South Korea Business Handbook 2017 · Concerns about rapidly rising household debt suggest fiscal policy may now be better placed to take some of the burden. The planned budget consolidation

Suhayl AbidiResearch Advisor & Editor

Foreign Trade UpdateGOG-AMA Centre of International Trade

Handbook - 10/2017

GoG-AMA Centre for International Trade

South Korea Business Handbook 20172nd Edition

GoG-AMA Centre for International Trade

South Korea Business Handbook 2017Second Edition

Compiled bySuhayl Abidi

For any queries, please contact: [email protected]

First Published: May 2014Second Edition: June 2017

Published byGoG-AMA Centre for International TradeAhmedabad Management AssociationTorrent-AMA Management CentreCore-AMA Management HouseATIRA Campus, Dr. Vikram Sarabhai Marg, Ahmedabad 380 015Phone: +91-79-2630 8601 • Fax: +91-79-2630 5692Email: [email protected] • Website: www.amaindia.org

Contents

Highlights 1

Introduction 1

Economic Highlights and Forecast 2

Key Laws and Policies for Investment 6

A Magnet for Investment 9

Focus Sectors for Investment 11

International Trade 24

Services Industries 30

Investment Barriers, Risks and Challenges 34

South Korea’s Status in Global Economic Rankings 36

Indo-South Korea Economic Relations 38

South KoreaBusiness Handbook 2017 Introduction 1

Highlights

• 4th Easiest Place to Do Business (7th in 2014)• Ranked 1st on the Bloomberg Global Innovation Index 2015 for three years

in a row• Ranked first in the International Telecommunication Union’s annual ICT

Development Index for 2015

AutomotiveWorld’s 5th

Introduction

One of Asia’s most powerful economies, South Korea is manoeuvring deftly betweeneven more powerful neighbours and allies. China and South Korea agreed on thebasic outline of a free-trade agreement (FTA) during the Asia-Pacific EconomicCooperation meeting in Beijing in mid-November 2014. The signing was only thelatest signal by Seoul that its centre of gravity is shifting toward its huge Asianneighbour and ever-so-slightly away from the US, its long-time military and economically.

High-tech BusinessWorld’s 2nd

FinanceWorld’s 7th (Seol)

ShipbuildingWorld’s Top

PatentWorld’s 2nd

R&DWorld’s Top

EducationWorld’s TopLogistics

World’s 3rd Cultural Contents

ICTWorld’s Top

South KoreaBusiness Handbook 2017

South Korea’s trade with China in 2013 was $230 billion, more than double its tradewith the US. Now with the FTA expected to come into effect this year, the benefit toSouth Korea’s economy stands to be greater than the boost received as a result ofthe US-Korea pact. The US and South Korea inked their own trade agreement threeyears ago, and trade has grown significantly between the two partners.

The country’s political and economic stability has been a boon for its companies,but it has also pushed a stronger won against the US dollar.

Economic Highlights and Forecast

Economic growth continued at a moderate pace in 2016, supported by asupplementary budget and record low interest rates. Growth is projected to edgeup from 2.75% in 2016-17 to 3% in 2018. Inflation is projected to converge to thecentral bank’s 2% target by 2018, and the current account surplus to remain large at6.5% of GDP.

The Bank of Korea reduced its policy rate to an all-time low of 1.25% in mid-2016.Concerns about rapidly rising household debt suggest fiscal policy may now bebetter placed to take some of the burden. The planned budget consolidation in2017 will restrain growth. Instead, to support growth, government spending shouldbe increased beyond the levels set in the National Fiscal Management Plan. Inaddition, structural reforms are needed to boost productivity and labour participationas the working-age population begins to decline.

Korea’s persistent government surpluses and low public debt (around 45% of GDP)provide ample scope to increase spending in the near term, focusing on measuresthat would support its growth potential and social inclusion. The fiscal frameworkshould be improved to provide more scope for short-term flexibility while maintaininga sound fiscal position, as Korea faces the most rapid population ageing in theOECD and the cost of possible rapprochement with North Korea.

Gross domestic product (GDP) growth is expected at 2.7% for 2016 and 2.9% in2017. Thereafter, GDP growth is expected at approximately 3% over the mediumterm. While the export and manufacturing sectors will likely experience a slowdownin 2016, this has the potential to be mitigated by an uptick in domestic demand.



South Korea’s Long-term GDP growth forecast

2016-2020 2.72021-2025 2.32026-2030 2.0

Domestic Economy and Challenges

• Conglomerates (Chaebols) Dominate Economy• Export Dependent Economy/ 47% of GDP• Export Engines Declining: Shipbuilding, Steel• Autos, IT/Electronics moving offshore• Some Manufacturing costs higher than US• Domestic demand slow: household debt, stagnant service sector• productivity and struggling SMEs• Low Productivity: 55% of OECD leaders• Demographic Cliff: Aging society/low birth rate

Where Will New Growth Come From?

Korea is looking to pivot their economy in new directions and find next generatorsof growth as heavy industries decline

• Drive for New Engines of Economic Growth - Healthcare; ICT-IoT, AdvanceMaterials, ET/Green Innovation

• Increase investment in R&D to upgrade technological capabilities• Highest percentage of GDP going into R&D: 4.29% in 2016• Korea is a great place to license technology, growth of 40%.• Korea is a global leader in electronics, focusing more on R&D• Seeks opportunities to acquire, partner with or license technology

Role of Chaebols (Conglomerates) in S. Korea’s Economy

Chaebol are generally conglomerates of affiliated companies. LG, for example, makessmartphones, televisions, electronic components, chemicals and fertilizer. It alsoowns Korean baseball and basketball teams. Hyundai, which makes the Hyundaiand Kia cars also makes elevators, provides logistics services, and runs hotels anddepartment stores.

How Did Chaebol Come to Power?

They rose from the ashes of the Korean War. After the conflict ended, officials steeredrelief funds and cheap loans to businessmen who promised to rebuild the country.The government also protected home-grown industries from foreign competitionto help them develop. The recipe proved to be potent: Chaebol played a major rolein South Korea’s rise as an industrial giant in the following decades.



But the recipe also created imbalances, a number of economists have argued. Moneymeant for the common people often ended up in the hands of the wealthy families,creating resentment that lingers to this day. And government protection andcrackdowns on the labour movement allowed these families to expand their businessempires into new areas with little to fear from potential foreign competition orcostly failures.

Rank Enterprise Groups # of Companies1 Samsung 672 Hyundai Motors 513 SK 824 LG 635 Lotte 806 GS 797 Hyundai Heavy Industry 278 Hanjin 469 Hanhwa 5210 Doosan 22

Family controlled conglomerates’ (chaebols) importance in South Korea’s economyhas grown rapidly after the global financial crisis. Sales revenue generated by thetop five chaebols in South Korea was equivalent to 58% of the country’s grossdomestic product (GDP) in 2015, increasing from 37% in 2008 and 45% in 2009.The country has become a key manufacturer in both heavy industry and hightechnology sectors in the world thanks to chaebols’ business success. In 2015, 17Korean companies, from 11 in 2005, were listed as Fortune 500 companies interms of total sales revenue. Nine are in electronics, machinery, automobile andelectric power. Oil and services have four companies each.

Long-term Economic Prospects

Business investment faces a number of challenges. The recall of the Samsung Note7 smartphone, which has hurt exports and shaken business confidence, is but oneof several challenges for the South Korean business sector. Another major one isthe bankruptcy of Hanjin Shipping, one of the country’s largest container shippingcompanies. This is causing a big negative spillover impact on global trade. It isestimated that ships belonging to Hanjin, which are sitting idle, now contain about$14 billion in merchandise that is not getting delivered. The problems of Hanjin andother top global container shippers, which reflect global excess capacity, are creatinga significant challenge for shipbuilders, including those of South Korea. Thus therestructuring currently taking place in the shipbuilding industry could hamper overallbusiness investment in the near future.



Observers of South Korea are worried about a variety of factors that could underminegrowth and stability in the coming year. These include high household debt,competitive pressures from China and Japan, protectionism in the United States, apotential tightening of US monetary policy, instability in North Korea, and politicalparalysis in South Korea due to the current scandal. Indeed, South Korea’s need forhelp from the International Monetary Fund in 1997 is on the minds of some analysts.Yet there are substantial differences between now and then. On the positive sidefor the economy, the South Korean government runs a large budget surplus andhas minimal overall debt. This gives the government wiggle room to assist theeconomy through fiscal stimulus in the event of economic deceleration. In addition,the country has a large external surplus. This gives the country plenty of room tostimulate domestic demand without being concerned about rising external debt.Plus, the central bank’s reserves are substantial, at more than $375 billion. Thismeans that the country is well positioned to withstand any kind of external shock.That was not the case in 1997. Interestingly, South Korea has a better sovereigncredit rating than neighbouring Japan. This reflects the fact that, unlike Japan, SouthKorea’s debt level is not regarded as excessive.

Perhaps the biggest long-term challenge facing South Korea’s economy is thenecessity to restructure multiple industries that have come under intense pressure.These include shipbuilding, steel, and petrochemicals. All of these industries faceexcess capacity and intense foreign competition. The government is now providingsubstantial financial support to the shipbuilding industry and providing tax cuts andother forms of support to other industries. It is helping them manage the process ofcutting excess capacity. The government’s finance minister said, “The governmentdoesn’t plan to delay corporate restructuring that is needed right now and will focuson proceeding with turnaround plans to help companies become more competitivein the global market.” The competitiveness of Korean industry is a major concern. Ina recent survey by the Korean International Trade Association (KITA), only about athird of corporate respondents said that their products have a competitive advantagein the marketplace. The rest said that their products either have no advantage or areat a disadvantage competitively. Given that exports account for roughly half of GDP,this constitutes a significant problem. On the other hand, the perception of inadequatecompetitiveness might compel companies to invest more in innovation. Asia PacificEconomic Outlook, Q1 2017, Deloitte University Press

South Korea’s Credit Rating

Moody’s Aa2 StableS&P AA+ StableFitch AA- Stable



South Korea’s sovereign credit rating outlook is stable following a rating upgrade byStandard & Poor’s (S&P) in August 2016. The country’s long-term foreign currencyratings are: S&P: “AA”, Fitch: “AA-”, and Moody’s: “Aa2”. According to S&P, SouthKorea’s sound public finances, net external creditor position, and favourable policyenvironment support the nation’s rating. Shifts in global risk appetite and perceptionsof geopolitical risks are reflected in South Korea’s 5-year credit default swaps; theyhave climbed to 55 basis points (bps) from below 40 bps recorded in September2016.

For decades, South Korea’s economy and financial markets have shrugged off NorthKorea’s periodic saber-rattling. But as Washington and Pyongyang persistently beltout aggressive rhetoric, the increased probability of conflict will be credit negativefor Seoul, according to Moody’s Investors Service.

Asia’s fourth-largest economy currently has an ‘AA2’ rating under Moody’s but thatassessment could change if escalating politics result in an economic impact that thegovernment can’t respond to, said Marie Diron, associate managing director at theagency’s sovereign risk group.

In a recent report, Moody’s outlined how the threat of conflict could prompt Seoulto ramp up defence spending — a move that could dent the government’s fiscalstrength.

Slower growth in investment and consumption as a result of heightened pressurewould constrain growth and potentially prompt fiscal stimulus, but lower spendingby businesses and households may blunt the effectiveness of such governmentpolicies, Moody’s warned.

