management(2012).

. Research Results on the Management of Foreign Companies

’

2. Foreign-invested companies

Management Performance

Profitability

The profitability indicators of foreign invested companies in all industries in 2012 were return on net sales; 5.58%, net profit on sales; 5.50%, and return on equity; 10.62%. All of these indicators were shown to be higher than those of domestic enterprises, surveyed that foreigninvested companies surpassed domestic companies in profitability indicators. However, the return on net sales decreased by 0.16% compared to 2011, the net profit on sales and the return on equity decreased by 7.28%, 8.26% respectively, which indicates that the overall decrease in the sales of foreign invested companies had negative effects on profit-related indicators.

’

[Table 3-10] Foreign-invested companies profitability indicators(all industry) (Unit : %, times)

Division

Return on net sales Net profit on sales Return on equity

Domestic enterprise

Foreign-invested company/Domestic enterprise

2011

2012

6.04 12.78 18.88

5.88 5.50 10.62

4.11 2.51 5.96

1.43 2.19 1.78

Foreign-invested company

’

Note 1. The domestic enterprise indicators were cited from the related ratio of the profits and losses in the enterprise management analysis of the Bank od 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 2012 were shown to be the ratio of net worth; 44.69% and debt ratio; 110.11%. When compared to domestic enterprises, the ratio of net worth was 1.11 times and the debt ratio was 0.75 times, which showed that foreign-invested companies were better in both indicators.

’

[Table 3-11] Foreign investor companies stability indicators (all industries) (Unit : %, times)

Ratio of net worth Debt ratio

Domestic enterprise

Foreign-invested company

40.39 147.60

44.69 110.11

Foreign-invested company/Domestic enterprise

1.11 0.75

Note 1. The domestic enterprise indicators were cited from the related ratio 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.

Invest KOREA Annual Report 2013

Growth

’

Foreign-invested companies total asset rate was 10.79%, which was 2.13 times higher than domestic enterprises, and equity growth rate was 12.63%, which was 1.80 times higher than domestic enterprises. Foreign-invested companies sales increase rate was shown to be 8.44%, which was 1.65 times higher than domestic enterprises.

’

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

Foreign-invested company

Domestic enterprise

Foreign-invested company/Domestic enterprise

10.79 12.63 8.44

5.07 7.02 5.11

2.13 1.80 1.65

Total asset growth rate Equity growth rate Sales increase rate

’

Note 1. Domestic enterprise indicators are from Bank of Korea s enterprise management analysis data. 2. Financial industry is not included in all industries.

Dividend payout ratio indicator

’

In 2012, foreign-invested companies dividend rate was 3.66% and dividend payout ratio was 19.42% and when compared to domestic enterprises, the dividend rate in 2012 was lower by 0.61 times, and the dividend payout ratio was 1.07 times higher than domestic enterprises. The dividend rate and dividend payout ratio of foreign-invested companies in 2012 were lower by 0.23% and 1.28% respectively, compared to 2011. This can be assumed to be a result of foreign-invested companies increased the ratio of internal reserves to net profit or capital.

’

[Table 3-13] Foreign-invested companies dividend payout ratio indicators (all industries) (Unit : KRW million, times)

Division

Domestic enterprise Dividend rate

Domestic enterprise

Foreign-invested company/Domestic enterprise

2011

2012

3.89 20.7

3.66 19.42

6.01 18.16

0.61 1.07

Foreign-invested company

’

Note 1. Domestic enterprise indicators are from Bank of Korea s enterprise management analysis data. 2. Financial industry in not included in all industries

Ⅲ

. Research Results on the Management of Foreign Companies

’

3. Major Characteristics of Foreign-invested Companies Management Activities

’

Foreign investor s motive for investment in Korea

‘

Among foreign investors, 58.1% indicated that they regarded advancement into Korean markets as the most important motive for investment in Korea followed by investment asset value (19.6%), and utilization as a base for export (9.8%) in order of precedence. Compared to the result of the survey in the previous year, the ratio of advancement into Korean market increased by 5.0% indicating that foreign investors recognized the importance of the Korean market.

’

‘

’

‘

’

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

’

Foreign investor s Asia region headquarters

’

Among foreign investors Asia region headquarters, the highest percentage at 28.2% were located in Singapore followed by China(24.8%), Japan(19.9%), Hong Kong(17.3%), Korea(13.0%) in order of precedence. Among business types, in the case of the manufacturing industry, China showed the highest percentage at 34.3%. In the case of non-manufacturing industry, Singapore showed the highest percentage at 30.6% and in the case of the financial industry, Hong Kong showed the highest percentage at 51.6%.

