Conditions for FDI success

By Jeffrey I. Kim

The World Bank has recently published "DoingBusiness Report 2015" which carries very good news for Korea. According tothe report, Korea is the fourth easiest country in the world in which to dobusiness whereas it ranks third among OECD countries and even first amongmembers of the G20. This is remarkable progress. Korea has made a big jump overa six-year period from its 19th rank in 2009.

The World Bank's assessment is made by examining the various costs frominefficient business regulations. The bank measures the costs that arise, fromusing the courts to resolving commercial disputes, transferring properties,getting construction permits, etc. This news will induce global investors toinvest in Korea.

On Nov. 10, several newspapers reported the results of the survey conducted bythe Korea Chamber of Commerce and Industry (KCCI). The KCCI has conducted itsfirst ever survey of investment satisfaction among 1,578 foreign-investedcompanies nationwide. The survey gave the respondents two categories ofquestionnaire. One category is a group of questions asking about foreigninvestors' satisfaction and the other is about the required business conditionsfor foreign direct investment (FDI).

In the category of foreign investor satisfaction, Pohang City in NorthGyeongsang Province is ranked first in the nation. The most important elementwith which the respondents felt satisfied was the attitude of the provincialgovernor or city mayor toward foreign investment. It turned out that behind thehighest score for Pohang was the mayor's strong will to meet the demands of theforeign investors.

He designated a foreign investment counselor among his competent staff and lethim provide administrative support exclusively for foreign companies. The Mayoralso took initiative to form an advisory group to promote systemicimprovements. The group is made up of city officials, city parliament members,and local business leaders.

In the category of friendly environment for foreign investment, Cheonan City inSouth Chungcheong Province earned the highest marks. The measurement of afriendly environment was made by taking a weighted average of the four indicesrepresenting four conditions: (1) foreign investment inducement system, (2)grievance resolution system, (3) foreign investment support system, and (4)inducement performance. Unfortunately, these four conditions cannot be improvedover a short period. Fostering a friendly environment cannot be done overnight.It takes time for local governments to set up a new system or to implement newpolicies conducive to foreign investment.

Nevertheless there are ways for local governments to improve the climate forforeign investment. They can receive various forms of assistance from thecentral government. They may seek foreign-investment related cash grants fromthe central government. They can designate a complex-type or an individual-typeof foreign investment zone by coordinating with the Ministry of Trade, Industryand Energy. Also they can receive support from local universities. Foreigninvestors can launch R&D companies by making contracts with the localuniversities.

Local governments can create SME (Small Medium Enterprises) cooperation industrialzones to attract businesses for parts and materials. The SMEs with hightechnology can supply quality parts and equipment for large-scale industries.330,000 m2 is the minimum level to be designated as the complex-type foreigninvestment zone.

Furthermore, local governments can receive support and services from a nationalinvestment promotion agency, KOTRA (Korea Trade and Investment PromotionAgency). It has two entities_ the Invest Korea Office and the ForeignInvestment Ombudsman's Office, focusing on the inducement of FDI and solutionsof FDI's grievances respectively. It has nation-wide representative offices inregional districts. In the headquarter's of KOTRA, 22 foreign investmentofficials are deployed from central and local governments. They are ready toprovide a one-stop service for foreign investors in the fields of visa, labor,health, schools, and hospitals, etc.

The public announcement of the survey result by the Korea Chamber of Commerceand Industry is having a tremendous impact on the Korean economy. The heads ofthe regional provinces and their officials have begun to change their attitudesin favor of FDI. They are trying to benchmark the foreign investment system ofPohang City and of Cheonan City. Regional governments are becoming moreaggressive in attracting FDI. Also the KCCI's presentation of the foreigninvestment map serves as a useful guide for both policymakers and foreigninvestors. 

Jeffrey I. Kim is a foreign investment ombudsman, a presidentially appointedtroubleshooter for investors and entrepreneurs from overseas. He earned a Ph.D.in economics at the University of Chicago and taught at the University ofColorado, Boulder, and Sungkyunkwan University.

Link : https://www.koreatimes.co.kr/www/common/printpreview.asp?categoryCode=197&newsIdx=192098