Economic Environment and Investing in Korea 2006 Korea

Economic Environment and Investing in Korea 2006 Korea Institute for International Economic Policy

Introduction to Korea

Introduction to Korea Mongolia East Sea North Korea Japan Republic of China Korea Pacific Ocean India Burma Population : 48 million Hongkong Laos Thailand Industry Breakdown : Vietnam Indonesia Services Philippines 57% Manufacturing Agriculture 39% 4%

Economic Overview GDP in 2004 : US$ 679 bn (WR: 10 TH 4. 6% ) Trade amount in 2004: US$ 478 bn (WR: 12 TH 28% ) currency reserves in 2004: US$ Foreign 199 bn (WR: 4 TH 28% ) Export / Import Trends Real GDP Growth (1970 -2004) 800 25, 000 600 20, 000 400 15, 000 200 10, 000 1970 1980 1990 2000 2001 2002 2003 2004 Source: Bank of Korea (Unit: KRW tn) Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Imports Exports Dec-04 (Unit: US$ bn)

Economic Environment: The Korean Advantage

Geographical Advantage 44 cities with populations of more than 1 million 2 China * 1 are within 4 hours’ flying time GDP US$ 1, 569 bn Population 1, 299 mn Trade w/Korea US$ 57 bn * Hong Kong included Japan 2 GDP US$ 4, 302 bn Population 128 mn Trade w/Korea US$ 54 bn ASEAN 3 GDP US$ 686 bn Population 542 mn Trade w/Korea US$ 39 bn Source: 1. Incheon International Airport Corporation 2. IMD World Competitiveness Yearbook 2004, Korea International Trade Association 3. ASEAN, Korea International Trade Association 20% of Global GDP 32% of World Population

High Quality Human Resources Well Educated Human Resources 2 International Experience 1 % of population with higher education Country Canada Japan Korea Norway US % 51 50 41 40 39 Rank 1 2 3 4 5 Senior Managers’ International Experience Country HK Singapore Korea Japan China Rank 2 3 5 58 59 Productivity Improvement 2 Diligent Workforce 2 Avg. annual growth (1994 -2003) Working hours per year person Korea 4. 1% Finland 2. 6% US 2. 1% OECD Japan 1. 8% 1. 4% Source: 1 IMD World Competitiveness Yearbook 2004 2 OECD Fact Book 2005 Country Hours Korea 2, 390 Japan US UK Germany 1, 801 1, 792 1, 673 1, 446

Superb Infrastructure Logistical Infrastructure - One of the top 6 airports - No. 3 in cargo handling volume - No. 10 in passenger capacity - No. 5 commercial port - Easy connectivity w/ the U. S. - 5 th high-speed train (KTX) - Future connection w/China, Siberia, and Manchuria ICT Infrastructure “Most competitive in IT industry among OECD countries” - 2004 (Source: OECD) Broadband Subscribers Internet Use Country % Rank Iceland Korea 67% 60% 1 2 Sweden US New Zealand 57% 55% 53% 3 4 5 Source: ITU, IMD World Competitiveness Yearbook 2004 , World Telecommunication Indicator Country # Mobile Phone Subscriber Ratio (2002) Rank 80. 00% 60. 00% Korea 218 1 HK Canada Taiwan Belgium 153 112 93 84 2 3 4 5 68% 64% 50% 40. 00% 38% 20. 00% (# of subscribers per 1, 000 inhabitants) Korea Japan Australia U. S. A Canada

R&D Capability Legal Framework and Enforceable Judgement in Support of Intellectual Property R&D Capability Patent Related Figures Business Expenditure on R&D Patents Granted to Residents Country USA Japan Germany France UK Korea China Country Japan USA Korea Taiwan Germany US$ millions 200, 525 94, 264 34, 426 19, 491 18, 246 10, 152 9, 518 Rank 1 2 3 4 5 6 7 Total Expenditure on R&D Country Israel France Japan U. S. A. Korea % of GDP 4. 8 3. 1 2. 7 2. 5 Source: IMD World Competitiveness Yearbook 2004 Rank 1 4 6 8 10 Number 118, 535 85, 528 29, 363 24, 700 18, 318 Rank 1 2 3 4 5 Patent Productivity Country Taiwan Japan Korea South Africa Thailand Number 446 195 187 95 81 Rank 1 2 3 4 5 (patents granted to residents / R&D personnel in business : in '000 s

