April 2013

New Investors02

TIAN LIANHUA China Wholesale, retail

LEO PHARMA A/S Denmark Wholesale, retail (distribution)

HOPPE BORDMESSTECHNIK GMBH Germany Transportation machinery

EURO PACIFIC CAPITAL GROUP LIMITED Hong Kong Construction

NHN JAPAN CORPORATION Japan Business commercial service

MITSUI CHEMICALS, INC Japan Electronics

ASAHI GROUP HOLDINGS, LTD. Japan Wholesale, retail

SBI HOLDINGS INC. Japan Business commercial service

TOSHIBA MEDICAL SYSTEMS CORPORATION Japan Electronics

TDK CORPORATION Japan Wholesale, retail

MITSUI-SOKO CO., LTD. Japan Transportation, warehouse

AVANSTRATE INC. Japan Non-metallic mineral

INOUE BUILDING CORPORATION Japan Finance, insurance

TSURUMI MANUFACTURING CO., LTD Japan Machinery

HAPPINESS AND D CO., LTD. Japan Wholesale, retail

LUMIELINA INC Japan Wholesale, retail

KYODO YUSHI CO., LTD. Japan Chemical

SBI HOLDINGS, INC. Japan Business commercial service

GMB CORPORATION Japan Transportation machinery

MURAKAMI CORPORATION Japan Electronics

RYOKA SANGYO CO., LTD. Japan Paper, timber

EXIMBAY CO., LTD. Japan Business commercial service

ELLIOTT CAM (NETHERLANDS) B.V. Netherlands Real estate

IMC INTERNATIONAL METALWORKING COMPANIES B.V. Netherlands Metal

NORSAFE AS. Norway Public, other service

H.H PRINCE DR. MISHAAL ABDULLAH TURKI ABDULAZIZ ALSAUD Saudi Arabia Business commercial service

AINDRI HOLDINGS PTE. LTD. Singapore Business commercial service

PSA FINANCIAL PTE. LTD. Singapore Transportation, warehouse

CSC ASIA HOLDINGS PTE. LTD. Singapore Business commercial service

STENA MARITIME AG Switzerland Transportation, warehouse

ROBERTS DAVID NORTHAM UK Business commercial service

SIFC CONSORTIUM I, L.P. UK Real estate

GMB (USA), INC. USA Transportation machinery

CISCO SYSTEMS, INC. USA Finance, insurance

SUMMIT STABLE VALUE FUND, LLC USA Business commercial service

Company Nation Sector

April 2013

Monthly News 03

GM Korea Co. plans to invest KRW 8 trillion (USD 7.3 billion) inthe next five years in an effort to become more competitive.

The company said in February that it will double the size of thedesign center at its Bupyeong headquarters by the end of the year. Theexpansion would make it GM's third largest facility globally.

GM Korea also plans to produce six next-generation GM global vehi-cles and powertrains. The company has five manufacturing facilitiesdomestically and an assembly facility in Vietnam. Last year, it sold arecord 145,702 vehicles in Korea.

Gyeonggi Province and Seagate Technologies held a completion cer-emony in February for the Seagate Korea Design Center in Yongin,Gyeonggi Province.

The design center will be responsible for developing 2.5-inch harddrive solutions and compact form factors, targeting the mobile comput-ing market. Seagate invested a total of KRW 142.3 billion to build the26,000 square meter design center, where 360 researchers and scientistsare to work.

Founded in 1979, Seagate is a global manufacturer of hard drives andstorage solutions with a presence in Europe, Asia and North America.

Since signing an investment memorandum of understanding withSeagate in December of 2011, Gyeonggi Province has strived to stream-line administrative procedures for the early construction of the center.

Seagate Korea Design Center Opens inGyeonggi Province

GM Korea to Invest USD 7.3 Bn in 5 Years

FOREIGN COMPANY NEWS

Emerson Electric, an American manufacturer of automatic measuringand controlling systems, will invest USD 40 million in Jukjeon DigitalValley in Yongin, Gyeonggi Province.

The Gyeonggi Provincial Government entered into an investmentagreement with Emerson Process Management Korea, a subsidiary ofEmerson Electric, at the Daou Digital Square of Jukjeon Digital Valleyin February. Under the agreement, Emerson Process ManagementKorea will invest USD 40 million to construct a research and develop-ment (R&D) center and manufacturing facilities on a 8,115m2 site inJukjeon Digital Valley by January of 2016.

The investment agreement is expected to lead to the creation of 200jobs and development of related domestic industries, such as shipbuild-ing, power plants and the plant sector. Jukjeon Digital Valley is alsoexpected to become a hub for the information technology (IT) industry.

Jukjeon Digital Valley, situated on 142,037m2 of land, is an industrialcomplex created by Daou Tech in 2010. It is also where Veeco, anAmerican manufacturer of light-emitting diode (LED) equipment, builtan R&D center with a USD 17 million investment in 2010. It is home tothe Dongbu Insurance Data Center, Shinhan Financial Group DataCenter and Hanwha Data Center as well.

Invest KOREA (IK) held an investor relations event last month inOsaka, Japan for Japanese electric and electronics companies.

IK led an investment promotion delegation of representatives of theNorth Chungcheong Provincial Government and Paju City G o v e r n m e n t .The session addressed the trends and investment environment ofKorea’s materials industry as well as successful investment cases ofJapanese companies. Business meetings followed.

“In this digital era, end product manufacturers lead parts and materi-als businesses based on their global supply networks and market domi-nance. It is necessary to actively introduce Korea’s investment environ-ment to Japanese electric and electronic firms, which require collabora-

Invest KOREA Holds Investor RelationsSession in Japan

IK NEWS

Emerson Electric to Invest USD 40 Millionin Yo n g i n

Courtesy of Seagate Korea

April 2013

The company will build a spa resort and landmark tower by 2014, amedical center by 2015 and a spa auditorium and museum by the endof 2017. The aggregate investment will reach KRW 2.5 trillion.

Once the project is completed, the city will consist of 1,531 condo-minium units and 935 hotel rooms.

Jeju Airest City was designated an investment promotion district in2009 under Jeju Special Law, a Foreign Investment Zone in 2009 and aTourism Complex in 2010. It has received considerable and various taxbenefits and development charge discounts.

R&D investment by Korean companies is expected to edge up thisyear amid the prolonged economic slowdown, a poll showed lastmonth.

