This document analyzes the macro-environment of South Korea across several factors. It finds that South Korea presents:
1) Low risk overall, with a stable political system, rule of law, and supportive policies for business.
2) Moderate risks around property rights protection and transparency/corruption. Environmental issues also pose moderate risks.
3) High risks are limited to restrictions around raw materials sourcing and property taxes. Protection of intellectual property rights also carries high risk.
3. South Korea--Introduction Has a strategic position in Northeast Asia Neighboring countries include North Korea China Russia Japan Significant influence of the USA Biggest regional issue: At “War” with South Korea
4. Korea’s Transformation Amazing growth since WWII Went from being a 3rd world country to a developed nation in 40 years Korea became a global leader in many industries
6. Korea’s Transformation (Con’t) World ranking in certain industries: Shipbuilding: 1st 40% of world’s shipbuilding capacity Semiconductors: 3rd Digital electronics: 4th Automobile production: 5th 4th largest hospital in the world 2nd largest oil refinery (SK Chemicals)
9. Population/Market Opportunities One of the most ethnically and linguistically homogenous nations in the world Population: 48.5 million Population density: 1,260 per sq mile (USA 80, India 690) Urbanization: 81% (24 million around Seoul) Classified as a high income country by the World Bank Good purchasing power of consumers Biggest middle class in Asia Very sophisticated and demanding consumers Koreans are early adopters Accepting of certain American products Risk: Low
14. Level of Unemployment/Labor Force Unemployment is low at 3.2% (USA 7.2%) Very well educated and skilled labor force Risk: Low to Moderate
15. Stability of the Currency Currency: 1,245 Korean won for $1 Relatively unstable $201 billion of foreign exchange and gold reserves (India $256 billion) Risk: Moderate
16. Availability of Energy Korea is dependent on energy imports Needs to import 97% of energy requirements Excellent availability of energy resources Nuclear electricity generation has risen to 40% Risk: Moderate
17. Development of Telecommunication Excellent telecommunication infrastructure 36.8 million internet users 76% of the population (US 74%) 47 million cell phones 97% of the population (US 88%) Average internet download speed: 20 mbps (US 5 mbps) ITIF Broadband Ranking: Korea(1st),(USA 12th) Risk: Low
20. Availability of Transportation 103,029 kilometers of roads 3,381 kilometers of railroads 113 airports (Incheon 4th largest cargo airport) Many sea ports Busan: 5th largest seaport in the world Risk: Low
21. Availability of Raw Materials Almost no raw materials available Dependency on imports Risk: High
22. Accessibility of Domestic Capital Market Recent reforms: More transparency, less government control Some restrictions on foreign ownership Stock market Korea Exchange--market value of $640 billion (NYSE $9 trillion) Risk: Low to Moderate
23. FDI and FDI Growth 24thin FDI confidence index China 1st, India 2nd, US 3rd Positive future outlook (future privatization) Risk: Low to Moderate
26. Degree of Democracy Democracy More than 100 national and local dailies throughout South Korea Press is often critical of the government President elected through a nationwide, equal, direct, and secret ballot Citizens vote for officials through constituents Risk: Low
30. Alliances with Major Powers Joined UN in 1991 Allied with U.S. in 1953 by Mutual Defense Treaty June 2007 signed KORUS-FTA Diplomatic relations with over 170 countries Risk: Low
31. Bureaucratization Ranked 40 out of 179 economies in the Index of Economic Freedom U.S: 6 India: 123 China: 132 South Korea ranks 8thout of 41 countries in the Asia-Pacific region Hong Kong Singapore Australia New Zealand Risk: Low
32. Bureaucratization: Starting a Business Time required to start a business (days): Avg: 13.0 Korea: 14 U.S: 6 India:30 China: 37 Number of procedures: Avg: 5.7 Korea: 8 U.S: 6 India: 13 China: 14 Cost: Avg: 14.7 Korea: 14.7 U.S: 0.7 India: 66.1 China: 4.9 Risk: Low
33. Bureaucratization: Dealing with Licenses Time required to obtain licenses: Avg:157.0 Korea: 34 U.S:40 India:195 China: 336 Number of procedures: Avg: 15.1 Korea: 13 U.S: 19 India: 37 China: 37 Cost: Avg: 56.1 Korea: 135.6 U.S:12.7 India:2394.9 China:579.2 Risk: Low
34. Bureaucratization: Registering Property Time required to register (days): Avg:25.0 Korea:11 U.S:12 India:44 China:29 Number of procedures: Avg:4.7 Korea: 7 U.S:4 India:5 China:4 Cost: Avg:4.6 Korea: 5.1 U.S:0.7 India:7.4 China:3.1 Risk: Low
35. Bureaucratization: Export Documents for Export: Avg:4.3 Korea: 3 U.S:4 India:8 China:7 Time for Export: Avg:10.5 Korea: 8 U.S:6 India:17 China:21 Cost ($U.S cost per container): Avg:1,089 Korea: 742 U.S:1050 India:945 China:500 Risk: Low
39. Bureaucratization: Closing a Business Time to close (days): Avg:1.7 Korea: 1.5 U.S:1.5 India:9.0 China:1.7 Cost: Avg:8.4 Korea: 4 U.S:7 India:7.0 China:22 Recovery Rate: Avg:68.6 Korea: 80.5 U.S:76.7 India:15.1 China:35.3 Risk: Low
40. Trade Policy Foreign Investment Issues: Incentives for foreign firms to invest including cash grants and zero-corporate tax zones Foreign investment process is very straightforward and an official is assign to facilitate each project The government also leases property for up to 50 years at low rates or zero cost Risk: Low
41. Trade Policy Trade Restrictions Agricultural and fishery products have very high duties imposed Risk: Low to Moderate
