AUTOMOTIVEOPPORTUNITIESIN DGFEZ

03 Korea at a glance

07 Korea’s Automotive Industry

12 Daegu-Gyeongbuk at a glance

14 Automotive Industry in Daegu-Gyeongbuk

18 Competitiveness of Automotive Industryin Daegu-Gyeongbuk

21 Promising Business Areas in Daegu-Gyeongbuk

23 DGFEZ

26 Incentives

1. KOREA at a glance

◆Country Profile (2009)

Official Name

Capital

Area

Population

Language

Literacy

Religion

Climate

Time

Political System

Economy

Currency

Main Industries

Republic of Korea

Seoul

100,140㎢

49.8 million

Korean (official) / English widely used

99.9% (between 20-40)

Buddhism 24%, Protestant 23%, Catholic 8%, Other 0.8%, None 44.2%

Continental with four seasons

9 hour + GMT

Democratic Republic, Presidential System

15th largest economy (based on GDP), OECD member

South Korean Won (KRW)

IT, Electronics, Semiconductor, Automotive, Shipbuilding, Steel, Petrochemical

◆Key Economic Indicators

Source : Bank of Korea, Korea Customs Service

Source : Korea Trade-Investment Promotion Agency (KOTRA)

National GDP (USD billion)

Real GDP Growth (%)

GNI per capita (USD)

Exports (USD billion)

Imports (USD billion)

Current Account (USD billion)

Unemployment Rate (%)

CPI Inflation (%)

Treasury Bond Yield (3 year, %)

Foreign Exchange Reserves (USD billion)

Exchange Rates

won/USD

won/yen100

won/euro

2004

681

4.6

15,082

254

224

28

3.7

3.6

4.1

199

1,145

1,059

1,423

2005

791

4.0

17,531

284

261

15

3.7

2.8

4.3

210

1,024

931

1,274

2006

887

5.2

19,722

325

309

5

3.5

2.2

4.8

239

956

821

1,199

2007

1,050

5.1

21,695

371

357

6

3.2

2.5

5.2

262

929

790

1,273

2008

928

2.2

19,231

422

435

-6

3.2

4.7

5.3

201

1,103

1,077

1,607

2009

833

0.2

17,175

364

323

43

3.6

2.8

4.0

270

1,276

1,363

1,774

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1-1. A Vast Domestic Market

As the world’s 15th largest economy in terms of GDP and home to 49.8 million people, Korea offersan attractive marketplace for international investors. Korea’s tech savvy consumers interested in newand advanced technologies have been instrumental to the expansion of the domestic market in thelast decade. Korean manufacturers of the mobile phones and consumer electronics well known fortheir top quality products worldwide owe much to the discerning and difficult to please Koreanconsumers who continuously push the industry to raise the bar. This explains why consumer goodscompanies like P&G and L’Oreal, and tech firms like Microsoft, Motorola, Olympus and Siemens,are using Korea as a test market for their new products.

1-2. A Big Trading Nation

Values of Korean imports and exports in 2008 totaled USD 435 billion and USD 422 billionrespectively, equivalent to 47 percent and 45 percent vis a vis GDP. Korea is the world’s 11th largesttrader with imports and exports accounting for nearly 90 percent of the country’s GDP. Currently,Korea sells to and buys from over 220 countries around the globe with China, Japan, and the U.S. asits major trading partners. Korea’s trade with its Asian neighbors is particularly active, representingover half of the country’s total trade volume. Korea’s major export items include semiconductors,automobiles, wireless communications equipment, ships and petroleum products, while crude oil,semiconductors, natural gas, and petroleum products make up major imports.

◆Economic Growth Rate

◆ 2008 export partners ◆ 2008 import partners

Source: Korea International Trade Association

Source : Bank of Korea

1-3. Gateway to Northeast Asia

Conveniently located between China and Japan, two of the world’s largest markets, Korea lies within

an average air travel time of three hours from over 60 cities with a population of 1 million or more.

Meanwhile, the conclusion of the Korea-US FTA and Korea-EU FTA has set the stage for further

improvements in access by Korean businesses to two of the world’s largest consumer markets. Korea

signed a comprehensive FTA with ASEAN in June 2009 and an interim agreement with India in

February 2009. In addition, FTA talks are currently under way with other major markets like

Canada, Mexico, GCC, Australia, New Zealand and are due to begin with China, Japan,

MERCOSUR, Turkey and Russia shortly.

