Samil PricewaterhouseCoopers’ 2016 Foreign Business Executive Survey: Korea Remains an Attractive Destination for Foreign Direct Investment, But There are Areas for Improvement

In early 2016, Samil PricewaterhouseCoopers embarked on an ambitious undertaking to conduct a survey to gather the views of business executives from foreign-invested companies doing business in Korea.  The goal was to capture different perspectives and experiences but with a view towards identifying common themes. 

Our survey was formatted as a questionnaire primarily comprised of open-ended questions as opposed to traditional rating scales and ranking questions. This allowed us ask more thought-provoking questions and encouraged the participants to elaborate on their responses. 

The survey was written to cover four topics: market outlook, workforce, regulatory environment, and culture. In the end, the assortment of responses obtained were as interesting and colorful as they were informative and insightful.  

In total, 73 foreign executives participated in the survey: the respondents represented a diverse range of industries based in 16 different countries located in North America, Europe and Asia (including Australia). 45% of the respondents were based in Europe, 40% in North America, and 15% in Asia Pacific. The executives came from a wide range of industries, spanning from financial services to manufacturing.

The following is a summary of the key takeaways from the survey:

  • Korea is generally viewed as being an important and attractive market with a positive outlook, which is actually quite remarkable when considering Korea’s status as a mature economy and the limited size of its domestic market.  Indeed, many executives felt that having a meaningful business presence in Korea helped facilitate business opportunities with local companies including the chaebols that can extend well beyond Korea’s borders.   
  • Some of the more attractive features of Korea that were cited by respondents include the dynamic nature of the market and ability to quickly adapt to change. Respondents were also highly complimentary of Korea’s reliable and advanced infrastructure as well as the availability of a highly educated work force characterized by its strong work ethic.  The majority of respondents were optimistic of growth prospects and plan to increase investments and headcount.
  • A few of the less desirable attributes of Korea that were mentioned by survey participants include the difficult regulatory environment, a perception that Korea suffered from saturated markets in certain sectors and some unique cultural challenges.  Other issues that were mentioned include: high labor costs, inflexible labor market, intense competition from domestic companies, perceived discrimination from consumers and regulatory bodies. 
  • While the majority of respondents viewed Korea’s high quality workforce as a valuable asset, some noted challenges finding talent at more senior levels of management.  Others cited difficulties in recruiting employees possessing sufficient English communication skills.  A few respondents also expressed frustration competing with local companies for talent in certain disciplines, like engineering.  
  • The majority of respondents view Korean labor regulations as being excessively rigid, particularly regarding terminating employment.  Respondents stated that this results lower levels of productivity but also has the unintended consequence of restricting ability to recruit new employees.  Executives also felt that an inordinate amount of time was spent dealing with unions and negotiating collective bargaining agreements.
  • Korea’s regulatory environment is considered to be the most significant obstacle facing foreign companies doing business in Korea.  Respondents cited the lack of clear and transparent regulations, the introduction of Korea-unique standards and/or discriminatory policies, and aggressive compliance audits and investigations.  
  • While just over half of all respondents indicated that their organizations were benefitting from Korea’s network of free trade agreements (FTAs), some mentioned difficulties in fully capturing benefits due to lack of proper FTA implementation.  
  • Despite representing a wide range of industries, nearly all respondents felt that the Korean market was highly competitive.  Approximately two-thirds of respondents felt that they were not competing on a level playing field relative to local companies. 
  • North Korean rhetoric and missile tests notwithstanding, the overwhelming majority of respondents do not believe that instability on the Korean peninsula has a significant impact on their local business operations.  
  • From a cultural perspective, respondents indicated that Korea’s hierarchical corporate culture and language barriers represent the most significant management impediments and seemed to stifle innovation and creativity in the workplace and foster inefficiency.  At the same time, respondents also praised local employees for their deep sense of loyalty, willingness to make personal sacrifices and highly disciplined work ethic.  

While it is important acknowledge that this survey provides valuable insight into Korean business environment to potential foreign investors and firms, it should not be misinterpreted as a representation of the collective views of all foreign business executives in Korea. 

The survey highlighted key areas of Korean business environment that foreign executives found attractive, such as strong work ethic and current dynamic market. It also shed some light on the critical challenges of conducting a business in Korea including the language barrier and rigid regulatory environment. 

Henry An, Samil PwC Partner and Inbound Leader, says: 

“Korea clearly remains a relevant market for foreign investors and continues to attract foreign investment. To the extent that Korea can continue to leverage its inherent strength and improve on areas identified as shortcomings, it appears that Korea will be well positioned to become an even more attractive place to do business and entice further foreign direct investment in the future.”