___________________________________________________________________________

2008/IEG/SEM1/005 Agenda Item: 1

Aftercare Services as the Measure for Investment Promotion - New Direction for Korea’s FDI Policy

Submitted by: Korea Trade-Investment Promotion Agency (KOTRA)

Seminar on Good Governance on Investment PromotionLima, Peru

19-20 May 2008

1

APEC Seminar APEC Seminar Good Governance on Investment PromotionGood Governance on Investment Promotion

May 19th~20th, 2008May 19th~20th, 2008

Young Yeol YooOffice of the Investment Ombudsman

Korea Trade-Investment Promotion Agencyyyyoo@kotra.or.kr

Young Yeol YooOffice of the Investment Ombudsman

Korea Trade-Investment Promotion Agencyyyyoo@kotra.or.kr

Contents

1 Overview of FDI in Korea1 Overview of FDI in Korea1. Overview of FDI in Korea1. Overview of FDI in Korea

2. Korea’ s Shift to Pro2. Korea’ s Shift to Pro--FDI RegimeFDI Regime

3. Role of KOTRA as an Investment Promotion Agency3. Role of KOTRA as an Investment Promotion Agency

4. Importance of Aftercare Services to Foreign Investor4. Importance of Aftercare Services to Foreign Investor

5. New Direction for Korea’s FDI Policy5. New Direction for Korea’s FDI Policy

2

11 Overview of FDI in KOREAOverview of FDI in KOREA

Korea’s Development Model Before Asian Financial CrisisKorea’s Development Model Before Asian Financial Crisis

Foreign loan-based financing for investment requirements far

greater than domestic saving

Little reliance on FDI and foreign licensing to cultivate indigenous

capability through reverse engineering of imported capital, parts,

and finished goods, etc.

Sharp contrast to FDI-led industrialization models as in case of

Malaysia and other developing nations

One of the lowest in the world in terms of FDI/GDP ratio

Overview of FDI in KOREAOverview of FDI in KOREA

International Comparison of Inbound FDI

Inflow of FDI/Total Fixed Capital Formation ( %)

Inward Stock of FDI as a Percentage of GDP

2004 2005 2006 1990 2000 2006

1-1

2004 2005 2006 1990 2000 2006

Developed Economies 6.6 9.3 11.8 8.2 16.4 24.2

Developing Economies 12.9 12.6 13.8 9.6 25.6 26.7

EU 8.1 18.2 18.1 10.5 26.0 38.0

UK 16.1 52.9 33.9 20.6 30.4 47.8

US 6.2 4.9 6.8 6.8 12.8 13.5

Netherlands 1.8 34.1 3.3 22.4 63.1 68.2

Africa 12.6 17.8 19.6 11.7 25.5 29.5

Asia 10.3 11.3 12.9 9.1 26.5 24.93 3 9 9 5 4 9

Latin America 17.0 15.3 12.9 9.1 21.1 26.6

China 8.0 8.8 8.0 5.4 17.9 11.1

Hong Kong 96.4 90.4 103.9 58.6 269.9 405.7

Malaysia 19.1 15.2 20.1 23.4 58.4 36.0

South Korea 4.5 3.0 1.9 2.0 7.4 8.0

Singapore 77.5 57.6 79.5 82.6 121.5 159.0

Thailand 14.0 17.5 16.5 9.7 24.4 33.0

Source: UNCTAD, World Investment Report 2007

3

22 Korea’s Shift to Proactive FDI RegimeKorea’s Shift to Proactive FDI Regime

Asian financial crisis in 1997/8 has enforced Korea to switch to

i i d f FDI f i h i i d

The Asian financial crisis provided "strong motivation" to attract FDI

proactive inducement of FDI to overcome foreign exchange crisis under

IMF conditionality

Actively joining WTO regime & WTA

To enable Korea as a regional business hub

from the perspectives of logistics, finance and

R&D

Foreign invested firms in Korea

FDI Trends

The average FDI amount was US$ 11.3 billion for 10 consecutive years after 1998

Asian Financial Crisis(1997)

Korea’s Shift to Proactive FDI RegimeKorea’s Shift to Proactive FDI Regime22--11

10

15

20

’62~’97(35 yrs)

US$ 25 billion

’98~’07(10 yrs)

US$ 113 billion

4.5 times bigger

Asian Financial Crisis(1997)(US$ billion)

Actual amount

8.68.67 77 7

Notified amount

12.812.810.510.5

0

5

91 92 93 94 95 96 97 98 99 00 01 02 03 04 07

1.41.47.77.7

~

Source: Ministry of Knowledge Economy

1.21.2

4

Korea’s Shift to Proactive FDI RegimeKorea’s Shift to Proactive FDI Regime

Top Priority of New GovernmentTop Priority of New Government

22--22

“Business-Friendly Environment and A Regional Business Hub in

Northeast Asia” are reformulated as a top priority national agenda.