1-4. Dynamic and Competitive Market Players

Korea based firms have competitiveness on the global stage with growing popularity in international

business. Korean companies have achieved top global market shares in shipbuilding, DRAM

semiconductors and TFT-LCD displays, and rank among the top five in automobiles, steel,

petrochemicals, textiles and consumer electronics.

Industrial Complexes, home to major Korean corporations, are tremendous sources of competition

and cooperation. A joint venture between Samsung and Sony is a excellent example of productive

industrial partnerships in the LCD sector, while the takeover of Daewoo Motors by GM and that of

Samsung Motors by Renault represent success in the automotive sector.

1-5. Talented Human Resources

Koreans have earned a global reputation for their educational fervor. According to the IMD World

Competitiveness Yearbook 2010, the percentage of the Korean population aged 25~34 that has

attained at least tertiary education is as high as 58 percent. This is above the corresponding figures

for most OECD nations, excluding Japan and Canada.

In 2007, Korean students made up the largest group of foreign students both in China and in the

U.S., accounting for 36 percent and 20 percent, respectively, of all foreign students enrolled in

Chinese and U.S. schools.

The growth rate of labor productivity in Korea posted 4 percent and 5.4 percent in 2006 and 2007

respectively, which far exceeds 1.6 percent and 1.4 percent on OECD average, and is the third

highest level in the world.

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1-6. World Class R&D Centers

Korea’s state of the art IT infrastructure, competitive IT firms and technology, and innovation

friendly consumers constitute a winning combination that has attracted global IT giants to her soil.

Microsoft has opened its R&D lab for mobile technology in Korea; IBM, an R&D lab for ubiquitous

computing; and Google, an engineering lab.

Meanwhile, Motorola, Microsoft and Intel have chosen Korea as the test market to first release new

products to technology savvy and trend conscious consumers whose feedback is highly prized.

Motorola and eBay have selected Korea as their Asia Pacific head quarters from which to oversee

their business interests. Kimberly-Clark opened its first R&D center outside the United States in

Korea while Siemens and DuPont also operate a medical R&D center and a nano R&D lab,

respectively, in Korea. L’Institut Pasteur, an eminent French biotechnology institute, has also had a

research presence in Korea since 2004.

1-7. Well developed Transportation Infrastructure

Korea is located in the center of the Pacific Rim with a highly developed transportation infrastructure

such as the Incheon International Airport, northeast Asia’s air hub and the Busan port, the world’s

5th largest international port. Logistically, Korea is well connected by expressways, complemented

by a high-speed rail system, KTX that enables access to all major cities in Korea within 3 hours.

◆ Information Technology Skills (2007) ◆Patents Granted to Residents (Average 2005-2007)

source : IMD World Competitiveness Yearbook 2009

※ based on a scale of ten

2-1. Automotive Competitiveness

2-1-1. Dynamic Automotive Industry

Korea’s automotive industry ranks 5th in the world, and accounts for 10.2 percent of exports, and its

surplus accredits for two thirds of Korea’s total trade surplus. As of 2009, domestic and overseas

manufacturing reached 4.78 million units (including passenger cars, 4.29 million units) and 2.93

million units, respectively.

Korea’s automotive industry is comprised of seven auto makers, 910 Tier 1 suppliers, and thousands

of Tier 2 suppliers. As of 2008, Korea’s automotive industry employs 1.67 million, which accounts

for 7.1% of total labor market. Through high labor efficiency and cost competitiveness Korea’s

automotive industry aims at becoming the top auto manufacturer in the global market.

According to various studies like J.D. Power and Consumer Reports in 2010, the quality and

customer satisfaction of Korean automobiles have highly increased, especially durability and initial

customer satisfaction which rank 1st in the U.S. market.

2-1-2. R&D Activities

Within the auto industry, Korea ranks 2nd with 1,008 patent applications for pollution-free vehicles,

behind Japan’s 1694, but ahead of Europe (354). Hyundai Motor has developed an electric vehicle,

BlueOn which outperforms the well-known Mitsubishi i-MiEV. Currently, Korea’s alternative

energy vehicle technology is considered in the initial stage and its technology level is evaluated at

76% of the level of an advanced competitor. Korea’s level is expected to be elevated to 88% in 10

years.