Improving Investment Environment Deregulation Restructuring Balanced Development International Schools Bilingual Public Services International Hospitals 5 Year Plan to Improve Foreigners’ Living Conditions

Overview of FDI

FDI Overview Total FDI amount of US$ 12. 8 billion (98% increase from FDI Inflow (1991 - 2004) Notification Arrival (Unit: US$ bn) 20 15 12. 8 10 6. 5 5 1. 4 1. 2 8. 6 4. 8 0 91 92 93 94 95 96 97 98 99 00 01 02 03 04

FDI Breakdown Electricity, Gas, and Construction US$ 5 bn FDI Breakdown by Country US$ 0. 4 5% 1% bn Amount (US$ bn) U. S. A 32 Japan 16 Netherlands 12 Agriculture, Livestock and Fishe Germany 6 France 3 UK 3 Canada 3 China 3 44% Others 25 Total Source: Ministry of Commerce, Industry, and Energy Note: Total amount accumulated between 1962 and 2004 China figures include Hong Kong 104 50% Manufacturing Industry Service Industry US$ 45 bn US$ 52 bn FDI Breakdown by Industry

Major Investors Fortune 500 Companies in Korea 2001 Europe 2002 Asia 2003 2004 North America

Business Opportunities

Automotive and Automotive Parts Automotive Industry 6 th Biggest Auto-Producing Country in the World Million vehicles, Growth rate (%) 12 (-1. 1%) United States Acquired controlling share (36. 3%) Hyundai Motors (Nov. 1998) Kia Motors 11 (2. 2%) Japan 6 (1. 1%) Germany Renault-Samsung 5 (14. 1%) China GM Daewoo 4 (2. 2%) France Korea Restructuring Ssang. Yong 3 (9. 2%) Automotive Parts Industry Acquired (70. 1%) (Apr. 2000) Merged Renault GM (Apr. 2002) Acquired (48. 9%) (Jan. 2005) (Unit : US$ bn) USA Japan Germany China Korea France Spain Canada Others Total 91 78 42 33 27 25 23 19 122 459 SAIC

Semiconductor and Display World’s No. 1 DRAM Producer (45%) Semiconductor Market Share Major DRAM Producers Company Intel Samsung Electronics Texas Instruments Infineon Renesas Revenue (US$ % bn) 14% 31. 1 7% 15. 1 5% 10. 3 4% 9. 4 4% 9. 0 Source: IC Insights, 2004 World’s No. 1 PDP Producer Samsung SDI : 28. 7% LG 27. 0% Electronics : Samsung Electronics Micron Hynix Infineon Elpida Revenue (US$ % bn) 29% 7. 6 16% 4. 2 14% 3. 7 6% 1. 6 Source: i. Suppli, 2004 World’s No. 1 Large TFT-LCD Producer First to develop 82” LCD Panel (Samsung SDI) First to commercialize 5’ 7” LCD panel (LG Philips LCD) OLED & CRT Market Share (2004) : 40%(Samsung SDI)

Other Major Industries Shipbuilding World leader - 44% of world market Advanced design and production capability Hyundai Heavy Industries - Largest shipbuilder in the world (15 % mkt share) Steel No. 5 in the world - 45. 4 million tons of crude steel 1 st and 2 nd largest single production sites both located in Korea (POSCO) Petrochemical s World’s 3 rd largest producer Leading know-how and advanced technology

Information Communication Technology World leader in mobile phone manufacturing World Mobile Phone (Unit: %) Makers 2003 Nokia Motorola 1 2 Market Share 34. 8 14. 5 Samsung Electronics 3 10. 8 Siemens 4 8. 4 LG Electronics 5 5. 3 Sony Ericsson 6 5. 3 Company Rank Source: Strategy. Analytics, February 2004 World leader in VDSL use Internet & telecom infrastructure – one of world’s most advanced Satellite DMB services to be commercialized in July 2005 “Most Competitive in IT Industry among OECD Countries” - 2 (Source: OECD)