Combined investment in R&D is expected to reach KRW 10.2 tril-lion in 2013, up 7.3 percent from last year, according to a survey of334 firms conducted by the Ministry of Trade, Industry & Energy. Thefigure translates to KRW 30.8 billion for each company.

The average amount of R&D investment by large companies is fore-cast to hit KRW 98.28 billion, up 7.6 percent from last year. The aver-age amount of R&D investment by small- and medium-sized enterpris-es is anticipated to reach KRW 10.42 billion and KRW 6.13 billion,respectively, up 2.8 percent and 9.6 percent from the previous year.

About 53 percent of respondents said they intend to increase theirR&D investment this year, while 35 percent said they will invest thesame amount of money they did last year.

Medical tourists in Korea last year spent KRW 350 billion, accord-ing to a survey of 1,319 foreign patients conducted by the KoreaTourism Organization (KTO).

About 150,000 medical tourists visited Korea last year, up 30,000from 2011. Notably, the number of Chinese medical tourists increased76.5 percent compared to 2011.

According to KTO’s estimation, the expenditures of foreign medicaltourists reached KRW 350.9 billion, with medical expenses accountingfor 57 percent.

“The government is also seeing medical tourism as a new growthengine. We will conduct a survey annually to set up a detailed invest-ment promotion strategy,” said Kim Se-man, Director of KTO’sMedical Tourism Division.

Medical Tourists in Korea Last Ye a r S p e n tK RW 350 Billion

Local Firms to Invest More in ResearchThis Year

KOREA NEWS

The Ministry of Trade, Industry & Energy (MOTIE) is taking boldmeasures to shift the focus of foreign investment policies from large-scale investments to investments that create decent jobs.

MOTIE is analyzing the local and international best practices of jobcreation to turn such practices into law. It is also considering bench-marking Japan, which has enacted the Act on Special Measures forPromotion of Research and Development by Certified MultinationalEnterprises. This stipulates tax incentives for investment by multina-tional companies. Based on this, the ministry plans to provide incen-tives for service companies, which could create a large number of jobs.Main targets will include global R&D centers, tourism and leisureindustries and high value-added services.

The government aims to host the regional head offices of globalcompanies or international organizations, such as the Green ClimateFund, which will be located in Songdo, Incheon. As for investment intourism and leisure, it plans to draw more projects to locations likeAlpensia in Pyeongchang, as such investment is concentrated in JejuIsland and Songdo. The government will also provide incentives forregional logistics and medical development projects, including thedevelopment of New Busan Port.

Differentiated incentives will be provided in accordance with a for-eign-invested company’s contribution to job creation. Foreign invest-ment in innovative start-ups, small but strong companies and newgrowth engine industries will receive preferential treatment even in theevent that they don’t create a large number of jobs.

As of 2010, foreign-invested enterprises in Korea accounted for 13.6percent of domestic revenues, 13.2 percent of added values and 6 per-cent of employment.

Korean President Park Geun-hye unveiled her plans to “ease regula-tions and remove barriers” in order to revitalize the country’s economyat a ceremony marking the 40t h Commerce and Industry Day at COEXin Seoul last month.

She showed her commitment to establishing a creative economybased on science and technology, adding that there will be a secondmiracle of the Han River through economic democratization.

The president also emphasized that the government will ease regula-tions and remove barriers, so that any individuals or businesses withgood ideas can translate those ideas into products and services. Sheadded that the removal of barriers between government agencies wouldprovide businesses with more convenient one-stop services, whichwould eliminate the hassle of going back and forth between agencies orbetween central and local governments for approval.

P resident Park Emphasizes Dere g u l a t i o n sand Barrier R e m o v a l

Foreign Investment Promotion Policies toFocus on Job Creation

GOVERNMENT & POLICYtions with promising Korean set makers enjoying continuous marketdemand,” said Kim Seong-hwan, Deputy Director General of theStrategic Investment Promotion Team at IK.

Invest KOREA participated last month in a signing ceremony for ajoint venture investment between Korea’s Shin Poong Pharm and LFB,a French pharmaceutical company.

Fleur Pellerin, Minister Delegate of Small- and Medium-SizedEnterprises, Innovation and the Digital Economy of France, and InvestKOREA Commissioner Kiwon Han were among those in attendance.Under the strategic alliance agreement, Shin Poong Pharm and LFB willestablish a joint venture with an investment of USD 42 million to con-struct a biopharmaceutical manufacturing plant in Osong Biovalley ofNorth Chungcheong Province by 2015.

LFB develops, produces and distributes plasma-derived medicinesused to treat rare high-risk diseases. This is the state-owned company’sfirst time investing in Korea. The joint venture will serve as a conduit togenerate value in LFB’s Asian pharmaceutical business.

Invest KOREA has been supporting LFB in the process of establish-ing the joint venture, which will bring about the first biopharmaceuticalmanufacturing plant in Osong Biovalley. IK will continue to supportLFB as it pursues certification as an advanced technology-owning com-pany, in negotiations for incentives from the Korean governmentincluding cash grants and through other steps of the investment process.

The agreement is expected to contribute to improving Korea’s expertisein biomedicine refinement and production through technical cooperationbetween the two companies and to generate 110 jobs by 2016.

South Jeolla Province entered into a memorandum of understanding(MOU) with the Germany-based SCHOTT, SOMO Holdings &Technology and Korea Photonics Technology Institute (KPTI) in F e b r u a r y .

South Jeolla Province Signs MOU WithSCHOTT to Develop Area Into InfraredIndustrial Hub

REGIONAL FDI NEWS

Invest KOREAJoins JV Signing Cere m o n yBetween Shin Poong Pharm and LFB

SCHOTT, boasting the world’s best technology in infrared rays, andSOMO Group agreed to invest KRW 15 billion to expand manufactur-ing facilities in Danyang County, South Jeolla Province for infraredproducts. KPTI will support R&D on infrared technology and necessaryequipment while the province will streamline administrative proceduresfor the expansion.

Infrared products allow users to recognize objects at night or insmoke without a light source. Most such products are currently used inthe military, but their use will be expanded to automobiles, CCTVs, dis-aster prevention equipment and vessels. The market for infrared prod-ucts is forecast to grow more than 30 percent annually.