Even in the absence of military conflict, the perceived risk of confrontation amonginvestors and consumers could be damaging. “Intensifying tensions could markedlyand durably dent Korea’s attractiveness as a place to invest and hire,” the Moody’sreport said.

Key Laws and Policies for Investment

Foreign Investment Promotion Act (Republic of Korea)

The Korean government’s attitude toward FDI is positive, and senior policy makersrealize the value of FDI. Following the 2008-09 global financial crisis, inbound FDIcontinued to trend upwards from US$ 5.4 billion in 2010 to US$ 15.9 billion in



2015. Foreign investment in South Korea is still at times hindered by insufficientregulatory transparency, including inconsistent and sudden changes in interpretationof regulations, as well as underdeveloped corporate governance, high labour costs,an inflexible labour system, and significant economic domination by largeconglomerates, or chaebol.

KOTRA-National Investment Promotion Agency

Invest KOREA (IK) was established as the national investment promotion agency ofKorea to support the advancement of foreign companies into the country. IK providesforeign investors with a free, one-stop consulting service encompassing initialinvestment counselling, the determination of business sites, establishment ofcompanies, investment reporting and investment benefits application.

FOREIGN DIRECT INVESTMENT (FDI)

According to the UNCTAD 2016 World Investment Report, FDI flows into South Koreahave been more or less constant in recent years—averaging around US$ 10 billion—but they are declining due to external shocks, including the unfavourable internationaleconomic context. After having reached a record level in 2013 (US$ 12.7 billion), in2015 they fell by 46% compared to 2014 (due to Tesco withdrawing investment),reaching US$ 5 billion.

South Korea’s appeal in terms of foreign direct investment (FDI) is the result of thecountry’s rapid economic development and the specialisation in new informationand communication technologies. However, the lack of general transparency inregulations is a major concern to foreign investors.

Foreign Direct Investment

2013 2014 2015

FDI Inward Flow (US$ million) 12,767 9,274 5,042

FDI Stock (US$ million) 180,860 179,205 174,573

Number of Greenfield Investments*** 149 140 109

FDI Inwards (in % of GFCF****) 3.3 2.3 1.4

FDI Stock (in % of GDP) 13.9 12.7 12.7

Source: UNCTAD, 2015



FDI Stocks by Country and Inflows by Industry in 2015

Main Investing Countries % Main Invested Sectors %Japan 26.0 Manufacturing 38.0USA 19.0 Trade and Maintenance 19.0Netherlands 9.0 Hotels and Catering 15.0UK 8.0 Information and Communication 14.0Singapore 5.0 Transport and Storage 12.0Germany 4.0Malta 4.0China 3.0Hong Kong 3.0France 3.0

Source: OECD Statistics – Latest available data

WHY YOU SHOULD CHOOSE TO INVEST IN SOUTH KOREA

Strong Points

• Highly skilled workforce.• Advanced R&D capabilities.• High quality infrastructure.• Brand savvy consumers willing to spend on quality products.• High level of disposable household income.• Strong shipping and air cargo infrastructure makes the country a great hub for

expansion into other markets.

Weak Points

• Regulatory frameworks can be restrictive and opaque.• The cost of manpower is comparatively high.• Frequent contract negotiations throughout a business relationship are common.• Real estate (leased or owned) is expensive.• Unique industry standards.

Government Measures to Motivate or Restrict FDI: Korea has implemented measuresin order to protect and encourage foreign investment, including: identical businessoperations regulations for foreign and domestic companies, external remittanceguarantees and tax deduction provisions. There are some prohibitions on foreigninvestment in specific sectors of public administration, educational organisationsand national defence. For more information, see the Invest Korea website.

Investment Aid

Forms of Aid: Tax abatement, customs exemption, cash grant, location incentivesand other types of aid (renting).



Privileged Domains: Industry support service, high-tech industry business, R&Dservice, manufacturing, tourist service, welfare facilities, etc.

Privileged Geographical Zones: Industrial complex located close to a port or anairport, making it convenient for businesses within to engage in foreign trade,international airport area, distribution complex or cargo terminals, etc.

Each local government is suggesting its own projects of development by givinginvestment incentives like tax reduction ,etc. to foreign investors including Jeju SpecialSelf-Government province, Incheon, Busan-Jinhae, Ulsan, Gwangyagng, etc.

A Magnet for Investment

Creative Economy Innovation Centres

The Korean government has suggested a “creative economy” as the new economicdevelopment paradigm and strives to establish a creative economy ecosystem bybuilding platforms. The government kicked off the project by establishing a “creativeeconomy town” in September 2013, an online platform to commercialize the ideas

Nurturing Start-ups (as of July 22, 2016)

SMEs Innovation

General Support Investment Fund Management

Number of Start-ups1,135

Number of New Jobs1,359

Sales GrowthKRW 160.58

Investment PromotionKRW 222.38

Technology Support974 cases

Marketing Support389 cases

Other Support274 cases

Investment PromotionKRW 61.18

Mentoring-Consulting16,884 cases

Pilot Production11,287 cases

Amount RaisedKRW 754.18

Amount InvestedKRW 203.88



of the public. With the first creative economy innovation centre built in Daegu inSeptember 2014, a total of 18 creative economy innovation centres are now inplace across the nation as of July 2016. Thanks to the centres, which will play apivotal role in supporting start-ups and small- and medium-sized companies (SMEs),Korea is now equipped with on and offline creative economy platforms across thenation. The centres have supported a total of 1,135 start-ups and attracted a total ofKRW 222.3 billion and the incubation centres have helped them create 1,359 newjobs and record about KRW 160.5 billion in sales.

Creative Economy Innovation Centres in Korea

The Korean Wave

The Korean Wave, also known as hallyu, is also known to have created an economiceffect of more than US$ 87.2 billion from product inducement. Fashion, beauty,food, tourism and even technology introduced through Korean cultural contentsare causing a stir worldwide, especially in China. The export volume of Koreancosmetics has been tremendous, even exceeding that of Japan, which was formerlythe top cosmetics exporter in Asia. In 2015, Korean cosmetic brand Amore Pacificscored well over KRW 1.44 trillion in China alone. On this note, several investmentsin the Korean cosmetic industry are underway in various forms, such as quota

Seol City (city life)July 2015

Incheon City (logistics)July 2015

South Chungcheong Province (solarphotovoltaic energy) May 2015

Sejong City (smart farm)June 2015

Daejeon City (ICT)October 2014

Gwanglu City (automobiles)January 2015

North Jeolla Province (carbon fibre)November 2014

Jeju Island (IT, tourism)June 2015

Gyeonggi Province (games, fintech)March 2015

Gangwon Province (big data)May 2015

North Chungcheong Province(bio, beauty) February 2015

North Gyeongsang Province(smart factory) December 2014

Daegu City (electronics, textile)September 2014

Ulsan City (ship building)July 2015

Busan City (distribution, movies)March 2015

South Gyeongsang Province(smart machinery) April 2015

South Jeolla Province (agriculturaland fisheries products) June 2015



investment and R&D centre establishment. Meanwhile, tourism has already seen a12% increase in 2016 thanks mostly to the Chinese visitors.

New Investment Opportunities: Korean Wave — Promising Industries

Cosmetics Games Dramas

Food Tour & Leisure Movies Fashion

Korea has global competitiveness in diverse industries. Korean companies are worldleaders in semiconductors, TVs, smartphones, shipbuilding, petro-chemistry,automobiles, LEDs and steel. More than half of the world’s 500 largest companiescompiled by Fortune magazine have already made inroads into the Korean market.

Korea’s Global Market Share by Industry as of 2013

Source: Invest Korea

Focus Sectors for Investment

Korea has partnerships with countless companies worldwide to create global valuechains. Today, 259 of the companies on the Fortune Global 500 are key partners ofKorea, helping Korean companies in every industry expand their market share aroundthe world.

Semi-conductors1st 52.4%

Smartphones1st 37.6%

Shipbuilding1st 35.0%

Automobiles5th 8.8%

Petrochemistry5th 5.4%



IT industry, logistics, nano-industry, new and renewable energy sources, R&D,semiconductor, SOC,

AEROSPACE

A 2010, Ministry of Knowledge Economy (MKE) report “Aerospace Industry PrimaryPlan (2010 – 2019)” outlines a plan to raise Korea’s aerospace production from US$2 billion (2009) to US$ 20 billion by 2020, and raise exports to US$ 10 billion, or 3%of global market share. The industry plan aims to take Korea from 16th place to theworld’s seventh largest aerospace producer. Additionally, the goal is to push Koreanindustry into importing core technologies, develop domestic capabilities to delivera ‘complete aircraft,’ and bring effective R&D investment that will contribute to Korea’saerospace industry.

Based on the plan, Korea will continue to focus on indigenously developing its:

• mid-sized, fixed-wing aircraft and helicopters for the commercial sector;• Korean fighter and attack helicopters for the defence sector;• UAVs;• environmentally-friendly aircraft;• as well as supporting and exporting core components and MRO services.

Drive for Indigenous Development and Exports

While imports are a significant portion of Korea’s high technology and aerospaceproducts, with President Park’s administration stressing the ‘creative economy’, Koreais giving more importance to the development and export of Korean indigenous

Semiconductors (DRAM)

1st67.7%

Display Panels

1st43.5%

Smartphones

1st29.3%

Shipbuilding

1st41%

Automobiles

5th8.8%

Petrochemicals

5th5.4%

Korea’sIndustrial

Competitiveness



technologies. Korea’s recent exports of note include the supersonic trainer jet, theT-50s (16 units, US$0.4 billion) to Indonesia in 2011; the KT-1 trainer jet and KA-1combat jet (20 units, US$0.2 billion) to Peru in 2012; the T-50IQ trainer and combatjet (24 units, US$1.1 billion) to Iraq; the FA-50 light combat jet (12 units, US$0.4billion) to the Philippines in 2014; and the T-50s (4 units, US$0.1 billion) to Thailandin 2015.

2013 2014 2015 2016 (Est.)Total Market Size 5,766 6,408 7,215 7,439Total Local Production 3,606 4,343 4,886 5,729Total Exports 1,652 1,985 2,563 2,937Total Imports 3,812 4,050 4,892 4,647

Source: Korea Aerospace Industries Association (KAI). Unit: US$ Million.

Major Local Players

Korea’s aerospace industry is driven by Korea Aerospace Industries (KAI:www.koreaaero.com/English/main.asp) and Korean Air, one of the largestcommercial airliners in the country. KAI and Korean Air are also leading companieswhich make and assemble parts for Boeing and Airbus. KAI and Korean Air areactive in developing indigenous aircraft including UAVs, rotor-wings, and fixed wings.In 2008, KAI introduced its first non-military private aircraft, ‘Naraon’, making Koreathe 28th nation in the world to build and fly an indigenous plane. In 2015, KAI wonthe tender for the KF-X project, Korea’s next generation fighter jets. The Koreangovernment will invest US$17 billion in the KF-X program until 2025. Korean Air isactive in providing MRO services for both commercial and defense aircraft.

There is a cluster of Korean small- and medium-sized aerospace companies in theGyeongnam area, forming a ‘Korean Aerospace Valley.’ The companies within thisregion focus on supplying parts and components to KAI and KAL and also exporting.The Gyeongnam Export Support Corps for Aero Parts (GESCA: http://gesca.or.kr/)supports these aerospace companies and is actively cooperating with foreignaerospace companies for both imports and exports.

