Cheong Zhaoyong

Seoul OC, IE Singapore

iAdvisory Seminar – Doing Business in Korea,

25 July 2013
About South Korea
Snapshot of South Korea (Republic of Korea)
• Capital : Seoul Incheon

• Government :
Presidential Constitutional Republic

• Area : 99,678 sq km

• Administrative Divisions : 17

• Population : 50 million
 Key Economic Indicators, ROK (2012)

Area 99,678 sq km
Population 50M
GDP (nominal) US$1,130 billion
Real GDP growth 2%
Inflation Rate 2.2 %
Exports of goods US$552.6 billion
Imports of goods US$514.2 billion
Trade balance US$38.3 billion

Figures from Economist Intelligence Unit (EIU) & Singapore Ministry of Trade & Industry (MTI)
Miracle on the Han River, post-1960s

Rise of the Tiger Economy

• Post-war economic boom, led by industralisation,

technological advancements and export growth

• Transformation into modern global economy

characterised by rise of prominent ‘glocal’
conglomerates (Korean “chaebol”)
1997 Asian Financial Crisis

The ‘Miracle’ halts…

• Most impactful post-war economic disaster

 Reserves whittled to a mere US$6B

• Economic restructuring forced by IMF bail-out

 Detangling of chaebol dominance on economy

 Restructuring & liberasation of

public/corporate/labor/financial sectors

• Fastest recovery among OECD countries

 GDP growth from -5.8% in 1998 to 10% in 1999

Miracle on the Han River, continued

Major Achievements

• One of the G-20 major economies, member of OECD

 1st former aid recipient to play major ODA donor role

• 15th largest economy by nominal GDP

 7th largest in total trade volume

• Sovereign Credit ratings upgraded to ‘A’ (stable)

 8th best in World Bank’s <Ease of Doing Business> ratings

 19th best in WEF’s <Global Competitiveness Index>

• Ranked 11th in terms of ‘soft power’ in 2012

 2nd in Asia for ‘soft power’

Significant Market
Trends & Observations
1. Current Macroeconomic Trends
GDP Growth Trend

Growth Slowdown

• 2012’s GDP growth : 3-year low of 2%

 Weak exports, sluggish demand
 FDI growth : record US$16.2 billion

• 2013 : Anaemic Growth

 Growth forecast cut from 3% (Jan 2013)
to 2.3% (Mar/Apr 2013)
 Prolonged euro-zone crisis
 Slowing China growth
 Continued sluggish demand, weak
exports
Macroeconomic Forecast for Korea
2. New Political Environment

Re-making of Conservative Rule

• General Elections 2012 won by Saenuri

 Remarkable political makeover of

conservative GNP

 Populist policies on social concerns

• Presidential Elections 2012 won by

Saenuri Chair/ Park Geun-Hye

 Economic Democratisation

 Creative Economy

 Era of Hope & Happiness

President Park’s 5 Pillars to ‘Era of People’s Happiness’

Economic Democratisation
“… to realise a fair-competition
economy that protects the
market, SMEs and consumers
from mammoth economic forces”

Creative Economy
“… a convergence of science, IT,
culture and industry led by
enterprises to create a safe &
cohesive society and lay the
foundation of national re-
unification, thus ushering in an
era of people’s happiness”
Transition of Korean Ministries and State Organs

Ministry of Science, ICT and Future Planning

Ministry of Trade, Industry and Energy

Ministry of Foreign Affairs

3. Economic Landscape

Chaebol Dominance
• Conglomerate of businesses, usually
owned by a single family

• Traditional backbone of Korean

industrialisation

• Growth through ‘guided capitalism’ –

companies selected by the gov’t to
undertake projects with assisted funding

 Top 10 chaebol accounts for 76.5% of Korea’s

GDP in 2012 (53.4% in 2002)

 Market capitalisation of top 5 chaebol

accounts for 54.8% of Korea Exchange’s total
market cap
Market Capitalisation by Chaebol
Chaebol-bashing

• Asian Financial Crisis ‘97

 11 out of 30 biggest chaebol went under
 Overleveraged debts for unsustainable expansion

• ‘We are the 99%’ Wave

 Economic democratision as political tools
 Unfair ‘bullying’ practices against SME partners/
distributors

• Criminal Investigations into Corporate

Misgovernance
 Complex system of interlocking ownership & cross-
shareholdings
 Current investigations against chaebol’s practices of tax-
evasions and money-laundering
Economic Democratisation – Regulating Chaebol

• National Tax Service

 Completed probe of 83 offshore tax evasion cases, collected US$424M
 Currently investigating 23 offshore tax evasion cases using tax havens

• Fair Trade Commission

 Ban cross-shareholding among affiliates of 51 chaebol
 Collected 1 trillon won in fines in 2012

• National Commission for Corporate Partnership

 ‘Shared Growth Index’ rating
 Designated 14 service sectors as reserved for SMEs
 Limits opening of new F&B chains by bigger players
according to proximity to SME players and subways

• Excessive regulations bane to business environment?

