Firms in Dilemma Over Lee’s Urge to Boost Local Investment
By Kim Yoo-chul
Staff Reporter
After President-elect Lee Myung-bak's pledge to create a ``business-friendly'' government, South Korean companies are in dilemma over whether they should expand local investments or inject more capital into overseas operations.
In a meeting with the heads of the country's top 20 conglomerates last week, Lee vowed to cut corporate taxes from the current 25 percent to 20 percent and promised to stabilize labor-management relations while reaffirming his pledge to lift restrictions on cross-affiliate investment among industrial conglomerates.
To back up such challenging yet impressive ideas, Hyundai-Kia Automotive Group has revised up its investments for 2008 to 11 trillion won from some 7 trillion won last year.
Kumho Asiana Group has raised its plan investment into research and development by up to 20 percent, while Samsung Group and LG Group have been known to increase total investments by some 10 percent in the New Year, according to industry sources.
``Although we are supporting Lee's `CEO-Style' management, we are still in doubt about the hurdles hampering active domestic investments ― saturation, higher labor costs, regulations and no incentives for tax benefits to be eased to a level that we want,'' a ranking official from LG Electronics told The Korea Times Monday.
Experts say the upcoming government should attract more foreign capital to revive the sagging local investments by large companies as South Korean firms are making every effort to become global players to survive the challenging market situations.
In contrast with capital inflow by foreign firms since 2004, South Korean companies have been taking money out of the country to secure the next drivers for growth via active mergers and acquisitions.
``If the next government treats local companies with foreign rivals equally in terms of tax and administrative support by easing restrictions on corporations, then more investments will come into the domestic market,'' an official from Samsung Electronics said.
The official in charge of the company's planning office cited a virtually failed plan by the current government as a good lesson that explains a shadow of the one-sided policy.
With a goal to make the country a research hub in the Northeast Asian region, the Roh government has given tax and administrative incentives to foreign companies investing $5 million in research and development here.
However, Intel closed its research center in 2006 and even Hewlett-Packard has been under fire for a stalled R&D investment scheme in the local market.
``Active partnership with local and foreign companies will be a key to boosting local investments,'' an official from Hynix Semiconductor said.
Lee Myung-bak hopes to raise annual growth to 7 percent during his term, and lay the foundations to make the nation the world's seventh biggest economy in 10 years, while raising per-capita income to $40,000 in the same period with a target of creating 600,000 new jobs every year.