Invest KOREA Annual Report 2013

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

’

Foreign-invested companies

main markets

Korean markets were the main markets of 75.0% of foreign-invested companies in Korea, which shows that the share of the domestic market is higher than that of the overseas market. In particular, 34.2%, the highest percentage of foreign-invested companies, were selling their products to large enterprises. By business type, 38.2%, which is the highest percentage of products sold to Korean markets were being sold to large manufacturers in Korea and foreigninvested companies in the financial industry were generating 58.8% of their sales from Korean consumers

’

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

’

As foreign-invested companies major export markets, China was selected the most frequently at 24.8% followed by Japan(24.1%), the USA(16.1%), Germany(4.5%), Taiwan(3.2%) in order of precedence and the rank of major export countries is the same of the previous year. The level of export dependence on the four countries shows very high and the proportion accounts for 69.5% of the entire export.

Ⅲ

. Research Results on the Management of Foreign Companies

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

Procurement activities-related characteristics

Major procurement routes of foreign-invested companies were the most frequently procured from domestic small and medium enterprises at 37.4% on average followed by overseas affiliates of parent companies(19.5%), domestic large enterprises(18.1%), and overseas import(14.5%) in order of precedence..

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

As major countries for procurement of foreign-invested companies, Japan was the most frequently at 34.4% followed by China(16.6%), the USA(16.3%), Germany(7.8%) in order of precedence.

Invest KOREA Annual Report 2013

’

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

Research and development and technology introduction-related characteristics

’

Among major contents of foreign-invested companies research and development, the percentage of Development of new product and new process was the highest at 58.8%, followed by Improvement of product process or design at 37%, Collect/analysis of technology related information at 21.2%, Development of original technology or basic research at 14.8% in order of precedence.

‘

’

‘

’

’ ’

’

[Figure 3-7] Major contents of research and development (Unit : %)

’

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 37.4%, followed by a little enhancement or improvement of existing products or technologies (30.2%), and development of at least one of new product, new technology, and new process for the first time in the industry in Korea (22.9%) in order of precedence.

‘

Ⅲ

’

. Research Results on the Management of Foreign Companies

’

[Figure 3-8] 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, 38.4% were supported by the central/local governments. In addition, as supported by the government necessary for business expansion in Korea, the largest number of foreign invested companies selected tax reduction and/or exemption (62.6%), followed by administrative support (11%), financial support (10.7%), financial aid5))(10.5%), and positional support (5.2%) in order of precedence.

’

‘

’

‘

’

[Figure 3-9] Government support that is the most necessary to foreign-invested companies (Unit : %)

5) Financial aid means supporting subsidy in employment, land purchase, and establishment of facility.

Invest KOREA Annual Report 2013

‘

Ⅳ

’

Invest KOREA s Contribution to the Attraction of Foreign Direct Investments

1. Investment attraction

「

For the Development of national economy and reinforcement of competitiveness through attraction of foreign investments , Invest KOREA made efforts for the reinforcement of the institution s investment organization and human capacity, establishment of performance and quality oriented investment attraction strategies, reinforcement of post management systems for foreign investment attractions, and customized investments by region and by industry. As part of the effort, in Foreign Investment Week 2013, which is the largest event of IK, 543 foreign investors from 413 enterprises of 24 countries participated and IK succeeded through the event in attracting investments amounting to USD 140 million.

」

’

“

”

‘

[Figure 4-1] Foreign Investment Week 2013 ( 13.10.30)

Ⅳ

’

. Invest KOREA s Contribution to the Attraction of Foreign Direct Investments

[Table 4-3] State of projects managed by region(2013) Division

North America

Europe

Japan

China*

Asia Pacific

Middle East

CIS

Total

526

496

391

231

111

1,783

Number of projects managed by IK(case)

Note : Hong Kong and Macao are included in China Data resource : Invest KOREA

홍

IK reinforced foreign investment attraction activities centering on regional development, tourism and leisure, and logistics and distribution that have large employment-creation effects, recording the creation of 11,788 new jobs as a result so that the number of employment was increased by 15% compared to the 2012 record of 10,224(Investment attraction of the service industry : 135 cases, USD 2.95 billion in 2012 141 cases, USD 3.15 billion in 2013)

→

In addition, as the result of performing strategic investment attraction activities by analyzing the global Value Chain between companies in home and abroad, the development of investment attraction projects in fundamental industries for the future such as state-of-art material, new renewable energy, IT, Bio was expanded. (958 cases in 2012 1,178 cases in 2013)

→

In addition, IK performed specialized investment attraction projects targeting strategic regions such as Japan, and China. Investment attraction activities in Japan were based on active demanders in the area of parts and materials, distribution, etc., investment attraction for Chinese capital was performed based on the Chinese local market such as a strategic cooperation investment attraction between Chinese enterprises and Korean enterprises(Made with China). This led the level of IK s contribution of investment attraction in Japan and China to increase highly compared to the previous year.(Contribution amount of investment attraction on China: 48% in 2012 72% in 2013)

