SEOUL, KOREA - American business magazine Forbes has recently run an article titled “One Emerging Market To Buy” by contributor James Gruber. In the article, James Gruber said, “The indiscriminate sell-off of emerging markets also opens up some potential opportunities. Asia Confidential thinks South Korea stands out as one such opportunity…..South Korea has tremendous long-term prospects.”
According to James Gruber, the long-term prospects for South Korea look brighter, for three reasons: 1. Its already world-class companies are likely to move aggressively up value chains to find new niches to dominate. 2. The aim to boost service industries should pay dividends and provide the next leg of growth for South Korea. 3. Possible unification of the two Koreas would likely produce an investment bonanza of unprecedented proportions.
As a matter of fact, the investment outlook for South Korea is “sunny.” According to Commissioner Han Ki-won of Invest Korea (IK) under KOTRA (Korea Trade-Investment Promotion Agency), the S. Korean economy is projected to stay in good shape on the back of continued trade surpluses, as opposed to deficit making neighbors Japan and China.
Manufacturing has already passed its prime. Now is the time for services.
Foreign Direct Investment (FDI) has thus far flocked to emerging markets and facilities and a slew of manufacturers has relocated to emerging markets. Since manufacturing requires massive capital injections in the early stages of business, it makes additional investments in the second and third stages according to revenue structures. Therefore, it is hard to expect brisk investment activities in the manufacturing sector. Besides, numerous things should be taken into consideration, such as the value of currencies, raw materials and etc., before figuring out whether the manufacturer turns a profit. Commissioner Han said further growth in the Korean economy would require transition from languishing manufacturing to services. Since the exports of education and contents, etc. make up more than half of the dollars South Korea rakes in worldwide, the nation, Han reckons, needs to think about what it can do with domestic demand.
Services include distribution, logistics, culture, education, business services, etc. In particular, many foreign companies has already made inroads into the domestic distribution and logistics sector. Cases in point are Japanese fashion giant Uniqlo and Span’s Zara, which are popular among young Koreans. However, since the domestic distribution market being carved up among foreign companies is hardly a boon for the Korean economy, efforts to gain more ground in the domestic distribution market are needed.
Furthermore, the Korean property market can serve as a desirable destination for foreign investment. The large-scale relocation of Seoul-based, state-owned enterprises to other provinces has resulted in more properties put up for sale. However, few transactions have materialized owing to growing uncertainties over the property market. Calling such new properties put on the market “brownfield sites,” (idle or underused land previously used for industrial purposes or some commercial uses), Han encouraged efforts to transform the brownfields into a beautiful city by discovering contact points between investment and greenfields or into new values that can make social contributions. Commissioner Han stressed that the tepid Korean property market should be revitalized.
Refraining from being desk-bound, KOTRA’s Invest Korea opts for door-to-door sales tactics in order to find out business needs and match domestic companies with foreign investors. And Invest Korea also takes care of strategic investment and financial investment. In other words, Invest Korea looks to provide foreign sovereign funds, Middle Eastern funds and Islam funds with a change to invest in Korea. Commissioner Han said Invest Korea has been bending over backwards to attract foreign investment. Rather than waiting for prospective investors to knock on the doors of Invest Korea, Invest Korea takes preemptive approaches, with a view to prodding foreign-invested corporations established in South Korea into investing in the domestic market.
Luring in foreign investment is a tough job.
Though Invest Korea has been pulling out all the stops to attract foreign investment, there are still many obstacles. These days, large Korean companies have relocated to other nations so as to ramp up productivity. In order to compensate for the capital flight entailed by their relocation abroad, South Korea needs to win over foreign companies wishing for the same thing: higher productivity. To that end, the removal of entry barriers and institutional reforms are required. Yet, there is a huge difference of opinion between foreign companies and the S. Korea government, which has to collect taxes according to the Fair Trade Act and the nation’s definition of what constitutes ordinary wages (which fuels concerns over a rise in labor costs). Therefore, South Korea has to find the middle ground with foreign companies to lure them in.
In addition, we need a living environment favorable to foreigners. Ireland, Hong Kong, Singapore, all of which are heavily foreign invested, are packed with infrastructures that foreigners find quite tempting. South Korea, of course, does not lag behind when it comes to infrastructure. The nation has plenty of international schools, foreigner-friendly hospitals, etc. and it does not suffer from air pollution and any other environmental contamination like Shanghai and Beijing do.
As such, South Korea has considerable merit compared to its neighbors. Geographically speaking, once a new North Pole shipping route is officially opened, Korean port cities Busan and Ulsan, many expect, would evolve into intentional oil hubs. As of now, the new North Pole shipping route, which runs through Vladivostok to the Netherlands, is 7,000 kilometers shorter than the shipping lane South Korea is currently using and promises a lower risk of encountering pirates. In order to create and soup up a belt connecting Ulsan with Busan and Gangwon-do, a variety of preparations, such as construction of warehouses for logistics, are needed.
Where to Invest
Foreign companies wishing to tap into cutting-edge technologies (e.g. state-of-the-art fibers), like Japan’s Toray and Germany-based chemical company BASF, have come to South Korea. The fact that demand for their products comes from a wide range of Korean companies and that cutting-edge technologies are available in South Korea catches the eye of foreign companies. What’s more, the nation’s strengths in mobile devices and cars greatly appeal to foreign companies keen on weight reduction. With large foreign investment pouring into industries employing cutting-edge technologies, a growing number of green-minded foreign companies are ploughing money into South Korea. In Spain, food waste and steel dust are recycled to produce energy resources. Likewise, some foreign companies are investing in South Korea to engage in steel dust recycling near Korea’s steel production bases like POSCO Steel Mill in Pohang and Hyundai steelworks.
There has been an outpouring of inquiries regarding investment opportunities related to South Korea’s geographical features, environment and industries. However, it is fair to say that possible unification of the two Koreas does play a role in brightening long-term prospects for the nation’s investment market. Once South Korea mends fences with the North, South Korea’s investment position, Commissioner Han added, would take a giant leap forward.
