Investment Opportunity in the Information and Communications Industry of the
Republic of Korea
For the past three decades, Korea has remained one of the fastest growing economies in the world. Even with the foreign currency crisis at the end of 1997, Korea continues to boast strong economic fundamentals. In response to this crisis, Korea is undergoing structural reforms on a national level. With the inauguration of the new government administration in February 1998, the nation set the furtherance of democracy throughout society and of market principles in the economy as its goal. Korea has nothing less than being a reformed haven for foreign corporations as its target, and is taking every step necessary to induce the influx of foreign capital. In order to usher in the new millennium, Korea is now embarking on a new road to economic recovery and global integration.
Following the financial crisis in Korea, the IMF regime created such challenges as instability in the financial market and a general economic downturn, along with mass unemployment. At the same time, however, the IMF program provides Korea with the opportunity to restructure its economy. The Information and Communications Industry gains significance in such times of difficulty and plays an essential role in Korea’s efforts to implement economic reform and regain economic vitality. In 1995, the Information and Communications Industry’s contribution to economic growth was 20.6%, outpacing the auto industry’s 6.6%. The industry recorded 51.59 trillion Korean Won in production, emerging as an industry creating high added value. Moreover, based on its technology intensiveness, the Information and Communications Industry creates jobs by fostering venture firms, and is expected to contribute in improving the trade balance as a strategic export sector.
The software industry is pivotal to the advancement of all industries, including the manufacturing industry, as noted by the world software industry showing an average annual growth rate of 8% since 1990. Based on increased informatization and exports, the Korean software industry is also expected to show substantial growth with an average annual growth rate of 44.6% between 1998 and 2002, thus becoming an extremely promising sector. In 1997, software exports amounted to approximately $56 million, a 2.5-fold increase from the previous year. In the future, Korea looks forward to overseas advancements with computer related services, focusing on SI and exports of Internet-related software packages.
With a vision of laying the foundation for software firms, the government established a Software Support Center in Seoul in 1996, followed by similar centers in Pusan, Taegu, Kwangju and Taejon. Moreover, support offices were established at six post offices around the nation to provide assistance in this sector. Furthermore, in order to stimulate the multimedia contents industry, which is expected to mark rapid market expansion in the future, the Korea Multimedia Content Promotion Center was established in April 1997.
"Creating a Favorable Climate for Investment"
Korea's new reforms are creating the right climate for foreign investment. These reforms address problems related to capital and foreign exchange markets, M&A’s and land ownership.
Government initiatives focus on facilitating foreign investment by means of direct investment, equity investment and M&A’s of Korean companies. Significant progress has been made in implementing measures to open the capital market and reduce barriers to portfolio and direct investment. All limits on foreign investment into the local bond and money markets have been lifted and the ceiling on foreign investment in the stock market has been eliminated. Foreign banks and securities companies have gained the right to establish local subsidiaries; hostile takeovers of Korean corporations by foreigners have become legal; and, restrictions on foreign ownership of land will be eliminated by the 1st of July. Most recently, the Korean government, taking a major step toward liberalizing foreign exchange and capital flow in Korea, replaced the outdated Foreign Exchange Control Act with a new law that will fully liberalize the current cumbersome set of regulations on foreign exchange transactions.
Until now, a major obstacle to foreign investment in Korea has been the myriad of legal and regulatory laws related to foreign investment. However, in order to invigorate investment, these laws will be streamlined and incorporated into a single legal framework known as the Foreign Investment Promotion Act. This will provide foreign investors with a one-stop service based on centralized regulations, in sharp contrast to the present web of complex procedures. Clearly, the reorientation in policy, particularly with respect to equity investment and M&A’s of Korean companies, represents a change for Korea. Although, there may be slight domestic resistance at first, both the high level of education among Koreans and their positive experience with the international community will prove a guiding factor in overcoming any difficulties. Furthermore, the Korean people generally understand and support the responsible participation of foreign investors.
Investing in Korea, Creating Opportunity for Success, KORTA,
1998 White Paper, Information & Communications in the Republic of Korea 1998, Ministry of Information and Communication, Republic of Korea