’

→

3. Activities of Investment Attraction by Major Industries and Regions Major manufacturing industry

In 2013, the investment attraction focusing on hub type investment according with future development direction such as quality based investment coming out of quantity based investment, IT, energy, ocean plant was highly considered. In the case of Singapore, Hong Kong, and China, those countries utilize the active attraction of global headquarters in their economic development, meanwhile, the record on attraction of global headquarter in Korea was not as good.(Singapore 4,000 head offices, Hong Kong 1,367 head offices, China 516 head offices, Japan 139 head offices, Korea 8 head offices). Therefore, IK tried to entice strategic investment advancement of global companies by supporting the development of active domestic business partners. Business opportunities came out of simple investment attraction such as Catch All, supply of incentive, etc. In accordance with this, IK expanded management based investment attraction and performed 1:1 customized investment attraction activities by industry and region by utilizing the domestic network and cooperation system of KOTRA.

Ⅳ

’

. Invest KOREA s Contribution to the Attraction of Foreign Direct Investments

[Table 4-4] Achievement of investment attraction of Asia business hub type Priority area Headquarter type

R&D type

Achievement of investment attraction

Achievement content

USD 492 million

4 cases including Siemens power solution part Asia Pacific

(including producing base)

headquarter, etc.

USD 61 million

3 cases including CISCO U-City International joint R&D

(including producing base)

center, etc.

To activate the investment sentiment of global enterprises, IF achieved investment attraction with a creative strategy of business hub by creating active business opportunities and suggesting business models and

’

enhanced efficiency of the nation s economy

In particular, to actively utilize the effects of FTAs for investment attraction, targets were divided into enterprises in the regions and enterprises outside the regions and different strategies were used. First, for enterprises in the regions, the necessity to attract leading global enterprises in the USA and Europe was recognized and attracted investments owing to Asia Business hub of global enterprises combining the effects of Korea-USA FTA and the growth of Chinese domestic markets. Investment attraction activities were performed, utilizing the geographical advantage of Korea as the center of Asian Business and the advantage of tariff reduction as an effect of the FTA to harvest outcomes. In the case of enterprises outside the region, the investment attraction activity was closely performed on target companies after analyzing the strong base of the manufacturing industry and qualified manpower, leading ICT communication and airport. port, infrastructure, and competing factors of a dynamic consumer culture which shows high acceptance of the new product. The most successful case was the success of attracting Asia producing base of silica plant of Solvay(USD 110 million). This case is meaningful in replacing import products by attracting high dispersive silica which had not existed and contributing to balanced regional development by moving investor s investment area from capital areas to non-capital area through close support by KOTRA and job creation.

’

New growth engine industry

To overcome the economic recession, the Korean government is expanding activities to attract strategic investments in future growth engine industries(new and renewable energy, IT convergence/composite, BT, semiconductor, etc.) that satisfy national development policies. In particular, the government concentrated on the attraction of cutting-edge global enterprises R&D centers to create jobs of excellent manpower.

’

A successful representative case is the investment attraction on BASF s overall R&D center in the Asia Pacific region(USD 3,170 million) which was competed with Japan thanks to close support from the early state, and another case is the investment attraction of the LFB R&D and manufacturing center(USD 16 million) which made Korea become the production specialized base of bio medical products and was the first investment case by the French public pharmaceutical company. In addition, IK had success in signing MOU on Pglobal R&D center of imaging diagnosis apparatuses for breast cancer and production GE Healthcare. 66

Invest KOREA Annual Report 2013

[Figure 4-2] Signing ceremony of GE Healthcare-Gyeonggi-do Investment cooperation MOU( 13.12.17)

‘

[Table 4-5] Major investment attraction activities for future growth based industries Priority area

Semiconductor/ Display IT Convergence

Project

Project content Taiwan region cutting-edge semiconductor enterprise investment attraction and

Taiwan semiconductor investment attraction TFT

expansion of cooperation with related organizations Gyeonggi-do global IT leading enterprise investment

Presentation on investment environment in Gyeonggi-do and 1:1 consultation for

attraction TFT( 13.9.)

IT enterprises in North America

‘

Support for Daegu cutting-edge medical complex

Introduce the present status of domestic industry and investment cases to global

investment attraction activity

(North America, Europe, Japan, China TF dispatch)

bio enterprise as a bio cluster supporting project of bio cluster

Drug/medical device target enterprises investment

Introduce industrial status as strategic investment attraction activity specialized for

attraction (Germany, Denmark)

the medical industry and have an interview with a target enterprise

Medical device increase the amount of investment

‘

attraction presentation for foreign-invested

Introduce Korean medical devices for foreign-invested companies

companies( 13.12.)