A groundbreaking ceremony for the resort-type residential complexJeju Airest City was held last month. The city will be constructed inSeogwipo, Jeju Special Self-Governing Province, with a total invest-ment of KRW 2.5 trillion. Tan Sri Vincent Tan, Chairman of BerjayaGroup, Jeju Governor Woo Geun-min and Byon Jong-il, Chairman ofthe Jeju Free International City Development Center, (JDC) attendedthe ceremony.

Berjaya Jeju Resort Limited is a joint venture company established byMalaysia’s Berjaya Group (implementer of Jeju Airest City) and JDC.

The Gotjawal Village, the first area for development in Jeju AirestCity, will include a condominium complex. The 92,922m2 village willbe completed by 2015 with a KRW 210 billion investment and unitswill be sold from the latter half of this year.

In the second phase, Berjaya Jeju Resort Limited plans to start buildinga five-star hotel, casino town and villa-type condominium “art valley.”

Construction of Jeju A i rest City Beginswith KRW 2.5 Trillion Investment

April 2013

Monthly News04 05

April 2013

hether by air, land or sea, Korea’s logistics infrastructure is internationallycompetitive and continues to get faster and better by the day. The fact that

Korea is located at the center of air and maritime transportation networks inNortheast Asia gives it an inevitable edge. Seoul is within a 3-hour flight from

61 cities with a population of more than 1 million. With Northeast Asia being one of theworld’s three major economic pillars, these make for some powerful connections.

When it comes to air transport, Korea’s biggest claim to fame is Incheon InternationalAirport, the world’s best airport according to Airports Council International for eight straightyears. We’ve got nine airports total, eight of them being international, and 11 civil airfields.

A peninsula country, Korea has plenty of sea ports as well. The Busan Port is Korea’slargest, not to mention, the fifth largest container port in the world.

We’re also well connected in terms of railways and road networks. The Korea TrainExpress, or KTX, is the world's fifth bullet train system and can reach the farthest point inthe country within three hours. It has increased Korea’s passenger transportation capacity by340 percent and its cargo transportation capacity by 770 percent. When it comes to roads,Korea has 29 highways and well-maintained national and regional roads.

With continued growth expected for the Asian logistics market due in large part to thegrowth of the Chinese economy, the Korean government has selected the building and oper-ating of port terminals and major distribution centers in logistics complexes as the key toinvestment promotion in an effort to boost the competitiveness of our logistics industry. Plus,with its 45-country free trade agreement (FTA) network drawing the attention of global man-ufacturing and distribution companies to its air and sea ports, Korea is well on its way tobecoming a global logistics hub.

Below is a look at some of Korea’s biggest ports and at Incheon International Airport.

Air and Sea Port Close-UpBusan Port

The Busan Port lies on a major global shipping route linking Korea toNorth America, Asia, the Middle East, Europe and Latin America. Withthroughput of 17.06 million TEU in 2012, the port serves as a Northeast

Asian center of transshipments, with feeder networks connecting most of theports in Japan and the coastal area of China. Located on the global trunk line, it is

directly connected to 45 ports in China, 60 ports in Japan and five ports in Russia.

The North Port has five operators and 20 berths while the Busan New Port has 22 berths,15 million TEU of throughput and water depth of 15-17 meters. Parts produced in China andJapan can be re-processed in the hinterlands of the New Port and exported to Korea’s FTApartners without tariffs. The Busan Port handles 75 percent of national port container cargo.

Yeosu Gwangyang Port The Yeosu Gwangyang Port is the 15t h largest container port in the world.

With container volume of 2.14 million TEU (other cargo 2.37 million tons)in 2012, it provides easy access to China. Major facilities include a total of

83 berths, including the Gwangyang container pier, Yeosu petrochemical pierand the materials pier of POSCO Gwangyang Iron & Steel Co.

The port helps promote investment in the hinterlands of Gwangyang Harbor, where partsproduced in China and Japan can be re-processed and then exported to Korea’s FTA partnerswithout tariffs thanks to the Korea-EU and Korea-U.S. FTAs. Gwangyang Harbor has thepotential to become a base for European electronics companies to advance into NortheastAsia by connecting the POSCO steel plate plant at Gwangyang Harbor Hinterland or theconsumer electronics division of Samsung Electronics in Gwangju, for example, with largeChinese electronics corporations via Korea’s FTA network.

Incheon International Airport and Port of Incheon As the gateway to the Seoul Metropolitan area, Incheon International

Airport ranks second globally in terms of cargo throughput. Its fast andmeticulous cargo-handling system and simplified customs clearance process

help make it the best airport in the world. It also facilitates ferries on Korea-China and Korea-Japan routes.

In addition to duty free shops and restaurants, the airport boasts a culture museum, craftgallery, gardens, an observation deck and much more.

Its accolades include more than its distinction as the world’s best airport. IncheonInternational Airport is also one of three airports globally to have received a five-star ratingby an aviation research organization called Skytrax.

The Port of Incheon, meanwhile, is Korea’s third largest container port (as measured bycontainer throughput) and specializes in sea and air inter-modal transport. An industrial portwith industrial complexes, it has contributed significantly to national economic and industrialdevelopment. As Korea’s second largest trade port, it is one of the world’s busiest interna-tional ports.

Both the Incheon International Airport and the Port of Incheon encourage the constructionof global distribution centers based on research and development capability, abundant humanresources, geographical proximity to relevant companies and easy access to the air and seaports of the hinterlands.

Pyeongtaek PortAs Korea’s fourth largest port, Pyeongtaek Port has the largest pier for the

exports and imports of automobiles. It serves as a processing and distribu-tion base for automobiles and to provide a connection between remanufac-

turing and aftersales services.

Ulsan PortAs Korea’s largest port for industrial support, Ulsan Port recorded cargo

throughput of 196.87 million tons in 2012 and export/import handling vol-ume in 2012 of 171.52 million tons. It is the world’s fourth largest liquid car-

go port and records Korea’s largest throughput for liquid cargo. It aims to serveas a Northeast Asian hub for liquid cargo and as Korea’s southeast logistics hub.

Ghang NamhoonDirector of Logistics & Retail Industries, Invest KOREA

d a m o n _ g h a n g @ k o t r a . o r . k r+ 8 2 - 2 - 3 4 6 0 - 7 5 2 7

THE KOREAN GOVERNMENT HAS SELECTED T H EBUILDING AND OPERATING OF PORT T E R M I N A L SAND MAJOR DISTRIBUTION CENTERS IN LOGISTICSCOMPLEXES AS THE KEY TO INVESTMENT PRO M O-TION IN AN EFFORT TO BOOST THE COMPETITIVE-NESS OF OUR LOGISTICS INDUSTRY.

