| Korea Profitable for Foreign Corporations|
[Korea TImes 2004-10-31 15:27]
By Park Chung-a
Korea has set out its ambitious plan to become a Northeast Asian economic hub and double its income by 2010. In order to clarify the concrete means of achieving this, The Korea Times conducted an e-mail interview with the chairmen of four major foreign business organizations in Korea, who are the representatives of foreign investors doing business in Korea. The interviewees included William Oberlin from the American Chamber of Commerce (AMCHAM), Les Edwards from Australia New Zealand Chamber of Commerce in Korea (ANZCCK), Nobuya Takasuki from Seoul Japan Club (SJC) and Frans Hampsink from European Union Chamber of Commerce in Korea (EUCCK).
FTA Key to Globalization
The CEOs pointed to Korea’s progress in the area of Foreign Trade Agreement (FTA) policy as one of the most positive factors contributing to the globalization of the Korean economy, and urged it be concluded as soon as possible.The government has recently launched a 30-member bureau within the Ministry of Foreign Affairs and Trade dedicated to promoting FTAs. Korea, which implemented an FTA with Chile earlier this year, is currently pursuing the conclusion of free trade agreements with Singapore, Japan and the United States. ``It is encouraging to see Korea engage in FTA dialogue with other countries within the region, bringing more transparency and fair trade, enhancing standards to be more in line with global standards. We hope that soon Korea and the U.S. will be able to successfully complete a Bilateral Investment Treaty, which would be an important step towards Korea and America beginning to move toward an FTA. Korea is definitely changing,’’ Oberlin said. Edwards said that both Australia and New Zealand would welcome an FTA with Korea. Takasugi also called for more efforts in attracting foreign investment, pointing out that foreign investment trend has been going downhill since 1999. ``More governmental departments in charge of promoting foreign investment and helping foreign investors’ problems such as KOTRA’s Ombudsman and Invest Korea should be established,’’ he said. Evaluation on the current administration Since Roh started to head the administration in 2003, Roh has been under fire for the lack of clear direction in his economic policies, which have zigzagged between distribution and growth and increased uncertainty surrounding the economy. During Roh's past 18 months in office, the administration’s economic policy has shifted several times. While Roh first emphasized the need for continued reforms, months later his economic team switched its focus to stability, laying aside radical changes. Later Roh stressed growth, setting an agenda of doubling per capita income to $20,000 by 2010 to stay ahead of China.The latest mantra seemed to be distribution, as the government promoted the expensive capital relocation project in order to achieve balanced regional development. The relocation of the capital was rejected by the Supreme Court, and major business organizations have claimed that Roh is tilting toward left-wing economic policies stressing more distribution-driven policy than growth-oriented policy.Hampsink said that the controversy over such issues is not worth being concerned about. ``Whether the government is left or right is not the question. What is important is that the economic policy should always be based on improving the current situation of this country,’’ he said. Edwards said that although a government is entitled to set its own political and social agenda, some, however, would say that this government has done so at the expense of the economy. ``Taking care of economic fundamentals is critical for Korea’s well being in a particularly competitive region, and to provide its people with economic prosperity and confidence. We trust that the government will provide full and focused attention on economic policies,’’ he said.Takasugi also said that although he appreciates the government？ continuous efforts in improving the market, corporate economy, administrative restrictions, foreign investment and labor-management relationship in accordance with global standards and establishment of transparent market order, what Roh’s administration actually did last year was labor-friendly to a large extent. ``The government has stirred controversy over whether distribution should be first or growth first. The reason why Roh’s government seems to be somewhat tilting toward leftist policies is that despite its market-friendly attitude, the roots of its economic policies are rooted in revolution and distribution,’’ he said. ``In order to make its policies free from populism, the president Roh needs staff who are vastly experienced in business,’’ he added. Oberlin disagreed with such allegations saying the reality is that American firms continue to make money in Korea today and see a prolonged interest in expanding their investments here that they would not see in an environment with left-wing economic policies. ``In Korea earlier this year, Citigroup invested $2.6 billion to acquire KorAm Bank. GM is increasing their investment in Korea by $1.45 billion, GE Capital brought almost $1 billion into Hyundai Auto Financing, and Prudential Financial invested over half a billion dollars to acquire Hyundai Investment and Trust. EBay offered over half a billion dollars to acquire the remaining shares in their South Korean affiliate, Internet Auction,’’ he said. ``The enormous changes made in the Korean economy over the last decade have been overwhelmingly positive and the future direction is sound. We believe the Korean government clearly understands the challenges they face and will make the difficult decisions to protect their future growth,’’ he added.
Improved National Image Puts Hub Dream Into Reality
The Roh’s government has set out a plan to develop Korea into an economic hub of Northeast Asia, making the best use of its geographical advantage to double its income by 2010. Moon Chung-in, the chairman of the Presidential Committee on Northeast Asian Cooperation Initiative said last Thursday that in 20 years, the government will have developed Seoul into a financial hub and economic capital of Northeast Asia, Free Economic Zone (FEZ) areas of Incheon, Pusan-Chinhae and Kwangyang will be logistics hubs and Kaesong in North Korea a site of manufacturing industry. Takasugi said that the possibility of Seoul developing into a logistics hub seems the most feasible. ``With the continuous globalization, the international logistics environment surrounding Japan is changing a lot. Facing changes such as increasing imports, widening gap between exports and imports, shortened routes for logistics, increase in cost for logistics, Japan is currently renovating its logistics system,’’ he said. ``Enhancing customer satisfaction is the key to this solution, which is related to improving quality, cost-effectiveness and delivery. FEZ areas in Korea fulfill these demands. The success of FEZs depends on increasing added values with high-quality labor. Only convenient shipping and transportation will not guarantee that they can be distinguished from other areas,’’ he added. The EUCCK chairman said that the prospects of the plan could be much brighter if Korea continues to focus on core assets such as IT, logistics and automotive, to name a few. The other two chairmen pointed out that it is not important whether or not Korea fully achieves hub status. They said that what matters is the process of globalization; opening of the market, enhanced transparency and adoption of new management styles and technologies, in other words, the changes Korea will undergo during its efforts to become a hub. They said that achieving the overall goal of increasing Korea’s competitiveness within a dynamic region is the most important thing. ``Like other advanced countries, Korea is experiencing structural shift from a traditional manufacturing based economy to information – communications, technology and service based economy with the finance sector being one of the fastest growing industries. In this sense, AMCHAM fully supports Korea’s efforts to become a financial hub, as it will create substantial benefit for the Korean economy in terms of job creation and making existing industries more competitive. Many other significant benefits will also be incurred as Korea makes the transition to a financial center; including increased foreign and domestic investment, improved national image and increased diplomatic leverage,’’ Oberlin said.
