Korean Government IT Policy
The IT Policy of Korean Government is also one of the major factors behind the development of IT sector. First, with opening of the telecommunications service market in the 1990's the Korean government has promoted market competition and private investment in the IT industry. Second, establishment of the high-speed information communication network and informatization policy, such as informatization of public sector, also contributed to the growth of IT industry by creating demand for IT. Third, the Korean government has pursued various support programs for R&D and training of IT human resources. For instance, through the "Five-year Plan for Information Communications Technology Development", which the government plans to pursue until 2004, the government is supporting R&D programs, focusing on the next-generation Internet, fiber optic communication, digital broadcasting, wireless communication, software and computer technology sectors. There are more than 30 IT human resources programs currently supported by the government. Furthermore, advancement of the venture capital market and KOSDAQ's provided an important environment for the growth of the IT industry.
Recently, Korean government is preparing for various new R&D and human resource support programs in order to enhance the growth rate and to develop new promising industries. The 10 new growth industries are 1. Intelligent Robots, 2. Future Automobiles, 3 . Next-generation Semiconductors, 4 . Digital Television and Broadcasting, 5 . Next-generation Mobile Communications, 6. Display , 7. Intelligent Home Network, 8. Digital Content and Software, 9. Next-generation Batteries, and 10. Biomedical Products. Given the fact that almost of all target industries are IT or related fields, the IT industry is expected to provide attractive business opportunities to both Korean and foreign investors.
The Korean government has joined with business to increase investment opportunities in promising areas of IT. These combined efforts are aimed at attracting foreign capital investment and also forging international partnerships to open up new business opportunities not only for Korean enterprises but also for foreign IT players and investment institutions.
The most promising areas of IT investment are herein identified as the three sectors of Broadband Internet Equipment, Home Networks and Mobile Phones. The reasons are two-fold. First, these products are integral to the elements that are forging the IT revolution: the highspeed Internet, broadband capacity, and convergence and mobility. Second, Korea holds international competitiveness in these three sectors.
FDI-friendly Policies
Some 13,228 overseas companies were invested in Korea as of March 2003. As of March 2003 they include 45 percent ㅡ 223 in total ㅡ of the Fortune Global 500 and all of the world’s top 20 corporations. Moreover, the ratio of net profit to sales among foreigninvested companies in Korea is far higher than that of domestic companies. In fact, the Korean branches of international companies are often among their top earners (if not the top earners) within their groups
Among the many reasons why international companies choose Korea as an investment destination are the array of incentives that the Korean government offers, some of the most generous in the OECD. Any given package of incentives so awarded has a significant impact on an investor’s “bottom line.”
Foreign Investment Zones (FIZs)
In an effort to foster the development of foreign businesses, the government will endorse the business area of a single company or a consortium of foreign invested companies as a Foreign Investment Zone (FIZ). FIZ designation allows a company to take advantage of free land subsidies and 10-year tax reduction and exemption incentives and requires that more than the minimum investment amount be put into the business.
As of Jan. 1st 2004, eligibility for FIZ designation will be relaxed. A foreign business or consortium of businesses then may combine their individual investments to satisfy the lowered minimum investment hurdles. Previously, FIZ designation was only available for single corporations. The current minimum investment amount for FIZ de signat ion will be re duced from US$50 million to US$30 million for manufacturing businesses, from US$30 million to US$20 million for tourism businesses, and US$ 30 million to US$ 10 million for logistics businesses. However, while the scope of eligible beneficiaries will be increased from this change, the incentive period will be reduced a year later, on Jan 1st 2005, from the current 10 to seven years.
Therefore, throughout 2004 foreign investors can not only take advantage of free land subsidies and lowered FIZ eligibility investment hurdles, but also seize the opportunity for a 10-year incentive period before it is lowered to seven years.
Foreign-exclusive Industrial Complexes (FEICs)
Smaller-sized foreign invested companies have not been ignored in Korea's drive to attract FDI. Rental discount incentives are available for smaller-sized businesses that are established within any of the six government-designated publicly developed and operated FEICs. Manufacturing businesses investing a minimum of US$10 million can enjoy a rental discount of 75 percent while high-tech companies investing a minimum of US$1 million are eligible for a rental discount of 100 percent. Before the end of 2003, the government will expand the Jinsa and Ohchang Industrial Complexes by 171,900 and 330,578 square meters, respectively bringing the total FEIC space in Korea to 4.23 million square meters.