April 2013April 2013

The Market06 07

The Logistics of It AllKorea’s growing logistics market makes for convenient getting around

Ulsan Port Yeosu Gwangyang Port

Incheon International Airport

Busan Port

W

April 2013

Successful Investors 09

hen most of us think ‘eleva-tor,’ we think of a box that

takes us from one floor toanother. When Wayne Park,

CEO of ThyssenKrupp Elevator Korea(TKEK), thinks ‘elevators,’ he ponders amode of transportation with infinite potentialfor innovation, speed and style. In fact, hethinks of BMWs.

The CEO of about a year has introduced aproject called “BMW in Elevators” at hisMok-dong office. He wants to develop theequivalent of BMWs for the elevator world, tocultivate an instantly recognizable brand andto have not just an industrial product, but onethat is “fancy like the BMW.” At a time whenTKEK is coming up with strategies forgrowth, Park realizes that differentiation forthe thoroughly commoditized elevator is diffi-cult to achieve.

“But without differentiation, there is nofuture in TKEK’s point of view,” he said.

Having entered the Korean market in 2003,TKEK supplies passenger and freight eleva-tors, escalators, moving walks and more. Itsmain businesses involve production, domesticsales, maintenance of the 60,000 elevator unitsinstalled in Korea and the export of products tomore than 60 countries. In addition to its head-quarters in Mok-dong, TKEK has a factory inCheonan, 12 branches nationwide and 1,300subcontractors for service and installation.

Korean landmarks equipped with TKEK’selevators, escalators and moving walksinclude Shinsegae Centum City in Busan, theCJ E&M Center in Seoul and Haeundae I’Parkin Busan. The Federation of Korean Industries

building in Yeouido will soon have high-speedThyssenKrupp elevators that travel about sev-en meters per second.

Following a period of negative profit due toturbulence in the elevator industry related toprice fixing scandals — a period that has com-pletely changed the market and its strategies,according to Park — TKEK last year sold4,500 elevator units domestically, achieving a3 percent return on sales. In terms of sales tocustomers in the Asia-Pacific region, Korearanked third for the 2011/2012 fiscal year.

TKEK entered the Korean market at a timewhen elevator demand was high, when devel-opers were dealing with limited land by build-ing up. The Germany-based ThyssenKruppacquired Dongyang Elevator in 2003, estab-lishing ThyssenKrupp Dongyang Elevator.ThyssenKrupp wholly acquired the Koreancompany in 2008.

“[Korea’s] elevator industry was relativelymature and [more advanced] than other Asiancountries,” said Park, who was the president ofSigma Elevator in China, a subsidiary of OtisElevator Korea, before joining TKEK.

One illustration of ThyssenKrupp’s innova-tion is the twin elevator, which has beeninstalled in seven office buildings in Korea.While elevator systems typically have one carper shaft, this system has two cars and requireshigh technologies to keep the cars at a safe dis-tance from each other at all times. The lowerand upper cabs can travel at different speeds,making the system time-and-space efficient.

Another innovative ThyssenKrupp technol-ogy found in Korea is the Destination

Selection Control system, which outfits eleva-tors with controls outside the car, not inside.This sort of elevator is found mostly in corpo-rate buildings with regular passengers. Youcan see which car is going to which floors andchoose your ride accordingly.

“Passengers have high expectations,” saidPark, who has some freshly designed elevatorscoming out this month. ”Living standards arehigh, so [Thyssen Krupp] is trying to changewith this product. We say it’s a synergy brand,one that no one in Korea or other countries hasever experienced in terms of value, aestheticsand function.”

As for the CEO’s expectations of TKEK, heaims to increase exports from 25-30 percent ofthe company’s production volume to about 50percent in the next few years. When it comesto mindset, Park strives for TKEK to think likea leader, not a follower.

“I like innovation, thinking differently, thiskind of concept,” he said. “I don’t want thesame approach.”

By Chang Youngy o u n g . c h a n g @ k o t r a . o r . k r

In its nearly 20 years in Hong Kong, BeeCheng Hiang has opened 18 outlets. Inits two and a half years in Korea, it hasopened 21.

The explanation?

Koreans like their barbecued pork.

With outlets everywhere from Myeongdongand Gangnam to Busan, and in all of Korea’smajor department stores, Bee Cheng Hiangsells barbecued pork, beef and chicken that iscalled “bakkwa” in Chinese. But for anyonetempted to call the products “jerky,” RichardWong Teng San, Managing Director of theSingapore-based Bee Cheng Hiang, points outa crucial difference: His bakkwa is fresh bar-becue.

Bee Cheng Hiang’s barbecued meats gothrough a two-step process. Raw meat isprocessed in a factory until it is 80 percentcooked. It is then delivered to retail outlets,where it is barbecued on the spot.

“Jerky is 100 percent dried in the factoryand then they pre-pack, then display it in thesupermarket,” said San. “It’s a totally differentc o n c e p t . ”

Koreans took to this new concept overseas,while visiting countries where Bee ChengHiang is popular, including China, HongKong, Malaysia, Singapore and Taiwan.Koreans not only liked the product, they askedabout franchise opportunities.

“So the Korean market drew our manage-ment’s attention,” San said.

Chop Hup Chong (CHC) Food Industries,the company for which Bee Cheng Hiang isthe house brand, began operations in Korea inthe summer of 2010 with a factory in ShiwhaGongdan, in the city of Siheung. Within ayear, the factory’s production capacity provedtoo small for the market demand. So San andhis staff moved to a bigger factory nearby lastOctober.

Bee Cheng Hiang produces 240 metric tonsof barbecued meat in Korea a year using alllocal products. Annual retail sales domesticallyin 2012 reached USD 8 million. San attributeshis company’s growth in Korea not only to alove of barbecued products, but strong buyingpower resulting from high living stand a r d s .

“We are very very happy we can achievethis production in two and a half years,” hesaid. “In other region, we haven’t experienced[growth] so fast.”

While foreign companies in Korea areknown to cater their products or services to thedomestic market, Bee Cheng Hiang sticks tohow they do things in their 260 other Asianoutlets, save for the occasionally offered kim-chi-flavored barbecued pork. In fact, San andhis staff of 75 are trying to get Korean con-sumers interested in another product popularin Bee Cheng Hiang’s overseas outlets —floss, or snack products made out of pork,chicken or fish.

