Korea looks to be friendly to foreign businesses
A news article in a local newspaper recently criticized the repatriation of huge profits of foreign-invested companies, including cases where profits larger than net profits were returned to head-offices.
The article concluded that the government should attract foreign direct investments selectively based on high marks for job creation, technology transfers and increased exports.
Such a protectionist mindset, along with the financial regulator’s indecisive ruling of the Lone Star case, is the real threat to our economy, given that empirical studies find FDI to be an important vehicle for the transfer of technology, contributing to growth in larger measure than domestic investment.
I’d like to remind the reporter of a statement made in 1979 by the great Chinese leader, Deng Xiaoping, about how China’s economic development banks on foreign direct investment: “Foreign entrepreneurs invest here to make a profit, so we should ensure they can make more profits from investments in China than they can make through investments in other countries.”
Some may think huge profit repatriation takes away money earned in Korea and injects it into another country's economy, thus boosting their local demand.
However, I must note that profit repatriation boosts FDI and thus the general growth of our economy, including new employment. Most developing countries, and of course advanced economies, allow free repatriation of profits.
Foreigners are in awe of our world-class, high-tech infrastructure, including Wi-Fi on phone, which is available almost anywhere in the country, and our world-class transport network, including the futuristic Incheon International Airport.
Yet, they say our country remains curiously detached on many fronts. They perceive us as still having an isolationist mindset. We are very friendly toward foreigners but, they sense, harboring strong anti-foreigner undertones on a business level.
Tariffs and other market barriers help keep out foreign goods for the benefit of Korean firms, foreigners complain. It took Apple almost two years to get the iPhone approved for sale in our telco market.
Foreigners are also unhappy about the tendency of Korean firms to trade at lower price earnings ratios than peer companies in other countries since low valuations do not translate to good dividend yields in Korea.
They see that we have no culture of rewarding shareholders for providing capital. For instance, Samsung Electronics trades on a P/E of 8.7 but yields just 1.08 percent. LG Electronics trades on a P/E of 13.8 but yields 0.2 percent. Meanwhile, Acer, a Taiwanese tech company, trades on a P/E of 10.5 and yields 5.1 percent. TSMC, another Taiwanese semiconductor manufacturer, trades on a P/E of 11.3 and yields 4.2 percent.
When it comes to dividend yields or profit repatriation, we are stingy, they think. We may need to think hard about whether we are putting into action the good old saying, “Danger gone, God forgotten.”
In the wake of the Asian financial crisis that swept East Asia in 1997, the Kim Dae-jung administration was pressed to carry out massive structural reforms in many segments of the economy as a condition for a rescue financing package, including the liberalization of our investment regime.
At the same time, our academics and policymakers identified weakened competitiveness as a fundamental cause of the financial crisis and considered FDI as one way to strengthen Korea’s technological capability.
Hence, one of the top economic policy priorities was centered on attracting FDI with the aims of, first, overcoming the currency crisis and, second, stimulating industrial upgrades.
With foreign exchange reserves of about $300 billion and with globally recognized local brands such as Samsung, LG, Hyundai, SK and so forth, can we be complacent about our achievements and remain in a comfort zone we have created?
As we now belong to the high-income group of countries, according to the World Bank, we should generally adapt our economic and social policies to this status to keep moving up the development ladder.
Hank Ahn serves as commissioner of Invest Korea.