-ETP Japan / Korea - Palazzo dei Giureconsulti, Milano July 2008

1. Korea
2008
Claudio Pellegatta
ETP July 08- Palazzo Giureconsulti,
Milano

2. Table of Contents
Korean Economy
FDI in Korea
Deciding Factors
Invest KOREA

3. Korean Economy

4. Key Economic Indicators (as of 2007)
Statistics 2007 est. Agriculture
Others
Population 49,044,790 Others 3.30% 7%
15.7%
GDP (Nominal) US$969.9 billion Manufacturing
19%
Real GDP Growth 4.9% Manufacturing Services
Per capita GNI (Nominal) US$20,045 56%
25%
Services 74%
Labor force 24 million
Unemployment rate 3.1%
Inflation rate 2.5% GDP Composition by Sector Labor Force by Occupation
(2006 est.) (2006 est.)
Trade 2007 est.
Export US$371.5 billion
Displays, Hong Kong Saudi Arabia
Major Export Items Semiconductors,
Automobiles Japan 5.02%
5.02% US 5.93%
Import US$356.9 billion 7.10% 10.43%
US
Major Import Items Petroleum 12.32% Others Others
China
53.49% 17.66% 50%
Finance 2007 est.
China
Investment (gross fixed) 28.8% of GDP 22.07% Japan
15.76%
Foreign Exchange Reserves US$262.2 billion
Government debt 33.4% of GDP
Export Destination Import Source
External debt US$380.7 billion
Source: The World Bank/Korean Statistical Information System/The Bank of Korea
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5. Economic Policy Direction for the New Government
4

6. Economic Policy Direction for the New Government
2008 has been designated as the “take-off period” for FDI
Establishing “business-friendly environment”
More favorable place
Globalize finance sector
for foreign investors
Capital Markets Consolidation Act (as of 2009)
Encouragement of PEF as well as hedge funds
Minimize regulations One-stop service for foreign
investors
Introduction of the “Sunset Law”
Negative-list approach to regulation
Lower tax rate Reinforcing administrative
assistance: Tax, immigration,
Reduction of corporate tax rate to the 20% level
by 2012 etc.
Introduction of “Advance Ruling”
Improve labor relations
Improvement of living
Strengthening of “Rule of Law” environment
Provision of incentives for healthy labor relations
5

7. Industrial Policy Direction for the New Government
Automobiles Software Biotech
Semiconductors Engineering Robotics
Nanotech
Displays Design
Medical devices
Mobile communications Testing & analysis
LED
Shipbuilding
Photovoltaic power
6

8. Developing Service Industry
Globalizing through pioneering
Global Competitiveness
overseas markets
Raising competitiveness through
specialization and economies of scale
Creating markets through the activation of
outsourcing and fostering specialized companies
Industrialization
2008: Mitigation of obstacles in industrialization and expansion of R&D investment
(KRW123.4 billion)
2012: Cultivation of 1,000 small and medium enterprises specializing in services
7

9. Creating New Industries
Bio chips,
Bio, Nano, Robots
Intelligent robots
Next Generation MRI,
Medical, Security
Encoding Technology
Photovoltaic, Photovoltaic Elements,
Hydrogen Energy Secondary Batteries
Technology development / Market creation / Regulatory Reform
2008: R&D fund investment of KRW396billion – US$426.2 million – into
12 technology areas* * 929.20 won/US$1 (2007)
8

10. Noteworthy Numbers
Global Competitiveness Index (2007/2008)1 Global Competitiveness (2007/2008)1
Sophistication of company operations and strategy
Country Score Rank Country Rank
USA 5.67 1 US 1
Korea 5.40 11 Netherlands 7
Hong Kong 5.37 12 Korea 10
Taiwan 5.25 14 Singapore 14
Ireland 5.03 22 Hong Kong 16
Korea OECD Avg. Country Score Rank
Total Tax-rate 34.9%
46.2% Denmark 8.88 1
Disclosure 7% Korea 8.08 16
Index 6.4%
Shareholder 7%
Japan 8.01 18
Suits Index 6.5%
Germany 8.00 19
Non-wage 13.0%
Labor Cost 20.7% Ireland 7.86 21
Doing Business in Korea (2008)2 E-Readiness Ranking (2007)3
Source: 1. WEF Global Competitiveness Report 2007-2008
2. World Bank, Doing Business 2008
3. Economist Intelligent Unit, 2007 10