In addition, to expand and improve national investment attraction activities customized to domestic enterprises demands were performed. Projects to discover domestic enterprises with demand for attraction of investments by excellent overseas enterprises, R&D cooperation, technology transfer, etc. were performed. As a result of the projects, in 2013, 268 projects were created and the amount of the attraction was USD 3.98 billion, which increased by 44.2% compared to the previous year.

’

Projects to support Korean small and medium enterprises globalization were also implemented. GAPS PLUS project, which changed its supporting target from overseas global enterprises in existing GAPS(Global Alliance Project Series) to domestic medium- sized enterprises, was implemented. IK supported these enterprises in order to facilitate global investment between domestic medium sized enterprise and overseas enterprises, which have cutting-edge overseas

Ⅳ

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. Invest KOREA s Contribution to the Attraction of Foreign Direct Investments

technology, and pursued Win-Win growth between domestic enterprises and overseas enterprise through cooperation such as joint R&D. A successful representative case is that CISCO, which opened the GCoE(Global Center of Excellence) R&D center in Songdo, Incheon in October, 2013. Nowadays the company is searching for a technical cooperation partner and reviewing additional investment, which is meaningful since customized investment attraction for the enterprise with a mid-long term vision was performed.

Service

culture industry

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

’

[Figure 4-3] Korea Regional Hope Expo-related foreign investment attraction presentation( 13.11.27)

‘

In addition, to contribute to balanced regional development through the attraction of investments in regional development projects, IK held an investment attraction presentation and investment consultation(November) in connection with 2013 Korea Regional Hope Expo . To reinforce the position of Korea as a Northeast Asia logistics hub by attracting investments from global excellent logistics-distribution enterprises, IK dispatched North America logistics TF for Incheon Port Authority (March), held Europe IR for the Busan Port Authority(June), held Japan IR/TF for Yeosu Gwangyang Port Authority(twice in March, September), and the China round table(December).

‘

Invest KOREA Annual Report 2013

’

[Table 4-6] Service Culture industry major investment attraction activities Priority area

Project name

Content implemented

North America regional development investment

Held in Silicon valley and LA, 9 major American companies participated in the business talk,

attraction TF (April)

Considered the possibility of regional development in Korea

North America regional development investment

Held in Vancouver and LA, 6 companies participated and major 3 companies considered the possibility

attraction TF (July)

of regional development in Korea

Tourism

Held in Melbourne and Sydney, discovered 3 promising projects and business talk on establishing a

leisure investment attraction TF (August) university branch specializing in jobs and considered the possibility of investment in Korea

Beijing service industry investment attraction IR Held in Beijing, 12 companies participated and considered the possibility of investment in Jeju island

Regional development

tourism

and leisure

(September) North America regional development investment

Held in Toronto and New York, major companies considered the possibility of regional development in

attraction TF (October)

Korea

Hong Kong

Taipei Tourism

leisure investment

Held in Hong Kong and Taipei, 12 companies participated and had business talk on Korean tourism and

attraction TF (November)

leisure industry investment by Chinese investors

Western region of North America investment

Held in Las Vegas, San Francisco and LA, major companies considered the possibility of regional

attraction TF (November)

development in Korea

North America regional development investment

Held in Miami and Chicago, major investors introduction of domestic local governrments projects and

attraction TF (December)

considered cooperation meassure for the future.

Incheon metropolitan city Oakland Marina port

Held in Oakland, Business cooperation for establishing Marina in Dekjeok island , Incheon and

investment attraction TF(Decemver)

consideration of the possibility of investment through interview with related organizations

’

Held in Tokyo, Japanese major 5 companies had business talks. Promised USD 30million FDI for Japan logistics TF (March) t3 years. Held in New York and Los Angeles, Succeeded in accomplishing a USD 3million project and discovered North America logistics TF (March) s promising project

Logistics /distribution

Europe, discovering oli hub and distributors TF (April)

Held in Amsterdam and Paris, 8 companies participated in business talks

Busan Port Authority, Europe IR (June)

Held in Amsterdam, USD 10 million investment business talks and discovering major project

Japan logistics TF(September)

Held in Fukuoka and Tokyo, 9 companies participated and had business talks

Japan logistics IR (November)

Held in Osaka and Fukuoka, 14 companies participated and 5 promising projects were discovered

Gwangyang port, Chinese region round table Held in Shanghai and Hong Kong, 8 companies participated and discovered 8 promising projects (December)

Cultural contents

Held in Taipei, 43 companies which are mainly cultural contents related participated in business talks

Taiwan cultural contents IR (April)

Financial industry

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

’

Ⅳ

’

. Invest KOREA s Contribution to the Attraction of Foreign Direct Investments

â&#x20AC;&#x2DC;

[Figure 4-4] Global M&A Plaza [ 13.05.28]

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 (October, Seoul). Ik discussed ways for facilitating cooperation between global and local partners and enhancing its role and finding cooperation measures through the Global M&A Plaza(May, Seoul). Furthermore, IK actively performed investment attraction activities, such as implementing Hong Kong/Singapore IR (January), etc., to introduce investment attraction environments and technologies in Korea in order to discover Asian financial investors.