But when it comes to production method,Bee Cheng Hiang has adjusted its process tobe efficient in all of Korea’s seasons. In

Singapore’s climate, the company’s ovens per-formed consistently year-round. In Korea,winters proved to make them less efficient.San’s staff resolved this problem by redesign-ing their ovens and took the redesigns back toSingapore for more energy-efficient operationsthere as well.

“So we learned a lot from Korea,” said San.

Bee Cheng Hiang aims now to expandbeyond retail sales in Korea and distribute bar-becued meat and floss directly to restaurants,hotels and other establishments. Consideringthe high quality of Korea’s pork, the companyalso aims to start exporting bakkwa fromKorea to Hong Kong, Japan and other coun-tries, the managing director said.

“[With] the Korean image now, the qualityis very high,” San said. “So if we can exportfrom Korea, this can put up our image, ourcompany brand. I think this is very importantfor us.”

By Chang Youngy o u n g . c h a n g @ k o t r a . o r . k r

- Global ThyssenKrupp Elevator recordedsales of 5.7 billion euros in the 2011/2012 fiscal year and has customers in150 countries.

- ThyssenKrupp Elevator Korea’sCheonan Plant was designated the firstGreen Company in Korea’s elevatorindustry.

Did you know?- Bee Chang Hiang was started in

Singapore in 1933 by a man sellingbarbecued meat from a mobile stall onthe street.

- Floss, one of Bee Cheng Hiang’sproducts, is said to taste good inporridge or gimbap (rice andvegetables wrapped in seaweed).

Did you know?

April 2013

Successful Investors08

W

Better Than Jerky Barbecued meat manufacturer and retailer Bee Chang Hiang has wonover the hearts — and stomachs — of Koreans in just a couple of years

BEE CHENG HIANG PRO-

DUCES 240 METRIC TO N S

OF BARBECUED MEAT IN

KO R E A A YEAR USING A L L

L O CA L P RO D U C T S .

Going Up

Richard Wong Teng San,Managing Director of

Bee Cheng Hiang

Wayne Park, CEO ofThyssenKrupp Elevator Korea

ThyssenKrupp Elevator Korea seeks differentiation in its pursuit of growth

April 2013

Taxes & Laws 11

This month we present Part I of atwo-part series on Korea’samended Presidential Decreeunder the Law for Coordinationof International Tax Affairs and

other relevant tax laws. Following is contextfor and the main points of the amendment.Next month, we’ll look at other important taxregulation changes providing foreign investorswith advantageous effects.

Guaranty Fees• B a c k g r o u n dThe National Tax Service (NTS) has

imposed a substantial amount of tax assess-ments against Korean multinational enterpris-es on grounds that the level of guaranty feescharged by the Korea parent company to theirforeign subsidiaries was not sufficient to meetthe arm’s length principle stipulated in theLaw for Coordination of International TaxAffairs (LCITA). A substantial number of cas-es were appealed by the taxpayer and are stillpending at the Tax Tribunal.

In the process, it has come to the attentionof both the Ministry of Strategy and Finance(MOSF) and taxpayers that there is no clearstatutory guideline for determining the arm’slength guaranty fee, creating vast uncertain-ties. In an effort to reduce further confusionbetween the NTS and taxpayers, the MOSFhas enacted new rules setting forth the stan-dards of determining arm’s length guaranty

fees in the Presidential Decree under the LCI-TA (PD-LCITA).

• Main points of the amendmentThe newly amended Article 6-3 of the PD-

LCITA stipulates a set of methods for deter-mining arm’s length price, specifically appli-cable to guaranty fees. The methods stipulatedare (i) benefit approach (i.e., benefits derivedin the form of the reduced cost of raising capi-tal), (ii) cost approach (i.e., an expected loss tothe guarantor), and (iii) cost-benefit approach(i.e., a reasonable compromise between (i) and(ii)). PD-LCITA delegates the details of theseapproaches to the Ministerial Decree of LCI-TA (MD-LCITA), which was also amendedand became effective on February 23. MD-LCITA specifies detailed factors that includenot only traditional financial factors (such asinterest differentials and credit rating), but alsonon-financial factors (such as geographicalregion, industry, level of technology and mar-ket position). Article 6-3 of the PD-LCITAalso provides for a safe harbor, whereby feesdetermined by methods meeting certainrequirements would be deemed arm’s length.The amendment is applicable to paymentguarantees given after the effective date of theMD-LCITA.

• Implication for foreign-invested firmsAlthough the amendment was motivated by

the need to address the ambiguity concerningguaranty fees for Korean multinationals, the

same principle also applies equally to foreignmultinational enterprises having affiliates inKorea. This may provide a tax-saving opportu-nity for foreign multinationals with Koreanoperations. The charge of payment guarantyfees to the Korean affiliates usually subjectsthem to very strict documentation require-ments, which, in the absence of a specificstatutory guideline on what constitutes arm’slength guaranty fees, could be overbearing.The amendment could substantially amelioratethe burden by its clear stipulation of arm’slength guaranty fees and adoption of a safeharbor. As part of the tax-saving considera-tion, however, potential additional costs ema-nating from the charge of guaranty fees (suchas withholding tax and proxy VAT) should becarefully weighed against the benefits to begained. That is because guaranty fees to bepaid to a foreign parent company may need tobe withheld by an affiliated company in Koreain accordance with Korean income tax law aswell as Korean tax treaties. Further, if the pay-er of guaranty fees is a VAT-exempted entity,such as financial institutions, it should collectproxy VAT from the provider of the guaranty(i.e., foreign parent company in most cases)and pay it to NTS.

By Kyung Geun LeeTax Partner, Yulchon LLC

Ph.D. in Economics

New Tax Rules Beneficial for Foreign Investors

dfjell Terminals Korea(OTK), a Norwegian compa-ny that stores and manages

liquid cargo, today awaits thegreen light to build underground

pipelines in the Ulsan Petrochemical Complex.But the process the company went through toachieve authorization illustrates an administra-tive ping pong phenomenon at play, and howForeign Investment Ombudsman Dr. AhnChoong Yong helped resolve a situation inwhich no-one wanted to claim responsibility.