Korea’s aviation MRO market size is estimated to be around US$3 billion in 2014and is expected to grow 23.5%, to be around a US$3.7 billion market by 2020. Thepurchase of parts and components from the original manufacturer/OEMs accountsfor the majority of costs in aviation MRO. For local commercial carriers, foreign MROservice needs mostly arise from the maintenance of equipment that requiresadvanced and core technologies, such as engines.



AUTOMOTIVE

Industry Overview

Categories Total No. of Total No. of New Entry Total No. ofManufacturers/Companies Companies in 2015 Employment

Automobile Manufacturers 7 0 127,800Motorcycle Manufacturers 2 0 550Parts Manufacturers 883 4 295,000Direct Importers 14 0 NATotal 906 4 —

Today, the Korean auto industry is essentially Hyundai-Kia, a global powerhousedriven by brilliant design. They are today the global leaders in high-volume vehicledesign. Hyundai, KIA, and other automakers gain further prominence on the worldmarket. Other Korean firms excel in providing automotive parts, hybrid cars, or indeveloping next generation technologies and engines.

The Korea Automobile Manufacturers Association or KAMA announced that Korea’saccumulated car export from January to August amounted to about 1.69 millioncars. This is 14.4% fewer than the same period last year. During the same timeperiod Mexico exported roughly 1.8 million cars to take third place in the global carexport, following Germany and Japan. Also according to KAMA, Korea’s accumulatedautomobile production from January to July dropped to 2.55 million cars to placeKorea 6th in the world. Topping the list was China, followed by the U.S., Japan,Germany. Korea, which had ranked 5th in the world, was replaced by India, whichhas produced 2.57 million cars so far. Korea fell out of the top five for the first timein 12 years. This means that Korea has dropped out of the leading group and falleninto the second tier.

It is said that Korea is loaded with five huge problems. Those problems include thestill unresolved wage issue; unfavourable currency exchange rates; high-cost, low-productivity structure; and the recent strike by the Hyundai Motor labour union, thefirst all-out walkout in 12 years. Korean carmakers haven’t invested much domestically.In fact, Hyundai Motor has built so many plants overseas that 65% of Hyundaiautomobiles are made in foreign factories, leaving Korea with only 35% of theproduction pie. Such production vacuum is only going to worsen the situation. Thelocal economy has been ailing and the domestic automobile demands are around1.8 million cars annually, so the market isn’t as big as other economies.

Maybe this year so far car sales have dipped, but in our interlocking andinterdependent markets, that’s going to happen.



The automobile industry accounts for 3.3% of Korea’s gross domestic product and12% of its export. It is the foundation of the Korean manufacturing sector employing300,000 people. Above all, since the survival of thousands of contractors hinges onthe well-being of big automakers, an ailing auto industry bodes a string ofbankruptcies for smaller related companies. It is, therefore, urgent to look for a wayto overcome this challenge.

Electric Vehicle Start-up

With strength in technology, there is opportunity for Indian entrepreneurs to jointlydevelop such vehicles with start-ups as both Indian and Korean governments areheavily investing in EV and also give a strong competition to Tesla.

Auto Parts

South Korea’s orderly cultural flair for engineering innovations, precise assemblyline protocols and superior supply chain organization has propelled the nation to aNo. 5 ranking in global automotive production.

Industry-leading inroads into electric vehicle battery technologies and a country-wide commitment to manufacturing highly functional and affordable autocomponents of all types have combined to deliver an expansive internationalmarketing presence.

There are 883 auto parts manufacturing firms in Korea, per KAMA figures tabulatedin 2015, including four new market entries during the year. Domestic parts productionemploys some 295,000 people, and in 2015 Korean operations were inauguratedby 14 overseas direct-importers. Within Asia, “Korea” is the preferred term for SouthKorea. North Korea is commonly called the DPRK, as in the Democratic People’sRepublic of Korea.

Korea ranks No. 12 in the world for manufacturing OEM components; it is 18th inaftermarket parts production volume.

Achieving official certification levels for automotive exports and imports is a highpriority, strongly encouraged and aided by the Korean government. In 2016 theMinistry of Land, Infrastructure and Transport (MOLIT) signed on with NSFInternational to adhere to its auto parts evaluation and certification standards.

“We expect that as we develop this well-structured certification program, high-qualityaftermarket parts can be distributed,” both domestically and internationally, saysSeok-Won Kim, an industry executive who assisted in facilitating the arrangement.NSF compliance is also desired for imported parts entering the country.



An agreement with the Certified Automotive Parts Association (CAPA) was enactedin 2014. “This means that CAPA-certified manufacturers are ready to go when itcomes to supplying high-quality parts to the Korean market,” says CAPA executivedirector Jack Gillis.

“The replacement part certification system,” observes Kim Yong Seog, MOLIT’s directorgeneral, “will help broaden customers’ options as well as reduce repair costs whilepromoting small- and medium-sized automobile part manufacturers.”

Owned by Korea’s SK conglomerate, Speedmate manufactures, distributes, importsand exports OE-equivalent aftermarket parts. It is also the country’s largest autoservice provider with some 750 mechanical repair shops, plus collision repair shops,tire centres and a network of 3,000 gasoline and propane stations. More than 7million Korean drivers annually patronize Speedmate’s locations.

Among the nearly 200 global exhibitors at this year’s edition of the biennial SeoulMotor Show, Hanon Systems highlighted its latest thermal and energy managementtechnologies designed for furthering the development of electric, hybrid, fuel celland autonomous vehicles along with updated gasoline/diesel HVAC and powertrainapplications.

“As a global automotive supplier headquartered in Korea, this is an important eventto showcase our technical expertise and innovative solutions in a public way,” saysHanon President and CEO In-Young Lee.

In 2016, there were approximately 21 million vehicles in operation in Korea. GivenKorea’s domestic auto production and rise in foreign cars, opportunities exist inelectronic control systems, audio systems, replacement parts for imported vehicles,etc. In 2016, there were approximately 21 million vehicles in operation in Korea.Given Korea’s domestic auto production and rise in foreign cars, opportunities existin electronic control systems, audio systems, replacement parts for imported vehicles,etc. In 2016, there were approximately 21 million vehicles in operation in Korea.Given Korea’s domestic auto production and rise in foreign cars, opportunities existin electronic control systems, audio systems, replacement parts for imported vehicles,etc.

LG Electric Vehicle Battery

LG’s low-profile engineering of the battery – spanning across the floorboard withnew cell and chemistry developments that require a smaller cooling apparatus –allows the car to fit five passengers along with providing a large cargo area behindthe back seat.



“The flat-pack orientation offered the flexibility to make the most of the proportionswhile creating a clean, sculpted design,” explains Stuart Norris, GM Korea’s designdirector. “All of this additional space gave us a lot of opportunities to play withcreative design and storage solutions.”

“LG Chem’s battery business and technology have been world-widely acknowledgedonce again as our products are continuously being installed by major automobilemakers – from their commodity brands to premium vehicles,” says LG divisionalpresident Young Soo Kwon. “LG Chem will continue to lead the EV battery marketwith differentiated technology to make us stand up as global No.1 batterymanufacturer.”

BIOTECHNOLOGY

According to the Bloomberg Global Innovation Index, South Korea ranks #1 in theworld as the most innovative country in 2015 when considering a variety of metricssuch as R&D capacity, productivity, and patent activity. The country’s annual R&Dspending totals more than 4% of GDP (Source: The World Bank). To support thecompany’s rapid growth, Samsung announced plans in 2015 to build two morebiologics manufacturing plants, at a cost of roughly $1.5 billion, to make the nationone of the largest biologics manufacturers worldwide. Samsung Bioepis is alsoplanning a US IPO in 2016. According to a 2014 IMS report, South Korea’sbiopharmaceutical industry is currently ranked fifteenth in the world, and iscategorized alongside the United States, the EU5 nations, Japan, and Canada. Fromthese actions, South Korea now ranks among the leading nations on otherdevelopment indicators such as healthcare, education and R&D expenditure.

The country is now home to about 300 companies working in and around drugdevelopment, according to a local trade group. And among them is Samsung, thenation’s most valuable company, which teamed up with Biogen to make biosimilarsin 2012 and has since won global approvals for biosmilar version of the blockbustersEnbrel and Remicade.

According to a 2014 IMS report, South Korea’s biopharmaceutical industry is currentlyranked fifteenth in the world, and is categorized as developed (vs. emerging) alongwith the United States, the EU5 nations, Japan, and Canada [67]. While it is not asmature as its nearest neighbour Japan, the growth trajectory looks remarkably similar.

One example is Hanmi Pharma, which has spun Hanmi Ventures, a new operationthat will invest in fledgling drug firms. The initial outlay is small — about $8.7 million,according to the Korea Herald — but Hanmi said it’s just the first step in a multiyeareffort.



The move is a natural next step for Hanmi, which has become the most visible ofSouth Korea’s biopharma firms after signing high-dollar agreements with Sanofi, EliLilly, and Johnson & Johnson to develop drugs for diabetes, cancer, and obesity.

PHARMACEUTICALS

South Korea is the 13th largest pharmaceutical market in the world and the thirdlargest in Asia. 1 Sales are forecast to grow from $15.1 billion in 2015 to $18.3billion by 2020, representing a strong annual growth rate of 3.9%. Current spendingon healthcare reached $101 billion, or around 7.4% of GDP, which is very low for adeveloped country.2 Still, South Korea boasts a world-class health system in termsof access and quality and is one of the few Asian countries whose population isable to afford innovative treatments. Like other developed countries with growingpublic healthcare burdens, budgetary constraints are leading to cost containmentmeasures. In recent years, the South Korean government has slowed pharmaceuticalmarket growth through aggressive price cuts and tightening reimbursement criteriafor both innovative and generic medicines. Reimbursement prices of generics arealready approximately half the average for OECD countries. Due to a large domesticgenerics industry and government policies to encourage usage, generics make up acomparatively large portion of the total market at 47%. Further government pricecuts, stricter regulations on sales and rebates and intensified competition, however,are creating a difficult environment for generics companies moving forward.

South Korea’s rapid economic growth has fostered the development of a robusthealthcare sector in a relatively short period. Rising incomes, a growing elderlypopulation and increased health insurance coverage are catalysing pharmaceuticalsales. While the country has a sophisticated domestic pharmaceutical manufacturingindustry, imports from the United States and Japan remain a significant part of themarket. An uncertain and difficult pricing and reimbursement environment, however,may affect the export outlook for U.S.-based pharmaceutical companies goingforward.

These constraints provide an opportunity for Indian Pharmaceutical companies toenter Korea.

South Korea’s domestic pharmaceutical industry is relatively advanced and dominatedby large generics firms. In recent years, the government has used subsidies, taxbreaks, reimbursement policies and IP laws to promote R&D investment by bothdomestic and multinational firms.3 The country now boasts a robust and growingR&D sector, particularly in biotech, with several locally-developed innovative drugsreceiving approval in recent years.4 With the establishment of an approval pathwayfor biosimilars in 2009, South Korea aims to become a global leader in biosimilardevelopment and stem cell research. The country has a booming clinical trials industry,



bolstered by a streamlined regulatory process and world-class medical facilities.Seoul is now one of the world’s largest clinical research centres by trial numbers.

