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

• EXIM Bank. The EXIM bank provides loans for
investing companies and it provides loans of
up to 90 per cent of the capital invested abroad
for SMEs. Tax support includes avoidance of
double taxation. The Korea Export Insurance
Corporation, a state-owned corporation
•
established under the Ministry of Commerce,
Industry and Energy, provides export credit
insurance to Korean exporters against nonpayment
risks by buyers, and guarantees banks
that provide export financing and issue bonds for
exporters. It also covers war/civil disturbance,
expropriation, inconvertibility and breach of
contract risks connected with new investment
overseas (MOFE 2004).
Overseas investment services. There are many
OFDI supporting organizations in the Republic
of Korea that promote investment overseas. For
instance, the Ministry of Finance and Economy
runs an overseas direct investment information
network website, which provides information on
foreign direct investment procedures, investing
country, statistics and information on the
Korean overseas companies. The EXIM bank
also provides similar information through the
Internet and publication, and provides substantial
support for Korean OFDI. The International
Management Institute was institutionalized
on 31 October 2005 to provide consultation
to SMEs investing abroad. The role of this
institution is to provide consultation to Korean
SMEs on the environment of host country, joint
venture and business opportunities abroad.
F. Conclusion
Outward investment is as important as inward
investment for enhancing the competitiveness of
both the country and the firm. As labour costs and
attitudes deteriorate in some industrial sectors,
it is critical for Korean firms to maintain and
enhance their competitiveness through OFDI. The
Korean Government played an important role in
enterprise internationalization through providing
strong institutional support and specific OFDI
promotion programmes. However, more can be
done to internationalize Korean enterprises, in
particular Korean SMEs, as a means to increase
competitiveness.
Korean OFDI has increased notably in the past
two decades and it is expected to increase further
because of an improving regulatory environment
supporting OFDI. Nonetheless, there are some key
challenges. First, Korean OFDI is concentrated in
China and it needs to diversify to other regions and
countries. Second, the industrial distribution is mainly
CHAPTER VIII 105
in manufacturing industries where competition is fierce
and there is also a need to diversify into other sectors
such as services. Thus, upgrading OFDI to hightech
areas is important. Third, Korean firms should
consider using an appropriate market entry strategy,
which could vary depending on OFDI motivations.
Fourth, the Government could further strengthen
institutional support to help SMEs, which may have
more difficulties than large firms in investing abroad.
Korean SMEs, in general, encounter more
difficulties than large firms in investing abroad. The
challenges and obstacles that Korean SMEs face
include difficulties such as access to finance, lack of
managerial expertise in handling different cultural
issues and business practices, inadequate feasibility
study and business plan, and lack of comprehensive
and prompt information on overseas investment
opportunities. Due to their limited scope of business,
competition is often very severe among Korean
enterprises in getting access to quality labour and
raw materials overseas. 86 Some Korean firms invest
abroad based on speculative thinking and some were
easily satisfied with their operations at home rather
than expanding their business overseas to improve
competitiveness (www.kotra.or.kr, Choi 2001).
OFDI may be a win-win game for both home
and host countries. While there may be a concern
about hollowing-out effects, the benefits associated
with OFDI could be greater than the costs, which
would be good for the investing firms and the home
country. In improving the competitiveness of Korean
SMEs, through internationalization, a number of
policy options could be considered. They include:
• Streamlining of OFDI regulation and
strengthening encouragement, including
providing specific support facilities (e.g.
consultation, OFDI advisory service and
facilities of overseas industrial estates). At the
enterprise level, Korean enterprises need to
strengthen their capacity in understanding the
risks and opportunities of internationalization,
including the need for careful planning and
assessment of the investment opportunities and
the choice of market entry strategies to cushion
risks of operating in unfamiliar business and
cultural environment.
• International cooperation could promote
investment flows between countries, encouraging
South-South relations. Investment
promotion agencies of different countries could
cooperate in facilitating investment, including
in providing information on investment
environment of host countries.
86 For example, latecomers scout workers from existing Korean
firms by providing higher wages and thus escalate labour costs.