For 10 years, OTK, most of whose liquidcargo customers are chemical businesses in theUlsan Petrochemical Complex, has transport-ed liquid cargo via trucks from storage tanks atOnsan Port to the complex. While the trucksare appropriate for long-distance inland trans-port, the company determined that transportvia underground pipes would be safer andmore efficient for shorter distances. The short-est route from the Onsan Port to the UlsanPetrochemical Complex, which is still underconstruction, would be about 5km if pipeswere to be built below and along a new mainroad that runs through the industrial complex.

However, OTK discovered last year thatsuch construction would require road repaving,and that Korea’s Road Traffic Act prohibits therepaving of new roads within three years oftheir construction. So the Ulsan MetropolitanCity government suggested that the under-ground pipelines be constructed in a greenzone located along the road in the complex.

OTK came up against a challenge when itlearned that Article 22 of Korea’sEnforcement Decree of the Act on UrbanPark, Greenbelts, etc. stipulates only thatobjects including water pipes, waste pipes andgas pipes are permitted in urban parks. Thedecree did not include liquid cargo transportpipes per se. What the company discovered,though, was that according to paragraph 17 ofArticle 22, facilities with functions similar towater pipes, waste pipes and gas pipes couldbe permitted.

OTK went to the City of Ulsan for assis-

tance interpreting this information. City offi-cials requested a formal interpretation of thedecree from the Ministry of Land, Transportand Maritime Affairs. But officials from the

Ministry responded that, as it is the right oflocal governments to make such decisions, thecity of Ulsan should decide for itself whetherOTK’s liquid cargo pipelines qualified asbeing similar to the facilities already permissi-ble. OTK, wanting an explicit authoritativeinterpretation of the decree paragraph in ques-tion, turned to the Foreign InvestmentOmbudsman for assistance.

Dr. Ahn, together with Mr. Suh Sung-bong,a Home Doctor at the Office of the ForeignInvestment Ombudsman, appealed to theMinistry for the need for a higher body to pro-vide authoritative interpretation in the situa-tion. They also convinced Ministry officialsthat liquid cargo pipelines should be allowedin the green zone because, while they may notbe allowed in green zones of residential citieslike Seoul, Ulsan is a largely industrial area.Plus, it would be safer to transport liquid cargovia underground pipelines than with trucks onroads, Dr. Ahn and Mr. Suh emphasized.

Ministry officials agreed, finally and explic-itly interpreting paragraph 17 to mean that liq-uid cargo pipeliness are permitted in the urbanparks of Ulsan.

Today OTK awaits full resolution of its situ-ation, as a separate barrier remains. The com-pany needs permission to build the pipelinesunder the green zone from Ulsan’sDepartment of Parks & Green Zones. But forthe duration of the complex’s construction,this green zone falls under the jurisdiction ofthe city’s Department of IndustrialDevelopment. With the complex scheduled tobe completed this summer, the Department ofParks & Green Zones has said it will grantOTK permission once it gains managementrights for the green zone.

In the meantime, OTK is preparing to beginpipeline construction, which is slated to takemore than three months.

By Ahn Choong Yong, Ph.D.Foreign Investment Ombudsman

Distinguished Professor, Chung-Ang University

OD R . A H N , TOGETHER W I T H

M R .SUH SUNG-BONG, A

HOME DOCTOR AT T H E

OFFICE OF THE FOREIGN

INVESTMENT OMBUDSMAN,

APPEALED TO THE MINISTRY

FOR THE NEED FOR A HIGH-

ER BODY TO PROV I D E

AU T H O R I TATIVE INTERPRE-

TATION IN THE SITUAT I O N .

Accurate and Authoritative Interpretationof Regulations Needed The Foreign Investment Ombudsman helped a city and company obtain theauthoritative regulatory interpretation it needed

April 2013

Ombudsman’s Office10

April 2013

FDI Q&A 13

What are the eligibility requirementsto receive a tax reduction in an FEZ?

The Korean government allows variousbusinesses to receive tax reductions in a bidto boost foreign investment inflow into freeeconomic zones (FEZs). Since a revision ofthe relevant law last year, a number of serv-ice businesses have been added to the list ofbusinesses eligible for tax reductions. That listis below.

• Businesses with foreign investment of USD10 million or more and establishing new plantfacilities to run a manufacturing business

• Businesses with foreign investment of USD10 million or more and establishing new facili-ties to run the following businesses:

- Tourist hotel, flotel (floating hotel), tradi-tional Korean hotel

- Special recreation service, resort com-plex, amusement park

- International conference facility- Resort condominium - Youth training facility

• Businesses with foreign investment of USD5 million or more and establishing new facili-ties to run the following:

- Integrated freight terminal- Businesses that establish and operate via

joint collection and delivery centers - Businesses that run port facilities or logistics

businesses in the port hinterlands- Businesses that run airport facilities or logis-

tics businesses in an airport zone

• Businesses with foreign investment of USD5 million or more and establishing new med-ical facilities

• Businesses establishing new or expandingresearch facilities for the R&D activities ofindustry-supporting service businesses orhigh-technology businesses and meeting therequirements below:

- With foreign investment of USD 1 million orm o r e

- Having 10 or more employees with mas-ter's degrees relevant to the field of busi-ness and with a minimum of three yearsof research experience

• Businesses with foreign investment of USD10 million or more and establishing new facili-ties for one or more of the purposes below:

- Engineering- Telecommunications- Management and integration of com-

puter programming systems - Information service- Other science technology service- Production of broadcast programs such

as movies and videos / service businessesrelated to the production of movies,videos and broadcast programs / opera-tion of recording facilities / production ofother audio-related content such asmusic

- Development and production of games o f t w a r e

- Management of performance facilities,performance group-related service busi-nesses and other creative work/art

By Jay Baekb a e k j j @ k o t r a . o r . k r

+ 8 2 - 2 - 3 4 9 7 - 1 9 6 3

Jay Baek is a Senior Consultant at Invest KOREA.He has been working as a Project Manager for for-eign direct investment since 2000. He passed theU.S. CPA exam in 1999.

Tax Reduction EligibilityRequirements for FEZs

Our consultants tackle your frequently asked questions, one inquiry at a time

April 2013

Meet the Teams12

On January 1, the Korea Trade-Investment PromotionAgency (KOTRA) launched the Global M&A Centerto address the increase in global mergers and acquisi-tions (M&A), growing desire among Korean small-and medium-sized enterprises (SMEs) to pursue cross-

border M&A transactions and the new government’s pledge to activatethe M&A market in Korea. The Center will assist Korean companiespursuing small- to medium-sized cross-border M&A transactions notcovered by global investment banks or other firms.

