South Koreas Red Tape Improvement Affect On Investment Economics Essay

As one of the Asiatic Liberation Tigers of Tamil Eelams, South Korea has been sing extended growing and monolithic industrialisation since the dark yearss of Korean War ( 1950s ) and became the 15th largest economic system as of 2009 with GDP of over $ 800 billion ( Beginning: IMF ) . Besides, as one of the universe leaders in the development of information engineering ( IT ) , South Korea still ‘struggling ‘ to increase FDI inflow and spread out the economic system. In order to recognize former premier curate, Kim Dae Jung ‘s aspiration to turn South Korea into a concern hub for Northeast Asia part, assorted inducements have been introduced by authorities to get rid of trade and investing barriers and to make unfastened and business-friendly state. Even though concern chances widen since the Han River miracle, foreign states still feels restricted and hard to put in South Korea due to red-tape and drawn-out processs to get down a concern in South Korea. The chief high spots of the ‘red-tape ‘ as mentioned in the rubric is the policy that restrict foreign investing and operation, but besides see other factors such as economic and sociocultural facet. This essay intends to concentrate on the relationship between the easiness of limitation or red-tape for foreign investing and FDI inflow utilizing PEST analysis, stressing the Political facet of the analysis. Using Michael Porter ‘s Diamond theoretical account ( See appendix ) , the focal point will be on the function of factor conditions in stimulating investing either locally or globally.

Asiatic fiscal crisis, 1997 was an unforgettable history for the South Korea. The crisis forced major industrial pudding stone besides known as chaebol towards bankruptcy and worse, it causes lost of assurance to the state and abjuration of foreign concerns from the state to get away the crisis ( Manyin 2004 ) . However, Kim Dae Jung ‘s economic reforms following the crisis eliminate most limitations on foreign investing supplying more crystalline, unfastened, and efficient economic system. As a consequence, FDI flows increased significantly until the twelvemonth 2000, when President Kim announced that the crisis was over without deep probe and caused FDI to resile back bit by bit. Under Roh Moo-Hyun presidential term and reforms, he able to increase the FDI influx back in 2004 amounted to $ 9bn. Figure 1 the FDI form from 1993 to 2003.

Lee and Hobday ( 2003 ) paper analyze the American Chamber of Commerce study ( AMCHAM, 2002 ) which has conducted series of in-depth interviews affecting existent MNCs managers and CEOs who have established their concern in South Korea to hear their experiences puting in Korean market comparison to other international market. Even though most of them agreed that Korean market is full of possible and aggressive, there are troubles in carry oning foreign concerns in the state such as transparence jobs, unequal intervention between local and foreign companies, authorities red-tape, rigorous market protection, and communicating. Government should hold limited intercession in the market to supply efficiency alternatively of carry oning both political and economic construction. The interviewees besides province that personal webs are what distinguish Korean market from other Asiatic market because the people merely love similarities between them and to last and avoid unequal intervention, they normally select particular individual to make some trades either with providers or clients or both. Despite all this, South Korea still received sound FDI influx for the because of the rich market potency and high return.

“ aˆ¦investing in Korea now will assist you get the better of the current crisis. It will be a win-win state of affairs for all. ” President Lee Myung-Bak confidently said those at the 2009 New Year ‘s Reception for Foreign Investors. There are merely excessively much authorities controls back so and openness is the biggest unfulfilled advantage for South Korea. The points below shows how much betterment and deregulating has been made particularly the President Lee ‘s regulative reforms to better concern environment. Based on Making Business in Republic of Korea 2010, for procedures to get down a concern, South Korea was ranked 133 in 2009 but 53 in 2010. The alterations involve decrease in clip and cost for get downing a concern, processs and abolition of minimal capital deposited in a bank before enrollment. Plus, on-line concern start-up system, StarBIZ is expected to be established by this twelvemonth, which connects webs from of import establishments such as revenue enhancement office, Bankss, tribunals, administrative organic structures and insurance portals. This will efficaciously cut down clip and costs of sing the establishments and subjecting relevant paperss.

Rigid labour market is still one of the challenges to put in South Korea with graded 149 and 150 in 2009 and 2010 severally. This big spread comparison to OECD mean labour rigidness might consequences two deductions, cut down the reactivity of labour demand to alterations in gross and increase the continuity of labour determinations, as modeled by Lafontaine and Sivadasan ( 2007 ) . However, due to gradual betterment of labour dealingss and system, South Korea able to cut down labour difference for the last decennary ( See appendix ) . High skilled and educated labour still assure a favourable consequence to FDI influx but the bundle comes with high cost as good comparative to China or other Asiatic states.

AMCHAM ( 2002 ) found that revenue enhancement rate is non satisfactory for foreign investing. There should be fairness and transparence in using revenue enhancements to local and foreign companies to promote healthy competition and better the state ‘s image among aliens. Since so, revenue enhancement system is being revised and upgraded to be competency globally. Corporate revenue enhancement and income revenue enhancement has reduced since 2007 and in 2009, the rates are 22 % and 6 % severally. Plus, all foreign R & A ; D investing are now entitle to 5 twelvemonth ‘tax vacation ‘ provided they are runing in Korea ‘s Free Economic Zones ( FEZ ) . These sorts of incentive provide chances for foreign investing to prove the overall market foremost at lower cost before puting. Overall, the rank for paying revenue enhancements in South Korea addition from 45 to 49 in 2009 and 2010 severally when taking into history the rates, method, frequence to pay and clip taken for the whole procedures. There are still infinites for betterment and hopefully, we are traveling to see good consequences this twelvemonth from ‘Revision to the Tax Laws in 2009 ‘ introduced by South Korea ‘s Ministry of Strategy and Finance ( MOSF ) .