Following patent expiry, the price of a generic drug is capped at 59.50% of theoriginal drug’s price. After a year, the cap is lowered again to 53.55%. But becausenew drugs are originally priced against a weighted average in a therapeutic categorythat includes generics, the patent-expiry price cuts cause a downward spiral in pricesacross the board. Getting products listed on the NHI’s reimbursable list is crucial forsuccess in this market. As the only public insurer, NHI has an advantageous positionin price negotiations, and the review process is complex. Drugs are assessed by twoorganizations, the Health Insurance Review and Assessment Service (HIRA) and theNational Health Insurance Service (NHIS). HIRA first reviews a pharmacoeconomicanalysis of a new medicine and sets a maximum price. NHIS then tries to negotiatedown the maximum price with the manufacturer, taking into account projectedsales volumes. The final price cannot exceed a basket of reference countries. Theprocess takes about a year to 18 months before final ratification by the Ministry ofHealth and Welfare (MoHW). U.S. industry has raised a number of concerns aboutthe predictability, methodology and transparency of this process, claiming that finalprice decisions often lack supporting data and scientific justification.

Once listed, drugs are subject to multiple price cuts for various reasons, such aspunishment for illegal rebates, exceeding expected volume sales, fluctuations inreference country prices and automatic price reductions when drugs go off patent.

SHIP AND OFFSHORE STRUCTURE

This important industry of Korea is facing a tough time these day. Korea’s ailingshipbuilding industry, which has been a key engine of industrialisation and growthfor the country’s economy, is now in a crippled state with the big three shipyardsforced to restructure due to mounting debts and lacklustre operating environment.

The big three, Hyundai Heavy Industries (HHI), Samsung Heavy Industries (SHI) andDaewoo Shipbuilding & Marine Engineering (DSME), have all implemented self-rescue restructuring plans as urged by their creditors. The austerity measures includemassive staff lay-offs, executive pay cuts, and disposing of non-core assets andsubsidiary businesses.

The difficult plight of the Korean yards has been magnified by the collapse of theoffshore oil and gas market due to low oil prices, as orders for offshore new buildssuch as drillships and FPSOs, the main product focus for the Korean yards, havevirtually come to a halt. The similarly depressed state of the conventional shippingmarket, including container shipping, has also resulted in a dearth of new orders forlarge boxships, which is also one of the key products at Korean yards.



Apart from Korea’s big three, other small to medium sized yards such as HanjinHeavy Industries & Construction (HHIC), Sungdong Shipbuilding & MarineEngineering, Dae Sun Shipbuilding & Engineering are also going through restructuring,while STX Offshore & Shipbuilding has filed for a court-led restructuring.

Early casualties of the shipbuilding slump were Samho Shipbuilding and 21st CenturyShipbuilding, which were liquidated in 2012 and 2013 respectively. Another yardSPP Shipbuilding, which became insolvent, was revived after it was acquired inApril this year by SM Group, which also owns Korea Line.

Korea China Singapore Others

2011 2012 2013 2014

(Unit US$ billion)

45.831.7%

64.733.3%

56.033.7%

61.930.4%

19.2

30.4

18.2

33.1

16.7

46.815.2

48.0

Leading Korean shipbuilders in the global shipbuilding and offshore plant industry

Korea is the central hub of the global shipbuilding and offshore plant industry valuechain.



This is a good time to place orders with Korean shipyards.

ELECTRONICS AND SEMICONDUCTOR INDUSTRY

South Korea on the back of its leading position in semiconductors, mobilecommunications and advanced consumer electronic products is the fourth largestelectronics producer globally with output of US$117.2 billion in 2014. After decliningby 3.4% in 2012 electronics production rebounded in 2013 increasing by 8.9% onthe back of strong growth in both the semiconductor and wireless communicationssegments. Growth eased in 2014 but still posted healthy growth estimated at 5.3%for the year as a whole with the main drivers again the semiconductor and wirelesscommunications segments. For 2015, growth is expected to be more subdued at1.6% as demand in the key semiconductor segment slows.

Semiconductor

South Korea is a leading market in the global semiconductor industry. The SouthKorean semiconductor industry is known for innovation and for being in the forefrontof the technological revolution. The market faces tough competition from the Chinese,Japanese and Taiwanese semiconductor markets in the region of Asia Pacific.

The industry has been posting strong growth in the past few years and it is expectedto continue to grow at a strong level. While the coming years may bring about slightdeceleration in the market growth, it should not affect the industry revenues much.The market is expected to grow strongly to reach a cross a value of US$ 35 billion bythe end of 2020.

Korea’s Position in World Production



Specialty Chemicals

Korea’s fine chemical industry is the world’s fifth largest and four Korean companies“LG Chem, Lotte Chemical, SK Innovation and Hanhwa Chemical“ ranked amongthe world’s top 50 chemical companies. The foreign direct investment in Koreanchemical products recorded a 24.5% increase YoY in 2014. In contrast, the chemicalengineering segment attracted as much as US$ 3.18 billion, posting a 3.7-fold increasefrom the previous year.

• Total Market Size (2016):$45 billion

• Total Imports: $15 billion

• US Imports: $3.5 billion

• Annual Growth Rate: 3%

Total Market Size

Total Local Production

Total Imports

50000

45000

40000

35000

30000

25000

20000

15000

10000

5000

02016 2017 2018 2019

Best prospects for exports:

• Raw and intermediate chemical substances for• medical/pharmaceutical and cosmetics industries• High molecular new materials for electronics and IT industries• Best prospect include cosmeceutical convergence products,• crossover/multi-functional products, functional cosmetics - especially anti-aging

and anti-oxidation, natural/organic skincare products

Challenges

Local and third country competition is intense, but highly innovative

• chemical substances from the U.S. have a market in this mature• economy.• Both K-REACH and Chemical Control Act are seen by industry as• highly burdensome, extremely costly and dangerous with respect to IPR.

MACHINERY

Although Korea has a flourishing machinery industry, it imports a large quantity toosuch as welding and soldering equipment, cutting and metal forming machine tools.



Korea has been volatile in recent years but Korea’s machine tool imports in 2015increased by 4% year-on-year to $1.5 billion.

Other prospects pumps, compressors, valves, machine tools, energy equipment,mining machinery, piston engines and engine parts, plastics and rubber workingequipment, jigs and fixtures.

KOREA FREE TRADE ZONES

Korean Free Economic Zones are specially designated areas created to improve thebusiness and living environment for foreign-invested firms in Korea. Since the 2003inauguration of an FEZ in Incheon, the number of FEZs in operation has grown toeight: Incheon, Busan-Jinhae, Gwangyang Bay Area, Daegu-Gyeongbuk,Saemangeum-Gunsan, Yellow Sea, East Coast and Chungbuk.

Accumulated foreign direct investment in the KFEZs amounted to $9.96 billion as of2014, with 2,235 companies, including multinational firms such as GE and BMW,operating in the KFEZs. The KFEZs have become even more attractive to globalinvestors who knock on the Korean door first when seeking opportunities in Asia.



International Trade

Given that China and the US are South Korea’s top two export destinations, directlypurchasing 43% of the nation’s total shipments abroad, South Korea is among themost vulnerable countries in Asia to adverse trade developments in the US andChina. The economy is also exposed indirectly as intermediate goods represent alarge share of South Korea’s intraregional exports. Nevertheless, the external sectorprospects have been brightening in recent months along with the pick-up in globaleconomic activity; South Korean exports and industrial production are on an upwardtrend, and business sentiment in the manufacturing sector is showing signs ofimprovement.

South Korean trade has kicked the year off with a bang as imports and exports bothgrew at the quickest clip in more than four years. Exports grew 11.2% year-on-yearin January from a 6.4% drop in December. A median forecast from economists hadpredicted a rise of only 9%. That was the biggest annualised gain since February2012, when shipments from the country shot up by 20.6%. Imports were up 18.6%year on year, more than doubling from the previous month’s revised growth rate of8% (previously 7.3%) and besting a median forecast from economists by 8.5percentage points. January growth in inbound shipments was also the highest sinceSeptember 2011, when they rose 29.4%. Those flows tallied up to a trade surplus of$3.2 billion in January, down from a revised $6.8 billion (previously $7 billion) andcoming in below expectations of $5.3 billion

The trade ministry upgraded its 2017 export outlook to 6-7%, exceeding the earlier2.9% estimate, citing stronger shipments of semiconductors, display panels andcosmetics.

Korea’s Export Performance has Weakened in Recent Years

2002 2004 2006 2008 2010 2012 2014 2016

Index 2010 = 100

110

105

100

95

90

85

80

75



South Korea Top 50 Export Items - 2016 — Total US$ 495 billion (Unit $ ’000)

Code Product label Value in 2015 Value in 2016Total All products 526897236 495465606‘85 Electrical machinery and equipment and parts thereof; sound 138364610 134302657

recorders and reproducers, television ...‘87 Vehicles other than railway or tramway rolling stock, and parts 69058752 62654796

and accessories thereof‘84 Machinery, mechanical appliances, nuclear reactors, boilers; 62121212 58257718

parts thereof‘89 Ships, boats and floating structures 38434210 33155192‘39 Plastics and articles thereof 28220063 27651647‘90 Optical, photographic, cinematographic, measuring, checking, 32522199 27647017

precision, medical or surgical ...‘27 Mineral fuels, mineral oils and products of their distillation; 33179994 27436496

bituminous substances; mineral ...‘72 Iron and steel 20154015 18658214‘29 Organic chemicals 18245308 17915167‘73 Articles of iron or steel 11168351 11112970‘40 Rubber and articles thereof 6842946 6880828‘33 Essential oils and resinoids; perfumery, cosmetic or toilet preparations 2929480 4210464‘71 Natural or cultured pearls, precious or semi-precious stones, 3272930 3735096

precious metals, metals clad ...‘74 Copper and articles thereof 4246137 3687099‘28 Inorganic chemicals; organic or inorganic compounds of precious 3544481 3534129

metals, of rare-earth metals, ...‘60 Knitted or crocheted fabrics 3516066 3385449‘38 Miscellaneous chemical products 3286866 3175235‘54 Man-made filaments; strip and the like of man-made textile materials 3119156 2855655‘48 Paper and paperboard; articles of paper pulp, of paper or of paperboard 2796535 2823954‘76 Aluminium and articles thereof 2861743 2583382‘30 Pharmaceutical products 1961110 2407503‘32 Tanning or dyeing extracts; tannins and their derivatives; dyes, 2215165 2364471

pigments and other colouring ...‘82 Tools, implements, cutlery, spoons and forks, of base metal; parts 2169039 2133603

thereof of base metal‘94 Furniture; bedding, mattresses, mattress supports, cushions and 1967294 1932253

similar stuffed furnishings; ...‘88 Aircraft, spacecraft, and parts thereof 1861624 1896456‘55 Man-made staple fibres 1642936 1541119‘70 Glass and glassware 1461524 1536835‘83 Miscellaneous articles of base metal 1367571 1520102‘03 Fish and crustaceans, molluscs and other aquatic invertebrates 1278266 1431644‘79 Zinc and articles thereof 1169789 1299849‘59 Impregnated, coated, covered or laminated textile fabrics; textile 1258778 1289281

articles of a kind suitable ...



