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Zone

The Economic Hub ofNortheast Asia, Saemangeum

Industry Interview

Ombudsman’s Office

RegulatoryInformation Update

Introducing Korea's SMEs I 11pEconomic Indicators

IK WORLDWIDE I 12pKOTRA Locations Globally

IN BRIEF I 3pInvest Korea News, Foreign Company News...

THINKING BIG PICTUREToray Advanced Materials Korea is working closely withlocal companies to further contribute to Korea’s economy

Express

INVESTKOREA

November 2016 www.investkorea.org

Economic Analysis

When it comes to innovation and creativity,there’s no place like Korea. With the country’sratio of research and development (R&D)spending to GDP ranking first place, a numberof foreign companies have establishedresearch centers in Korea. One of these com-panies is Toray Advanced Materials Korea(TAK), an affiliate of Japan’s Toray Group.

Since 1999, the company has been a leadingchemical materials supplier in Korea, produc-ing everything from basic household items toindustrial components. Thanks to the country’soptimum R&D environment, TAK set up atechnology research center in 2000, only one

year after the company was founded. In 2004,it established the Advanced MaterialsResearch Center (AMRC) to spur technologi-cal innovation.

Despite being the undisputed leader inadvanced materials, the company has its eyeon a far bigger market. In July, TAK built theworld’s first integrated production line inSaemangeum Industrial Complex, capable ofproducing 8,600 tons of polyphenylene sulfide(PPS) resin and 3,300 tons of compound peryear. The company also has been runningthree plants for polyester films, highly func-tional processed films for IT, carbon fibers,spunbond nonwovens, polyester filaments andresins in Gumi, North Gyeongsang Province.

In a recent interview with Hae Sang Jeon,TAK’s Vice President and Chief OperatingOfficer (COO), we find out more about thecompany’s future vision as an innovationleader.

What are some of the strengths of theKorean market when it comes todoing business?

From the initial review stage, we look intovarious factors and think about the valuechain before doing business in a country.Since Korea is home to a number of world-class companies, it provides abundant oppor-tunities for mutual cooperation and jointdevelopment. This brings huge benefits forboth the supplier and consumer.

EMERGENCE OFNEW DISTRIBUTIONCHANNELS AND THECHANGINGINDUSTRIALECO-SYSTEMChanging consumer patternscaused by mobile phones aretransforming thedistribution market intech-crazed Korea

FOREIGN-INVESTEDCOMPANIESEMPHASIZECORPORATE SOCIALRESPONSIBILITY ATFOREIGNINVESTMENT WEEK

OMBUDSMAN’SOFFICE RESPONDS TOREGULATORYCONCERNSREGARDINGFOREIGN LEGALCONSULTANT ACT

THE DWINDLINGMIDDLE CLASS ANDTHE ROLE OF THEGOVERNMENT

I 6p

I 7p

I 4p

I 9p

Hae Sang JeonVice President & COO

Toray Advanced Materials Korea

Greetings From Invest KOREA

We have less than two months to go until 2017, but things at

Invest KOREA have been busier than ever. A few weeks ago

we recently held the ‘Job Fair for Foreign-invested Companies

2016’. This event took place to increase employment opportuni-

ties and introduce highly qualified Korean talent to major for-

eign companies, including 30 Fortune 500 companies. I’m hap-

py to say this was the country’s largest and most successful international job fair ever.

I then flew to Paris with some of Korea’s most promising startups in the IoT sector. These businesses had the

chance to pitch their ideas and projects to venture capitals, and I got to see firsthand just how innovative our coun-

try can be. With over 30,000 startups, Korea’s entrepreneurial scene is becoming one of Asia’s most exciting. No

wonder Bloomberg has ranked the country as the most innovative in the world!

But we’re more than just about talking business and statistics. Giving back to the community is another impor-

tant priority on our agenda for this year. That’s why we’re holding ‘Get to Know Korea 2016’, a biannual event

that gathers foreign investors and their families to help them feel more at home. This time, we’ll learn how to make

kimchi, the spicy side dish loved by Koreans and foreigners alike. Then we’ll head to a social welfare center in

Seoul to make kimchi for those in need. Corporate social responsibility has long been at the core of our company

culture and we’re always happy to build a better quality of life for those living in Korea.

Although 2016 is coming to a close, we’ll continue to show you why Korea is a great place for business and a

wonderful place to call home.

Sincerely,

2 l November 2016

Dear Readers,

Yong Kook KimHead of Invest KOREA

November 2016 l 3

In Brief

Invest KOREA News

KOTRAHOSTS 2016 JOBFAIR FOR FOREIGN-INVESTED COMPANIES

From Oct.17 to 18, the Korea Trade-Investment Promotion Agency (KOTRA),which Invest KOREA is a part of, hosted theJob Fair for Foreign-Invested Companies2016 to increase employment opportuni-ties and alleviate the shortage of Koreanemployees in foreign-invested companies.