11. Capital Markets Consolidation Act (as of 2009)
Regulatory Reform & Strengthening Investor Protection
Elimination of nearly 60% of existing financial regulations
Adoption of global standards in the economy/industry (IPR, investor protection, etc.)
Tripartite Capital Market Structure
At Present Post-CMCA
Banks Banks
Asset Mgm’t MBCs*
Investment Banks/
Securities
PEFs
Futures Trusts
Insurance Insurance
* MBCs: merchant banking corporations
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12. Capital Markets Consolidation Act (cont’d.)
Category Details
Permits combined operation of all financial investment businesses
Expansion of business scope - Sales, brokerage, asset management, discretionary investment advisory service,
of financial investment and trust
companies Technically allows small settlement function & foreign exchange dealings
Shift to a comprehensive
concept of financial Includes all new financial investment products to be released
investment products
Strengthening of
Strengthens notification obligations: Investment agents to compensate
protection systems
for defective sales with companies shouldering the burden of compensation
for investors
Expansion of consolidated Includes all asset-worthy properties as investment objects
investment businesses
Abolishes restrictions on assets as investment objects by fund type
(asset management)
13

13. FDI in Korea

14. FDI in Korea for the Past 10 Years
“Total FDI for the last ten years since the Asian Financial Crisis is
four times greater than that of 1962-1997.”
20
Topped average of US$11 billion for nine consecutive years from 1999.
17. 5
No t i fi c a t i on
15
11.2
(US$ billion)
12. 5
10.5
10
7. 5
5
2. 5
0
19 91 19 92 1 993 19 94 19 95 1 996 1 997 1998 1 999 2000 2001 200 2 200 3 20 04 200 5 20 06 20 07
Source: Ministry of Knowledge Economy
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15. FDI in Korea for the Past 10 Years
First Stage – Quantitative expansion: Following Asian Financial Crisis
Active attraction of foreign capital with liberalization of regulations
Second Stage – Qualitative growth: Since 2003
Strategic attraction of FDI by targeting specific industries
Full awareness of the critical significance of the attraction of FDI
for economic advancement
16

16. Recent FDI Trends
By Industry (US$ million) New vs. Additional FDI (US$ million)
9,000
8,000 8,000
7,000 7,000
6,000 6,000
5,000 5,000
4,000 4,000
3,000 3,000
2,000 2,000
1,000 1,000
900 900
100 100
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
By Type (US$ million) By Country 1962-2007 (%)
28.4
10,000
7,000
15.0
6,000
11.5
5,000
4,000 5.6
3,000
2,000 5.0
1,000
900 3.8
100 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Others 30.7 Total 69.3
Source: Ministry of Knowledge Economy 17

17. Foreign Investors in Korea
2,274 4,880 8,135 13,034 15,137
1997 2000 2003 2006 2008.3
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18. The Impact of FDI on the Korean Economy
% of GDP, Inward FDI stock (2006) Exports (2005)
Employment rate weight of foreign
for manufacturing investors in the
/major services (2005) stock market
(WEF Global Competitiveness
Report 2007-2008)
Trade surplus (2005)
Total revenue from manufacturing (2005)
Labor productivity of foreign-invested companies2: 20% higher than that of
domestic companies
Investors perceive conditions of market demand/degree of development of related
industries2 positively
Source: 1. FDI Promotion White Paper 2007 – Ministry of Knowledge Economy, KOTRA
2. KOTRA & Institute for Trade and Investment (2007)
3. UNCTAD (www.unctad.org) 19