[Table 4-7] Major investment attraction activities by region Priority area

Project name

Content implemented Clean tech small and medium sized venture companies such as Megabess(6 companies)

San Francisco Clean tech Forum participated, Investment attraction through individual IR for local VC(Cases of interview 89 (San Francisco, March 2013) cases) National pension, PE/VC, law firm delegation(11 companies)were dispatched to local area.

North

Korea PE Insight

America

(New York/London,June 2013)

Local financial investors, 160 persons, Organization of Cooperation fund with Korean delegation and individual interview (London 70 cases, New York cases) AAMA related investment

IT venture companies(7) dispatched to local area, the presentation on Korean venture

attraction presentation/interview

companies was held(100persons) and individual consultation with 30 VCs such as Translink

(San Francisco, September 2013)

Capital M&A Forum on M&A promising regions(Europe?North America?China)(130 persons)

Global M&A Plaza M&A special institution (Seoul, May 2013)

Âˇ

PE/VC-Individual interview between domestic small and medium sized

companies(55 cases)

Asia

Korea PE/VC M&A Forum

Financial investors, domestic PE/VC, financial institution, etc. 373 persons participated

(Seoul, October 2013)

Discussion on the measures for enhancing cooperation between GP-LP and their roles

Hong Kong, Singapore IR (Hong Kong/Singapore,January 2013)

Invest KOREA Annual Report 2013

Country investment attraction IR was implemented in Hong Kong and Singapore where Asian financial investors are concentrated

Promising market in Asia (Japan)

‘

[Figure 4-5] 2013 Japan presentation of investment in Korea ( 13.06.11)

Seeking various investment accessing methods was required in order to invest in Japanese enterprises due to a weak yen, and strategic investment attraction, such as customized investment attraction projects for Japan and investment attraction projects related to local governments cluster was enhanced.

’

First, IF mainly expanded attraction activity on Japanese part and material enterprises, which the delivery of parts and materials as adverse products with Japan to domestic large companies are high. IK formed the environment that made Japan expand an investment in Korea such as promoting investment environment in Korea through Integrated local government IR(June) and receiving investment report with USD 220 million from Nippon Electric Gloss, a Japanese display parts and materials manufacturer.

“

In particular, promising enterprises were selected through domestic industry Value Chain related targeting and TFT with Gyeonggi-do(June), Chungcheongbuk-do(September), and Gumi(November) were implemented by linking the selected enterprise with the local government s cluster. In addition, a diversified strategy for Japanese investment attraction or Japan was implemented on the basis of the manufacturing area which focused on part and material by holding a non-general investment environment presentation but investment IR specializing in cutting-edge material parts(December).

’

In particular, the industry which had a big effect on forward and backward linkage effects was selected and drew a value chain map on the industry, a target company selected mainly based on the Missing Link under the map, and the role of Control Tower on planned investment by the head office in accordance with the capacity of attraction was enhanced. The head office targeted the OLED industry in the first survey and the secondary battery-related industry in the second, and the business center contacted and confirmed the companies related to the target industry. After this process, IK monitored trends of companies that could invest highly in Korea and enhance strategic investment attraction. In addition, responding to recent the Japanese economic change, IK tried to enhanced investment attraction activities in small and medium sized small hidden champion seeking advancement into the Asian region in small and medium sized cities in order to diversify the

Ⅳ

’

. Invest KOREA s Contribution to the Attraction of Foreign Direct Investments

profit line and develop an overseas market. IK implemented local banks-related IR three times in June(Fukuoka, Nogoya, Nigata), September(Shizuoka, Koyto, Kanazawa), and November(Hiroshima) by performing investment attraction for the clusters located in local cities where medium small hidden champions discovered by local promising networks(local banks, etc.) are concentrated.

Âˇ

Finally, to activate investment attraction on parts and materials enterprises related to Value Chain, IK focused on establishing major networks such as Japanese banks, trading companies, government organizations, domestic industry analysts, etc., meanwhile it established broad networks through active business cooperation with major Japanese financial institutions which advanced into Korea and Japanese major 7 general trading companies. IK performed discovering targeted parts and materials enterprises by using banks and trading companies as points of contact based on the network.

