Foreign direct investment in South Korea

1
Foreign direct investment in South Korea

• Dr. Kristiina Korhonen
• Center for Markets in Transition

2
Inward investment flows in 2006 in selected Asian
economies (USD billion)
Source UNCTAD 2007.
3
South Koreas investment policy phases

• EOI phase (1962-1972) an active international
  financial strategy based on foreign loans and
  incentives to FDI
• Oil crisis phase (1973-1978) policy became
  restrictive and FDI began to play only a minor
  role compared to foreign borrowing
• Reformation phase (1979-1992) measures to
  promote FDI, such as the negative list of
  investment approval
• Segyehwa (???) phase (1993-1996) the
  implementations of the OECD accession plan
• Asian crisis phase (1997-1999) drastic
  liberalisation
• Competitive phase (2000-) hardening competition
  for international investment

4
Annual FDI inflows in South Korea (1990-2006)
USD million
USD million
Investment flows (left axis)
Investment stock (right axis)
5
FDI performance of selected Asian countries
Source UNCTAD 2007
6
Survey major deterrences to FDI in Korea
7
Finno-Korean bilateral relations

• Finlands contacts with Japan to fight against
  Russification (1899-1905, 1908-1917)
• different from many other Western countries, the
  Japanese expansion in East Asia was not
  criticised in Finland
• Ambassador Ramstedts linguistic work among
  Koreans in Japan in the 1920s
• Finnish interest in Korea started to grow only
  during the Korean War (1950-53), indirect impact
  on Finnish exports, rumours on Finnish volunteers
  participating the war
• marginal trade flows

8
Finno-Korean bilateral relations (cont.)

• due to the Cold War, relations with the two
  Koreas were established only in 1973
• trade started practically from scratch in 1977
• private Finno-Korean Economic Co-operation
  Committee
• multilateralism instead of bilateralism since the
  beginning of 1990s, Finlands relations with
  South Korea are nowadays organised through the
  framework of the EU
• Minister level visits and state visits (2002
  2006)
• information and knowledge based society issues
  are in the forefront of Finno-Korean bilateral
  relations

9
Development of Finnish FDI flows in South Korea
Source Korean Ministry of Finance and Economy
10
Development of Finnish FDI flows in South Korea
(cont.)
Source Korean Ministry of Finance and Economy
11
Conclusions on Finnish FDI in South Korea

• 1984-1997
• MNEs
• forest and metal industries
• greenfield investments
• majority and 50-50 ownership
• average investment USD 953,000
• technology transfer from Finland to South Korea

• 1998-2005
• MNEs, mini-MNEs, SMEs, born globals
• chemical industries
• greenfield investments, acquisitions, repeat
  investments
• minority, majority and 100 ownership
• average investment USD 2,9 million
• acquisition of Korean technologies

12
Conclusions on Finnish FDI in South Korea (cont.)

• Push factors
• internationalisation of the Finnish firms
• familiarity with the Korean market through
  earlier export operations
• severe recession in Finland in the beginning of
  the 1990s

• Pull Factors
• gradual development of South Korea from
  labour-intensive to knowledge-intensive
  industries
• relative minor role of chaebols in sectors
  typical to Finnish investors
• gradual trade policy liberalisation
• drastic investment policy liberalisation in 1998
  allowed MAs