Many leading global companies,including 30 Fortune 500 companies, par-ticipated in the nation’s largest-ever inter-national job fair. At the event, 14,000 job-seekers had the opportunity to participatein job seminars and consultations withrecruiters.

The Job Fair for Foreign Companieshas been organized by the Ministry ofTrade, Industry and Energy together withKOTRA since 2006.

IK HOSTSIOT INVESTMENTPROMOTION STRATEGYFORUM

On Oct. 21, Invest KOREA hosted theInternet of Things (IoT) InvestmentPromotion Strategy Forum for KOTRAemployees and Free Economic Zone per-sonnel to discuss IoT trends and invest-ment promotion plans.

Officials from the Korea IoT Associationand the LGU+ IoT Strategy Team held lec-tures on domestic and international IoTTrends. Representatives from the KoreaElectronics Technology and GachonUniversity also presented on topics deal-ing with IOT health and power trends.

A panel discussion on investment pro-motion strategies for the development ofthe Korean IoT market was held after thelectures in a bid to brainstorm investmentplans for this promising industry.

Korea News

S. KOREATO POUR 14.7TLN WON TO IMPROVESEAPORTS BY 2020

South Korea will inject KRW 14.7 tril-lion (USD 13.4 billion) to upgrade its sea-port facilities and strengthen logisticsfunctions by 2020 as part of its long-termplan to deal with intensifying competitionin the global shipping market.

The country's 30 international tradeports and 29 coastal ports will be subjectto the master plan released by theMinistry of Oceans and Fisheries.

Under the plan, the government willexpand docks and wharves to house morecontainer carriers and build a wider roadnetwork to beef up logistics infrastructurefor export-oriented industries, includingthose dealing with petrochemicals, auto-mobiles and steel.

Commercial and residential complexeswill also be built to facilitate the seaports.

S. KOREATO INVEST500 BLN WON TOFOSTER ROBOTINDUSTRYIN THE NEXT 5 YRS

In a meeting with businessmen on Oct.11, South Korea’s Trade Minister JooHyung-hwan said the government willspend a total of KRW 500 billion (USD450 million) in the next five years to fos-ter the robot industry as a new growthengine for Asia's fourth-largest economy.

The public and private sectors willinvest a combined KRW 350 billion(USD 306.3 million) in R&D to localize afew key fundamental technologies in thenext five years, with more than KRW 100billion (USD 87.5 million) to be poured infunding corporate R&D centers to fosterrobot experts and researchers.

The South Korean government hasrecently focused on the potential of robottechnology as a new growth engine forthe country's future.

Foreign Company News

GLOBALHEALTH CAREFIRMS EYE S. KOREAASNEW HUB

Global health care companies are rampingup their R&D investment in South Koreaas the country emerges as a new globalbiotech and medical industry hub.

In an effort to cultivate talent in theindustry, GE Healthcare Korea plans tobuild the first APAC Fast Trak Center inSongdo in the western port city ofIncheon, investing a total of USD 20 mil-lion by 2020.

The company said the center is aimedat addressing the challenges in the humanresources sector, which many of the lead-ing bio players are facing. The center willhelp bio pharmaceutical companiesimprove production efficiency and reducecosts as well.

Merck KGaA, a Germany-based lead-ing science and technology company, alsoopened a biotech center in Songdo.

The Biotech Training Center, dubbed"M-Lab," will support other major localpharmaceutical firms in production andR&D.

The center will act as a catalyst for thefirm to join forces with local drug makersto expand their global presence in thefield.

JAPAN'S TORAY BSFCOMPLETESPRODUCTION LINES FORMOBILE AND EVBATTERIES

On Oct. 12, Toray Battery SeparatorFilm Korea Limited (Toray BSF Korea)completed construction of two productionlines for lithium-ion battery separators atthe Gumi National Industrial ComplexNo.4 in Gumi City, North GyeongsangProvince.

A total of KRW 110 billion (USD 96.3million) was invested in the constructionof additional production lines.

With the investment, the annual separatorproduction capacity of the company willincrease from the current 40 million ㎡ toover 60 million ㎡.

Toray BSF Korea is a foreign-investedcompany wholly owned by Japan's TorayBSF and an affiliated company of TorayIndustries Inc.

The company decided to expand itsproduction facility in Gumi to meet grow-ing demand for batteries used in mobiledevices and electronic vehicles in Asia.

4 l November 2016

Industry

Emergence of New Distribution Channels andthe Changing Industrial Eco-system

Changing consumer patterns caused by mobile phones are transformingthe distribution market in tech-crazed Korea

Due to the sluggish economy and declining consumer confi-dence, the recession has left quite an impact on Korea’s distribu-tion industry. As a result, the industry’s growth rate dropped 1.4percent annually since 2013. Department stores and large-scalesupermarkets are showing only moderate growth and recordednegative growth in 2014, overshadowing their past glory as theengines of growth. Among the main reasons for this decline isthe implementation of laws limiting the number of new depart-ment stores, as well as the enforcement of compulsory closuresof department stores on weekends.