In footings of trading across boundary lines, South Korea was ranked 12 in 2009 which demonstrate authorities attempts to increase usage and duty efficiency. Lesser costs, clip and paperss involve in trading will fix the procedure, cut down corruptness, and most significantly, shows the decrease in South Korea ‘s red-tape and limitations.


From economic points of position, I will merely foreground how much foreign investing histories for Gross Domestic Product ( GDP ) from 2004 to 2008. From the figure below we can see the relationship between FDI influx and GDP in entire. However, behind the graphs, the existent information shows that while FDI is diminishing from 2004 to 2007, GDP is really increasing. The opposite happened in 2008 where the FDI addition from $ 2.6bn to $ 7.6bn while GDP lessening from $ 1049.2bn to $ 929.1bn. The not-proportional relationship between the two variables might demo that FDI influx is non one of the major subscribers to economic growing but it indirectly strengthen the state ‘s economic system place globally and fight.


Korea was ranked 11 in 2007 in supplying skilled labour, higher than Taiwan, Hong Kong and Japan, but lower than Singapore. It is one of the strong factors for foreign investing particularly when the assurance of market chance and success rate is high. However, in 2002, one of the interviewee in AMCHAM study reference that until Koreans understand that globalisation is a two manner street, puting in South Korea will be a win-lose alternatively of win-win state of affairs. Korean people tend to value relationship based on similarities in civilization, geographically and affinity and until this unglobalized perceptual experience fade off from the community, foreign market will confront trouble advancing concern in South Korea and besides might make negative trade name image of Korean market ( Lee and Hobday, 2003 ) .


There is non much issues involve in technological facet for foreign investors as with extremely advanced engineering and fast invention, they can bask the benefit from those to spread out their concern expeditiously. Advanced cyberspace installations ease communicating between concerns and increase market transparence to assist farther investing and work any chances available in the market.

Porter ‘s Diamond

In September 2008, limitation on 188km2 of Restricted Development Zones ( RDZ ) has been lifted up giving more chance for industrial sector to spread out farther. However, following this, the land monetary values of these metropolitan countries rose in 2009 despite the economic slack while non- metropolitan country land monetary values have much lower growing. Regulations that forbid the usage of farming area and wood land besides have been reviewed leting more land available for development. Overall, it was recorded that 2000km2 of land limitations were abolished in 2008 and 2008 and concern responded really good so far to non set those cherished land into waste.

I have mentioned about labour Torahs in Political facet above and here, I would wish to explicate farther about the function of skilled labour. As foreign houses enter South Korea market, they will seek for skilled labour for early development. Even though South Korea is capable of supplying both skilled and educated labour, there is no uncertainty that the environment and organisational construction of working in foreign houses will be different comparison to local houses. The head scene of employees and directors about the disadvantages of working with foreign houses such as unsure concern chances, weak repute and deficiency of personal relationship between underside and top direction is one of the challenges they have to get the better of when working with Koreans. Training and inducements are illustrations of good solution. Training with foreign houses will make a silent cognition that gives the chance for the employees to be much more comfy working with them. It is merely like following new civilization in unrecorded with it. Incentives such as higher wage, healthy working environment, and occupation protection should be provided by the foreign concern in order to enroll qualified skilled employees. It is common that aliens who work in local states affecting high profession occupations receive higher wage than their co-workers due to their different expertness or experiences but in footings of outsourcing, franchising, or puting overseas, it works in the opposite manner.


The PEST model and Porter ‘s Diamond above provide an overview of how South Korea has evolve to construct a more concern friendly state and global-minded. Further researches, studies, or experiments might ‘unmask ‘ more South Korea ‘s concern potency. South Korea is a promising state to put in but it is non without challenges and troubles. For the past 10 old ages, even foreign CEOs and directors who have established companies in South Korea have been kicking about the inequality intervention and transparence jobs. I would state most of it rises because of the different civilization and overcautious of Korean people towards aliens particularly non-Asian. Culture is the manner people live and it is difficult to ‘bend ‘ to accommodate different environment and sometimes even affect force if others go beyond the boundaries or effort to alter it. However, Lee-Myung Bak disposal and regulative reforms particularly in economic facet have shown that Korean people be open-minded about globalisation and take or decrease any red-tape that attempt to curtail foreign investing. When houses offshore, they bring together the engineering and cognition that resides in the concern into the invested state. So, it involves sharing of cognition in order for both to profit from the investing. AMCHAM ( 2002 ) study gave the chance to South Korea ‘s authorities to better their manner of covering with globalized universe and people. The big potency of South Korea has non been to the full exploit and is needed in order for South Korea to accomplish its ‘ aspiration as a concern Hub in Northeast Asiatic part.