[Table 4-8] Major investment attraction activities in Japan Project direction

Project name 2013 Japan Presentation on

Tokyo, Osaka IR 230 persons participated, investment report of USD 256 million investor

Korea investment environment

round table, visit potential investors

National IR

Strategic

Japan Investment attraction IR

Investment attraction on enterprises located in small and medium-sized cities related to Japanese local banks

Japan part and material

With Gyeonggi-do, Visited part and material companies in Tokyo, Osaka, Nagoya and had

investment attraction TFT

business talks and round table

attraction TFT Gumi investment attraction TFT

which advanced into Korea

establishment

discussion Japanese general trading companies which advanced into Korea discussion

Project development

parts and materials industry was implemented

investment attraction IR

Japanese financial institutions Network

Held in Tokyo, 170 persons participated, Investment environment presentation specializing in

Japan local banks-related

Chungcheongbuk-do Investment TFT

Content implemented

Value Chain-related investment attraction project

With Chuncheongbuk-do, Visited Value Chain related target company and had business talks With Gumi, Visited 7 companies in Tokyo and Nagoya and had business talks Discussion with major Japanese financial institution which advanced into Korea on investment cooperation measure

Discussion with 7 Japanese general trading companies which advanced into Korea on investment cooperation measure After the head office surveyed the industry which causes high economic effect and set a target on related company, investment attraction on Japanese parts and materials companies performed with large Set Maker in Korea

Promising market in Asia (China)

Invest KOREA performed active investment attraction toward China by establishing investment policies responding to the Xi Jinping government s policy for activating foreign investment. IK also changed paradigm of investment attraction with China in accordance with the policies for nurturing urbanization and expanding the domestic market sought by the new Chinese government.

â&#x20AC;&#x2122;

IK performed diversified investment attraction activities for Chinese policies with Two-tracked investment attraction activities such as strategic investment attraction between Korean and Chinese enterprises out of previous regional development based investment attraction. Investment attraction IR and TFT for tourism and leisure was implemented because it is expected that overseas trips to China will increase due to increasing Chinese consumption level. In addition, it is thought that an advancement into Chinese domestic market will be activated through an alliance between Korean and Chinese enterprises caused by the expansion of the Chinese domestic market (Made with China, Made for China) and converging investment attraction projects by using marketing were actively performed in Beijing and Shanghai. In addition, investment environment promotion for leading enterprises in Hong Kong and Singapore was enhanced the area of investment attraction, not only in mainland China but also in Hong Kong 72

Invest KOREA Annual Report 2013

and Singapore, which was expanded in order to attract Chinese money. Although Chinese investment in Korea was USD 481 million, it is analyzed that real Chinese investment in Korea would be USD 1.1biliion considering the investment in Korea passed by China region was USD 621 million. It is expected that there would be a noticeable achievement on Chinese investment attraction in the future, if the strategic investment attraction platform between Korean and Chinese enterprises established in 2013 is utilized and regional development investment attraction activities continue.

[Table 4-9] Major investment attraction activities in China Division

Project name

Investor invitation

Inviting real estate investment delegation

Visit major private development projects such as ora tourist attraction, Pampas, Shine ville, etc. by

from mainland China and visiting TFT

companies in Sichuan, China

project

Regional development investment attraction

Contents implemented

GFEZ Chinese region investment attraction TFT

GFEZ investment environment for Investors from 50 companies in Santung province, China, and introduction of Hwayang district in Gwangyang Ocean, and logistic complex behind Gwangyang ocean

Midan city regional development China TFT

Push for round table for major members of the Chinese real estate development association

China Nanjing, Shenzen investment

China Nanjing, Shenzen, investment attraction for real estate companies IR

attraction IR

Gyeonggi-do Bio, IT, eco-friendly car, electric products, semiconductor design and process, etc.,

Strategic investment attraction between

Investment attraction for investors in Shanghai and eastern Chinese area of IR

Gyeonggi-do-Shanghai companies IR Utilizing marketing convergence investment attraction

Strategic affiliation investment attraction between companies in Chungbuk

companies from of Chungbuk-do, such as Bio, IT electric vehicle, eco-friendly equipment

(INVESTMENT SHUTTLE) IR Gyeongbuk-do Investment attraction IR Korea China well-being industry Investment attraction IR Core industry target Investment attraction IR

Chinese capital investment attraction

Investment presentation and 1:1 business talks for strategic investment attraction of promising

Gyeonggi-do China region Investment attraction IR Tapei KOREA ICT-related Investment attraction IR

Company investment attraction presentation and 1:1 business talks for investors in Guangzhou, Beijing , etc. Chinese investment attraction of the area of Bio and food IR Beijing IT, cultural contents, medical device investment attraction IR

’

Gyeonggi-do s investment attraction on Singarpore s leading investor IR

’

Promotion of Korean s promising industries for Taipei investors

Emerging capital country

Invest KOREA tired to diversify investment countries in 2013. In particular, IK continuously performed investment activities in the Middle East region, which was less affected from the economic recession due to its oil money. In the first half of the year, IK concluded a business agreement for investment attraction cooperation with DubaI FDI(May), which became the foundation for actual investment attraction for GCC countries following a business agreement in 2012 with Mubadala(soverign fund), an investment-related institution in the Middle East region, Saudi Investment authority(SAGIA), and Kuwait Investment Authority(KIA). As a follow-up of the business agreement, IK dispatched delegations for investment attraction to Dubai and Hong Kong(December) and held an investment environment presentation, business meeting, and investment reporting event. Providing information on interesting issues from the both countries investors by using the proper speaker, which contributed to enhancing the status as a national IPA and supporting policy decisions for investors .

