Conditions for FDI success
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By Dr. Jeffrey I. Kim
The World Bank has recently published “Doing Business Report 2015” which carries very good news for Korea. According to the report, Korea is the fourth easiest country in the world in which to do business whereas it ranks third among OECD countries and even first among members of the G20. This is remarkable progress. Korea has made a big jump over a six-year period from its 19th rank in 2009.
The World Bank’s assessment is made by examining the various costs from inefficient business regulations. The bank measures the costs that arise, from using the courts to resolving commercial disputes, transferring properties, getting construction permits, etc. This news will induce global investors to invest in Korea.
On Nov. 10, several newspapers reported the results of the survey conducted by the Korea Chamber of Commerce and Industry (KCCI). The KCCI has conducted its first ever survey of investment satisfaction among 1,578 foreign-invested companies nationwide. The survey gave the respondents two categories of questionnaire. One category is a group of questions asking about foreign investors’ satisfaction and the other is about the required business conditions for foreign direct investment (FDI).
In the category of foreign investor satisfaction, Pohang City in North Gyeongsang Province is ranked first in the nation. The most important element with which the respondents felt satisfied was the attitude of the provincial governor or city mayor toward foreign investment. It turned out that behind the highest score for Pohang was the mayor’s strong will to meet the demands of the foreign investors.
He designated a foreign investment counselor among his competent staff and let him provide administrative support exclusively for foreign companies. The Mayor also took initiative to form an advisory group to promote systemic improvements. 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 in South Chungcheong Province earned the highest marks. The measurement of a friendly environment was made by taking a weighted average of the four indices representing 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 improved over 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 new policies conducive to foreign investment.
Nevertheless there are ways for local governments to improve the climate for foreign investment. They can receive various forms of assistance from the central government. They may seek foreign-investment related cash grants from the central government. They can designate a complex-type or an individual-type of foreign investment zone by coordinating with the Ministry of Trade, Industry and Energy. Also they can receive support from local universities. Foreign investors can launch R&D companies by making contracts with the local universities.
Local governments can create SME (Small Medium Enterprises) cooperation industrial zones to attract businesses for parts and materials. The SMEs with high technology can supply quality parts and equipment for large-scale industries. 330,000 m2 is the minimum level to be designated as the complex-type foreign investment zone.
Furthermore, local governments can receive support and services from a national vestment promotion agency, KOTRA (Korea Trade and Investment Promotion Agency). It has two entities_ the Invest Korea Office and the Foreign Investment Ombudsman’s Office, focusing on the inducement of FDI and solutions of FDI’s grievances respectively. It has nation-wide representative offices in regional districts. In the headquarter’s of KOTRA, 22 foreign investment officials are deployed from central and local governments. They are ready to provide 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 Commerce and Industry is having a tremendous impact on the Korean economy. The heads of the regional provinces and their officials have begun to change their attitudes in favor of FDI. They are trying to benchmark the foreign investment system of Pohang City and of Cheonan City. Regional governments are becoming more aggressive in attracting FDI. Also the KCCI’s presentation of the foreign investment map serves as a useful guide for both policymakers and foreign investors.
Jeffrey I. Kim is a foreign investment ombudsman, a presidentially appointed troubleshooter for investors and entrepreneurs from overseas. He earned a Ph.D. in economics at the University of Chicago and taught at the University of Colorado, Boulder, and Sungkyunkwan University.