19. FDI Promotion Plan of the New Government
Regulatory Reform Pursued by the Ministry of Knowledge Economy
3-Year Plan for Korea’s Establishment of plan to expand special
Foreign Investment Environment cases where regulations may be eased
Provision of more land sites on a rental Free Economic Zones (FEZs) will be
basis granted the initiative to reduce
Strengthening of English education
regulations with a view to improving
Construction of additional international
schools conditions for doing business and living
Provision of English subtitle service for in Korea
Korean TV programs
(Full details to be announced on May 30, 2008) (Full details to be announced on April 30, 2008)
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20. Deciding Factors

21. 22

22. World-Class Human Resources
High Educational Zeal and Achievement
49% of Koreans between 25-34 have attained post-high school level education
Korean students make up the largest group of foreign students in U.S. and China
Technological Competitiveness
The information technology skills of Koreans rank in the top three globally
Korea ranks 3rd in patents granted to residents and 2nd in patent productivity
Great Strides Made in Labor-Management Relations
During 2007, the number of working days lost to strikes fell 55.8% from 2006
The Korea Federation of Trade Unions is actively cooperating to promote FDI
Information Technology Skills (2007)* Patents Granted to Residents (2003-2005)
1. Iceland 9.39 1. Japan 110,714
2. Israel 9.28 2. USA 80,875
3. 9.07 3. 39,650
4. Singapore 8.85 4. Taiwan 35,599
5. Finland 8.80 5. Russia 19,699
* Based on a scale of ten
Source: IMD World Competitiveness Yearbook (2007)
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23. Sophisticated Domestic Market
Large Market with Sophisticated Spenders
Home to 49 million people (2007) / World’s 13th
in GDP (2006)
Early adopters as a test market for new products
The buying power of Korea’s brand-savvy consumers
is increasing quickly
The presence of over half of Global Fortune 500
firms
A Big Trading Nation Korean Domestic Consumption (US$ billion)
500
Trade with Asian neighbors accounts 450 YEAR US$ bn
for over half of Korea’s trade volume 400
350
300 2004 338
China, U.S.A., and Japan are Korea’s 250
largest trading partners 200
150 2005 399
100
Korea trades with over 220 50
0
countries 2006 453
1999 2000 2001 2002 2003 2004 2005 2006
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24. Global Leading Industries
Semiconductors
11.3% share of the global market
2007 exports exceeded US$39 billion
No. 1 market share in DRAM, SRAM, LDII, and NAND
Exports of Korean ships expected to reach US$30 Shipbuilding
billion in 2008
In 2007, Korean shipbuilders ranked 1st globally in terms of new orders, order
backlogs and volume of vessels built – 40% of all orders worldwide
Automobiles (2006) 1
World’s 5th largest with 5.5% share
Parts sector has 6% of Korean employees, 5% of manufacturing output
Foreign-invested tier-1 suppliers, 35.5% of all parts sales
No. 1 market share in LCD, PDP, and OLED displays Displays (2006) 1
Market share: 36.3%
Major players: LG Display, Samsung Electronics, LG Electronics, Samsung SDI
1. The data as of 2007 to be released in April.
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25. Logistical Powerhouse
Incheon
Korea’s extensive logistics International Airport
network includes
1. Major seaports/int’l connectivity Gyeonggi
Gangwon
Province
2. Int’l airports linking Korea Province
to the world
3. Ground transportation
4. Grand canal proposal
North Chungcheong Ranked world’s best freight airport
Province (2,555,580 tons of cargo, 2007)
South Chungcheong North Gyeongsang Ranked best airport for passenger
Province Province service by ACI 2005-2007
KTX
North Jeolla
Province
South Gyeongsang
Busan Port
Province
South Jeolla
Province
World’s 5th high-speed train
After KTX, domestic air traffic
between Seoul & Busan KTX 5th largest cargo handling
decreased to 25% while rail world-wide in TEU
Planned Grand Canal
travel increased to 62% (2005) (A total of 540km, 19 gateways) Part of a Free Trade Zone
26