’

In addition, IK dispatched investment attraction TFT to India and performed customized investment attraction activities by visiting promising Indian companies by industry and having business talks with them.

Ⅳ

’

. Invest KOREA s Contribution to the Attraction of Foreign Direct Investments

[Figure 4-6] Invest KOREA-Dubai FDI (Investment Corporation of Dubai) investment cooperation MOU signing ceremony ( 13.5.29)

‘

[Table 4-10] Major investment attraction activities in emerging capital regions Project direction Infrastructure construction

Project name Invest KOREA-Dubai FDI MOU

India Investment attraction TFT Dubai-Hong Kong strategic

IR/TFT

investment attraction group dispatch

Content implemented IK-Dubai investment business cooperation agreement between the investment agencies(5. 29) Mumbai, Pune consultation visit to 4 promising enterprises by industry(9.10~9.11) Customized investment attraction activities such as providing

’

information on local investors, promising enterprises

4. Service of Administrative Support for Investors

As of 2013, in the Investment Consulting Center, 20 dispatch officers from a total of 20 organizations(9 government departments, 4 local governments, Ministry of Court Administration, 1 related organization) worked to promote foreign investors convenience by handling various civil affairs and contributing 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 2013, foreign direct investment-related civil affair handling records showed a total of 3,956 cases of civil affairs handled comprising 3,944 cases of civil affairs handled firsthand, such as investment in kind confirmation, applications for business registration, and immigration related civil affairs, and 12 cases of support for incorporation registration.

[Table 4-11] 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

Data : ICC

Invest KOREA Annual Report 2013

2009

2010

2011

2012

2013

4,170 7

3,945 4

3,638 1

4,157 3

3,944 4

4,150

3,941

3,636

4,144

3,936

13 9 4,179

10 3,955

1 9 3,647

10 10 4,167

4 12 3,956

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) , and 2,608 cases of foreign investment reports amounting to USD 14,548 million were received in 2013. Of them, 299 cases amounting to USD 4,716 million were received through Invest Korea.

‘

’

[Figure 4-7] INSC Home page

[Table 4-12] Present state of foreign investment reports received (Unit : case, US$ million, %)

2009

Division

2010

2011

2012

2013

No. of cases

Amount

No. of cases

Amount

No. of cases

Amount

No. of cases

Amount

No. of cases

Amount

3,131 339 10.8

11,484 5,936 51.7

3,109 362 11.6

13,071 8,717 66.7

2,710 374 13.8

13,673 7,450 54.5

2,865 319 11.1

16,286 6,403 39.3

2,608 299 11.5

14,548 4,716 32.4

Total IK Ratio

Note : The ratio mean the ratios of the number of cases and amounts of investment reports received through IK (head office and Korea Business Center) Data : ICC

As of the end of 2013, the number of foreign-invested companies of which the registration was maintained was 15,600. Of them, 11,497 were registered as corporations. The number of foreign-invested companies of which the registration was cancelled in 2012 because of liquidation, sale of entire shares, extinction by being merged, etc., was approximately 440.

[Table 4-13] Present state of foreign-invested company registration (Unit : ea)

Division Existing

Registered

2009

2010

2011

2012

2013

19,150 (13,178) 12,931 (9,344)

19,768 (13,620) 13,780 (9,662)

20,559 (14,301) 14,271 (10,220)

21,631 (14,931) 14,764 (10,487)

22,378 (16,197) 15,600 (11,497)

Note 1. Total number of enterprises of which the reports were received by a truste organization, such as

‘

’

Invest KOREA and the numbers in (

) are the numbers of incorporated enterprises.

2. Existing refers to the numbers of enterprises, including those that reported foreign investments but have not yet

’

registered as foreign-invested companies.

3. In 2013, approximately 440 enterprises Data : ICC

Ⅳ

registrations were cancelled.