Labor Inflexibility Frustrates
CEOs All the four chairmen agreed that the biggest frustration for foreign businesses is the lack of true labor flexibility and its image of having militant unions. They emphasized that in this fast changing, increasingly competitive global economy, speed and flexibility are the keys to maintaining competitiveness. They said that although a flexible labor market might be detrimental to labor unions in the near term, it will ultimately generate positive results for them in the long term, saying that countries with a flexible labor market generally enjoy a low unemployment rate and a high growth rate. ``The poor image projected internationally by Korea’s more militant trade unions and a perception that perhaps Korea does not uphold the rule of Law when dealing with strikes, are the biggest detriment to Korea’s ability to attract foreign investment,’’ Edwards said. ``The negative feeling about Korea spread by the press often has a big impact on head offices when they are making decisions. Korea should be more open and follow international standards,’’ Hampsink also said. Oberlin claimed that current labor laws in Korea make it extremely difficult to terminate redundant or poorly performing employees and also for companies to quickly adjust their workforce based on rapidly changing business cycles, saying that one of the key strengths of the U.S. economy is the ability of U.S firms to easily adjust their workforce based on changing business conditions. ``Many unions in Korea have become progressively more militant in their demands and may end up winning the battle but losing the war. While they sometimes win the increased benefits and even management rights they demand, they are discovering that more companies are being forced to move jobs outside of Korea to a more competitive business environment, and so Korea ends up losing in the end,’’ he said. ``Increasingly, Korea is becoming viewed as a rigid labor market with militant workers and frequent strikes. Its negative image is shared by both domestic and foreign investors, which is significantly hampering Korea’s economic recovery as investment continues to slow,’’ he added. In addition, the Japanese CEO said that there is a lack of unity between government policies and its administration, and an insufficient awareness of invisible rights such as intellectual property rights and patent rights. The Chairman of ANZCCK also pointed out that the tax environment and transparency issues when defining and interpreting law and regulations were detrimental to attracting FDI. ``These need to be more openly known and published in English. Government websites should provide free downloads of regulations in English and Japanese as a minimum. There are still too many regulations, and there is also the problem of bureaucratic interpretation of those regulations. Korea’s bureaucracy needs to be less regimented and more service orientated, adopting a flexible, problem-solving approach,’’ he said.
Shift to Knowledge-Based Society Necessary to Double Income
The four CEOs all agreed that in order for Korea to be competitive in 2010, it must continue to take a serious approach in creating knowledge-based expertise and investment opportunities in sectors such as ICT, bio-tech and nano-tech, for example.``Attracting FDI in R&D is crucial to this outcome, along with renewed emphasis and rigorous investment by chaebol. It also needs to continue with agricultural restructuring, service sector deregulation and opening up the Korean economy even more to foreign trade. Acceleration in the process of agreeing to and signing more bi- and multi-lateral FTA’s is very important to doubling income by 2010,’’ Australian CEO, Edwards said. Chairman of SJC again highlighted the importance of improving labor-management relationships saying that Korea’s labor productivity is the lowest among the thirty most advanced countries in the world. He also called for management transparency and competitive power in the public sector such as state-run companies. The EUCCK chairman pointed out that as Korea is already part of the global economy, Korea’s economic success highly depends on that of the global economy. ``What happens in the global economy will be a significant factor for the development of the Korean economy. For example, the surge in foreign oil prices affected the Korean economy in a dramatic way,’’ he said. AMCHAM chairman highly evaluated the Ministry of Finance’s efforts to focus on asset management by attracting the world’s best asset managers to Korea, while developing domestic skills in this expertise. ``Attracting the region’s best asset managers to Korea will not only increase investment in Korea, but will also greatly help in transferring these skills to Korea and ensuring that the domestic asset management industry grows exponentially,’’ he said. He also said that in order to foster this industry in the long term and ensure foreseeable returns in the next decade, it is first essential to create a tax and regulatory environment that will be favorably viewed by these companies. Thoughts on Korean NGOs Some say that Korean non-governmental organizations (NGOs) are having a stronger social voice than before, but they are going beyond their role of watchdog and criticize them for interfering with management decisions. The Korea Times also asked the four CEOs on this sensitive issue. While AMCHAM chairman refused to comment on the issue, Japanese chairman and ANZCCK chairman said that although NGO’s have an influence and are stakeholders in Korea that need to be listened to and their opinions considered seriously, but their watchdog role should not be confused with ``permission to interfere’’ in business decisions and practices.EUCCK chairman made an interesting comment by saying that, ‘’This is one of the features of this participatory government. The president Roh was elected on this basis.’’