The new government will address measures to accelerate business-

friendly reforms and to promote foreign investment.

Lee Myung-Bak Administration has just created the Presidential

National Competitiveness Council to address Proactive FDI Policy.

Role for Investment Promotion

Role of KOTRARole of KOTRA33

Contribution to the Contribution to the Sustainable Growth Sustainable Growth

of the of the Korean EconomyKorean Economy

Attracting FDIAttracting FDI(Invest KOREA)(Invest KOREA)

Support for FDI attractionSupport for FDI attractionKorean EconomyKorean Economy

Aftercare ServicesAftercare Services(Investment Ombudsman)(Investment Ombudsman)

5

CEO of KOTRA

Organization33--11

OverseasOverseas Support OfficeSupport OfficePromotion TeamPromotion TeamStrategy & IRStrategy & IR Ombudsman OfficeOmbudsman OfficeOmbudsman OfficeOmbudsman Office

Invest KOREA

Investment Ombudsman

40 Overseas Offices(KTC)

3 teams 3 teams 3 teams 1 team

IdentificationIdentificationIdentificationIdentification PromotionPromotionPromotionPromotion SupportSupport AftercareAftercarePlanningPlanningPlanningPlanning

Promoting FDI in Korea (Discovering potential overseas investors)

Providing administrative support for FDI attraction

Attracting FDI Attracting FDI

Invest KOREA3-2

g pp

Facilitating foreign business entry and establishment

Conducting surveys on investment conditions in Korea and PR activities

Improving investment environment

FDI ReportingFDI ReportingLicense/Permit License/Permit ApplicationsApplications

ForeignForeign--invested Firm invested Firm RegistrationRegistration

OneOne--Stop ServicesStop Services

Invest KOREAInvest KOREAProject ManagerProject Manager

6

Importance of Aftercare Services

Greenfield Type FDI is crucial to reverse the declining trend

of potential gro th rate and to create more jobs

Why so important to KOREA?Why so important to KOREA?

44

of potential growth rate and to create more jobs

One-Stop Service for new entrants and Aftercare Service for

existing foreign firms are critical

An effective and powerful key to induce FDI

Foreign InvestorsForeign Investors

UNCTAD stated that the best policy for attracting

FDI was to offer quality aftercare services

Ombudsman’s OfficesOmbudsman’s Offices

Attracting ReAttracting Re--Investment from Existing Investment from Existing Foreign FirmsForeign Firms

01

(US$ billi )

Trends of new investment by newly-entered foreign companies

and re-investment by existing foreign companies

44--11

(US$ billions)

4000

6000

8000

10000 New InvestmentNew Investment Re-InvestmentRe-Investment

2000

2001 2002 2003 2004 2005 2006

Source: The Ministry of Knowledge Economy

7

Fortune 500 Companies in Korea

197197197197 223223223223 247247247247263263263263 264264264264

44--22

197197197197

2001 2002 2003 2004 2005

AsiaEurope North America

Investment OmbudsmanInvestment Ombudsman

The Foreign Investment Ombudsman shall be appointed by the President of Republic of Korea on the recommendation of the Minister of Knowledge Economy

44--33 Aftercare ServicesAftercare Services--InvestmentInvestment OmbudsmanOmbudsman

Valuable role as an advocate in resolving difficulties on behalf of foreign investors, h idi b d h f h i b i f

Korea on the recommendation of the Minister of Knowledge Economy

Serves as a Member of the National Competitiveness Council, chaired by the President

thus providing an unobstructed paths for the optimum business performance.

