Economy

Restructuring to Cause Over 500,000 Layoffs
B etween 500,000 and 600,000 employees will be subject to layoff should the major corporations press ahead with their programs for corporate restructuring and slim down to core business areas. The drive to rationalize and restructure will involve the corporates implementing significant layoffs. Up to now, they have been cautious about down-sizing due to pressure from the unions and the government.
The Korean Employers Federation said the 500,000 to 600,000 layoffs would be made from companies with more than 300 employees, and would represent about one-third of the total workforce of these enterprises. The KEF added that these layoffs would occur if these companies keep to their corporate realignment program and if the current economic downturn persists. The figures are based on the fact that the companies planning to restructure have classified 20 to 30 percent of their employees as redundant.
As most enterprises are planning to restructure through sell-offs of marginal subsidiaries and through mergers and acquisitions, it has become inevitable for them to resort to massive layoffs.

Economy to Grow 2.9 Pct Next Yr
T he Korean economy is expected to register a 2.9 percent growth next year, after recording a contraction of one percent this year. The Asia Foundation and the Pacific Basin Economic Council (PBEC) also forecast Korea's inflation rate will increase to 8.7 percent this year and retreat to the 4.5 percent level next year, the same experienced in 1997. The forecast has drawn significant attention since it indicates the nation will be able to ride out the current economic difficulties during the so-called IMF era and maintain stable economic growth from next year.

Investment

Foreign Investors in SOC Projects to Get Incentives
F oreign investors in social infrastructure projects will be guaranteed ownership for a given period and a profit ratio to international standards, under a proposed revision to the law concerning the promotion of active private investment. The Planning and Budget Commission (PBC) formed a task force on the inducement of private investment in public projects and will draw up a revised draft of the law in July after a public hearing session. The PBC also included five new projects in the list of current 40 public projects which will be carried out with private investment. The five new projects include the traffic center at Inchon International Airport now under construction on Yonjong Islet, the first-stage of the port development in Masan, an international exhibition center in Koyang, Kyonggi-do, a six-lane 15-kilometer highway between Inchon and the Shihwa Industrial Complex, and a 1.8-kilometer bridge across the Han River in Ilsan, north of Seoul.
To attract more foreign investors, the government will diversify its system of operation on completion of social infrastructure projects from BTO (build, transfer and operate) and BOO (build, own and operate) to BOT (build, own and transfer), BLT (build, lease and transfer) and ROT(rehabilitate, operate and transfer). The government will guarantee investors a profit ratio at the international level of 18 to 20 percent, up from the current average of 13 percent, and provide a variety of tax incentives, financing and treasury support.

Foreign Ind. Park Due in Daebul Complex
A n industrial park exclusively for foreign enterprises will be set up in the Daebul Industrial Complex in Youngam, Cholla-namdo. The Ministry of Commerce, Industry and Energy has decided on the move in response to requests from foreign firms. There are now two foreign industrial parks in Chonan, Chungchong-namdo, and Kwangju. The designation of the exclusive foreign industrial area is the first such case made at the request of foreign enterprises. The ministry said locating foreign firms such as Bowater and 3M of the United States have called upon the administration to designate their factory sites within the complex as part of an exclusive foreign park. The ministry, having determined to designate some one million square-meters of land to that purpose, has begun consultations with the Ministry of Finance and Economy, Ministry of Construction and Transportation and the Cholla-namdo provincial government.
In the process of establishing the foreign industrial park, it will be necessary to purchase land from the Korea Land Corporation. The ministry, to this end, plans to earmark four billion won in next year's budget. Companies choosing to locate in the industrial park are eligible for incentives, particularly in the form of land costs. For instance, local and central governments are set to extend financial assistance on land leasing and offer land for sale at half the going purchase price. In addition, all administrative regulations will be abolished for the companies in the park and significant tax and financial advantages will be provided.

Foreign Investment Recovering Since Feb.
F oreign direct investment, which plunged in the wake of the financial crisis, has been increasing gradually since February but the figures still fall far short of those recorded a year earlier. According to the Ministry of Finance and Economy, foreign direct investment in March was tallied at $243 million in 135 projects, up from $199 million in 87 projects in February. In February, foreign direct investment was worth $199 million, up 53.1 percent from January.
The figures for foreign investment in February and March were in acute contrast with January, when foreign investment nose-dived amid the widespread unease after Korea turned to the International Monetary Fund for an emergency assistance. In January, foreign direct investment remained at $130 million, down 87.5 percent from December. The MOFE ascribed the improvements in foreign direct investment to stabilization of the nation's financial markets and the government's full-scale efforts to court foreign investment. Of the foreign investment projects reported during the first three months of the year, 16 were worth more than $10 million. Of the 16 projects, 11 were in the form of mergers and acquisitions, indicating that foreign investors are opting to enter the local market through buy-ins of existing local companies.