As interest in expanding into foreign markets through M&A grows,so do the needs of Korean SMEs struggling in the pursuit of M&Atransactions. They face a lack of information regarding targets, difficul-ty obtaining accurate valuations of foreign assets, low funding, a generallack of M&A experience and other challenges. Under the leadership ofInvest KOREA Commissioner Kiwon Han, our Center aims to assistdomestic SMEs and PE/VC firms. We will support them through theacquisition of stock, business units and assets, as well as the establish-ment of joint ventures. With an emphasis on the expansion of foreignchannels, the Center aims to secure research and global core technologyfor SMEs with R&D limitations, overcome trade barriers in foreignmarkets and acquire first- and second-tier vendors to secure distributionchannels. Our strategy is to partner with foreign advisories as well asreach out and utilize our global PE/VC network to assist Korean compa-nies looking overseas for M&A opportunities.

The Global M&A Center’s network consists of KOTRA’s 10,000annual clients in addition to other domestic databases. We are in aunique position to build off of KOTRA’s reputation for reliability in theprivate sector. We will collaborate with other KOTRA teams andKorean companies to assess their overseas M&A needs, and we will useour overseas branches, called Korea Business Centers (KBCs), and aninternational network of foreign financial firms to deal source. We planto hire global experts as well.

Our operational plan involves multiple stages and two parties: domes-tic SMEs and advisories from the private sector. The first stage, identi-fying potential buyers and their needs, will be handled by our Center. Inthe second stage, deal sourcing, we will work with domestic SMEs tosearch for and screen promising targets. We will also be able to supportthe retainer fees of private sector advisories. In the next stage, deal exe-cution, we will support pre-valuation and introduce due diligence insti-tutions and M&A financing firms, as well as support due diligence fees.In the final stage, post-merger integration, we will provide local law andregulation information, introduce PMI consulting firms and supportlocal marketing through our KBC network. We will serve as an M&Amentor, leading Korean companies through all aspects of a cross-borderM&A transaction.

Korean companies are very interested in overseas M&A deals.According to a recent KOTRA survey of 1,366 SMEs, 12 percent ofthem were interested in overseas M&A. We currently support 165

M&A-interested firms, which are divided into three tiers: companieswith a clear target, plan and capital to complete M&A transactions with-in the year (tier 1); companies that intend to carry out M&A transactionsbut lack a clear target or strategy (tier 2); companies that want to pursueM&A but have done little research and are not prepared to execute atransaction (tier 3). Our goal is to increase the number of M&A-interest-ed firms to 300 by the end of this year, with 100 of them being from tiero n e .

With Han at our helm, we are confident we will achieve these goals.Prior to joining KOTRA in 2012, Han led a distinguished 25-year careeras an investment banking expert in Japan and Europe. He has success-fully executed a number of deals as the lead manager of more than 500equity transactions out of Japan, Asia and Europe and as the lead advi-sor in cross-border M&A transactions.

The Center will build a systematic deal sourcing structure through sixkey locations — Tokyo, Hong Kong, Singapore, London, New Yorkand Silicon Valley — and 36 supporting KBCs. Over time, our opera-tion will expand to include local M&A experts in London and SiliconV a l l e y .

Throughout 2013, we will host and attend a variety of events aroundthe world targeted at domestic SMEs, domestic PE/VC firms and for-eign investors. Coming up in May is the Global M&A Forum. ThePE/VC Forum, which is our largest event and attracts hundreds ofdomestic and foreign firms, advisories and institutions, will be held inSeoul in June.

By Kim Seung-ho1 9 1 0 7 1 @ k o t r a . o r . k r

Seung-ho Kim is General Director of the GlobalM&A Center. He has worked in KOTRA’s KoreaBusiness Centers worldwide, including in Japan,India and the United States. Kim has a master’sdegree in International Economics from KoreaUniversity.

An Introduction to the Global M&A Center

Ms. Jiun Park Executive Consultantjiunpark@kotra.or.kr / +82-2-3460-7627

Mr. D.C. Choi Executive Consultantdcchoi@kotra.or.kr / +82-2-3460-7585

Ms. Jennifer WanningerC o n s u l t a n tjwanninger@kotra.or.kr / +82-2-3460-7536

Contact the Global M&A Center

April 2013

Economic Indicators 15

2 0 0 8

1 , 1 0 2 . 6

2 0 0 9

1 , 2 7 6 . 4

2 0 1 0

1 , 1 5 6 . 3

2 0 1 1

1 , 1 0 8 . 1

2 0 1 2

1 , 1 2 6 . 9

Feb. 2013

1 , 0 8 6 . 7KRW-USD

Foreign Exchange Rate

GDP

Nominal (US$ million)

PPP (US$ million)GDP Growth Rate

(Y-o-Y) (%)

2 0 0 8

3 , 1 9 7 . 5

2 0 0 9

3 2 , 7 9 0 . 5

2 0 1 0

2 9 , 3 9 3 . 5

2 0 1 1

2 6 , 0 6 8 . 2

2 0 1 2

4 3 , 1 3 8 . 5

Jan. 2013

2 , 2 5 3 . 6Balance of

Current Account

(Unit: US$ million)

2 0 0 8

2 0 1 , 2 2 3

2 0 0 9

2 6 9 , 9 9 5

2 0 1 0

2 9 1 , 5 7 1

2 0 1 1

3 0 6 , 4 0 2

2 0 1 2

3 2 6 , 9 6 8

Feb. 2013

3 2 7 , 3 9 5Foreign Exchange

R e s e r v e s

(Unit: US$ million)

2 0 0 8

3 1 7 , 3 7 0

2 0 0 9

3 4 5 , 6 7 7

2 0 1 0

3 5 9 , 7 5 7

2 0 1 1

3 9 8 , 7 2 4

2 0 1 2

4 1 3 , 4 3 7Gross External Debt

(Unit: US$ million)

(Unit: US$)

Source: The Bank of Korea, February 2013

Source: The Bank of Korea, February 2013

(Unit: US$ million)

(Unit: KRW)