4. Economic Landscape
Household Debt Trend
Household Debts
• Possible Achilles’ heel?

• 164% of annual disposable income

 Averaged 52.91M won in Dec 2012
 Well above OECD average

• Possible implications
 Damage financial soundness of households
 Snowballing bad debts for financial
institutions

• BOK to allow loans to be repaid over

longer terms
 Lowering interest rates for borrowers in 2013
5. Economic Landscape

Trade in Korea

• Traditional economic pillar

 8th in international trade volume

 9th member of the US$1 Trillion

Trade Club

• Comprehensive network of FTAs Korea’s Network of FTAs

 Korea-US and EU-Korea

implemented

 Export growth under both FTAs

made up for overseas sales
slump
Trade Trends & Observations

• Increasing dependency on exports

Korea’s Trade Performance
 Vulnerable to external shocks
 Threaten domestic growth & job
creations

• Drop in export performance

 Gloomy 2013 for export industries
 Policy focus on growing domestic
consumption instead

• Trade shifts to ASEAN

 Drop in exports boosted by 10.4% jump in ASEAN exports in 2012
 2nd largest export market in 2012

 Replaced US and Europe as Korea’s biggest market in Q1 2013

 Singapore’s trade growth with Korea in 2012 : 12.7%
6. Geo-political Landscape – Tension with DPRK
2010
• Sinking of navy corvette Cheonan
• Shelling of Yeonpyeong-do

2011
• Death of Leader Kim Jong-il
• Kim Jong-un became Supreme Commander
of Korean People Army

2012
• Kim Jong-un became Chairman of Central
Military Committee, 1st Sec to Workers’ Party
• Launching of satellite Kwangmyongsong-
3 Unit 2
Geo-political Landscape – Tension with DPRK
2013

• President Park Geun-Hye took office

• 3rd underground nuclear test by DPRK

• Reaction to US-Korea ‘Key Resolve/Foal Eagle 2013’ exercise

 Issued warning of “all-out war” in
Korean Peninsula
 Withdrawal of non-aggression pacts
 Reopened Yongbyon nuclear reactor
 Threatened premptive nuclear strikes
 Poised to launch BM25 Musudan missile(s)
against US targets
 Closed Gaesong Industrial Park
Economic Reactions to DPRK Dynamics

• Generally stoic reaction from the marketplace

 Credit ratings unchanged by global agencies
 Rapid rebound from KOSPI after initial shock

• March 2013 episode shook market confidence however

 US$2.6B of KOSPI shares unloaded by int’l investors
 Downward trend in KOSPI index in following month

• Net effect yet to be seen

 Possible long-term toll : market rebounds may not come as easily as before
Leveraging on
Korea’s Strategic Focus
1. Creative Economy & SME Growth

SMEs to lead Knowledge-based Manufacturing & Exports

• Korea ranked 5th in terms of dollar-value of

manufacturing value-add

• New-age manufacturing paradigm

• Convergence of science and technologies

across various industries

 ‘Smart’ medical devices : marrying med-tech with

ICT

 Wonju Medical Industry Techno Valley

• Opportunities for Singapore companies to seek

winning Korean products/ technologies for export
markets
SME-led Growth towards Creative Economy

• Convergence of IT, science and enterprises sustained

by SMEs

• Ministry of Science, ICT & Future Planning

 30T won set aside to support start-ups and SME growth
 KONEX – new stock market created for high-growth SMEs
to list & raise funds
 Daedeok Science Cluster – expand connectivity between
R&D and business implementation

• Singapore companies can partner high-growth

SMEs from Korea at this cross-road
 Direct investment
 Joint-technology development
 Market access
2. Regional Development within Korea
Regional Hubs beyond Seoul
Busan Free Economic Zones
• North Port Redevelopment Project • Incheon FEZ
• Gangseo Int’l Logistics Park • Busan-Jinhae FEZ
• Gadeok-do Int’l Airport development • Gwangyang FEZ
• Myeongji u-City development • Yellow Sea FEZ
• Dongbusan Tourism Complex development • Saemangeum-Gunsan FEZ
• Daegu-Gyeongbuk FEZ
Incheon
• Gangwon FEZ (planned)
• Songdo u-City development
• N. Chungcheong FEZ (planned)
• Midan City development
Specialised Zones taking root

• Sejong City, Chungcheong region

 Created as Special Autonomous City
 Administrative hub housing 9 ministries and 4 national agencies

• Saemangeum
 Reclaimed tidal flat off west coast
 Intended to be eco-waterfront city for tourism & agriculture

• Foodpolis, Jeollabuk-do
 Designated as Korean National Food Cluster, as food-
manufacturing and services hub

• Wonju Medical Industrial Techno Valley

• Daedeok Science Cluster

3. Third-Country Collaborations

Working with Korean EPC players around the world

• World leader in international EPC market

 Overseas contracts of about US$65B in 2012 (9.8% growth)

• Top market in 2012: GCC (about US$37B)

 Asia replacing GCC as top market: 58.4% of all overseas contracts in Q1 2013
 Top single market region: SEA markets
 Vietnam, Myanmar,
Thailand, Philippines,
Singapore
 Partnership/ supply/
outsource roles for
Singapore players in
Korean SEA projects
MKE-IE Singapore MOU on Third-Country Collaborations