26. Free Economic Zones
Korea’s Free Economic Zone (FEZs) are Incheon FEZ
Songdo, Cheongna, and
self-contained living and business districts
Yeongjong are positioned
featuring air and sea transportation, to become the Asian center
logistics complex, international business center, of logistics, int’l business,
financial services, residences, schools and tourism and leisure.
hospitals, shopping and entertainment.
Busan-Jinhae FEZ
BJFEZ offers direct access to
Busan Port and world-class
shipbuilding, auto parts,
machinery, and components
industries.
Gwangyang FEZ
GYFEZ is well-suited for
the steel, petro-chemical
and logistics industries
with direct access to China,
Japan, and ASEAN.
To be added later in 2008
27

27. Clusters
Industrial clusters located throughout Korea allow foreign and domestic companies to
create linkages and new opportunities for growth and synergy.
Dandong High-Tech
Geumui Biotech
Digital Electronics
Jangan
Inju Aerospace
Cheonan
Osong
Electronics, Petrochemicals
Pohang LCD
Gumi
High-Tech, Machinery
Ulsan
Jisa
Automobile
Jinsa
Daebul Geoje
Island Shipbuilding
Pyeongdong
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28. FTA-Led Strategy
FTA Policy Expected Results Korea’s FTA Network
Globalization of Korea’s markets Concluded FTAs
Chile Apr. 2004
Singapore Mar. 2006
EFTA Sep. 2006
U.S. FDI inflows into Korea expected
ASEAN Goods – 06/07, Services – 11/07
to increase by US$3 billion annually United States Awaiting ratification
Negotiations underway
FDI from Japan, Europe, and elsewhere
expected to grow in order to export to EU Japan
the U.S. Canada Mexico
ASEAN (Investment)
India
Additional FTAs distinguish Korea,
creating strategic edge
On the horizon
MERCOSUR (Joint study)
Vast improvement of Korean investment China (Joint study)
environment with regulations lifted and GCC (Joint study)
living conditions upgraded
Australia (Joint study)
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29. Invest KOREA

30. One-Stop Service
Government agencies
Local governments
After-care
Overseas Network
40 KTCs Execution Resolution of
investor grievances
Guidance on Improvement of
investment targeting business & living
Pre-Investment
Seeking of partners environment
Consultation
Notification of relevant
Provision of incentives
information and
administrative
services
31

31. Project Manager System
Provide information Assist in plant site
selection Assist in seeking
on markets and
business partners
industries
Provide
Consult on administrative
Arrange meetings
FDI incentives support
with government officials
32

32. FDI Incentives and Deregulation
Amended in Nov. 2007
Tax Reduction Cash Grant
Corporate tax, income tax: 7 yrs To finance the construction
Acquisition tax, registration of facilities or the purchase
tax, property tax: 5-15 yrs of equipment related to the
Tariff: 3 yrs investment
Reduction or exemption Subsidies for employment
of rent and training
Support for the improvement of
Support for building of
living and business
infrastructure
environment
Location Support Others
Nurturing of R&D Workforce
For 2 years after the start of R&D activities
Subsidies of 50% of annual salary (limit of KRW30 million/employee)
33

33. Investment Partnership Support
Investment Partnership
Support Team
Sources for Korean companies
looking for strategic foreign
investors/partners from Primary
Working Partners (banks,
securities, consulting firms, etc.)
AND/OR
Searches for eligible Korean
companies upon requests from
foreign companies interested in
finding strategic partners
Provides match-making services
and administrative/procedural
support
35

34. Invest Korea Plaza
Opened October 2006
Major Services include:
Secretarial and reception services and dedicated office space
All administrative services related to business consultation and investment
Target tenants: new investors and existing investors who are set to make increased investments
Investor Support Center • Support the G4F Portal for Life
Officials from the Ministry of Convenience Information
Justice, the National Tax • Expand the use of labor-
Service, Korea’s Customs management cooperative
Service, and the Courts of Law program
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