8

Aftercare ServicesAftercare Services-- Ombudsman’s OfficeOmbudsman’s Office

Ombudsman’s Office is operating under “Home Doctors” system for one-stop services

44--44

Office of the Investment OmbudsmanOffice of the Investment Ombudsman

Investment Ombudsman-- Grievance Resolution- Improvement in

Investment Environment

ForeignInvestor

Report Complaint

Home Doctor:Solution Provision

The Office of the Investment The Office of the Investment OmbudsmanOmbudsman

CooperationRecommendation

CooperationRecommendation

Government/Gov’t Authorities

ForeignInvestmentCommittee

http://www.i-ombudsman.or.krhttp://www.i-ombudsman.or.kr

Aftercare Service ProvidersAftercare Service Providers

44--55 Aftercare ServicesAftercare Services-- Ombudsman’s OfficeOmbudsman’s Office

CentralGovernment

CentralGovernment

Ombudsman of Korea(Report to President of Korea)

Foreign InvestmentCommittee(Chair: Minister MOKE)

Foreign InvestmentWorking Committee(Chair: Vice Minister MOKE)

Corporate DifficultiesRegistration Office

(MOKE)

Corporate DifficultiesResolution Center

(Prime Minister’s Office)

Financial HubCooperation Div.

(MOSF)

Local GovernmentLocal Government FEZ(MOKE)FEZ(MOKE)

Foreign Investment Promotion Office

Foreign Investment Promotion Office

FEZ OmbudsmanFEZ Ombudsman

( )(MOKE)

9

Resolution Rate (%) : Systemic & Administrative ChangeResolution Rate (%) : Systemic & Administrative Change

Resolution Performance by Year

Resolution Rates by YearResolution Rates by Year

44--66

40%

60%

80%

100%Resolution Rate (%) : Systemic & Administrative ChangeResolution Rate (%) : Systemic & Administrative Change

20%

%

2002 2003 2004 2005 2006 2007

Source: Office of the Investment Ombudsman

WAIPA Award 2007

WAIPA Award 2007 Presented to KOTRA for Excellence at the Annual World Investment Conference (March 9th 2007, Geneva, Switzerland)

44--77

t e ua Wo d vest e t Co e e ce ( a c 9 007, Ge eva, Sw t e a d)

World Association of Investment Promotion Agencies

10

ChinaGDPGDP $1,569 bn$1,569 bn

55 The Korean AdvantageThe Korean Advantage

44 cities with the population of more than 1 million are all

ithi h ’ fli ht

Strategic Location in North East AsiaStrategic Location in North East Asia

ASEAN

Trade w/KoreaTrade w/KoreaPopulationPopulationGDPGDP

128 mn128 mn$68 bn$68 bn

$4,302 bn$4,302 bn

Japan

Trade w/KoreaTrade w/KoreaPopulationPopulation 1,299 mn1,299 mn

$100 bn$100 bn* Hong Kong included* Hong Kong included

China

Seoul

Vladivostok(2.0 hrs)

Tokyo(2.3 hrs)

Beijing(1.7 hrs)

Shanghai(1 7 hrs)

Japan

Republic of Korea

East SeaDokdo

within 4 hours’ flight

Trade w/KoreaTrade w/KoreaPopulationPopulationGDPGDP

542 mn542 mn$46 bn$46 bn

$686 bn$686 bn

ASEAN

32% of World Population32% of World Population20% of Global GDP20% of Global GDP

(1.7 hrs)

Taipei(2.7 hrs)

Hong Kong(3.5 hrs)

Manila(4.0 hrs)

Korea Could Become a Favored FDI Destination Under Proactive Korea Could Become a Favored FDI Destination Under Proactive FDI EnvironmentFDI Environment

The Korean AdvantageThe Korean Advantage55--11

The 13th biggest economy with GDP reaching app. US$ 1 trillion

High caliber human resources: Availability of well-educated

and skilled labor force

Highly developed IT sector: Favorable test bed for newly

released IT products

Strategic location in Asia

11

Korea’s Homework for Quality FDI Inducement Korea’s Homework for Quality FDI Inducement

New Direction for Korea’s FDI PolicyNew Direction for Korea’s FDI Policy

Firm Specific Firm Specific Advantages (FSA)Advantages (FSA)-R&D

55--22

Rugman’s FSA-CSA Matrix

Most desirable Most desirable FDI policy for FDI policy for

StrongStrongWeak

Country Specific Country Specific Advantage (CSA)Advantage (CSA)- Location

R&D

-Global Best Practice

-Tech Transfer

FDI policy for FDI policy for KoreaKorea

Weak

- Logistics- IT- Skilled Labor Force

WIN-WIN Partnership Between FDI & National Economy

Inbound FDIInbound FDI National EconomyNational Economy