Record investment abroad

Chief executive should initiate FDI campaign

Outbound direct investment expanded 3.2 times as fast as inbound investments last year for a record net outflow of $30.8 billion. The data indicates a fast hollowing-out of manufacturing and exports of jobs. Korea badly needs to take steps to attract foreign investment.

Last year, outward direct investment topped $44.5 billion, 3.2 times as large as inbound investment of $13.7 billion.

Local companies built or relocated manufacturing factories overseas. They were active in offshore resources development and expanded distribution networks. This record outward investment helps domestic companies increase sales overseas, secure hi-technology, and enable Korea to secure energy and resources on a stable basis.

The problem is languid inbound investment. Outbound investment has been increasing at an annual average of 24 percent since 2000, eight times as fast as inbound investment.

Korea has seen a net annual foreign direct investment (FDI) outflow of $800 million from 2004 to 2006. The size has jumped to $20 billion per year since 2007.

The net outflow reflects global economic stagnancy. American and EU businessmen have little money to invest offshore as they are in trouble at home.

Korea is not so attractive to foreign investors. Land prices and labor costs are expensive by global standards. Living conditions for expatriates have been improving at a snail’s pace. Government regulations are perceptibly tight. Korea is behind such Asian countries as Hong Kong, Japan, Singapore and China in the investment climate.

What’s more, foreign companies have a tough time in selling products in Korea where chaebol play a dominant role. Even the iPhone has been struggling in outsmarting Samsung brands.

It is only natural for companies to hesitate to invest when there are little prospects for earning money.

The vacancy of the Incheon Free Economic Zone (IFEZ) illustrates the dismal picture of tepid foreign investment. The zone gets derision as the free economic zone for Korean companies and universities. Other provincial free economic zones face shutdown due to near-nonexistence of foreign interest.

The increase in offshore investment is not always negative for the local economy.

It is desirable for Korea to see a net outflow of investment in order to offset trade surplus. This reduces pressure on currency appreciation. Outbound investment helps Korean companies globalize, which will help them increase sales overseas.

Korean consumers do not dislike products made by foreign investors in Korea. In the same way, foreign consumers tend to favor Korean products made in their countries.

Korea should reverse the lackluster inflow of foreign investment. Noticeable is the massive exodus of manufacturing companies, including Hyundai cars and Samsung chips. Exodus of manufacturers will surely make the job market difficult for the younger generation.

Ahead of the general elections, no party has issued pledges of attracting foreign investors.

President Lee Myung-bak, purported champion of Global Korea, has not chaired even a meeting to promote foreign investments. His pan-government initiative will only impress half-hearted foreign CEOs into investing here.