On the one hand, external factors such as weak domesticdemand are to blame. On the other, the lack of growth momen-tum in the industry itself is the main culprit behind such lacklus-ter performance. For instance, large discount stores and onlineshopping malls sprung up in the mid-1990s and the early 2000s,advancing the distribution industry in terms of size and struc-ture. Now, offline retailers and online shopping malls have losttheir vitality and are showing stagnant growth. Departmentstores’ sales growth, for example, has continued to decline from2010 to 2013, and posted -1.6 percent growth with KRW 29 tril-lion (USD 25.7 billion) in 2014. The good news, though, is thatmobile shopping channels are growing rapidly and are servingas new sources of hope for Korea’s distribution market.

The reasons behind the rapid growth in the mobile shoppingmarket can be attributed to the widespread penetration of mobiledevices, technological advancements and changes in consump-tion patterns. We all know that smart phones, tablet PCs andother mobile devices have already become part of our dailylives, especially in Korea. According to McKinsey & Company,

the country has the highest smartphone penetration rate in theworld: more than two-thirds of South Koreans own one.

The wireless Internet and advanced forms of mobile paymenthave made it even easier to shop on the go. One-person house-holds and dual-income families who prefer mobile shopping tosave time are increasing in number. Consequently, from 2012,the transaction volume of mobile shopping increased approxi-mately 600 percent to KRW 13 trillion (USD 11.4 billion) in2014 and KRW 24.5 trillion (USD 21.7 billion) in 2015. Mobileshopping, thus, is not just an additional distribution channel, buta significant driver of growth as it brought about major structur-al changes across the industry, as well as new changes in con-sumption patterns.

The most notable advantage of mobile devices is its portabili-ty. With mobile devices, consumers can go shopping wheneverand wherever they go. Even if they don’t make a purchase, theycan still learn about the products and be updated on latest infor-mation at their fingertips. This has caused distributors tobecome much closer to the consumers. Consumers can also eas-ily switch between different shopping channels. For instance,one can buy a product online after looking at it in the offlinestore, or conversely, buy a product offline with a discountcoupon offered by the online web site. Lotte is one such compa-ny that offers shoppers with real-time notification of promotiondeals on their phones as soon as they enter one of its departmentstores.

The rise of mobile shopping has two implications for the dis-tribution industry. First, it means mobile e-commerce is jump-

2012

1.8 trillion

5.9 trillion

(In KRW)

2013 2014 2015

0

5

10

15

20

25

13 trillion

24.5 trillion

Mobile Shopping Transaction Volume in Korea

The birth oflarge franchisesupermarkets

E-commercetakes shape,thanks to

companies likeAmazon serving

as bridgebetween largesupermarkets

and consumers

The implementationof the omni-channel

makes it easierfor consumers

purchase productsby researching

on their computers,tablet PCs andmobile phones

Retail2.0

Retail3.0

Retail4.0

Retail1.0

The launch ofthe local

supermarket

Evolution of the Retail Industry

Source: Korean On-line Shopping Association (KOLSA)

Source: McKinsey & Company, KORCHAM

starting the distribution industry in the midst of stagnant eco-nomic growth. Second, it means that multi-channel shopping isbecoming more commonplace. As mobile devices give way toeasy research, purchase, and payment for a product, more cus-tomers are using different channels to compare prices in realtime, tearing down the barriers that were once there betweendistribution channels.

Against this backdrop, major distributors in Korea quicklycame up with their own mobile shopping channels. However,the result was not what they had initially expected. While theyachieved growth in mobile sales, their total sales remained stag-nant and profits rather declined. Three television home shoppingcompanies, which actively introduced mobile shopping chan-nels, are good examples. While their total sales increased onlyslightly, they had to endure profit losses due to steep price dis-counts, low commission fees and high marketing fees of mobileshopping. For some companies, the sales of television homeshopping shrank because of their new mobile channel. Thismeans that instead of new customers flowing into the mobilechannel, existing customers moved from television to mobileshopping. If this trend goes on, the existing distribution channelswill continue to lose their ground.

Overseas large distributors, who learned this lesson earlier,began deploying omni-channel strategies, or cross-channel busi-ness models that companies use to increase customer experi-ence. Their purpose is to prevent profit losses and to quicklyrespond to changing consumption trends. That is because omni-channels can lessen competition between distribution channelsby ensuring an organic convergence of online and offline distri-bution channels, and satisfy customers with a multi-channelshopping experience while securing their loyalty with qualityservices.

Under such circumstances, the emergence of mobile shoppingcan help increase the size of the distribution industry, while theomni-channel can improve internal efficiency. Therefore, it isnecessary to recognize the importance of mobile shopping andomni-channels, and how they can lay the groundwork for furthergrowth of the distribution market in Korea.

