Distance still matters in Korea
Commissioner of Invest KOREA
The events of 9/11 and 3/11 are the most unforgettable to me among all those since the dawn of the third millennium.
People around the world watched aghast as two commercial airliners crashed into the Twin Towers of the World Trade Center in New York City, killing everyone on board and thousands of those working in the buildings.
Last March, we watched aghast again as a 9.1-magnitude earthquake and subsequent tsunami ravaged the east of Japan, killing more than 15,000 and leaving another 8,000 missing.
I believe there shall be more volatility and more uncertainty going forward since all these events come into our living rooms.
In the past when there was an earthquake, it was far away and we had the message on the news after it was over. Today it is in our living rooms through TV, the Internet, and social media. So we are all part of the event. And that has impact on our emotions, behaviors and anxiety levels.
It’s a small world. We are just six steps away from one another.
Distance does not matter in our modern life with information technologies, particularly global communications.
Look at Germany. The Wall Street Journal reported that the volume of German goods sold abroad rose 18.5 percent to €951.8 billion ($1.340 trillion) in the past 12 months.
This striking achievement could be possible because small- and mid-sized German companies are looking abroad for growth in addition to focusing on sophisticated, expensive and hard-to-imitate products in the mechanical engineering sector.
Distance does not matter in Germany.
Here in Korea, a local economic daily recently again criticized huge profit repatriation by foreign-invested companies totaling $6.2 billion, including cases where profits larger than net profits were returned to head offices.
The article blamed foreign-invested companies for taking away money earned in Korea, naming globally well-known companies.
A few days later, local newspapers proudly reported that Hyundai Motor repatriated whopping profits from a $720 million investment in China. It took about $400 million as a one-time dividend.
What made Hyundai Motor take away such a sizable sum? My guess is that it may need the money to invest in its operations in another part of the world, not for use by its head office, reflecting the nature of multinational corporate business.
Comparing dividend yields between multinational companies and local companies, we must take into account the lower dividend yields of local companies, which are tightly controlled by chaebol owners.
These companies are bound to make headlines in the future along with globally expanding Korean companies like Samsung Electronics and LG Chem.
Harvard Business School Professor Pankaj Ghemawat modified the so-called gravity theory of trade and investment flows by designating four dimensions of distance: cultural, political, economic, and geographic.
Distance does matter in Korea in the cultural dimension, given the xenophobia often displayed by local newspapers against multinational companies.
Our cumulative FDI (foreign direct investment) inflow as a percentage of GDP records merely 13.3 percent, which is way below the average of developed countries (31.5 percent) and even that of developing countries (29.1 percent), according to an UNCTAD ¬(United Nations Conference on Trade and Development) report.
The U.S. government, which has thus far relegated FDI attraction roles and responsibilities to state governments, recently issued a president’s executive order to upgrade its FDI control tower by paying attention to the advantages of FDI: job creation and economic growth enhancement.
SelectUSA, the U.S. investment promotion agency, highlights tax incentives the government offers, funding assistance, technical assistance and an ombudsman appointed to help resolve issues, much like Invest KOREA does.
Malaysia, Indonesia and Turkey air expensive commercials on CNN to induce FDI inflow.
While all the world’s governments fight like cats and dogs to attract FDI to their countries, one local newspaper suggests that Korea be selectively allow FDI.
Can we afford to remain complacent about drawing in FDI?