Global Players from Emerging Markets: Strengthening ... - Unctad

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102 Outward Foreign Direct Investment by Enterprises from the Republic of Korea Box 1. Korean OFDI policy development Korean OFDI policies in general can be classified into 4 specific stages: Stage 1: Introduction (1968 – 1974) In 1968, the Republic of Korea’s Government introduced four articles on foreign investment law under the foreign exchange regulation (Rhim 1975). Article 131 refers to the approval of foreign investment. It states the establishment of overseas subsidiary as an exception. To acquire foreign stock, real estate or bond, approval of the Minister of Ministry of Finance is required. The investor must submit required documents, including contract paper, permission by the host Government, business plan, acknowledgement, and other required documents. Stage 2: Growth (1975 – 1979) Due to an increase in OFDI activities, the Republic of Korea’s Government revised the laws on OFDI in 1975 and 1978. In 1975, the Ministry of Finance enacted foreign investment approval and post management guide and in 1978 the Bank of Korea established the by-laws on foreign investment approval operations. The approval requirement was needed. Investing companies had to get prior approval of their business plans by the president of the Bank of Korea before concluding a joint contract or acquiring the warrant by the host Government. The attempt of the Government to control capital flight from the country pushed the introduction of controls. Stage 3: Encouragement (1980 – 1985) During this period, the Government liberalized the law relating to OFDI. Revisions were made in 1981, 1982 and 1983. Many restrictive conditions for OFDI were relaxed. In July 1981, the requirement of three years business experience, host country condition were relaxed and streamlined, and pre-approval process on OFDI plan was abolished. In July 1982, the rate of investment was relaxed and in December 1983, restriction on the credit limit of profit reservation was also relaxed. Stage 4: Openness (1986 – 2004) Since 1986, the Korean economy has recorded trade surpluses and thus OFDI was more actively encouraged. Increasing wage costs and deterioration of labour-management relations also drove firms to go abroad. The Korean Government has relaxed most of the OFDI-related regulations including the investment ceiling for venture capitalists. In 2003, a new enforcement ordinance in foreign trade law was established, which included support for OFDI by Korean firms by solving obstacles faced by Korean firms operating abroad. Some important changes in laws and policies are illustrated in Box 2. Source: Author. through intra-firm trade (Ha 2003). These studies supported that OFDI created a positive impact on enterprise competitiveness through lower production cost, increase export and access to new markets. In addition, the case of LG Electronics India Ltd (LGEIL) revealed that its annual sales increased by 36 per cent in 2003, compared to 2002 due to gains in India 84 84 $1 The net profit came to $45 million, with the annual sales of billion. where the firm exploited business opportunities in the host country growing IT industries. 85 E. OFDI policies The OFDI policy of the Republic of Korea has evolved over the years (box 1). The Government has also recently introduced new measures supporting Korean firms to invest abroad (box 2). There are four 85 E-week Newspaper, 24 May 2004.
Box 2. Republic of Korea: Recent OFDI policies and promotion measures CHAPTER VIII 103 The Ministry of Finance and Economy has recently released an OFDI promotion plan which consists of six main parts. These are: Amelioration of foreign direct investment regulation • Before 2005, a Korean businessman could invest within $1 million or equivalent to 30 per cent of its total sales. That limit has been extended to $10 million and shall be completely lifted soon to bolster business operations overseas by individual investors. Reinforcement of support through co-financing with Multilateral Development Banks • The Government plans to construct an integrated system that will provide information on projects participated by Multilateral Development Banks for domestic companies. The World Bank plans to open an information network channel, Private Sector Liaison Office (PSLO), which will act as a bridge between the Korean private enterprise and the host country. Expansion of financial support through EXIM Bank • In case of investment for technology transfer, EXIM Bank will increase the limit of loan up to 90 per cent and extend the period. Credit lending will be expanded to SMEs that invest along with large TNCs. Expansion of financial network • The Government will support the establishment of financial organization subsidiaries especially in China and Viet Nam, which are the most popular investment destinations for the Korean firms. Consolidation of the function of overseas investment insurance • Expansion of the export insurance fund will be promoted so as to increase payment ability in the longrun. Payment ability, the amount of fund over the amount of valid amount, of Korea (0.053) falls behind Japan (0.07), Belgium (0.11) and Australia (0.25). A new insurance policy for foreign investment will be developed to induce diversification of risks for overseas Korean firms. Innovation of information system • A foreign investment synthetic support centre is established in KOTRA and it will act as a one-stop service centre for foreign investment. A synthesized portal website will be created in the KOTRA website to supply user friendly information. Other related websites will be organically linked with KOTRA website so as to simplify information search. Updated information will be provided simultaneously through KOTRA website and e-mail. Finance Republic of Korea: OFDI measures Type Classification Description The Export-Import Bank of Korea Economic Development Cooperation Fund (EDCF) Agreement between Governments on Investment Security To reduce financial burdens of an investing company, the bank provides a loan plan which can cover up to 80% of estimated total overseas investment (90% for the SMEs). EDCF supports investment in developing countries especially for business involving a long-term resource development and business that takes a long retrieval period. The loan condition is repayment in 15 years with a 5 year grace period at an annual interest of 5–6%. As a means to protect overseas Korean investors from war, expropriation, restriction on remittance etc., Korea has established investment security agreement with 62 countries.
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United Nations Conference on Trade
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Preface The landscape of internatio
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Global Players from Emerging Markets: Strengthening ... - Unctad

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