As mentioned, due to online and offline distributors’ efforts toexpand their mobile shopping business, sales in this area sawrapid growth. But so far, this growth is more attributed to the

shift of existing consumers from offline stores and PC to mobilechannels, and not the result of new customers or revenue. Inorder to go beyond this simple shift between channels, moreefforts need to be made at the corporate and government levels.First, corporations should not only adopt the mobile shoppingplatform but devise new distribution strategies that can createsynergy and not competition. Second, the government shouldestablish a mobile shopping environment that boosts reverseoverseas direct purchases. In case of the United States, mobileshopping took up more than 50 percent of Internet shoppingtransactions made during the Thanksgiving holiday in 2014. InChina, mobile shopping increased rapidly from 1.5 percent in2011 to 9.1 percent in 2013. As China launched its 4G serviceslast year, the mobile shopping market will only grow faster.

As such, the pie for mobile shopping is growing globally, andwe need to prepare measures on how to expand this industry toforeign markets. To this end, the online payment system for for-eigners needs to be urgently improved. Domestic online andmobile shopping malls are, at present, poorly equipped for one-click payment process. Although there are discussions for theintroduction of a simple payment system, various regulations arestill getting in the way. Against this backdrop, the governmentshould act swiftly in order not to lag behind in the fast-changingmarket.

In addition, the increasing share of mobile shopping in the dis-tribution industry can negatively affect the sales of small andmid-sized shopping mall operators and traditional market mer-chants that do not have their own mobile applications. The salesof traditional markets has decreased from KRW 27.3 trillion(USD 24.3 billion) in 2005 to KRW 19.9 trillion (USD 17.8 bil-lion) in 2013. 60.1 percent of mobile shopping customers usemobile applications to buy products, and this trend will only getstronger. This is the reason why traditional market merchantsand small, mid-sized shopping malls can lose their competitive-ness as they find it difficult to come up with their own mobileapps.

As the distribution industry is quickly being transformed bymobile platforms, traditional market owners and small and mid-sized shopping malls will more likely fall behind if they fail toadapt to new changes. That is why the government should coor-dinate among small stores and business operators while devel-oping free mobile apps for them so that the distribution industrycan develop more equitably.

Source: Jinkyung Goo, Sang-Hyun Lee, Dong-Hee Lee (2015).A Study on the Changes in the Ecology of the Retailing Sector

According to Emerging New Distribution Channels:the Spread of Mobile Shopping and the Emergence of

Omni-channel Distribution, Korea Institute for IndustrialEconomics & Trade (KIET)

November 2016 l 5

Single channel

Omni-channel

Multi-channel

Changes in Consumer Patterns

Source: Daishin Securities

On Sept. 28, 2016, the ‘CSRForum of Foreign-InvestedCompanies’ was held inSeoul to raise awarenessabout corporate social

responsibility (CSR) of foreign-investedcompanies and foreign investors inKorea. The CSR Forum was part ofForeign Investment Week (FIW) 2016,which was co-organized by the Ministry ofTrade, Industry and Energy (MOTIE) andthe Korea Trade-Investment PromotionAgency (KOTRA). At this year’s FIW, theOffice of the Foreign InvestmentOmbudsman (OFIO) decided to host theforum to promote various communityimprovement programs being carried outby foreign firms.

337 investors from 291 companies par-ticipated in FIW in hopes to seek localpartners and opportunities to invest inKorea. In addition to these possible busi-ness opportunities, multinational compa-nies no longer merely focus on makingprofits; they’re seeking out long-term waysto make an impact on the community.

On this note, Ombudsman Jeffrey Kimsaid, “Amid public fury over a wave ofrecent corporate scandals involving for-eign companies in Korea, foreign compa-nies are concerned with anti-foreign sen-timent directed at them.” He added,“However, there are about 17,000 foreigncompanies here contributing 20 percentof the country’s total exports and 6 per-cent of the employment in this country.The CSR Forum will likely help improvethe public sentiment toward foreign com-panies here.”

Kim, who resolves grievances facingforeign-invested companies in Korea,kicked off the forum with an openingspeech. Subsequently, the forum contin-ued with the growing importance of CSR

and current trends in Korea. Mostnotably, Solvay Asia Pacific, Intel Koreaand GM introduced their activities andplans in Korea, and held fruitful discus-sion on ways to further implement theirCSR activities in the future.

“A large number of companies imple-ment CSR activities related to theirvision, which is more effective than sim-ply donating or carrying out charity activ-ities that have nothing to do with theirwork,” said Professor Jung Jin-sup ofChungbuk National University during theforum. Jung cited CSR practices by IBMKorea, BASF Korea, and B. Braun asexemplary cases of CSR activities run bymultinational companies. Tech giant IBMKorea, for instance, utilizes IT and con-sulting skills as part of their CSR activi-ties.

