This is our annual session on the issues affecting foreign companies in Korea. Since we first inaugurated this session in 2014 titled “Why are we still here?”, it has been the focal point in the year in which we assess the status of foreign companies in the country, and whether it is easier or more difficult to be a foreign-invested company or foreign organization in the Republic of Korea in 2021. Each year we have catalogued a series of problems and a somewhat shorter list of benefits.
In 2020, FKI estimated that foreign companies are less important to the Korean economy than in 2012 when foreign companies produced 20% of Korea’s exports. In 2020 it was 17.9%. Likewise, foreign companies’ contribution to employment fell from 6.2 percent to 5.5 percent between 2011 to 2019. Their sales and corporate tax contributions decreased from 14.7 percent to 12 percent from 2011 to 2019, and from 20.2 percent to 14.4 percent from 2011 to 2018, respectively. At the same time foreign inward investment, while about half the value of Korean outbound investment, has remained around US$20 billion per year even in years when global FDI dropped substantially. Incentives to foreign-invested companies changed dramatically in January 2019, and are hard to come by when investing in the metropolitan region where foreign investment clusters.
In our March session we look at the change in the origin of the investment and changes in the balance between manufacturing and services in the last year, and the shift towards hi-tech, partly stimulated by the publicity around the government’s Digital New Deal and to a lesser extent the New Green Deal.
Korea has long had the reputation of being a “difficult market.” Not all these difficulties are created by Korean circumstances. In general, both general managers and diplomats report that it is difficult to get a head office or the home government to pay as much attention to Korea as to many other countries. To date, Korea has come through the covid era relatively well both in terms of health and macro-economics and this has partially raised the status of the country internationally.
Some of the problems continue, notably difficult labour relations in a number of major foreign-invested companies, the continuing friction against out-of-date regulations, and the dangers of offending Korean sensitivities or provoking tax or customs audits. Since 2017 the policies of the Moon Jae-in administration have generally made it more difficult to run a Korean operation efficiently or raised the cost of doing so.
Other issues have become easier. The general level of English has improved. Understanding the Korean market has become simpler, and with online sales has made many parts of the economy more accessible with a simpler sales forces organisation. Some foreign companies have used the sandbox deregulation effectively. The evolution of FTA agreements over the past ten years has made lower friction trade much easier than in the past. Finally, the government seems to be taking climate change seriously.
Join us for the March session of KBF and debate whether conditions are getting better or worse and how to get the best out of investing in Korea. As usual, the session will have a quick update on the economy and key issues in the run-up to the April 7 Seoul and Busan elections.
Managing Director, KABC Ltd.