Financial
Engineering Emerging
Institutions
Services & Economy
Turnkey

Financial Emerging
Financial
Institutions Economy
Institutions
Innovative
Platform
Technologies
& Solutions
EPC
Consortiums
Emerging
Economy
Market Opportunities for
Singapore Companies
1. Singapore Presence in the Korean Economy
Bilateral Economic Ties
• Trade : Korea and Singapore was each other’s 7th and 8th
largest trading partner in 2012 (12.7% growth)

• Investment : Singapore was Korea’s 3rd largest Asian

investor in 2012
 US$3.06B – 11th largest Asian investment destination

• Sectors : Real estate, banking & finance, logistics, marine

services, civil engineering, manufacturing, ICT, consumer
electronics, F&B, retail & lifestyle, hospitality

Working with Chaebol in Korea

• JV Partnerships
• Franchising/ distribution
• Industrial Clients
2. Tourism Infrastructure & Services

Tourism to boom in Korea

• Tourism potential can be higher in Korea
 Arrivals almost doubled since 2007
 Record tourism revenue of US$14.17B (estimated), up 136%

• Special effort made by Govt. to grow tourism industry in Korea

 Jeju achieved UNESCO status
 Record 11.1M visitors in 2012, targets 20M tourists by 2020
 Focus on retail, medical tourism

• Development of various tourism infrastructure projects

 Cruise centres, theme parks, mega-events
(e.g. F1 in Jeolla, World Expo 2012 in Yeosu)
Tourism Growth Trend in Korea
Opportunities from Tourism Boom in Korea

Hotels & Hospitality

• 29% of foreign tourists lost in 2012 due to lack of accommodation
 Arrivals increased 30% in past 5 years; hotel rooms increased 8%

Waterfront Facilities
• Lacks cruise-center facilities for increasing cruise-visitors
 Incheon – 110 cruise-ship arrivals for 2013 (31 in 2012, 8 in 2011)

• Lacks world-class marinas for increasing waterfront developments

Low-cost Carriers
• 46.3% of domestic flights, 9.9% of int’l flights in 2012
 5.6% increase in LCC passengers in Q1 2013

Capturing the Chinese Yuan

• Surge of Chinese tourists
 64% of all visitors to Jeju – 2,500 pax per day, US$1,235 per pax
3. Retail & Lifestyle
Growth of Consumerism
• Vibrant retail market – 4th largest in Asia
 Increase in GDP + Household Debts
 Forecasted to grow 3.4% to US$207B in 2013
 CSI : 10th-month highest in Mar 2013

• Dominant retail platform : traditional dept stores

 Fastest growing retail platforms : shopping malls,
convenience/drug-stores
 Rise of online shopping : 14.5% growth to US$895B in 2012

• Key retail locations : Myeongdong, Gangnam, Apgujeong/

Cheongdam, Hongdae
 Myeongdong : 9th most expensive shopping street, 500K – 2M
visitors per day
Singapore Brands in Korea

Experiencing Singapore in
Korea :

- Hospitality & Travel

- Spa & Wellness S. Korea

- F&B Concepts

- Fashion Retail

- Consumer Electronics

- Education
Singapore company forayed into K-Pop media & lifestyle…

launched by in Aug 2012!

4. Renewable Energy and Environmental Services

Green Growth in Korea

• Promoted as cornerstone for sustainable economic

development
 Measures to reduce 30% greenhouse gas emissions rolled out in
2012
 Planned gov’t injection of US$333M into sustainable energy
infrastructure in 2012
 Implementation of full carbon-trading system by 2015

• Korea’s focus to lead global green growth development

 Host country for UN’s Green Climate Fund (190 member states
mobilising US$100B annually for green issues in emerging markets)
 Korea’s Global Green Growth Institute designated as Int’l
Organisation to lead 14 countries in global sustainable economic
development
 Sectoral Opportunities within Green Growth
Offshore Wind
•1st 3-mw offshore windmill
started by Doosan off Jeju in July
2012
•Pipeline of 15 more windmills
Solar / Photovoltaics
•Heavy investments into the
sector by Hanwha, Samsung &
SK Group
Waste-to-energy
•New law banning bio-waste
dumping in sea and landfill
•Seeking WTE technologies for
generating bio-gas through bio-
waste
Smart Grid
•Market size US$3.8B in 2011,
expected to grow to US$4.5B
by 2016
•US$3.2B investment into the
sector
•Jeju Smart Grid Testbed :
fully integrated smart grid
system for 6,000 households
 168 companies in 10
consortiums
 US$573M invested
 Open for
international
participation
Water Treatment
•10th largest in the world
•Increase in domestic/industrial
wastewater from urbanisation
•Seeking new membrane
technologies and filtration solutions
Water Distribution
•Aging water pipeline system of
about 5,000km; leakages can hit
40%
•Traditionally covered by K-Water,
but gradual privatisation of the
sector sees more players entering
•Strong need for innovative pipe
materials and water analytics
solutions
In short,
why Korea?
Thank You
www.iesingapore.com