Andre Nothomb, Head of Governmentand Public Affairs of Solvay Asia-Pacific,said the company will continue to furtherstrengthen their CSR implementation inthe future. Since the 1970s, the Belgiumchemical company has been running vari-ous CSR programs, including emergencyresponse drills and scholarships under thetheme of inclusive growth.

Many multinational companies engagein CSR practices for different reasons: itcan build a positive corporate image andtrust among customers, maximize long-term profits, enhance the morale ofemployees, increase their long-term pro-ductivity and significantly reduce marketuncertainty.

Under these circumstances, stakehold-ers of foreign firms want to see moreCSR practices occurring in Korea.Having sensed this, many foreign compa-nies have extended their CSR activities.Foreign firms have actively engaged inCSR in recent years and are expected tofurther increase their involvement in thecommunity.

Our Ombudsman Office hopes that thiswill ultimately help create a more for-eigner-friendly environment, facilitatingthe government’s efforts to attract moreforeign direct investment in Korea.

By Dr. Jeffrey I. KimForeign Investment Ombudsman

jeffikim@kotra.or.kr

6 l November 2016

Ombudsman’s Office

Foreign-Invested CompaniesEmphasize Corporate Social Responsibility at

Foreign Investment WeekThe Office of the Foreign Investment Ombudsman encourages

foreign companies in Korea to be more involved in the local community

November 2016 l 7

During Foreign InvestmentWeek (FIW) 2016, Korea’slargest national investmentevent, Foreign Investment

Ombudsman Dr. Jeffrey I. Kim providedhis professional insight into numerousissues and questions raised by foreigninvestors doing business in Korea. In par-ticular, foreign embassies in Koreashowed keen interest in the recent amend-ments to the Foreign Legal ConsultantAct. In this regard, we offer you some oftheir key concerns in regards to the Act.

As a keynote speaker, the Ombudsmanwas invited to the ‘AustCham Seminarwith Korea’s Foreign InvestmentOmbudsman’, which was held on Sept.29 in conjunction with this year’s FIW.This seminar, organized by AustChamKorea and sponsored by the Ministry ofTrade, Investment and Energy, providedan ideal platform for foreign investors tobring their concerns to our attention. Onthis occasion, participants also includedgovernment officials from the InternationalLegal Affairs Division and the Ministryof Justice. It was encouraging to see thatamong many of our participants, govern-ment officials from the Ministry ofJustice were in attendance to carefully lis-ten to various issues related to foreigninvestment and the Ombudsman’s insightregarding these matters.

At the seminar, foreign chambers ofcommerce in Korea have expressed theirregulatory concerns regarding the newprovisions to the Act. Some of these con-cerns included the limiting of foreignequity in joint ventures to 49 percent, pre-scribing foreign firms to operate jointventures only with South Korean entitiesin existence for three or more years, andlimiting the scope of practice.

Foreign embassies raised some ques-tions regarding the Act, including whetherthe recent amendments to the Act seem to

run counter to the FTA spirit and theKorean government's focus on deregula-tion. Regarding this issue, the Ombudsmanstated that the amendments do not violatethe FTA, as they have reflected variousstakeholders' opinions and the process ofdeliberation by the Amendments to theFLCA Committee. At the discretion ofthe Korean government, the amendmentswere passed pursuant to the provisions ofthe FTA.

Embassies also asked if the process ofopening the Korean legal market will besped up. The Ombudsman stated there aremany things to consider when facilitatingthe legal liberalization: the position offoreign-invested companies, the changingtrends of the legal services market and themarket response, among others. In this

regard, under the leadership of theOmbudsman, providing such an idealplatform for various stakeholders to bettercommunicate with one another can laythe foundation for garnering mutual trust.Our office believes that the implementa-tion of the FTA and opening of theKorean legal services market must pro-ceed at a steady pace to proceed withoutany issues. On this solid foundation oftrust, regulatory improvements will con-tinue to be made so that regulations canserve the interest of various stakeholders.

Provided by the Office ofForeign Investment Ombudsman

Regulatory Information Update

Ombudsman’s Office Responds toRegulatory Concerns Regarding Foreign

Legal Consultant Act

Article 35-16 (Shares) (1) No foreign participant in a joint venture shall hold shares in thejoint-venture law firm in excess of 49/100…

Article 35-8 (Joint Venture Participants) (1) A local joint-venture participant that establishesa joint-venture law firm, shall satisfy the following requirements:

1. It shall have been normally operated for at least three years since it was duly establishedunder the Attorney-at-Law Act…

(2) A foreign joint-venture participant that establishes a joint-venture law firm, shall satisfyeach of the following requirements;

1. It has been operated normally for at least three years since it was duly established underthe Act of a party country to a free trade agreement, etc...