42. Trade Policy Trade Restrictions Established a tariff-rate quota (TRQ) which helps provide minimal access to previously closed markets Rice market is also a very restrictive market Risk: Moderate
43. Trade Policy Currency Policies Foreign Exchange Transaction Act fully liberalized all current accounts by business firm and banks Foreign firms are allowed the right to remit any profits Risk: Low
44. Paying Taxes Payments (number of taxes paid): Avg:12.8 Korea:13 U.S:10 India:59 China:7 Time to file (hours to file): Avg: 94.1 Korea: 259 U.S:187 India:271 China:504 Total Tax Payable (percentage of gross tax): Avg:44.5 Korea: 34.1 U.S:46.3 India:64.7 China:78.5 Risk: Low
45. Property Tax Highest housing transaction cost of any country Imposes Value-Added Tax to all real estate High cost intensifies housing shortage Risk: High
46. Trade Policy Price Controls Regulates and maintains prices in several industries including agriculture, telecommunications, pharmaceuticals and medical services, and sand energy products Government has the ability to cap prices on raw materials and control prices on several other products in key industries by emergency decree Risk: Moderate
48. Ownership Risk Full rights are recognized in given through a well developed body of laws in South Korea Freely acquire and dispose of assets and investments Land Acquisition Act also grants foreigners and multi-national firms the same rights a Koreans Risk: Low
49. Privatization Privatization is a major issue 319 state-owned companies, but the current plan proposes to sell 35 of these companies while abolishing or allowing the other 20 companies to merge. Risk: Low
51. Transparency of Regulatory System Korea is ranked 40 out of 180 countries on transparency scale. US: 18 India:85 China:72 Transparent regulatory system Issues with corruption (although decreasing) Transparency increasing Risk: Low
52. Protection of Property Rights Issues in South Korea over the protection of property rights Major problems with copyright infringements and counterfeit products Piracyof IPR Risk: High
53. Effectiveness of Court System Korea 8 out of 181 in terms of enforcing contracts Averages only 35 procedures (avg: 30.8) are required and it takes an average of 230 days (avg: 462.7) to receive a payment after the first lawsuit is filed Risk: Low
55. ETHICS AND CORPORATE CULTURE ANALYSIS Human rights Transparency/ Corruption Environmental Issues Women’s rights Child labor
56. HUMAN RIGHTS National Security Law (NSL) Human Trafficking: Governmental measures to prevent human trafficking. Non-governmental measures to prevent human trafficking. International measures. Discrimination against Minority Groups Disputes over not enough legal protection for minority rights. Risk: Moderate
57. TRANSPARENCY/ CORRUPTION South Korea scored 40th out of 180 countries on TI’s list of most transparent countries. South Korea scored a 5.6 on TI’s Corrupt Practices Index. South Korean culture makes it hard to distinguish between bribery and gift giving. Even with laws against bribery, it is hard to enforce in South Korea because of a high resistance to change in this area. Risk: Moderate to High
58. ENVIRONMENTAL ISSUES South Korea did not start paying close attention to the environment until the late 1908’s. This was two decades into their industrial revolution. They are one of Asia’s largest producers of SO2, which is the leading ingredient in acid rain. They border China, who is Asia’s largest producer of SO2 and is close enough to South Korea to affect their climate. Risk: Moderate
59. ENVIRONMENTAL ISSUES South Korea has passed strict regulations on SO2 emissions. Many companies lack the technology required to desulfurize their equipment. South Korea has pushed for bilateral legislation between Korea, China, and Japan. Risk: Moderate
60. ENVIRONMENTAL ISSUES South Korea will also host the Business for the Environment Summit and Champions of the Earth on April 22 of next year. They also have 38 billion dollars to be spent over the next four years to be spent for a series of environment-friendly investments. Risk: Moderate
61. WOMEN’S RIGHTS According to the nationmaster.com, the literacy rate of females as a percentage of males is 97%. They are ranked 56th out of 144 countries. On the GEM chart, South Korea ranked 68th in 2008. Risk: Moderate
62. WOMEN’S RIGHTS Also in 2008 women accounted for 13.7% of legislatures, 8% of managerial and administrative positions, and 40% of professional and technical positions. The ratio of South Korean women’s income compared to South Korean men was .52. South Korea is improving in all area’s for Gender empowerment, but they are growing at a slower rate than other countries. Risk: Moderate
63. CHILD LABOR South Korea has been a member of the International Labor Organization since 1991. Certain laws have been put in place to ensure that child labor is restricted. These laws include a child between the ages of 15 and 18 needing written permission from a parent or guardian Risk: Low
64. CHILD LABOR Children in this age group are not allowed to work overnight hours They should not exceed 7 hours a day or 42 hours a week If they are under the age of 15 they must obtain special permit from the labor ministry. South Korea has been good about enforcing these laws. Risk: Low
66. Risk Assessment Conclusion: Overall low risk Some exceptional qualities Government is working on continuous improvement One of the best places for investors in Asia