Code Product label Value in 2015 Value in 2016‘21 Miscellaneous edible preparations 1037412 1117114‘24 Tobacco and manufactured tobacco substitutes 970079 1072853‘62 Articles of apparel and clothing accessories, not knitted or crocheted 989089 964333‘19 Preparations of cereals, flour, starch or milk; pastrycooks’ products 847884 931206‘34 Soap, organic surface-active agents, washing preparations, 854579 921368

lubricating preparations, artificial ...‘61 Articles of apparel and clothing accessories, knitted or crocheted 953318 919074‘96 Miscellaneous manufactured articles 792504 805867‘22 Beverages, spirits and vinegar 758447 788797‘78 Lead and articles thereof 521339 777591‘37 Photographic or cinematographic goods 680541 776170‘68 Articles of stone, plaster, cement, asbestos, mica or similar materials 670641 697519‘56 Wadding, felt and nonwovens; special yarns; twine, cordage, ropes 699996 687731

and cables and articles thereof‘41 Raw hides and skins (other than furskins) and leather 918470 686896‘93 Arms and ammunition; parts and accessories thereof 438484 550935‘86 Railway or tramway locomotives, rolling stock and parts thereof; 798585 547609

railway or tramway track fixtures ...‘52 Cotton 644793 532493‘63 Other made-up textile articles; sets; worn clothing and worn textile 580303 500555

articles; rags‘64 Footwear, gaiters and the like; parts of such articles 476463 485234‘35 Albuminoidal substances; modified starches; glues; enzymes 449078 470899‘58 Special woven fabrics; tufted textile fabrics; lace; tapestries; trimmings; 430938 400473

embroidery

South Korea Top 50 Import Items-2016 Total $406 billion

Code Product label Value in 2015 Value in 2016Total All products 436535683 406059974‘27 Mineral fuels, mineral oils and products of their distillation; 103420759 81688094

bituminous substances; mineral ...‘85 Electrical machinery and equipment and parts thereof; sound 77755746 75144742

recorders and reproducers, television ...‘84 Machinery, mechanical appliances, nuclear reactors, boilers; 46447517 46036005

parts thereof‘90 Optical, photographic, cinematographic, measuring, checking, 18120666 17472076

precision, medical or surgical ...‘87 Vehicles other than railway or tramway rolling stock, and parts and 15015262 15235342

accessories thereof‘72 Iron and steel 15410249 14322569‘29 Organic chemicals 12032849 1094400826 Ores, slag and ash 12065588 10876722‘39 Plastics and articles thereof 9953325 10062965



Code Product label Value in 2015 Value in 2016‘38 Miscellaneous chemical products 6491894 6660001‘73 Articles of iron or steel 7998906 6511888‘30 Pharmaceutical products 4761192 5527873‘76 Aluminium and articles thereof 5997146 5421818‘28 Inorganic chemicals; organic or inorganic compounds of precious 5780862 5369132

metals, of rare-earth metals, ...‘62 Articles of apparel and clothing accessories, not knitted or crocheted 5370849 5272564‘74 Copper and articles thereof 5493841 5097673‘88 Aircraft, spacecraft, and parts thereof 3724773 4070632‘03 Fish and crustaceans, molluscs and other aquatic invertebrates 3719581 3942698‘02 Meat and edible meat offal 3673067 3876446‘10 Cereals 3707032 3212050‘71 Natural or cultured pearls, precious or semi-precious stones, 3541335 3108729

precious metals, metals clad ...‘44 Wood and articles of wood; wood charcoal 3111956 3099242‘94 Furniture; bedding, mattresses, mattress supports, cushions and 2852616 3011076

similar stuffed furnishings; ...‘61 Articles of apparel and clothing accessories, knitted or crocheted 2684577 2895800‘64 Footwear, gaiters and the like; parts of such articles 2363463 2534963‘32 Tanning or dyeing extracts; tannins and their derivatives; dyes, 2417942 2442317

pigments and other colouring ...‘40 Rubber and articles thereof 2459378 2358810‘70 Glass and glassware 2426186 2343197‘42 Articles of leather; saddlery and harness; travel goods, handbags 2106084 2220648

and similar containers; articles ...‘23 Residues and waste from the food industries; prepared animal fodder 2083236 1945114‘89 Ships, boats and floating structures 2354952 1849464‘48 Paper and paperboard; articles of paper pulp, of paper or of paperboard 1692249 1795619‘95 Toys, games and sports requisites; parts and accessories thereof 1614024 1793849‘33 Essential oils and resinoids; perfumery, cosmetic or toilet preparations 1718225 1777996‘08 Edible fruit and nuts; peel of citrus fruit or melons 1718047 1600486‘47 Pulp of wood or of other fibrous cellulosic material; recovered (waste 1813321 1575931

and scrap) paper or ...‘69 Ceramic products 1489751 1515271‘21 Miscellaneous edible preparations 1315394 1478887‘12 Oil seeds and oleaginous fruits; miscellaneous grains, seeds and 1553459 1473325

fruit; industrial or medicinal ...‘68 Articles of stone, plaster, cement, asbestos, mica or similar materials 1391147 1467104‘52 Cotton 1344966 1188611‘17 Sugars and sugar confectionery 1088240 1163500‘15 Animal or vegetable fats and oils and their cleavage products; 1039152 1057367

prepared edible fats; animal ...‘54 Man-made filaments; strip and the like of man-made textile materials 1095556 999878‘20 Preparations of vegetables, fruit, nuts or other parts of plants 944546 969116



Code Product label Value in 2015 Value in 2016‘22 Beverages, spirits and vinegar 909191 950021‘81 Other base metals; cermets; articles thereof 1038672 942725‘82 Tools, implements, cutlery, spoons and forks, of base metal; parts 919643 939182

thereof of base metal‘34 Soap, organic surface-active agents, washing preparations, lubricating 889635 884269

preparations, artificial ...‘55 Man-made staple fibres 826303 868663‘37 Photographic or cinematographic goods 836722 822729

South Korea’s Top 15 Trading Partners

Rank County Value in US$ % of Total Korean Export

1. China 124.4 billion 25.1

2. United States 66.8 billion 13.5

3. Hong Kong 32.8 billion 6.6

4. Vietnam 32.7 billion 6.6

5. Japan 24.4 billion 4.9

6. Singapore 12.5 billion 2.5

7. Taiwan 12.2 billion 2.5

8. India 11.6 billion 2.3

9. Mexico 9.7 billion 2.0

10. Marshall Islands 7.7 billion 1.6

11. Malaysia 7.5 billion 1.5

12. Australia 7.5 billion 1.5

13. Philippines 7.3 billion 1.5

14. United Kingdom 6.9 billion 1.4

15. Indonesia 6.6 billion 1.3

Three-quarters (74.8%) of Korean exports in 2016 were delivered to the above 15 trade partners.

KOREA’S FREE TRADE AGREEMENTS (FTA)

Since the establishment of the Free Trade Agreement (FTA) Roadmap in 2003, theRepublic of Korea (ROK) has actively pursued FTAs with key partners. Korea’s freetrade network is now the 3rd largest in the world, covering 73.5% of the worldeconomy in terms of GDP. It has FTAs with 52 countries, including the EU, USA andmost recently, China, the world’s three largest markets. Korea’s “mega-FTA platform”is also one of the biggest reasons that investors count on Korea as a sound investment.



New Investment Opportunities: FTA with 52 Countries

73.5%

Source: Ministry of Trade, Industry and Energy, Korea International Trade Association

Korea’s most important FTA with China is currently being negotiated and is expectedto be signed later this year.

Over the next two decades, China will remove tariffs from 91% of its goods, andKorea will remove tariffs from 92%. Their FTA will eventually boost South Korea’sGDP by 3.3% over that period, according to HSBC’s Hong Kong-based analyst RonaldMan.

With the conclusion of the pact with China, Korea has hammered out trade pactswith about two-thirds of its total export market, according to HSBC. “The wide

New Investment Opportunities: FTA Hub



coverage of Korea’s bilateral FTAs will leave the trade-dependent economy lessdependent on joining the Trans-Pacific Partnership to boost trade,” writes Man. TheUS, which is the main driver of the TPP, has been urging Korea to join for sometime. Both the US and China have separate comprehensive free-trade agreements(the pact China is pushing is called RCEP) they are promoting. What Korea appearsto have brokered with the bilateral China FTA is independence.

Compared to the other agreements that Korea and China have settled with othercountries, the Korea-China FTA also has a wider reach of influence in a variety offields, including products, services, investments and regulations. Industrialcooperation exclusive to China is especially expected to generate an unprecedentedchannel for investors. Furthermore, the agreement will provide easy access to themarket of 1.3 billion people in China’s service market and customer goods, a discountof US$ 5.4 billion on tariffs and a 56% increase in trade volume.

Services Industries

BANKING AND FINANCE

The government is providing capital support to policy banks that are adversely affectedby issues in the shipping and shipbuilding industries; policy banks account for aquarter of domestic banking system assets. According to S&P, policy banks’ non-performing loans ratio was near 3.0% in the third quarter of 2016, while thecorresponding figure for commercial banks stood at slightly below 1.0%. Overall,South Korea’s financial system remains resilient with sound capital adequacy.

According to the Financial Supervisory Service, domestic banks’ Tier 1 capital ratiowas 12.6% at end–2016.

Given the pressures on businesses in many sectors, Korean banks’ struggles with assetquality come as no surprise. Bank exposure to lowering credit quality is more severehere than in other advanced economies, according to Graeme Knowd, the Japan-based associate managing director of the financial institutions group for Moody’s.By his reckoning, loans represented 73% of total assets of Korean banks at the end of2013, while the average for other top industrial nations is between 40% and 50%.

But Jason Kim, bank equity analyst at KDB Daewoo Securities in Seoul, believescredit quality is slowly improving. “If you look at credit costs in Korea as a whole,they’ve been slowly diminishing following multiple rounds of corporate restructuringsand at least five years of conservative provisioning,” he says.



Innovation is emerging in the small to medium-size enterprise lending market, aswell. Korean banks extend more credit to SMEs (42% of total loans) than to thenation’s biggest enterprises (14%). But this exposure also makes them morevulnerable to swings in SME fortunes. The smaller companies with exportbusinesses—and in Korea that adds up to a lot—have higher exposure to the strongwon because they are less diversified and have limited funding resources, comparedwith larger companies.

Hong Kongbased fixed-income specialist SC Lowy sees an opportunity stemmingfrom better risk pricing for lending to SME clients in Korea: The investment bankacquired Shinmin Bank in early 2014 in one of the first instances of a foreigncompany’s gaining a full banking license in Korea. The new owners renamed thebank Choeun, the Korean word for “good.” SC Lowy’s co-founder Lee Soo Cheonhimself became the managing director of the bank, while Lee Ho-Jun, formerly CEOof private equity firm Yuli PE, who also worked in the investment banking division ofthe Korea Development Bank, heads day-to-day operations as chief executive.

HUMAN CAPITAL

Korea’s highly skilled manpower will support successful businesses for globalinvestors. A whopping 75% of a sample of 200 foreign companies in operation inKorea said Korean people had a strong sense of sincerity and responsibility. Thepercentage of college graduates among those aged between 25 and 34 is 65%, thehighest among OECD member nations. The R&D workforce has also continued toincrease for the past 10 years.