Article 35-19 (Scope of Services) A joint-venture law firm may perform services, excludingall of the following, to the extent they do not conflict with this Act or other statues:

4. Representation of services for the sole purpose of acquiring, losing, or changing a rightto real estate, intellectual property right, mining right, and other rights which shall be con-stituted or serve as requirement for prevailing against upon the registration with an admin-istrative agency, and preparation of documents for such purposes…

New Provisions in the Amendments tothe Foreign Legal Consultant Act

8 l November 2016

Korea’s manufacturing sector is highlycompetitive, boasting world-class indus-tries in the areas of display, mobile phones,electronics and automobiles. Such manu-facturing prowess is attributed to strongchemical, component and steel industriesbecause high-quality materials makequality finished goods. That’s why Koreais a significant market for material suppli-ers like us.

It’s very easy to expand to other inter-national markets thanks to the country’svast FTA network, which covers 75 per-cent of the global economy. Korea is alsolocated near accessible markets with ahigh potential for demand. A well-educat-ed and highly qualified workforce isanother compelling reason to do businessin Korea.

Is there something Korea can do tobe a more ideal place for invest-ment and business?

The contribution of foreign investmentto the Korean economy is increasingevery year; case in point, this year’s for-eign investment reached a record high,according to a media report. This is aclear testament that Korea’s businessenvironment is improving.

But there’s still room for change. Wehope the government’s drive to reformthe labor market will create jobs andenhance labor market flexibility and inturn, make businesses more competitive.

This is particularly important when theKorean economy is burdened by risingproduction costs, strict labor market regu-lations and increasing infrastructureexpenses. As Korea is highly dependenton exports, there is growing concern thatsuch increase in costs may drag down thecountry’s competitiveness.

How is Toray strengthening busi-ness partnerships with domesticcompanies?

Toray Group takes a long-term approachin conducting business in Korea and wants

to contribute to industrial developmentand technology advancement. As such,we’ve been building strong partnershipsbased on trust with Korean businesses.

The material industry doesn’t developin a vacuum. It grows in a chain of coop-eration connecting the front-end andback-end industries. We value our part-nerships because we firmly believe thatnew industries and new markets can becreated only when raw material suppliers,equipment and materials manufacturersand producers of finished goods all worktogether.

What are your future plans for theKorean and Northeast Asian mar-ket?

Toray Advanced Materials Korea willstep up efforts to further sharpen our com-petitive edge and concentrate our invest-ment on high value-added materials.

Through additional investment, we aimto double our annual production capacityof PPS from the current 8,600 tons a year.Our ultimate target is to hold more than50 percent of market share in Korea. Wealso want to enhance our market domi-nance by fully utilizing the FTA networkin Northeast Asia.

In a bid to secure new growth engines,we broke ground for Gumi Plant 4 at theGumi High-tech Valley National IndustrialComplex in North Gyeongsang Provinceon October 19, 2016. A total of KRW425 billion (USD 374.9 million) will beinjected by 2021 to further expand ourbusiness. We will mainly focus on newmaterials but also plan on building manu-facturing facilities for nonwovens, carbonfiber composite materials and PET films.

Toray has recently built a newplant in Saemangeum. Why didyou choose Saemangeum as abusiness site?

By building a production facility inSaemangeum, we can reduce logisticscost by sourcing basic ingredients of PPS

from nearby cities like Gusan and Yeosu.We can also forge strategic partnershipswith a large number of auto part makersin the area, our prospective clients forlight-weight materials. We were alsoattracted to the excellent talent pool avail-able in the region.

Geographically, Gusan can serve as abusiness hub because it’s centrally locat-ed among Korea, Japan and China. TheFTA between Korea and China providesanother reason for doing business there.As the Korea-China FTA became effec-tive at the end of last year, tariffs, whichstood at 6.5 percent before the conclusionof the FTA, will be reduced by 1.3 per-cent every year; by 2019, tariffs will becompletely eliminated. Along with suchfavorable conditions, Saemangeum islocated very closely to China, which cutstime and cost for businesses.

Additionally, there are various benefitsfor companies moving into the foreigninvestment zone, such as free land leasesand tax exemptions.

What do you want to tell foreigncompanies who look to tap intothe Asian market?

Korea is an attractive investment desti-nation which has a broad range of strate-gic partnerships with multinational com-panies, an extensive FTA platform andexcellent human resources. Supportivecentral and local governments are readyto help foreign companies and providevarious incentives for investment. Eversince Toray Group extended its reach toKorea in 1963, we have continuouslyexpanded our business here because weare confident about Korea’s potential forfuture growth.

By Esther OhExecutive Consultant/Invest Korea

estheroh@kotra.or.kr

Interview

Thinking Big Picture (cont.)