Facility Investment to Fall 30 Pct This Year
T he nation's industrial production capacity is expected to decline sharply this year as corporations plan to reduce their facility investment by about 30 percent in the wake of the financial and economic turmoil. Korean companies set aside a combined total of 36.23 trillion won for facility investment in 1998, a 30.6 percent fall from the previous year, the Korea Development Bank (KDB) reported April 19 in a survey of 2,321 firms. The decrease is the largest since the KDB began conducting the survey in 1973. The state-run KDB said that facility investments made by all private companies dropped 6.9 percent to 52.23 trillion won last year, a setback compared with an average 30.1 percent rise for the three years from 1994.

Foreign Interest in Investing in Korea Returns
E ncouraged by the new government's efforts to induce foreign investment, it was reported that foreign companies are finding Korea an increasingly attractive target for investment. According to a statement by the Korean Trade-Investment Promotion Agency (KOTRA) April 15, the number of investment-related inquiries received through the agency's overseas trade centers up to March reached a total of 140 cases, out of which 58.6 percent (82 cases) were received after February 25 which is when the new government was inaugurated. Due analysis indicated 97 cases (68.3 percent of the total number of inquiries) will be qualified, serious investment prospects once investment conditions are deemed satisfactory. Among the prospects, those interested in joint-ventures accounted for 51 cases (36.6 percent), mergers and acquisitions (M&As) 24 cases, and individual investment, 22 cases.

ROK Better Than SE Asia for M&As.
K orea's business climate is far more conducive to foreign mergers and acquisitions than that in Southeast Asia, according to a visiting financial expert. "It is apparent that Korea, on most comparisons, emerges favorably over most or all of the Southeast Asian economies [in this regard]," said Peter Feltis, formerly deputy general manager of ING Barings' Corporate Finance team in Seoul, currently serving as an M&A expert at the Banque National de Paris.
In terms of infrastructure and economic sophistication, Korea remains one of the most technologically advanced countries in the Asia-Pacific, Feltis asserted in a cover story of the May/June edition of the Journal of the American Chamber of Commerce in Korea. "Korea's workforce is highly-trained and capable of providing a full range of skills from information technology to heavy industry, its industries are generally more sophisticated and the potential for recovery is far greater than in its Southeast Asian neighbors," he said.
Furthermore, the nation's historically low asset prices and currency values, its now more flexible labor market and large domestic market, combined with its relatively high per capita income are the country's prime observable positive investment factors, he noted.

Motorola to Invest $300 Mil. in Korea's Telecom Ind.
M otorola Inc., a world leader in telecommunications and advanced electronics, on May 13 announced that it will invest $300 million in the Korean telecommunications field over the next three years. Half of the total investment will be made in Motorola's continuing operations in the country, including its semiconductor manufacturing facility and software center in Paju north of Seoul and its communications product development operations in Seoul, said Richard Younts, president of Motorola's Asia-Pacific operations.
The remaining half is earmarked for new partnerships with local companies in areas of mutual interest in the telecommunications market, Mr. Younts said. Motorola has recently added to its highly successful semiconductor operations in Korea through two initiatives: the creation of a cellular products design center, utilizing largely local resources to both develop and adapt telecommunications products for the Korean market; and a software design center to serve both specific Korean market needs and contribute to Motorola's worldwide software development capability. Motorola's cumulative exports and employment in Korea from 1967 to 1997 amount to $4.1 billion and 100,000 persons, respectively. The Motorola Korea Group currently employs about 1,900 people at its Paju and Seoul facilities.

Ford Seeking 51 Pct. Stake in Kia Motors
F ord Motor Co. of the United States is seeking a 51 percent stake in ailing Kia Motors Corp. in order to separate management from ownership and institute a western style of operation. Sources in government and the Kia Group said Ford vice chairman Wayne Booker revealed his intention to form a consortium to buy a 51 percent stake in the company in talks with Kia Motors here during his recent visit. If Ford acquires a majority stake, Kia will actually become a subsidiary of Ford. Ford, though, is determined to hand over its management to local experts, while using the Kia brand name for vehicles manufactured at the Kia plant, the sources said.

Policy

Foreign Stock Ownership Limit to Be Fully Scrapped June
T he foreign stock ownership limit was fully lifted as of 25 May. The Financial Supervisory Commission (FSC) has scrapped the 55 percent ceiling on foreign stock ownership in order to liberalize the capital market as well as attract badly-needed foreign capital. The foreign ownership limit increased from 26 percent to 50 percent in December last year and 55 percent later, as the full impact of the financial crisis began to hit home. The FSC said it will expand the current foreign ownership limit of 25 percent on shares of state-run companies including Pohang Iron and Steel Co. (POSCO) and Korea Electric Power Corp. to 30 percent. With the abolition of the ceiling, foreign investors are able to purchase 100 percent of the listed stock of all companies listed on the Korea Stock Exchange with the exception of state enterprises.