HEALTH SERVICES

Medical Device Industry (US$ million)

• Total market size in 2016:US$4.8 billion

• Estimated annual growthrate for the next three years:5-10%

• Total imports in 2016:US$2.8 billion

• US market share in 2016:US$1.2 billion (45% of totalimports)

Total Market Size

Total Local Production

2014 2015 2016(estimated) (estimated)

5000

4000

3000

3000

1000

0



Medical Devices Industry

Opportunities: Growing elderly population – Doctors educated in the U.S. andEurope are accustomed to using advanced medical devices from overseas – Bestprospects include: stents, soft contact lens, sight corrective ophthalmic lens, dialyzersfor hemodialysis, knee joint prosthesis, MRI devices, analyzing products, intravascularcatheters, CT systems, and IVD reagents for clinical immunochemistry

Challenges: Reimbursement pricing environment – New Healthcare TechnologyAssessment

INNOVATION AND RESEARCH

Korea is Hungry for Technology

Fast Follower Model: the fastest route to development but coming to an end insome sectors.

Innovation and invention–now a priority for the entire economy

Korean large firms are investing in R&D as never before, and acquiring foreign firmsfor technology, e.g., Samsung buys LoopPay to compete with ApplePay, 2017 buysHarman Industries for $8 billion

Korean firms seek opportunities to acquire, partner with or license technology; offersalternative business model for tech firms

INTERNET OF THINGS (IOT)

South Korea launched an alliance of leading information and communicationtechnology and construction firms on Wednesday to nurture the “smart home”industry that connects artificial intelligence (AI) and Internet of Things (IoT) to homeappliances. The alliance is supposed to exchange related technologies for the buildingof smart homes, develop big data-based smart services, standardize regulationsand launch marketing activities for the expansion of this business field.

Among the participants are Samsung Electronics Co., LG Electronics Inc., SK Telecom,KT, the Korea Land and Housing Corp. (LH), the Seoul Housing & CommunitiesCorp. (SH), S1 Corp., MDS Technology and Samyoung S&C.

Samsung Electronics Co. said it will equip Samsung home appliances with intelligentassistant “Bixby” and “Samsung Connect,” which can control appliances both athome and out of the house.

The Bixby smart voice assistant helps users complete tasks by telling them whatthey are looking at, learning their routine and remembering what they need to do.KT Corp., South Korea’s biggest Internet service provider, has been providing its AI



home assistant platform GiGA Genie to apartment complexes being built across thecountry. GiGA Genie is an advanced voice recognition butler service allowing usersto control home appliances and listen to music using voice commands processedby the world’s first IPTV service with an AI function.

IT AND SOFTWARE

South Korea’s information technology industry depends overwhelmingly onhardware, failing to keep pace with the global trend of focusing on software, areport said Monday (17 Mar 2017).

According to the report by the Institute for Information and CommunicationsTechnology Promotion, software companies accounted for 15% of the total marketcapitalization of local IT firms in 2016, compared to 9% a decade ago.

Notably, the share of the IT hardware business, which includes South Korea’s top-cap Samsung Electronics Co., hovered over 50%, showing the IT industry’s excessiveconcentration in a certain sector.

The report divided the IT industry into eight categories — semiconductors, electronicsparts, software, the Internet, IT service, home appliances, IT hardware andcommunications equipment.

The proportions of hardware and software were the percentages of each category’scombined market capitalization to the IT industry’s total market cap.

The report showed the share of South Korea’s software lagging far behind the UnitedStates and China.

This is a great opportunity for Indian software firms to acquire Korean softwarefirms.

S. Korean Unicorns

Uni

t: $

bill

ion

131211109876543210

Coupang Gmarket Com2US Daum NC Soft Nexon Smile Gate Naver Kakao LINE

“10 companies belong to what we call the “Korea UnicornClub” (by our definition, Korean software companies valuesat over $1 billion by public of private market investors)”

– John Nahm, Strong Ventures (9/11/2014)



Opportunities:

• Technologies that required 5G data services, including virtual reality (VR) andaugmented reality (AR)

• Internet of Things (IoT) market is expected to grow 38.5% (CAGR) through 2020• Cloud computing market grew 55% to US$ 996 million in 2016 and is expected

to reach US$ 1.7 billion by 2018• Information security market expected to grow 10.3% through 2018

TOURISM

There is a great opportunity for India to promote inbound tourism from Korea asChina has banned Korean tourists to visit the country and vice versa due to politicaltensions.

Investment Barriers, Risks and Challenges

The Country Risk Tier (CRT) reflects A.M. Best’s assessment of three categories ofrisk: Economic, Political and Financial System Risk.

South Korea has developed an open economy that has very low economic risk andlow levels of political and financial system risk.

• In December 2016, parliamentvoted to impeach President ParkGeunhye over a corruption andinfluence-peddling scandal

• In the same scandal, SamsungElectronics vice-chairman anddefacto Head was arrested

• On March 10,2017 the KoreanConstitutional Court ruled touphold the motion to impeachPark

• Park is the first South KoreanPresident to be impeached

• Election for her replacementwere held on May 9 and a newPresident installed

• Despite instability, Korea hasmaintained a stable nationalsecurity posture, amid tensionwith North Korea

A M Best 2016

FinancialSystem Risk

PoliticalRisk

EconomicRisk

VeryHigh

VeryHigh

VeryHigh

High High High

Mode-rate

Mode-rate

Mode-rate

Low Low Low

VeryLow

VeryLow

VeryLow



Political Risk: Low

South Korea has a stable government with a sustainable democracy and a healthyinfrastructure. However, there are still elevated levels of corruption and corporatecronyism. Relations with North Korea remain a concern in South Korea, particularlyover the North’s fragile economy and its nuclear ambitions. Additional concernsinclude China’s assertiveness over maritime claims in the South China Sea.

The government faces several prominent issues which include a rapidly ageingpopulation, the economy’s reliance on exports, corporate vulnerabilities, labourmarket distortions and slowing productivity, particularly in the service sector andsmall to medium size firms.

Low levels of public debt allow the government ample room for additional fiscalstimulus measures if they are needed in the future.

Financial System Risk: Low

The insurance sector is regulated by the Insurance Division of the Financial ServicesCommission (FSC) and a subordinate institution, the Financial Supervisory Service.

• The Bank of Korea lowered its policy rate by 25 basis points in June 2016 to1.25%, continuing its pursuit of accommodative monetary policy. Interest ratesare currently at a record low and are supportive due to low levels of inflation andmoderate levels of unemployment.

• There are plans underway to implement operational and financial restructuringof vulnerable firms. Additionally, authorities are making plans to safeguard thecapital adequacy of key banks.

Economic Risk: Very Low

In order to help stimulate growth, the government has increased fiscal spendingand monetary policy continues to be accommodative and supportive.

• The strengthening of the United States’ economy could help boost growth in thecountry, though the slowdown in China, Korea’s largest trading partner, couldoffset this growth. China accounts for approximately 25% of Korean exports.

• Headline inflation was only 0.7% in 2015, and is expected to be 1.3% in 2016,which remains below the Bank of Korea’s target band of 2.5-3.5%.

• The unemployment rate remains low at approximately 3.5% and GDP per capitaremains moderate at over US$27,000. South Korea is rapidly becoming one ofAsia’s most affluent countries.



South Korea’s Status in Global Economic Rankings

Corruption Perceptions Index

The Corruption Perceptions Index (CPI) ranks countries in terms of the degree towhich corruption is perceived to exist in the misuse of public power for privatebenefit. Source: Transparency International

Rank 52/176 countries

DHL Global Connectedness Index

Score based on a nation’s integration into the world economy. (Higher scorecorresponds to more globally integrated.) Source: DHL

Rank 18/140

Ease of Doing Business Rank

The Ease of Doing Business Rankings measures the vibrancy of a country’s businessenvironment based on business regulations in place. Source: Doing Business

Rank 5/190

Global Competitiveness Index

The Global Competitiveness Report provides a description of the economiccompetitiveness of a country based on enabling high productivity levels. Source:World Economic Forum

Rank 26/138

Global Enabling Trade Index

The Global Enabling Trade Report analyses which countries across the world enabletrade from country to destination based on the free flow of goods across borders.Source: World Economic Forum

Rank 27/136

Global Manufacturing Competitiveness Index (GMCI)

The Global Manufacturing Competitiveness Index (GMCI) ranks the manufacturingcompetitiveness of a country based on factors such as labour, materials, energy,and access to talented workers. Source: Deloitte Touche Tohmatsu

Rank 5/40



Index of Economic Freedom

Grades each country on a scale of 0 to 100, based on ten freedoms, with 100representing the greatest amount of economic autonomy from governmentintervention. Source: Heritage Foundation

Rank 23/180

International Logistics Performance Index (LPI)

The Logistics Performance Index (LPI) evaluates the capacity of a country to efficientlymove goods and connect manufacturers and consumers with international markets.Source: World Bank

Rank 24/160

Inward FDI Potential Index

The Inward FDI Potential Index evaluates the attractiveness of countries to foreigninvestors. Source: United Nations Conference on Trade and Development

Rank 19/141

KOF Index of Globalization

The KOF Index of Globalization measures the economic, social, and politicaldimensions of globalization in each country. Source: Swiss Federal Institute ofTechnology Zurich

Rank 60/192

Networked Readiness Index (NRI)

The Networked Readiness Index (NRI) evaluates how conducive a country is to thedevelopment of a network of information and communication technologies. Source:World Economic Forum

Rank 13/139



Indo-South Korea Economic Relations

South Korea’s top 30 Export to India: Value in 2016 (US$ ’000)

Code Product Label Export to India’s Import Korea ExportIndia from World to World

Total All products 11598547 356704792 495465606‘85 Electrical machinery and equipment and parts thereof; 2478547 37005267 134302657

sound recorders and reproducers, television ...‘84 Machinery, mechanical appliances, nuclear reactors, 1546490 32515742 58257718

boilers; parts thereof‘72 Iron and steel 1487135 8713651 18658214‘39 Plastics and articles thereof 1158373 11391120 27651647‘87 Vehicles other than railway or tramway rolling stock, 751681 4762581 62654796

and parts and accessories thereof‘29 Organic chemicals 638434 14767091 17915167‘27 Mineral fuels, mineral oils and products of their 473996 89308777 27436496

distillation; bituminous substances; mineral ...‘79 Zinc and articles thereof 353189 699782 1299849‘90 Optical, photographic, cinematographic, measuring, 312015 7237468 27647017

checking, precision, medical or surgical ...‘71 Natural or cultured pearls, precious or semi-precious 308419 48129744 3735096

stones, precious metals, metals clad ...‘48 Paper and paperboard; articles of paper pulp, of 297483 2662595 2823954

paper or of paperboard‘40 Rubber and articles thereof 248602 2888209 6880828‘73 Articles of iron or steel 187069 3524660 11112970‘86 Railway or tramway locomotives, rolling stock and 159668 423250 547609

parts thereof; railway or tramway track fixtures ...‘38 Miscellaneous chemical products 145798 4408803 3175235‘78 Lead and articles thereof 130991 563731 777591‘76 Aluminium and articles thereof 123810 3372451 2583382‘82 Tools, implements, cutlery, spoons and forks, of base 111384 837612 2133603

metal; parts thereof of base metal‘83 Miscellaneous articles of base metal 78640 728201 1520102‘28 Inorganic chemicals; organic or inorganic compounds 76663 4820827 3534129

of precious metals, of rare-earth metals, ...‘32 Tanning or dyeing extracts; tannins and their 66419 1586698 2364471

derivatives; dyes, pigments and other colouring ...‘74 Copper and articles thereof 51701 3265814 3687099‘94 Furniture; bedding, mattresses, mattress supports, 51002 1462463 1932253

cushions and similar stuffed furnishings; ...‘54 Man-made filaments; strip and the like of man-made 47451 725996 2855655

textile materials‘30 Pharmaceutical products 33862 1697798 2407503



Code Product Label Export to India’s Import Korea ExportIndia from World to World

