May 02, 2024

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[THE INVESTOR] For even the most cynical Korean who has grown more or less used to corruption and irregularities, the latest presidential scandal was a deal-breaker. And to the foreign business community, the country now has an unprecedented credibility issue.

“Korea has a serious credibility issue now,” said one member of the monthly Korea Business Forum, organized by the Korea Associates Business Consultancy, on Feb.16.

“Revelations about how the chaebol do business and how the Park Geun-hye government was being run, I think this generally leaves a sick feeling among the business executives on how they view doing business in Korea.” 

On top of this, now, whenever a Korean affiliate of a multinational experiences some kind of regulatory hiccup here -- be is a tax audit, customs audit, a  Fair Trade Commission investigation or an unpredicted change in regulation – it is likely to be viewed through a slightly different lens, he added.

Some argued that the chaebol problems and their close relations with the government are nothing new, and that they should have been factored in as variables by the foreign business community.

But they failed to change the minds of many of the executives at the forum who thought that in a myriad of ways, Korea was increasingly becoming less attractive as an investment destination. Head offices, according to the foreign business people, are asking questions as to whether Korea is indeed going down.

“What’s not surprising is that the world has lost confidence in Korea,” said another executive.

Tony Michell, managing director of Korea Associates Business Consultancy, noted that resistance to change is still strong in Korea, and that it is mixed with overtones of cultural resistance and hierarchy. He also said Samsung’s fate could significantly impact the Korean economy, as well as its international reputation.

In 2016, new foreign direct investment pledges rose 1.9 percent to a new record high of US$21.3 billion. However, the actual amount of investment that arrived fell 40.9 percent on-year to US$15 billion to US$9.76 billion.

The figures also highlighted that as suspected, Donald Trump being US president is unlikely to be helpful for Korea looking forward. Pledged foreign direct investment from the US grew from 2011 to 2015, but fell last year to US$5.2 billion from US$8.4 billion in 2015.

On a positive note, investment from the EU and Asia – particularly Singapore – is on the rise.

Meanwhile, some of the foreign executives remained persistently upbeat on Korea, saying that while there are many areas that could see improvement, namely labor laws, and corporate and government transparency, they do not see any real long-term impact from changing business conditions just yet.

Founded in 1989, KABC is a business consultancy providing consulting and market research for companies and organizations operating in Korea. In addition, the KABC analyzes and proposes action to deal with the many difficulties these firms may have. Clients include Fortune 500 companies, governments, non-profit and specialist companies.

By Kim Ji-hyun/Senior Editor (jemmie@heraldcorp.com)