November 2016 l 9

Economic Analysis

The Dwindling Middle Class andthe Role of the Government

The term 'middle class' is firstattested in 1745 by JamesBradshaw. In his pamphlettitled, Scheme to prevent run-

ning Irish Wools to France, the term wasused to describe a group of people in theeconomy who were in between peasantsand the nobility. The earliest modernusage of the term dates to 1911 when theUK Registrar-General's report identifiedthe middle class as that between the upperclass and the working class. Included inthe middle class are usually professionals,managers and senior civil servants, andthe most important characteristic of themiddle class is the possession of signifi-cant human capital. In modern economicjargon, however, the middle class means agroup of individuals whose income rangesbetween 50 percent and 150 percent of themedian household income, according tothe OECD definition. Those who makebetween 75 percent and 125 percent of themedian income are called the core middleclass.

Much like in other parts of the world,the recent trend shows that the proportionof middle class households in Korea hasbeen in decline since the mid-1990s. Inthe early 1990s, the percentage of middleclass families stood at 75 percent. In 1997during the IMF crisis, this number hitbelow 70 percent. In 2010, the proportionof the middle class was at 62.4 percent.

One of the key reasons for the dwindlingmiddle class is the shortage of sufficientjobs. Labor income from jobs criticallydetermines one’s status of being the mid-dle class or not.

A dwindling middle class has significantsocial implications for any society. First ofall, the fall of the middle class means theloss of jobs and work. Secondly, it cancause social dissatisfaction and uneasi-ness, especially among the majority form-ing the middle class. This can ultimatelylead to some friction among the middleand upper class, as well as among politi-cians and bureaucrats. One of the classicexamples of such friction is in the retailindustry, where smaller retail stores havebeen accusing the big retail chains forabsorbing their customers. Another exam-ple is the operation of a chain of bakeryshops by large Korean companies, whichcaused some tension among smaller fami-ly-owned bakeries.

While this kind of friction betweensmall and big retail stores is known as'horizontal' friction, there is 'vertical' fric-tion between firms intertwined in produc-tion or business channels. One such caseis the age-old conflict between smallshops and giant credit card companies forcharging large fees. Another example isthe monopsonistic business practices inpurchasing, subcontracting or merchandis-ing with big players. Such strain betweenbusinesses led to the reform of Korea’seconomic and business environment, mostnotably under the slogan of “economicdemocracy” during the 2012 presidentialelection.

The role of the government in thesematters is becoming increasingly impor-tant. In the United States, for example, as

soon as President Barack Obama tookoffice in 2009, his immediate action wasto establish the Middle Class Task Force(MCTF) under the American Recoveryand Reinvestment Act of 2009. Two ofthe most important components makingup the Act and MCTF were the promotionof education for improved social mobilityand more disposable income through taxcuts. The UK took similar action, empha-sizing education and social mobility tosolve the middle class problem. Morespecifically, the UK implemented a 60percent increase in the budget for educa-tion, endorsed the New Deal of Welfare-to-Work program and reinstated the mini-mum wage system.

As pointed out earlier, income is themost important and decisive factor deter-mining the middle class. Therefore, jobcreation has always been the most urgenttask for the government and policy mak-ers. On this note, the Korean governmenthas been focusing more on deregulation,especially when it comes to removing reg-ulations for foreign direct investment.Although much work still remains, thegovernment is showing signs of restruc-turing the private sectors, most notably bytraining and educating individuals inpromising industries like technologydevelopment.

By Professor Se Don ShinDean, Sookmyung Women’s University

Former Senior Economist,Bank of Korea

seshin@sm.ac.kr

The role of the government becomes increasingly importantas it must resolve challenges facing the country’s middle class

MiddleClass

WorkingClass

UpperClass

10 l November 2016

The Saemangeum project is undergoingdevelopment in Seohaean, the west coastof South Korea with an aim to create 291㎢ of land and 118 ㎢ of water, coveringa total area of 409 ㎢ (two-thirds the sizeof Seoul).

Initially established in 1991 as a foodproduction base, Saemangeum hasrevised and improved its master planaccording to social development, and nowincorporates multiple functions includingindustry research, tourism and leisure andinternational cooperation. By combining thestrengths of new industries, Saemangeumis expected to become an ideal ecosystemfor a creative economy.

As a special economic zone run directlyby the government, Saemangeum'sadvantages include tailored support forbusinesses as well as strategic location,and efficient transportation infrastructureconnecting port, airport, railway, andexpressway. The region is located in theheart of the West Coast tourism belt andindustrial belt, so Saemangeum is easilyaccessible from any corner of the country.

Global companies like Japan-basedadvanced materials company TorayIndustries and the Belgian chemical com-pany Solvay S.A., as well as domesticcompanies like OCI and its subsidiaryOCISE have agreed to invest and moveinto Saemangeum and some of theirplants are already up and running

Saemangeum is also in the middle ofpursuing the "Korea-China EconomicCooperation Complex (SECC)", whichwas appointed in July 2014 as part of thenational policy agenda. At the forefrontof the development of the SECC is theestablishment of the Korea-ChinaIndustrial Cooperation Complex (SICC),which was designated in October 2015 asKorea-China's only official joint econom-ic pilot project.

