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SCMP Reporter

Breaking the US$10 billion barrier in foreign investment last year was a landmark achievement for South Korea.

 The nation, which was one of the world's poorest a generation ago and on its economic knees after the Korean War, had at last scaled the economic heights reserved for the world's most advanced and richest economies with outbound investment exceeding inbound investment.

  Prompted by a sharp rise in wages, an appreciation in the value of the won and trading bloc pressures since the 1980s, Korean companies were forced to invest overseas to better their competitive positions, especially in labour-intensive light industry and the assembly and processing sectors.

  Encouraged by far-sighted government policy, foreign investment outflow climbed to US$3 billion two years ago - 27 times greater than the figure 10 years earlier.

 Once the tally of approved projects is counted this year, analysts suggest the level of foreign investment could exceed $15 billion.

 Korean investment overseas is largely concentrated in a limited number of business sectors and, since the latter half of the 1980s, has risen most significantly in the manufacturing and trading sectors.

 Of all Korean overseas investments so far, 78.4 per cent (1,008 projects) were in Southeast Asia, 10.4 per cent (133 projects) were in North America and 6.1 per cent (78 projects) in Europe.

 The majority of Korean overseas investment was to take advantage of lower-cost manpower in such labour-intensive sectors as textile, clothing, footwear, toys and machinery assembly.

  China now accounts for 26.6 per cent of all foreign direct investment (FDI) - up 22.8 per cent from 1991, when its share was a mere 3.8 per cent. With a geographic advantage for Korean producers and the lowest wages in the region, China has become the largest recipient of Korean investment.

  Investment in Europe has also shot up, totalling more than $600 million. This followed the European Union (EU) initiating more anti-dumping probes into imports. Korean manufacturers moved quickly to set up local production facilities in the EU to avoid the issue altogether.

  The pattern has evolved to such an extent that production in the EU of microwave ovens by Korea's big three electronics manufacturers - LG, Samsung and Daewoo - reached four million units, far exceeding the 1.67 million units exported there from Korea.

  Korean companies have also set up production facilities in eastern Europe to move more easily into European countries.

 North America's share of investment by Korean firms, while still a substantial $546 million and representing around 30 per cent of global FDI, has slipped from 45.7 per cent in 1990 to 17.9 per cent as the focus has switched to Mexico, a much cheaper way into the North American Free Trade Agreement.

 Not that Korea is an especially big spender. Of the total number of overseas investments, just over 4,000 projects - or 76.2 per cent - involved less than $1 million, while only 166 projects, a mere 3.1 per cent, were valued at more than $10 million.

  Overall, the average investment per project has been only $1.9 million with the cheapest of all, not surprisingly, being in Asia. The outward trend is set to continue with Korean companies setting up production lines around the world because President Kim Young-sam's pet buzzword is 'Seghewha' - a policy to promote globalisation.

  Only last year government regulations were again revised to facilitate investment abroad. Now fully liberalised are projects involving leasing and selling of real estate and the construction and operation of golf courses, all formerly restricted areas.

  Secondly, the ceilings on outward direct investment amounts by individual entrepreneurs are being gradually lifted. The ceiling was 30 per cent or less of the total sales of the previous accounting year. Now, if that amount is less than $1 million, or if the individual entrepreneur has no sales record, a $1 million ceiling is applicable.

  An additional 30 per cent of the investment amount is also permitted without prior approval to compensate for losses.

  Thirdly, outward direct investment procedures have been streamlined. An automatic approval system has been introduced for projects in Organisation of Economic Co-operation and Development member countries and to those countries which have an 'A' credit rating from the Korea Export-Import Bank.

 Even investment in overseas property is encouraged and the limit on purchases has been increased from $300,000 to $500,000.

 But Korea's journey on the globalisation road is really only just beginning. Korean firms still trail far behind the most advanced countries with overseas investment amounting to only 2.3 per cent of the GNP - a snip compared to 7.5 per cent by the US and 10 per cent by Japan. Even Taiwan devotes an average of 3.6 per cent.

  The average investment amount per Korean project is also on the low side, with the $1.9 million average comparing to Japan's $6 million. But for a nation which could not even afford to invest in itself a generation ago, the achievement is remarkable.



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