By Jane Han
Staff Reporter
A recent report by the National Tax Service (NTS) has shown that one in three foreign-invested corporations posted a loss in 2007, suggesting a significant number of businesses were in the red even before the global financial crisis mushroomed last year.
A ``foreign-invested company,'' by the government's definition, is a firm operating in Korea in which foreign individuals or corporations have at least a 10 percent stake. Overseas firms can enter Korea in the form of a corporation organized under Korean law or simply as a branch office.
The data said 2,317 out of the registered 6,489 incorporated businesses posted an estimated loss of 4.66 trillion won (about $3.5 billion). Loss-making firms were mostly in the wholesale industry, followed by the manufacturing, services and banking sectors.
``A combination of factors has worked against the operation of foreign firms and their efficiency,'' said Tom Coyner, president of Soft Landing Korea, a consultancy that provides advice to foreign enterprises.
He said that consistent wage increases, in spite of a lack of production, had contributed to disappointing results.
``All of that adds up and eats into profit,'' said Coyner, adding that slowing production and demand should be reflected in the pay packets of workers.
Jean-Jacques Grauhar, secretary general of the European Chamber of Commerce in Korea, agreed that a general consumption slowdown has been hurting foreign firms that manufacture and sell goods in Asia's fourth-largest economy.
``Even key markets like China are suffering because of lack of demand,'' said Grauhar. The lion's share of European firms here are in the manufacturing sector, he said, which is why recovering a ``buying mood'' is critical.
Grauhar urged the Korean authorities to set out a clear-cut roadmap that will encourage nervous consumers to open their wallets again.
``The weak won is also hurting multinational companies, so without necessary help, they will suffer even more,'' he said, adding that there would be no mass exit of foreign firms ``for the time being,'' but many reinvestment plans are on hold until conditions recover.
However, the government painted a rosy outlook, as planned foreign direct investment in South Korea rose last year for the first time in four years. The Ministry of Knowledge Economy said Wednesday that planned investments reached $11.7 billion in 2008, a gain of 11.3 percent from $10.5 billion the previous year.
There is skepticism, though, that the planned commitment will not materialize as difficult times are pressing many cash-strapped firms across the world.
Tami Overby, president and CEO of the American Chamber of Commerce (AMCHAM), said, ``It is very unfortunate that so many companies reported losses in 2007, but AMCHAM believes that this reflects the broader economic crisis than just being the result of the Korean business environment.''
She emphasized that Korea is still a healthy market for all businesses and that it will recover from its current situation faster than many economies.
The NTS report showed that 64.3 percent of foreign-invested firms posted a profit in 2007, totaling 26.44 trillion won. At the same time, 67.7 percent of all Korean corporations recorded gains.