‘89 Ships, boats and floating structures 32133 5480639 33155192‘63 Other made-up textile articles; sets; worn clothing 23055 453640 500555

and worn textile articles; rags‘59 Impregnated, coated, covered or laminated textile 19191 690274 1289281

fabrics; textile articles of a kind suitable ...‘34 Soap, organic surface-active agents, washing 18584 649758 921368

preparations, lubricating preparations, artificial ...‘56 Wadding, felt and nonwovens; special yarns; twine, 16269 288759 687731

cordage, ropes and cables and articles thereof

South Korea’s top 30 Imports from India: Value in 2016 (US$)

Code Product label Korea’s India’s Korea’sImport Exports Imports

from India to world from worldTotal All products 4188967 260326912 406059974‘27 Mineral fuels, mineral oils and products of their 1002626 27715391 81688094

distillation; bituminous substances; mineral ...‘76 Aluminium and articles thereof 505372 2732715 5421818‘29 Organic chemicals 389984 11252926 10944008‘72 Iron and steel 250934 6436669 14322569‘52 Cotton 191473 6262460 1188611‘84 Machinery, mechanical appliances, nuclear reactors, 190188 13557486 46036005

boilers; parts thereof‘23 Residues and waste from the food industries; 133306 774700 1945114

prepared animal fodder‘85 Electrical machinery and equipment and parts 105197 8217870 75144742

thereof; sound recorders and reproducers, television ...‘71 Natural or cultured pearls, precious or semi-precious 101480 42290721 3108729

stones, precious metals, metals clad ...‘79 Zinc and articles thereof 98113 432955 163944‘90 Optical, photographic, cinematographic, measuring, 96295 2649635 17472076

checking, precision, medical or surgical ...‘32 Tanning or dyeing extracts; tannins and their 75409 2473744 2442317

derivatives; dyes, pigments and other colouring ...‘12 Oil seeds and oleaginous fruits; miscellaneous grains, 63918 1685531 1473325

seeds and fruit; industrial or medicinal ...‘41 Raw hides and skins (other than furskins) and leather 56280 908749 687684‘38 Miscellaneous chemical products 56268 3150406 6660001‘25 Salt; sulphur; earths and stone; plastering materials, 53017 1815622 817292

lime and cement‘30 Pharmaceutical products 48584 13042716 5527873‘24 Tobacco and manufactured tobacco substitutes 48024 1012177 414204



Code Product label Korea’s India’s Korea’sImport Exports Imports

from India to world from world‘54 Man-made filaments; strip and the like of man-made 47241 1925427 999878

textile materials‘78 Lead and articles thereof 40205 164747 280242‘39 Plastics and articles thereof 37274 5213180 10062965‘26 Ores, slag and ash 36936 1316316 10876722‘87 Vehicles other than railway or tramway rolling stock, 36735 14988305 15235342

and parts and accessories thereof‘62 Articles of apparel and clothing accessories, not knitted 36717 9051089 5272564

or crocheted‘28 Inorganic chemicals; organic or inorganic compounds 35487 1243860 5369132

of precious metals, of rare-earth metals, ...‘73 Articles of iron or steel 33394 5820737 6511888‘61 Articles of apparel and clothing accessories, knitted 28059 7910076 2895800

or crocheted‘64 Footwear, gaiters and the like; parts of such articles 27904 2747900 2534963‘33 Essential oils and resinoids; perfumery, cosmetic or 24269 1539740 1777996

toilet preparations‘08 Edible fruit and nuts; peel of citrus fruit or melons 23008 1596319 1600486

FUTURE IMPORT POTENTIAL

India’s main exports to South Korea, which are low on the value chain and includeraw materials, foodstuff and unrefined metals, have been falling since 2011. Indiahad trade deficit of about US$ 10 billion in 2015-16 with S. Korea.

Agriculture and Food: The amount of fruit imported by South Korea reached recordhigh levels last year on growing demand for dietary diversity, customs data showedSaturday.

A total of 863,663 tons of fruit were imported in 2016, up 4.2% from a year earlier,according to the data compiled by the Korea Customs Service. It surpass the earlierannual record of 840,171 tons set in 2012, although its value fell 6.9% to US$1.6billion over the one-year period.

The amount of fruit imports has been on a steady rise for more than a decade, withnumbers hitting 349,000 tons in 2000 and rising to 505,000 tons in 2004 and753,000 tons in 2011.

India should make greater efforts to capture a slice of this lucrative market. Forexample, mango exports from India might see a significant boost this year, withSouth Korea allowing import of the fruit after conducting the stringent pest riskanalysis (PRA). South Korea imported mangoes worth $48 million in 2016 mainly



from Thailand, the Philippines, Taiwan, Vietnam, Pakistan, Australia, Peru and theUnited States. India’s entry into the South Korean market would boost competition,as mango originating from India has been popular in the Middle East, the Far East,the United States and Europe.

Gujarat’s Kesar has a good potential to enter Korean market.

In the past two years, the U.S has gained a 99% market share of importedpomegranates in South Korea due to a devastating freeze and consecutive bad cropyears in Iran, Korea’s past top exporter. A great opportunity to secure this markethas presented itself as Korean importers prefer the uniformity and consistency ofU.S. pomegranates. Pomegranates are increasing in popularity and there is currentlynot enough supply to meet demand. India is the only country able to deliverpomegranates all year round thanks to its climate.

Same is the case of Indian grapes and cashew nuts. At present, Chile holds themaximum share.

Marine Products: India’s share is 0.5% of this $4 billion imports.

Stringent quality control measures can open market for other fruits, vegetables andnuts.

Pharmaceuticals Especially APIs: India’s share is a decent 9% but it can gosubstantially.

Specialty Chemicals such as Automotive Adhesive

India is a leading producer in many chemicals. India’s total export of organic chemicalsis only 3% of total imports.

For example, adhesive in the South Korean automotive industry is forecast to growat a CAGR of 6.8% by value from 2016 to 2021. The major drivers for growth of thismarket are growth in the production of light commercial vehicles and passenger caras well as increasing demand for lightweight materials.

Emerging trends, which have a direct impact on the dynamics of the industry, includeincreasing use of composites and lightweight materials in automotive applicationsand development of fast cure adhesives. Henkel AG & Co KGaA, The 3M Company,HB Fuller, Sika AG, and Huntsman are the major supplier of adhesives in the SouthKorean automotive industry.

Plastics: India’s share is 3% in overall over $1 billion Imports. Its share, especially inthermoplastics used in vehicles can go up



Bollywood and TV Serials: My name is Khan and English Vinglish have been bighits in Korea. There is a good potential of exporting family based movies and TV serials.

Textile and Apparel: India’s share is 6 %. It can go up

INDIAN INVESTMENT IN SOUTH KOREA

Indian investments in ROK have already exceeded $2 billion. Novelis, a Hindalcosubsidiary, acquired a Korean aluminium company by investing about $600 million.Mahindra & Mahindra acquired a majority stake in SsangYong Motors, the country’s4thlargest auto manufacturer, in March 2011, with an investment of about $360million. It turned profitable in 2016 after six years of turnaround. Tata Motors acquiredDaewoo Commercial Vehicle Company for $102 million in March 2004.

Jaquar has acquired South Korean luxury shower Joeyforlife along with its entiredesigning and R&D units. Joeyforlife is a pioneer in conceptualising and designingshower products and Jaquar Group has acquired 51% stake in the South Koreancompany. The Rs 2,336-crore Jaquar Group has acquired Joeyforlife for under $2million and also plans to invest Rs 150 crore in setting up a brownfield facility inKorea by next year.

Other Indian companies present in India include IT majors, Indian Overseas Bank,State Bank of India etc.

SOUTH KOREA’S INVESTMENT IN INDIA

LG Electronics India MD Ki Wan Kim says one of the main reasons for the companyto explore making India an export hub is due to tension prevailing between SouthKorea and China.

Samsung Asset Management, which manages equity funds investing in India, saidthat India is “emerging as a global alternative manufacturing centre to China.” Investorsshould approach India with a long-term perspective, it added.

This is an opportunity for India to attract FDI from South Korea.

A major setback was Posco’s decision not to construct a mega steel plant in Odissa.

Some opportunities in hi-tech areas are described in following examples:

South Korea’s leading pharmaceutical company Celltrion is set to accelerate itsgrowth, having struck a $160 million license deal with Teva Pharmaceutical Industries,giving the Israeli company the exclusive right to commercialize two biosimilar drugsTruxima, a treatment for non-Hodgkins lymphoma and rheumatoid arthritis, andbreast cancer medication Herzuma, when they are given final approvals in NorthAmerica.



French company Z3DLAB, formed in 2014 and specializing in metal additivemanufacturing by SLM, has signed a joint venture with Korean semiconductor expertHS HI-TECH. It’s called Z3DFAB, a new digital additive manufacturing productioncentre in South Korea. This centre will combine the knowledge and expertise ofboth Z3DLAB and HS HI-TECH, blending a rigorous process and cleaning at thenano scale with additive manufacturing with customers are in a wide range of fields,from aerospace to automotive, nuclear to medical.

Chonnam National University is stepping up efforts to maintain its lead in R&D ofmicro-robots for medical use and hydrogen fuel cell technology for automobiles.The University’s Robot Research Initiative, created the world’s first colonoscopy robotin 2001 and the world’s first intravascular micro-robot for the treatment of bloodvessel-related diseases in 2010.

South Korea has deployed a border-control robot called SGR-1 developed bySamsung. It is armed with a machine gun and a grenade launcher, but firing is stillcontrolled by soldiers.

South Korea has set a goal of achieving artificial intelligence that is “capable ofunderstanding human languages” by 2019, along with AI capable of “complexthinking” by 2026.

Samsung Electronics has identified robotics, drones, and the Internet of Things (IoT)as areas worth developing. It said those areas are more urgent than 3D printing oradditive manufacturing.



Hyundai Heavy Industries took a major step when it began testing its robots to aidpatient rehabilitation at the Asan Medical Centre in Seoul’s Songpa District. Thisconfirmed that Hyundai is looking to become a major player in medical robotics.

The company, which is also working on the H-LEX exoskeleton for industrial use,hopes to apply similar technology to rehabilitation and helping the elderly anddisabled with mobility.

Perhaps the most futuristic of the high-techs, holographic technology, has recentlybecome a big interest area for Korean mobile device makers and telecos. The globalhologram market is expected to grow, but much innovation is needed to make thetechnology viable and available to the masses. The main areas that the likes ofSamsung and LG as well as KT and SK are looking at involve novel ways of interactingwith devices, as well as 3D image projection. While the realization of commercialapplications for holograms may still seem like a long way away to many, the merefact that Samsung has entered the race definitely adds credibility.