The government also plans to offer the same FEIC benefits to foreign companies establishing themselves in any of the country's 48 privately developed industrial complexes.
High-tech and Industrial Support Service Businesses
Currently, 467 high-tech businesses and 111 industrial support service businesses have been entitled to 10-year tax exemptions without consideration of their investment size and location.
Cash grants for Greenfield FDI
To bolster greenfield FDI, the Korean government plans to give cash grants to foreign direct investors on a case-by-case basis. The grants will be aimed at investors focusing on high-demand fields such as high technology, parts and materials, as well as at R&D center-related investors. The size of the cash grants will be determined in consideration of the size of investment and the anticipated effect on the domestic economy and provided that one of the following requirements is met:
US$10 million or more is invested into a "high-tech and industrial support service business" for building a new factory or expanding current production facilities; or,
US$10 million or more is invested into a "parts and materials company" for building a new factory or expanding current production faciities, or US$5 million or more is invested into "R&D" facilities.
A Special Environment for Foreign-invested Company
On July 1st, the Act on the Designation and Operation of Economic Free Zones came into effect. Now it can effectively grant foreign firms within Korea’s three Free Economic Zones a special legal status and can exclude them from applying some of labor-related requirements stipulated in Korea’s Labor Standards Law. The date also marked the inauguration of a host of foreigner-friendly facilities such as special clinics and pharmacies to be established in the zones and the legal enforcement of English as one of the zones' official administrative languages. When communicating with foreigners, administrative bodies within the zones will be required to write official correspondence and issue all documentation in English, and likewise to accept all submissions in English.
The Act defines an Economic Free Zone as a particular area developed to provide a specially enhanced business environment for foreign-invested firms and living conditions for foreign employees. The act, therefore, provides for operational support for business and upgraded living conditions within the zones. The act allows support for foreign-invested firms within the zones in following key areas: tax relief and financial assistance; labor law exemptions; and English as an official language.
In many ways, the zones represent a template for the economy as a whole since depending upon their performance the government plans to extend their rules, regulations and systems to the rest of the country. Let’s take closer look at Korea’s three Free Economic Zones Incheon Free Economic Zone, Busan/Jinhae Free Economic Zone and Gwangyang Free Economic Zone and what they offer foreign investors.
Linguistic Services
Initiatives to enhance living conditions for foreign residents of the zones include granting of official status to major international languages, establishment of foreign schools and health care facilities, and the provision of foreign television and radio channels on cable. In order to circumvent communication problems in dealing with the authorities, all official correspondence within the zones will be issued, received and processed in English. Legal endorsements will be available to foreign educational institutions owned by foreign corporations. Also, a wide range of existing restrictions on foreign educational will be lifted; for instance, Korean citizens will be allowed to attend the foreign schools established within the zone. Loosened regulations will permit health care to become more geared to foreign practices: foreign clinics and pharmacies will be allowed to operate, while overseas physicians and pharmacists will be granted Korean licenses provided they meet a minimum of necessary requirements.
Foreigner Friendly
Foreign-exclusive Industrial Complexes were designated as a part of an intensified campaign to attract investment by foreign invested companies. The underlying concept is to provide low-cost plant sites to foreign-invested firms at inexpensive prices to advance the economic structure, promote high technology transfer and strengthen the competitiveness of domestic companies. The initiative is based on the view that industrial land prices in Korea are relatively higher than in competing countries and work as a barrier to investment attraction. In order to provide inexpensive plant sites, the central or local governments provide financial assistance by purchasing a certain portion of the land of an industrial complex under construction. Sites can then be sold or leased to locating foreign-invested firms at discounted rates.
The Korean government provides a range of incentives for tenant companies. Rental fees in the Foreign Exclusive Industrial Complexes are a mere 1% of market price of the lands, which can be even exempted for large scale investors with high-technology. In addition, Korea Industrial Complex Corporation(KICOX) provides all necessary administrative procedures ranging from investment notification, business registration, entry application, contract conclusion to factory registration for free