’

. Invest KOREA s Contribution to the Attraction of Foreign Direct Investments

5. Support for Investment Consultation

To reinforce a one-stop service for foreign investors, the Investment Consulting Center absorbed an investment consulting team in February 2011 to secure specialized consultants in the areas of laws, taxes, accounting, and labor and is operating the team. Furthermore, for the smooth settlement of foreign investors, dispatched employees of foreign-invested companies, and their family members living in Korea, the Investment Consulting Center provides life area counseling services(English, Japanese) and has been providing one day secretary services from late 2008, where the secretary accompanies the investor to hospitals, educational institutions, etc., to support administrative management and interpretation.

[Table 4-14] Consulting records by area (Unit : case)

Area

Accounting

Tax

Law

Labor

2013 2012 2011

1,369 1,063

336 751 306

642 710 711

71 36 15

701

Data: ICC

[Table 4-15] Consulting records in the area of life (Unit : case)

Area Life consulting Daily secretary service Total

2008

2009

2010

2011

2012

2013

3,601 6 3,607

3,902 22 3,924

3,193 52 3,245

4,351 28 4,379

3,667 30 3,697

1,910 16 1,926

Data : ICC

6. Support for Foreign-Invested Company Incubation

The foreign-invested company incubating support center(Invest KOREA Plaza, IKP) opened in November 2006 for the successful early settlement of foreign-invested companies. It is a ninestory building with two basement floors. Some foreign-invested companies(7~9 floors) have their offices in this building and the Investment Consulting Center(ICC), a business center with banks and accounting firms, and related organizations, such as the Foreign Company Association are all located in this building to provide One-Stop service. The number of foreign-invested companies that used IKP between its opening day and December 2013 was 132. Of them, 114 enterprises graduated from IKP and showed an investment report record of USD 3 billion.

Invest KOREA Annual Report 2013

[Table 4-16] IKP incubator use record Division

2006

2007

2008

2009

2010

2011

2012

2013

Total

New enterprise(ea)

132

Graduated enterprise(ea)

114

Amount of investments reported(US$)

942,587

582,234

80,162

594,275

505,724

72,908

170,895

141,083

3,089,868

Data : Invest KOREA

7. Aftercare for Foreign Companies

‘

[Figure 4-8] 2013 Foreign-invested company CEO forum ( 13.11.29)

Aftercare for foreign-invested companies means relieving the difficulties of those enterprises in the short run and the cases of aftercare can be accumulated to play an important role in improving the enterprise environment in Korea in the mid or long run. The foreign investment ombudsman office settled a total of 383 cases of aftercare for foreigninvested companies in 2013 with an increase of 35 cases compared to the previous year. To review the details by type, 5 system improvement-related aftercares, 98 administrative processrelated ones, and 280 home doctor treatment-related ones were settled.

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. Invest KOREA s Contribution to the Attraction of Foreign Direct Investments

Sucess case of aftercare for foreign- invested companies in 2013

Regarding settlement of cash-grant funds, supplement contents of cash-grant agreement by Ministry of Industry

“ ”

- Interpretation and revision on ambiguity of

” “

the amount of executing investment

Foreign

direct investment cash support agreement

Revise specific standards on equipment evaluation of new renewable energy - The standards of equipment examination for new renewable energy by Korea Electric Power Corporation(KEPCO) and Korea Energy Management Corporation were different. Revise following the standard of KEPCO.

Request for renewal of approval for temporary use of forest land of Korea Forest Service - The Forest land of Korea held renewal on use of approval caused by landslides and allows renewal when contacting with users(for 3 years)

Permit installation of ground fired pipe caused by industry construction - Regarding installation of ground fired pipe, difficulties caused by authoritative interpretation of enforcement ordinance, achieved permission of installation by attracting authoritative interpretation by Ministry of Land, Infrastructure, and Transport

Aftercare related to revision of special provisions on taxation for foreign workers in the special tax treatment control law - With continuous appeal toward the National Assembly, Financial Services Commission, and government, foreign workers who have worked before January 1st, 2014 were applied by previous regulation, received thank you letter from SC bank executive member.

Solve difficulties caused by insufficient English service of legislation - Through consultation between Ministry of Government Legislation and Ministry of Industry, English service is scheduled to begin from January 1st in 2014 in necessary legislations for foreign-invested companies, the outcome is scheduled to be posted on the web site of the Korea Legislation Research Institute.

Contribute to revising lower legislation on laws(chemical-related laws) such as registration and evaluation of chemical materials - August~October in 2013 : With Ministry of Environment/Ministry of Industry, delivered opinions

from related industries and held discussions with the government, related departments businesses

- December in 2013 : Announced the plan for revision of lower legislation on chemical-related laws toward accepting opinions from industries - January in 2014 : Conducted legislative proceedings such as cooperation between departments and pre-announcement of legislation

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. Invest KOREA s Contribution to the Attraction of Foreign Direct Investments

2013 Invest KOREA

연차보고서

14-029

KOTRA 2014

13(

02)3460-7114(

137-749)

)

www.kotra.or.kr