According to the Korean Chamber of Commerce and Industry (KCCI), Korea only attracted 0.8% of the total amount of foreign direct investment (FDI) worldwide in 2006. In contrast, Hong Kong, a place with only a tenth of the population of Korea, attracted 3.9% of the total world FDI. However, this is not due to lack of trying. The Korean government actively seeks to attract foreign investment with a number of different agencies and programs. There are also multiple free trade zones throughout the country, and new international industrial parks currently in development. The Korean government actively seeks FDI, especially in its technology sector, and yet FDI is not forthcoming.
One of the reasons that foreign companies have chosen to invest elsewhere is because of the complicated and difficult to understand bureaucracy in Korea. This has been brought to light recently by attempted sales of KEB by the investment fund Lone Star. The entire debacle has been a confusing mesh of claims, counterclaims, suits, counter suits, and threats of arrest. The validity of either side's claims are not really the issue when speaking about its effects on FDI. The fact that the situation exists at all and is almost impossible for those not involved to understand is what is important. Simply put, no foreign company wants to become entangled in another country's legal system, but the potential for entanglement in Korea's labyrinthine bureaucracy is especially high by international standards.
A second reason that international companies have expressed doubts about investing into Korean industries is Korea's well-known protest culture. For instance, just last month, on the day after Christmas, residents of Gyeongju city attempted to break into a corporate office in a protest to demand that the corporate headquarters of Korea Hydro and Nuclear Power Corporation be moved to their city. The protesters also brought a large amount of tires to a street market in their city and burned them, causing a large amount of fire, smoke, and chaos. This style of protesting against a corporation simply does not happen in many other places around the world, and makes corporations leery of setting up a presence in Korea.
Another common reason given for not investing in South Korea is a strong and pervasive nationalism in all areas of Korean society. In industry, this is evidenced as protectionist policies set up to give advantages to domestic businesses and disadvantages to foreign businesses. The practice of protectionism has been especially noticeable in the Korea-US Free Trade Agreement (FTA) talks. Korean negotiators have been reported to be trying to reserve convergence industries . identified as telecommunications, broadcasting, and construction . as exempt from the FTA, in order to protect them from foreign competition. While it is of course possible to protect these industries, a protectionist policy does not go well with the concept of free trade. And while it is of course admirable for a country to have a strong sense of nationalism, it does not mix well with extensive foreign investment. It seems that Korea is of two minds on the potential benefits of foreign investment. This division in opinion is the root cause of the inhospitable environment that drives foreign companies to take their money and set up divisions in Hong Kong and Taiwan rather than Korea.
The solution to this dilemma is not easy to see. It is the product of many complex factors in Korean government, business, and society. But if steps are taken to provide a more simplified and easy to understand governmental presence in the business community, a little more welcome from Korean citizens, and a little more openness in business as a whole, the next multinational corporation who considers Korea for an Asian division office might not end up in Hong Kong instead. As the saying goes: give a little, take a little, and everybody's happy.