PLATFORM LAUNCHED FOR PROMOTING BILATERAL INVESTMENTS

India and South Korea have launched Korea Plus, a special platform to promoteand facilitate Korean Investments in India. Korea Plus will act as a mediator inarranging meetings, assisting in public relations and research/evaluation and provideinformation and counselling to Korean companies investing in India. India alreadyhas a similar initiative with Japan.

Korea Plus will cover the entire investment spectrum including, supporting Koreanenterprises entering the Indian market for the first time, looking into issues faced byKorean companies doing business in India and policy advocacy to the IndianGovernment on their behalf.

BILATERAL CEPA TRADE AGREEMENT WITH SOUTH KOREA

In January 2014, India and South Korea agreed to upgrade their comprehensiveeconomic partnership agreement (CEPA) and put into effect the revised doubletaxation agreement (DTA) between the two countries as soon as possible.

According to a study done in 2016, India’s export baskets to Korea is dominated bytraditional labour intensive products such as mineral fuels, cereals, food wastes, oilseeds and cotton products. On the other hand, the high-income elastic productslike Iron and Steel, zinc articles and machinery items are found to be either lowgrowth or low share in the overall export basket. The paper reveals that most of thehigh share products have competitive advantage in the global market. However,products like electrical machinery and non-electrical machinery and transport



equipment, which enjoys the largest linkages and positive spill over in the overallmanufacturing, are largely uncompetitive or has low growth rates. One plausiblereason can be the prevalence of large amount of tariff and Non-Tariff Barriers (TBT/SPS) and the preferential trade agreements granted to some of the trade partnersof Korea.

Tariff reduction and introduction of specific schemes like IDS has significantlyincreased the import of intermediate and capital goods leading to loss incompetitiveness in the domestic import competing segment. This has furtheraccelerated the trade imbalances.

Out of the 43 products, large numbers of items (38 products) are found to beglobally competitive.

It is found that only five competitive products, namely HS120740 (Sesamum seeds),HS230400 (Oil-cake and Other Solid Residuals), HS720241 (Ferro-chromium),HS760110 (Aluminum, not alloyed), and HS790111 (Zinc, not alloyed) havemaintained high share and high growth rates during the reference period. It is evidentthat most of these products fall under low value category and as such, there is aneed to further improve the export sophistication in order to maintain the exportcompetitiveness in the future. There are 16 competitive products, whose growthrates has been higher but has low presence in the export basket. These are HS100590(Other Maize), HS230690 (Other Oil Cakes), HS261400 (Titanium ores andconcentrates), HS280300 (Carbon Blacks), HS290244 (Mixed xylene isomers),HS291619 (Unsaturated Monocarboxylic Acids), HS520524 and HS520512 (SingleYarn), HS520533 (Multiple or Cabled Yarn), HS720211 and HS720230 (Ferro-Silico-Manganese), HS720110 (Non-Alloy Pig Iron), HS722220 (Bars and Rods), HS780110(Refined Lead), and HS780191 (Other Lead). These products fall under broadly incereals, ores, chemicals, iron and steel and cotton. Several products belonging tochemicals (HS29), textiles (HS 52) machinery (HS 85) are found to have low growthrates. One plausible reason behind the low growth and low share of most of thecompetitive products is the excessive protective policy measures adopted by Korea.This is evident from our analysis of tariff and non-tariff barriers (SPS and TBT) (seelast three columns in Table A.1). For instance, HS320416 (Synthetic OrganicColouring), a globally competitive product face an applied MFN duty rate of 8%plus three NTB namely TBT1, TBT2 and TBT3. Similarly, HS520523 (Single Yarn, ofCombed Fibers) faces an applied MFN duty rate of 8% plus three NTBs.

Generally, it is found that the protective instruments are applied throughout thecompetitive products of India. The preferential tariff granted by Korea on India’s topfive competing countries is analysed. It is found that for 13 out of the 87 majorexisting exporting products, India faces competition mainly from China under the



Asia-Pacific Trade Agreement (APTA). For instance, out of the top four suppliersnamely China, Thailand, Indonesia and Switzerland, due to the Asia-Pacific TradeAgreement (APTA), Chinese exports of HS320416 (Synthetic Organic Colouring)enter the Korean market at an applied preferential duty rate of 6.2%. On the otherhand, for 6 other supplying countries, the MFN applied rates are at 8%. Thus, theproliferation of preferential agreements and stringent standards and technical barriershas unfavourable consequences on India’s major exports in recent period.

Analysis of India’s Potential Exports to Korea

India’s Export Potential Products to Korea at the HS 2-digit Product Category

2 Digit Description

02 Meat and edible meat offal

03 Fish and crustacean and other aquatic invertebrate

27 Mineral fuels, oils and product of their distillation, etc.

29 Organic chemicals

30 Pharmaceutical products

39 Plastics and articles thereof

44 Wood and articles of wood; wood charcoal

52 Cotton

54 Manmade filaments

71 Natural/cultured pearls, precious stones and metals, coin, etc.

72 Iron and steel

73 Articles of iron or steel

74 Copper and articles thereof

76 Aluminium and articles thereof

80 Tin and articles thereof

81 Other base metals; cermets; articles thereof

82 Tool, implement, cutlery, spoon and fork, of base metal etc.

84 Nuclear reactors, boilers, machinery and mechanical appliance; parts thereof

85 Electrical machinery equipment parts thereof; sound recorder, etc.

94 Furniture, bedding, mattress, mattress support, cushion, etc.

Description of each HS 2-digit product is collected from UN COMTRADE (WITS) database

It is found that there are 40 products were demand is expanding in Korea andsupply capabilities exist in India. These products fall into 21 HS 2-digit broughtproduct categories (see above table). India would be able to realize the potentialexport opportunities, if these products are globally competitive. Therefore, basedon RCA values, these identified products are classified into three categories: categoryI, category II and category III products.



Category-I product group comprises of those products that Korea is importing fromthe world, and India is exporting to the world but not to Korea.

Category-II comprises of those products that Korea imports from the world andIndia but the import share of these products from India is at least 5% or more.

Category-III comprises of those products that Korea imports from the world andIndia but the import share of these products from India is less than 5% (see Tablebelow).

If India succeeds in securing an average market share of 5% for Category I andCategory III products, then the export value will increase by $0.98 billion. If only thecompetitive products are considered, the 5% share for category I and category III is$0.11 billion. It is evident that out of the 40 identified HS 6-digit products, there are10 products in the first category (see Table below). These products largely belong toraw material, intermediate and capital goods categories. There are high value andsophisticated machinery products (HS 841112, 842650) under this category.However, since products identified in this group are not competitive, India needs tobuild it manufacturing capacity to meet the export needs of Korea in future. Incategory II, the study identified three products, out of which aluminium and Ironand steel products (HS 760110 and 720241) were found to be competitive in theworld market. These products are expected to grow further as the export share isfound to be reassuring.

The final category III is where India needs to focus much of its strategy. Out of the27 identified products, only seven items are competitive, which largely consists ofintermediate and raw material products. Looking at the rest of the products, it ispromising that there are several high value products that India has supply capability.There are around 14 products belonging to machinery sectors are under the identifiedlist. If sufficient incentive programs are implemented, then India can expect to seean improvement in the export prospects of these products in the near future.

To understand why India, despite having supply capability, fails to enter the Koreanmarket, the paper also examined the trade barriers (tariffs and non-tariff barriers)by Korea on India’s identified potential products (see last three columns in tablebelow). Generally, both tariffs and non-tariff barriers are widespread and especiallythe latter is high for most of the products in category I and category III. Thus, theprevalence of SPS and TBT results in unfair trade barriers for Indian exporters in theKorean market.



India’s Export Potential Products to Korea at the HS 6-digit Product Category

6 Digit Description Competitiveness Applied SPS/TBT Number

Global Bilateral MFN of

RCA RCA Tariff (%) SPS/TBT

CATEGORY I440710 Coniferous Uncompetitive 5-5 TBT1-TBT3 3

020714 Cuts and offal, frozen Uncompetitive 27-20 SPS1-SPS5, SPS7-SPS12 12

441214 Plywood consisting solely Uncompetitive No information available

841112 Turbo-jets Uncompetitive 8-3 TBT1-TBT3, TBT8-TBT12 8

842630 Portal or pedestal jib Uncompetitive NA 0-0 TBT1-TBT3, TBT8-TBT12 8cranes

722550 Other, cold-rolled Uncompetitive 0-0 TBT-TBT3 3(cold-reduced)

800120 Tin alloys Uncompetitive 3-3 TBT1-TBT3 3

400122 Technically specified Uncompetitive 0-0 TBT1-TBT3 3natural rubber

710610 Powder Uncompetitive 3-3 TBT1-TBT3 3

CATEGORY II270900 Petroleum oils crude Uncompetitive Competitive 3-3 TBT1-TBT3, TBT18 4

minerals

760110 Aluminium, not alloyed Competitive Competitive 1-1 TBT1-TBT3 3

720241 Ferro-chromium Competitive Competitive 2-2 TBT1-TBT3 3

CATEGORY III740400 Copper waste and scrap Uncompetitive Uncompetitive 0-0 TBT1-TBT3 3

854430 Ignition wiring sets Uncompetitive Uncompetitive 8-8 TBT1-TBT3, TBT13 4

847160 Input or output units, Uncompetitive Uncompetitive 0-0 TBT1-TBT3, TBT8-TBT12 8whether

760200 Aluminium waste and Uncompetitive Uncompetitive 0-0 TBT1-TBT3 3scrap

290124 Unsaturated Buta- Competitive Competitive 0-0 TBT1-TBT3 3

722830 Other bars and rods Uncompetitive Uncompetitive 0-0 TBT1-TBT3 3

392062 Of polycarbonates, Competitive Uncompetitive 6.5-6.5 TBT1-TBT3 3alkyd resins

520100 Cotton not carded or Competitive Uncompetitive 0-0 TBT1-TBT3 3combed

843143 Parts of boring machinery Uncompetitive Uncompetitive 0-0 TBT1-TBT3, TBT8-TBT12 8

840890 Other engines Competitive Uncompetitive 0-8 TBT1-TBT3, TBT8-TBT12 8

840734 Reciprocating piston Uncompetitive Uncompetitive 8-8 TBT1- TBT3, TBT8- TBT12 8engines

730459 Other, of alloy steel – Uncompetitive Competitive 0-0 TBT1- TBT3 3

842129 Filtering machinery Uncompetitive Uncompetitive 0-8 TBT1- TBT3, TBT8- TBT12 8

300490 Other Competitive Uncompetitive 8-8 TBT1- TBT3, TBT5, TBT19- TBT20 6

841410 Vacuum pumps Uncompetitive Uncompetitive 3-8 TBT1- TBT3, TBT8- TBT12 8

841199 Parts Uncompetitive Uncompetitive 3-8 TBT1- TBT3, TBT8- TBT12 8

853669 Other lamp-holders Uncompetitive Uncompetitive 0-8 TBT1- TBT3, TBT13 4

390110 Polyethylene having a Uncompetitive Uncompetitive 6.5-6.5 TBT1- TBT3 3

540233 Textures yarn of polysters Competitive Competitive 8-8 TBT1- TBT

Source: Sunitha Raju: An Analysis of India – South Korea Bilateral Trade Developments, IIFT, 2016


Documents

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