Foreign Trade

Exports

Imports

Trade Balance

2 0 0 8

1 9 , 1 6 1

2 7 , 7 0 7

2 0 0 9

1 7 , 0 4 1

2 8 , 0 0 8

2 0 1 0

2 0 , 5 6 2

2 9 , 9 9 7

2 0 1 1

2 2 , 4 8 9

3 1 , 7 1 4

GDP Per Capita

N o m i n a l

P P P

2 0 0 8

9 4 . 5

2 0 0 9

9 7 . 1

2 0 1 0

1 0 0 . 0

2 0 1 1

1 0 4 . 0

2 0 1 2

1 0 6 . 3

Feb. 2013

1 0 7 . 6Consumer Price Index

(Unit: %)

2 0 0 8

3 . 2

2 0 0 9

3 . 6

2 0 1 0

3 . 7

2 0 1 1

3 . 4

2 0 1 2

3 . 2

Feb. 2013

4 . 0Unemployment Rate

Source: The Bank of Korea

2 0 0 8

4 2 2 , 0 0 7

4 3 5 , 2 7 5

- 1 3 , 2 6 7

2 0 0 9

3 6 3 , 5 3 4

3 2 3 , 0 8 5

4 0 , 4 4 9

2 0 1 0

4 6 6 , 3 8 4

4 2 5 , 2 1 2

4 1 , 1 7 2

2 0 1 1

5 5 5 , 2 1 4

5 2 4 , 4 1 3

3 0 , 8 0 1

2 0 1 2

5 4 7 , 8 7 0

5 1 9 , 5 8 4

2 8 , 2 8 6

Feb. 2013

4 2 3 , 3 4 0

4 0 3 , 1 6 0

2 0 , 1 8 0

2 0 0 8

9 3 0 , 9 0 0

1 , 3 0 6 , 3 8 7

2 . 3

2 0 0 9

8 3 4 , 4 0 0

1 , 3 2 2 , 0 8 0

0 . 3

2 0 1 0

1 , 0 1 4 , 7 0 0

1 , 4 2 4 , 4 4 2

6 . 2

2 0 1 1

1 , 1 1 6 , 4 0 0

1 , 5 0 7 , 6 1 4

3 . 6

Korea by the Numbers

Korea is predicted to be the world’s 4t h richest nation by 2050,according to the Wealth Report 2012 by Knight Frank and CitiPrivate Bank, with an estimated GDP per capita of USD 107,752.The United States is expected to follow, at number 5.

(Scale: Year 2010 = 100)

April 2013

Invest Here14

The Korea National Food Cluster,or FOODPOLIS, is a govern-ment-supported food indus-trial complex focused onNortheast Asia. The com-

plex is being developed by the Koreangovernment in Iksan, North JeollaProvince with a KRW 553.5 billion(USD 496.5 million) budget and will becomplete by 2015.

Located close to China, the fastest-growing food market in the world, FOOD-POLIS is poised to become the new center forNortheast Asia’s food market, whichcaters to a population of 1.5 billion.The cluster plans to attract 160domestic and international foodcompanies and research insti-tutes, with a new industrialcomplex of 2,320,000m2

and residential area of1 , 2 6 0 , 0 0 0 m2 to serve asboth a platform for thefood industry and acultural hub.

Considering itsgeographical locationat the heart of NortheastAsia’s air and shipping logisticsnetwork, FOODPOLIS is the idealdestination to establish afoothold from which to tapinto Asia’s rapidly growingconsumer markets, includingChina and Japan.

Korea’s economic development hasbeen cited as a model case of economicgrowth due to its vibrant trade with other countries.Today, it remains essential for Korea to continue to expand its trade rela-tions. The Korean government has concluded free trade agreements with

45 countries, with represented areas including theEU, ASEAN and USA and with the FTA network

accounting for 61 percent of the global GDP.

FOODPOLIS proposes to establish a one-stop export support system to provide tenantbusinesses with comprehensive assistance,covering the entire export process. It willprovide a trade education program to helptenant enterprises gain a basic understanding

of the market as well. Also, with internationalrecruitment activities expected to attract over-

seas talent, FOODPOLIS will maintain a humanresource database from universities to help compa-

nies hire highly skilled employees. After all, Korea’seconomic success is a result of its outstanding human

resources. The country has been ranked 5t h globally for manufac-turing productivity and the OECD has benchmarked the Koreanworkforce for its high level of collaboration, work ethic and

higher education rate.

FOODPOLIS will also operate various research and develop-ment support systems that will enable tenant companies

to take care of administrative procedures such asapplication, contract signing and process manage-

ment at a one-stop venue. The program will supportmatching services, a domestic and overseas specialist

database and an industry-university network to providethe technology needed by tenant companies.

Once a business has begun operations in FOODPO-LIS, the cluster can offer one-stop comprehensive serv-ices that will include the assignment of a project man-ager to each case. In short, FOODPOLIS will serve asan ideal business partner, every step of the way.

137-809 TaeYang Building 4th Floor, Jungang-dong 40-9,Gwacheon-si, Gyeonggi-do, Korea

Tel: +82-1688-8782 eng.foodpolis.kr

Foreign Investment Zone (FIZ)

Corporate tax, income tax100% exemption for the first three years,50% reduction for following two years

Acquisition tax, registration tax and property tax100% exemption for 15 years

Exemption applied to capital goods inflow raised fromthe acquisition of new stocks

Land lease benefits (free of charge or at least 50%reduction) for 50 years, duration extendable (up to100 years)

National Tax

Local Tax

Tariff Exemption

Free / Reducedland lease

I n v e s t m e n tS u b s i d y

E m p l o y m e n tS u b s i d y

Education &T r a i n i n gS u b s i d y

Subsidy

Minimum investment amount of USD 10 million;subsidy to be provided within 5% of the invest-ed amount up to USD 4 million

USD 4 million of the maximum per company in5% of the investment amount if investmentexceeds USD 850,000

Up to USD 430 per person for up to six months /subsidy ceiling to be USD 430,000 per company

Up to USD 430 per person for up to six months /subsidy ceiling to be USD 170,000 per company

USD 90 - 430 per person for six months (maxi-mum USD 430,000)

USD 430 / month per person for six months(maximum USD 170,000)

North JeollaP r o v i n c e

I k s a n

North JeollaP r o v i n c e

I k s a n

North JeollaP r o v i n c e

I k s a n

A Convergence Cluster for the Food Industry