SOC Logistics & Real Estates SO C Private sector participation – encouraged through strong incentives, e. g. , guarantees, risk-minimization schemes, etc. BP has set-up a power plant JV with SK - Korea’s first privately owned generation facility Logisti cs Geographic advantage – gateway to Asian markets Strong public sector support & incentives foreign investors Fed. Ex and DHL are expanding facilities in Korea Real Estate Total deregulation of real estate market in May 1998 ners' real estate purchasing shifting from short-term office building purchases to long-term development type projects

Finance Banking Fully deregulated industry : Foreign ownership: Kookmin (78%), KEB (73%) Recent “mega-deals” : Standard Chartered Korea First Bank (Jan. 2005) : USD 3. 3 bil Citibank Koram (Feb. 2004): USD 2. 8 bn for 91% Increasing presence of major foreign banks in the consumer banking sector Sector wide restructuring and consolidation High -net-worth individual asset management : next wave of profitability Life Insurance One of the largest markets in Asia : US$ 6. 34 b profit from insurance operation - 23 insurers (Feb. 2005) Continuous deregulation in the market Level playing field Investment Trust Gov’t’s restructuring effort in final stage Recent enactment of “Indirect Investment Asset Management Business Act” expected to increase business opportunities

Bio-Technology Strong Gov’t Industrial clusters designated Support for bio-technology companies Various incentives such as site support and tax exemptions Closing gap with world leaders : AIDS vaccine, herbicide-resistant crops Next goal : Establishing dog’s Synergies with IT First ever cloning and extracting of embryonic stem cells by Prof. Hwang’s embryonic stem cells through nuclear transfer . Seoul National University Feb. team 2004 First cloned canine, Aug. Snuppy the puppy 2005

Incentives and Support

Extensive Incentives Corporate Income Tax Local Tax : Acquisition, registration, property & Tax aggregate land tax Holidays Exemption or reduction of leasing costs for national or local government properties - almost free of charge Leasing Employment and/or training National R&D Projects Development for Basic Facilities Other Financial Support Various incentives provided depending on business area and investment size

Site Support Foreign Investment Zones - Local governments authorized to designate a particular area where foreign investors wish to in - Provide plant sites at inexpensive prices - Also attracts FDI from SMEs Gangwon Province Gyeonggi Province Seoul Incheon Free Economic Zones North Chungcheong Province South Chungcheong Province North Gyeongsang Province Daejeon North Jeolla Province Gwangju Daegu South Jeolla Province South Gyeongsang Province Busan Gwangyang Jeju Island - Provides special legal status to foreign investors - Details : deregulation, labor market flexibility, convenient living conditions Free Trade Zones Business activities can be pursued without the le requirements demanded under Foreign Trade Ac the Customs Tax Act Jeju Free International City Promotes investments into high-technology and leisure industries Foreign Investment Zones Free Economic Zones (FEZ) Free Trade Zones Jeju Free International City Int’l Airport Commercial Port

Invest KOREA

Organization Investment Promotion Regime Foreign Investment Committee Ministry of Commerce, Industry and Energy Local Governments Invest Ombudsman KOREA Headquart er Overseas Identifyin g Central Government Promotio n Suppor t ※ Invest KOREA is the investment promotion arm of KOTRA Aftercar e

Services Project Manager (PM) System PM provides full support to potential foreign investors Provide necessary information on Korean markets and industries Help on selecting appropriate plant sites Assist in seeking and meeting potential business partners Consult on FDI incentives available for investors’ projects and procedures to obtain them Arrange meetings with investment related government entity Provide administrative support - visa extension, registration documents, etc

Aftercare Appointed by President OIO Office of the Investment Ombudsman - Resolve difficulties experienced by foreign - invested companies - Create a more favorable overall investment environment Grievance Resolution Foreign Investor Report complaint Provide Solution Ombudsman + Aftercare Team Cooperation Government/ Gov’t agency Recommendation Foreign Investment Committee

Thank You www. kiep. go. kr 300 -4, Yomgok-dong, Seocho-gu, Seoul, Korea Tel: (82 -2) 3460 -1001 Fax: (82 -2) 3460 -1122 This presentation is reproduced with a support from Invest KOREA.