Trade & Markets

Conditional Approval Given to P&G Takeover of Ssangyong
The Fair Trade Commission approved the takeover of Ssangyong Paper Co. by Proctor & Gamble (P&G) April 29, but ordered the American company to sell Ssangyong's production facilities for sanitary pads and related patents and trademarks to a third company. The ruling arises out of fears that P&G's increased market share in sanitary pads after the takeover might further augment the company's already-dominant market position, the FTC said, adding that if it had been a Korean company, the same ruling would have been made.
In 1996, P&G's market share in sanitary pads reached 47.3 percent and if Ssanggyong Paper's market share of 16.5 percent is added, the combined market share would total 63.8 percent, nearly three times Yuhan Kimberly's 21.8 percent.


Business

Samsung Electronics Produces World's 1st 256M DRAM Chip
S amsung Electronics has begun producing the world's first 256M DRAM (megabit dynamic random access memory) chips, creating a new order in the global memory chip market, company officials said April 28. Samples of the second-generation 256M units are being produced for leading computer companies, including IBM, Hewlett Packard and Sun Microsystems.
The production of the advanced memory devices has been achieved some two to three years earlier than expected and should have a huge impact on the global semiconductor market, including microprocessors. The Samsung officials said the production of the 256M chips is unique in that they are being produced on existing manufacturing lines for 64M units on eight-inch wafers instead of 12-inch wafers.



55 Firms Picked Out for Liquidation

The Financial Supervisory Commission (FSC) announced June 18 a list of 55 nonviable firms affiliated with the nation's 64 largest conglomerates, a declaration that promises to usher in a period of drastic corporate restructuring. The list includes 20 troubled units of the five biggest conglomerates or chaebol: Hyundai, Samsung, Daewoo, LG and SK.
Those nonviable companies will be subject to liquidation as creditor banks are scheduled to stop extending new loans to them. The list was made public in a press conference at the office of the Financial Supervisory Commission jointly by FSC chairman Lee Hun-jai, and the president of the Commercial Bank of Korea (CBK), which is representing all 26 commercial banks on this matter. "We decided to liquidate the 55 troubled units in our desperate efforts to speed up corporate restructuring," said Mr. Lee Hun-jai.
He said the liquidation of the firms would be the first step toward achieving successful structural reforms and overcoming the current financial and economic difficulties. Lee promised to press ahead with further corporate restructuring, especially of the top five chaebol, admitting that liquidation of only those companies on the list is not enough to bring about the full implementation of much-needed economic reforms.


Foreign Investment Promotion Act to Feature Wide-ranging Incentives

The government officially rolled out the welcome mat for foreign investors June 11 by announcing a draft of the Foreign Investment Promotion Act, which contained a welter of incentives. To encourage international companies to set up shop in the country's foreign investment zones, a variety of incentives including tax benefits and electricity rate cuts will be introduced. The Ministry of Finance and Economy said the period during which national tax cuts will be offered to foreign firms investing in the high-tech sector will be extended from the present eight years to 10 years.
The draft also called for extending the maximum land-leasing period for foreigners to 50 years from the current limit of 20 years, with an option to renew for a further 50 years. The period of eligibility for corporation and income tax cuts in dividends for foreign investors will also be lengthened to 10 years from the current seven years.
In order to simplify investment approval procedures, the number of documents needed to win approval will be reduced from 83 to 37. The current application system for approvals related to the establishment of new businesses will be replaced by an automatic approval system. Under the plan, applications for business approvals will be grouped, and if the administrative approval process takes longer than a specified period (varying from seven to 90 days), the application will be considered to be approved automatically.
In addition, the state-run Korea Trade-Investment Promotion Agency (KOTRA) will take full charge of servicing potential foreign investors, providing a full range of one-stop services from assistance with initial investment applications to facilitating the completion of various time-consuming procedures which need to be undertaken after approval is obtained. "The new law is aimed at streamlining foreign investment procedures, improving the investment incentive system, and establishing a one-stop service structure," said Lee Sang-yong, Director-General of the Economic Cooperation Bureau at the MOFE.
Once the draft is approved by the National Assembly, it will take effect in August. Once the new law is enacted, the existing Foreign Investment and Foreign Capital Inducement Act will be repealed. As Korea has begun to shore up an economy recently on the brink of collapse as the result of foreign exchange woes, the promotion of foreign investment, together with exports, has emerged as one of the main pillars of the government's recovery program.