Direct investment by foreign small, medium firms rising

Following the lead of multinational corporations, foreign small and medium enterprises (SMEs) are rushing to make direct investments in Korea.

In particular, a large number of Chinese traders are coming here to set up small and mid-sized companies to engage in retail and wholesale businesses, industry sources say.

According to the Ministry of Commerce, Industry and Energy, foreign direct investment cases in January exceeded the 300-mark for the first time in the nation's history.

The amount of dollars invested here stood at $1.12 billion for January, up 15.9 percent from the same month a year earlier, while the number of investment projects came to 302, up 130.5 percent from last year.

With the number of foreign direct investment cases recording a monthly average of about 100 between 1995 and 1998, the January figure represents a sharp rebound, a ministry official said.

According to the ministry tally, two foreign companies - Anam ATI of the United States and Softbank of Japan - invested more than $100 million.

Thirteen investment projects ranged from $5 million to $100 million, while the remaining investments involved less than $5 million.

Smaller scale investments have been rising sharply and jumped to $54 million in 113 investment cases in January this year from $37 million in 80 cases last year.

"The recent rise in small-scale foreign direct investment shows that the base for foreign investments in Korea is expanding," says Park Pong-kyu, a ministry director for international cooperation and investment.

Foreign small and mid-sized firms' investments are focusing on sectors such as trading, electronics and information and communication.

Of the total investment reports in January, 138 cases involving $20 million were related to trading business, sharply up from 42 investment reports during the same month last year.

The Korea Trade-Investment Promotion Agency (KOTRA) says that the sharp rise in reported foreign investments in trading business results from Chinese retail traders' rush to set up small trading companies.

"An increasing number of Chinese merchants have been making direct investments to establish small trading firms since last June," says Shim Yoon-su, head of KOTRA's assistance center for foreign investment.

Meanwhile, a recent survey on 75 chief executive officers of foreign-invested firms operating here showed that 72.6 percent plan to increase their investments this year.

According to the survey by the Korea Industrial Research Institute, 25.7 percent of the respondents replied that they intend to increase their investments sharply this year.

In contrast, 25.5 percent plan to maintain their investments at current levels, while only 2 percent reduce their capital spending this year, the survey indicated.

About 42 percent of the foreign CEOs answered they plan to expand investments in order to boost their market shares here, while 20 percent intend to increase capital spending to develop new products or improve their competitive edge.