Friday, September 9, 2005

South Korea's Recent Idiotic Policies Against Foreign Direct Investment

I wrote this op-ed piece at OhMyNews this week after speaking with my friend, Jeff, about the continuing negative sentiment and policies against foreign direct investment in South Korea. After speaking with him and doing some more research, it just upset me on how South Korea's President Roh is continuing to drive that nation into the ground.

I submitted the piece to a couple other pieces, so hopefully it will get more traction. The title is lame and the beginning and ending paragraphs are a bit cheesy and over the top (especially since i do bleed red, white and blue... Korean friends use to rip on me since i cheered for the U.S. over South Korea during the 2002 World Cup), but I couldn't think of a better framework at the time and didn't want to spend more than a day sitting on it. Anyway, here it is:

'Mr. Roh, Save Our Land...'
One entrepreneur asks for changes in South Korean policies on foreign direct investment

Pride fills my heart when I contemplate how quickly a nation of 48 million and an area a little smaller than my home state of Illinois has risen to become the 10th most significant world economy. A smile calmly settles into place when I reflect on how Korea picked itself up from the ashes of its economic nightmare caused by the corruption and mismanagement from its chaebols and banks.

My passport states I'm an American citizen and my principles and thinking are clearly are born from the land of Jefferson and Lincoln yet I still consider Korea my land.

So as South Korea's current administration continues towards its downward spiral in terms of public favor and President Roh Moo Hyun's approval ratings fall to the cellar, my heart drops as he continues to initiate policies that damage the long-term economic health and development of South Korea.

I see "our land" at an important nexus in its economic and national development. South Korea has become a global model in the broadband and wireless industries while continuing its worldwide leadership in consumer electronics and semiconductor technology. It has moved beyond becoming a manufacturer of quality products to a leading innovator in numerous industries.

More importantly, the nation is slowly become a significantly contributor to major advances in science. From new discoveries in stem cell research to Kim Hyun Tak's recent "Mott Insulator" invention signals the next stage of development for South Korea. In becoming an established creator of leading technology, its value and influence in the world economy will increase. But the question is will South Korea gain from these advances? Will new companies be established, new jobs created, and wealth distributed to new people? Or will the chaebols and their owners continue to reap the benefits of these advances?

I believe these questions will be answered in how effectively South Korea develops its investment infrastructure and the overall venture capital and private equity industries. These are significant engines of new job growth and new wealth creation for decades in the U.S. and a lesson for South Korea to be mindful of. So the Roh administration's treatment of foreign direct investment firms baffles me. This is a critical juncture where the nation needs to cultivate global investment and transfer of knowledge into South Korea not the opposite. (full article)

Comments were posted above and I gave a quick reply. This Leon guy amuses me. I'll paste it here for an easier read:

It seems to be that you live in your own little world, and do not understand how things work in the greater context. First, your "correction of my misperception of Cyworld" (on my "Where Technology Is Ubiquitous, Opportunity Abounds" article at AlwaysOn) was an odd exercise since my article was not about CyWorld and only devoted a few sentences as an example to a larger theme. Within the context of these articles and op-eds, you don't seem to understand that a writer has limited space and cannot expound upon his complete view or knowledge of that matter. To be bold with you, my friends at CyWorld, Nexon, and other Korean technology companies emailed me to ask "who the odd Korean guy" was babbling about subject matter not relevant to the theme of that article.

For this op-ed, I corresponded with two friends at the the larger private equity shops in Korea, one friend at venture capital firm in Korea, a few others at Korean corporations, and some family contacts with a better insider view than you can ever provide me. Going to one of your last comments, if Korean companies saw no need in these types of financing, why are they active in Korea? And why do Korean companies take the capital? And why are Koreans setting up similar investment funds? If these investment funds had no purporse or value, why would they be in existence?

Also do you know how many of these investments are successful? Far less than what the Korean media projects. There is risk involved that tends to lead towards failure than success (e.g. Olympus Capital did not gain on their investments and many of the bulge-bracket fund groups did not gain either), and you fool yourself if you believe there is no value created by these investment firms. I also hardly call four years a short term play for an investment such as Carlyle into KorAm Bank. I don't believe you know the details behind how much they went in to improve the operations of KorAm (e.g. tighter internal policies, implementing financial IT systems which are underdeveloped in Korea). These deals are not simply taking advantage of Korean's lack of financial understanding nor cutting costs. And I would hardly call these financial institutions world class companies, where most of these private equity funds play in, and there are still a lot of advances needed to be made within South Korea's financial infrastructure. Just look at the credit card mess over the past several years.

As for the LoneStar and Carlyle situations, do you really believe what you hear or read in Korea? You are very ignorant. Those tax treaties, which you can research on your own, were established through bi-lateral treaties long ago.

My greater desire is for Korea to build their own quality private equity and venture capital firms. This is slowly happening, but it has been a long road. To do this effectively, there has to be an open economy, which includes foreign investment firms, where the best competitive environment drives domestic firms to operational efficiency and success. My wife's mentor, Dr. Byeon Yang Ho (former MOFE director), recently started Vogo Investment ($900 million domestic private equity fund) which is an effort I applaud. My father's high school buddy, Lee Hun Jai (former Minister of Finance and Economy), has plans to create a private equity fund too. Do you think these people would start such efforts if they believed there wasn't an opportunity and needs in South Korea's market economy?

For these domestic fund efforts to be successful in Korea and abroad, such as Singapore's GIC, Roh's policies need to change and not follow blind nationalism but encourage an openly competitive environment.

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