The Korean and Chinese governmentsdesignated the SICC as an industrialcomplex to promote the two countries'industries in accordance with the bilateral

free trade agreement (FTA) to providevarious policy benefits and to maximizethe FTA effect. In addition to Saemangeum,Yantai City, Yancheng City and Huizhouhave also been appointed as industrialcooperation complexes in China. To bespecific, there will be three China-KoreaIndustrial Cooperation Complexes inChina, and one Korea-China IndustrialCooperation Complex in Korea; and thatis what makes Saemangeum even moreunique and special because SICC is theonly state-level cooperation complex situ-ated in Korea.

The SICC is expected to increase bilat-eral industrial cooperation and invest-ment, enhance cooperation through theconvergence of advantageous industriesand develop a strong foundation for freetrade and investment by utilizing theKorea-China FTA.

Saemangeum Development and In-vestment Agency (SDIA) has two majorroles which are development and invest-ment promotion. Saemangeum is still anongoing project and we are working onmajor infrastructure systems, but at thesame time, we are promoting investmentespecially focusing on already reclaimedSaemangeum Industrial Complex Lot 1and 2, which are available for immediatedevelopment.

With bilateral cooperation model grad-ually taking its shape, Chinese companies

have been showing a growing interest inSaemangeum—ChengDuSilverplowCold-Chain Warehouse & LogisticsPublic Limited Company signed aninvestment MOU last December whileBGX Group Co. Ltd. followed suit inJune.

SDIA works hard to promote Saeman-geum worldwide so that it becomes anattractive investment destination, and aspart of our efforts, we hold investmentseminars on Korea-China IndustrialCooperation Complex both at home andabroad, promote foreign investment ben-efits and cooperation for both sides andexchange information with Yancheng,Yantai and Huizhou industrial coopera-tion complexes, among other things.

The government has currently pushedforward its deregulation initiative to makeSaemangeum a "global economic cooper-ation complex." If SICC project succeeds,Saemangeum will surely become a strate-gic base to the global market for manyChinese companies who can benefit fromKorea-China FTA, and a gateway toChina for global companies who are keento advance into a massive Chinese marketwith its 1.3 billion population.

By Lee Byoung-gook, SaemangeumDevelopment and Investment Agency

(SDIA) Administrator

Zone

The Economic Hub ofNortheast Asia, Saemangeum

As a premier destination for foreign investment, Saemangeum is the center of global trade

November 2016 l 11

October 20161,140.2

20101,156.3

20111,108.1

20121,126.9

20131,095.0

20141,053.2

KRW-USDForeign Exchange Rate

GDPNominal (USD million)

PPP (USD million)GDP Growth Rate

(Y-o-Y) (%)

2015105,870.7

Jan.-Aug. 201664,055.5

201118,655.8

201250,835.0

201381,148.2

201484,373.0

Balance of Current Account

(Unit: USD million)

(Unit: USD)

Source: The Bank of Korea, October 2016

(Unit: USD million)

(Unit: KRW)

Foreign TradeExportsImports

Trade Balance

201427,98935,436

201527,222 36,612

201627,632.8 37,948

201325,998 33,824

GDP Per CapitaNominal

PPP

2015526,757 436,49990,258

Jan.-Sept. 2016363,126295,29367,832

2011555,214524,41330,801

2012547,870519,58428,285

2013559,632515,58644,047

2014572,665525,51547,150

20141,410,0001,685,033

3.3

20151,377,5001,748,777

2.6

20111,202,7001,559,447

3.7

20121,222,4001,611,273

2.3

20131,305,4001,640,377

2.9

Economic Indicators

Source: The Bank of Korea, October 2016

Source: The Bank of Korea, October 2016

Source: International Monetary Fund, October 2016

Source: Korea International Trade Association, October 2016

Jaewoo Housing Tech produces and supplies high-quality cases, housings andother mechanical parts for advanced bearing performance. Through constantresearch in the field of bearing housing, the company produces revolutionary prod-ucts every year, including bearing cases, plummer blocks, tension control machinesand other specialized bearing houses. It is also closely involved in all stages of themanufacturing process, from design production to aftercare customer service.

With its own research and development center, Jaewoo Housing Tech is makingsure that their customer needs and demands are reflected in each one of their prod-ucts. Its production department is comprised of highly-skilled technicians who guar-antee reliable products. It also boasts a world-class quality management system tomake sure that their bearing houses are up to par with strict ISO standards.

Introducing Korea’s SMEs

Address: 410-7, Jinmok-ri,Naechon-myeon, Pocheon-si,Gyeonggi-do, Korea

Tel : +82-31-534-0500Fax : +82-31-534-0503

E-mail : Jaewookorea@jaewooht.com

Jaewoo Housing Tech

Contact Info:

Each month, Invest KOREA Express introduces one Korean SME thatseeks to expand its network with foreign investors looking to do busi-ness in the country. In the November issue, we take a look at one ofKorea's most promising manufacturing companies.

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