2. Korea’s Automotive Industry

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2-2. Global Competitiveness

Using a global sourcing strategy to maintain cost competitiveness, Hyundai-Kia Automotive Group

(HKAG) has increased production at offshore plants from 1 million units (2006) to 1.9 million units

(2009). The most prominent of these auto plants (in 8 countries) are in China (1.03 million), the

United States (600,000), India (600,000), Slovakia (300,000), Czech Rep. (300,000) and Turkey

(100,000). This will enable HKAG’s overseas production capacity to increase to 4 million units in

2012 (from 2.93 million units in 2009).

◆Hyundai-Kia Overseas Production Bases (2010)

◆Number of Applications and Patents Registered ◆Patent Applications for Pollution-Free Vehicle

Source: Industrial Core Technologies Road Map, Korea Institute of AdvancedTechnology, 2009

Year

2000

2001

2002

2003

2004

2005

2006

2007

2008

Total

Korea

32

59

101

114

181

203

198

91

29

1,008

U.S.

39

58

87

91

96

105

157

107

124

864

Japan

123

144

186

261

240

282

283

162

13

1,694

EU

18

57

47

49

56

40

57

22

8

354

※ US Patent Registered.Korea, Japan and EU Patent Applications

HKAG pursues industry leadership, not only in terms of volume, but also in terms of customer

satisfaction and overall brand value. In particular marketing strategies like the Assurance Program

in U.S. have proven successful to upgrade its image. By focusing on customer satisfaction, product

quality, while maintaining a competitive price, HKAG is convincing car buyers that Hyundai is a

quality brand. HKAG utilizes these tactics along with other strategies: entering emerging markets

with small and medium size cars, and value-added vehicles equipped with IT convergent

technologies.

2-3. Automotive Parts and Materials

Accounting for over 3 percent of domestic manufacturing output, Korea’s auto parts market, is a

powerful engine for the Korean economy and exports within the auto parts sector totaled 11.7 billion

USD (2009). Approximately 260 foreign invested automotive parts makers have established

operations in Korea including Delphi and Visteon of the U.S., Germany’s Bosch and Siemens,

Denso and Calsonic of Japan, and Valeo from France.

2-4. Automotive Makers and Component Companies

Approximately 910 module makers are supplying parts in Korea, of which 118 are large size and

792 are small/medium size companies. Large companies have been increasing their market share

(13% in 2009 from 9.3% in 2005), while small parts suppliers are focused on diversifying their

customer base. Currently, the majority (50.1%) of SMEs are reliant upon 1 auto maker. It is

encouraging that an increasing number of suppliers (14.4%), as of 2006, have secured contracts with

Total Manufacturing

Auto Industry

Percentage

Auto Parts

Percentage

No. of Employees

2,454 thousand

259 thousand

10.55%

93 thousand

3.79%

Production Value

USD 1,009 billion

USD 107 billion

10.60%

USD 30 billion

2.96%

No. of Firms

58,459

3,037

5.20%

1,636

2.80%

Exports

USD 363.5 billion

USD 37.1 billion

10.21%

USD 11.7 billion

3.22%

Imports

USD 323 billion

USD 5.9 billion

1.83%

USD 3.4 billion

1.05%

◆Korean Automotive Industry Production

Source : Statistics Korea 2008 (2009 for exports / imports )

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at least 4 assembly firms. Korean auto parts industry held an impressive 8% (51 firms) of global

market share in 2006 up from 3% in 2001 (29 firms).

2-5. Competitiveness of Technology

The Korea Institute of Patent Information reported that engine and electrical/electronic technologies

represent the highest segment for patent applications and continues to increase (2004~2008). Patents

for engine technology have increased by 14.7% over 5 years, representing 11.9% of total patent

applications. Patents of electrical/electronic components gained 13.4%, representing 6.2 % of total

patents. Automotive material and energy technologies have also increased.

