Foreign Investors Fleeing Korea

A considerable number of multinational companies have withdrawn their investments out of South Korea for the past two years, taking out $8.3 billion since 2005.

The figures are quoted in the report KOTRA submitted yesterday to the congressional Committee on Commerce, Industry and Energy. The report shows that foreign investors took out $3.3 billion from Korea in 2005 and $5 billion in 2006. An aggregate total of $8.34 billion was withdrawn from Korea for the period.

Foreign investors took out an annual average of $1.1 billion for a four-year period 2001 to 2004.

According to KOTRA, the increase is attributed to investors who lost their competitive edge or who locked in the profits to secure their initial investments.

Last year, for example, the giant French retailer Carrefour sold its assets in Korea and took out $1.57 billion, and Wal-Mart fled Korea with its $870 million. Likewise, Lone Star cashed in on its shares of Korea Exchange Bank, and wired $710 million out of Korea.

A July 2007 KOTRA survey of 40 multinational companies that closed their businesses in Korea shows that they disposed of their assets in Korea in order to lock in profits, to avoid further losses, and to cope with changed business environments.

But one world-leading company literally fled Korea due to Korea’s hostile labor unions and investor-unfriendly environment. Furthermore, other foreign companies complained of the unreasonable tax codes and lack of incentives for foreign investors.

Interpreting the figures and the feedback, KOTRA tried to downplay the implications, saying, “Only a few firms closed their businesses in Korea. The majority still maintains some form of business connections here. We don’t see much impact.” The state-run organization, however, concedes that Korea’s labor unions and the investor-unfriendly environment need further improvement.

parky@donga.com