Korea Has No Charm for Foreign Investors?

“South Korea is an important market for exporting cars, but we have no plan to build a production line or a joint venture in the nation,” said a representative of BMW Group Asia to this paper’s reporter who visited the headquarters of BMW in Munich, Germany on March 14 (local time).

Ulrich Walker, Chairman of Daimler-Chrysler Northeast Asia, said in a press conference on November 18 2006 that because Seoul does not have a good environment for foreign investment compared to other Asian countries, the firm will focus its investment on China.

The world’s largest motor manufacturers intend to pour $10 billion into Asia by 2010. For example, in October 2006, DaimlerChrysler announced a plan to invest $1.9 billion in China. Unfortunately, Seoul is not included as a recipient.

This aversion is not limited to automobile sector. Foreign investors are avoiding Korea in other fields as well. The amount of foreign direct investment (FDI) to Seoul dropped by 37 percent to $5.9 billion in 2006 from $9.3 billion in 2004.

The flight of Korean companies overseas-

Even local car markers are starting new investment projects in foreign countries almost exclusively.

Hyundai Kia Automotive Group aims to increase its annual overseas production of cars from one million to three million by 2010. However, it will leave its local production facility unchanged at three million.

Hyundai Group has already invested $4 billion in overseas production and research facilities in places like China and India, and intends to pour an additional $3 billion into those markets. On the contrary, the company only made an investment of $200 million in expanding its Ulsan production facility last year.

The exodus of domestic companies overseas is also taking place in the shipbuilding industry.

The industry is now establishing plants in China, largely due to cheaper costs.

Foreign direct investment by local companies to foreign countries increased $10.7 billion in 2006, from $6 billion in 2004, and from $4.1 billion in 2003.

Jo Cheol, a researcher at the Korea Institute for Industrial Economics and Trade, said, “Toyota is building production plants in Kyushu, as the Japanese government is easing regulations on companies, and labor and management are joining hands to improve productivity. More Japanese manufacturers are now returning to their country.” Moreover, he pointed out that Korean companies should learn a lesson from Japan if they want to attract FDI and stop the flight of local companies overseas.