2006

8%

89.6%

88.9

1,798.2

2005

7%

88.1%

50.1

1551.4

2004

5%

88.1%

52.4

1127.5

Global market share

Domestic market share

Revenue per firm (million USD)

R&D investment (million USD)

◆Automobile/Transportation Component Industry

Source: Survey on evaluation of Korean part/materials product, KITECH (2008)

2003

4%

86.7%

43.6

892.7

◆Patents Trends of Korea’s Auto Parts

Source: Korea Institute of Patent Information (2010)

2-6. Korean Government Support for Automotive R&D

Since 2004, the Korean government has been preparing for the future demands of industry,

implementing ‘Future Automobile Development Project’. The eco-friendly vehicles development

and popularization program is designed to meet the requirements of new environment protection

laws from around the world. As of 2010, the R&D budget for this program is approximately USD 95

million, allocating USD 70 million for core technology, USD 12 million for electric vehicles, and

USD 13 million for on-line electric vehicles.

Major goals of these programs include: commercialization and standardization of core components

for EV and HV, construction of charging stations, distribution of electric cars to the public sector, and

modification of laws. As a first step, 800 electrical cars were tested by government organizations

(August~December 2010). This is part of Korea’s aggressive plan for electric vehicles to capture

10% of the domestic small car market by 2015, and reach 1 million electric cars (20% of domestic

market) with 2.2 million charging units by 2020.

In 2010, the Ministry of Knowledge and Economy (MKE) chose 10 material technologies (5 auto

related) and 20 core components technologies (3 auto related) to be applied to next generation

vehicles. Funding for auto parts and materials will be USD 130 million annually.

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3-1. Global Industrial Cluster

Daegu-Gyeongbuk is home to global clusters specialized in IT, auto and new materials. Leading

companies include: Samsung Electronics, LG Electronics, LG Display, POSCO, Samsung Corning,

ExxonMobil, Nippon Oil Corporation, Toray Advanced Materials and Asahi Glass.

3-2. Excellent Human Capital

51 universities and colleges graduate 70,000 students annually (17,000 graduates in the IT, NT, BT

and intelligent automotives). Daegu-Gyeongbuk also boasts low employee turnover (2.04%) and

was awarded the President’s Trophy for the best labor management in Korea. Moreover, Daegu

International School opened in August 2010.

3-3. R&D Hub of Korea

Daegu-Gyeongbuk offers superior and specialized R&D facilities such as Electronics &

Telecommunications Research Institute (ETRI), Korea Institute of Industrial Technology (KITECH),

Pohang Accelerator Laboratory (PAL), Pohang Institute of Intelligent Robotics (PIRO). POSTECH

and Daegu Gyeongbuk Institute of Science & Technology (DGIST).

Daegu Metropolitan City(Daegu), Gyeongsangbuk-do Province(Gyeongbuk)

Korea’s southeast region (E127。48″-131。52″, N35。34″-37。33″)

5,222,266 (Daegu 2,512,604 and Gyeongbuk 2,709,662)

19,909㎢ (Daegu 884㎢ and Gyeongbuk 19,025㎢)

Electronics, Mobile, Mechatronics, Metals, Automotive Parts, Textiles

Official Name

Location

Population

Area

Major industries

◆Region Profile (2009)

Source : Daegu Metropolitan City Government, Gyeongsangbuk-do Provincial Government

3. Daegu-Gyeongbuk at a glance

3-4. World’s Major Cultural Region

Daegu-Gyeongbuk is recognized globally with its selections to host numerous international sporting,

cultural and business events. The 13th IAAF World Championship in Athletics 2011 and the World

Energy Congress 2013 are scheduled to take place in Daegu. Daegu-Gyeongbuk maintains its

cultural significance by hosting an International Musical Festival and an International Opera

Festival. One can explore World Heritage Sites (UNESCO) such as Bulguksa, Seokguram and the

Gyeongju Historic Areas, as well as visit the birthplace of Korean Confucianism at Andong’s Hahoe

Traditional Folk Village.

3-5. Convenient Transportation Infrastructure

Daegu-Gyeongbuk connects to Seoul by KTX in approximately 90 minutes. Daegu International

Airport has direct flights to such destinations as Beijing, Shanghai, Manila and Bangkok. Gimhae

International Airport also provides international access with 17 flight routes to destinations as Tokyo,

and Hong Kong, among others. Additionally, expressways connect Daegu-Gyeongbuk to 5

international ports, which are located less than an hour away.

3-6. Comfortable Living Environment

Daegu-Gyeongbuk provides an eco-friendly living environment with energy efficient commercial,

residential buildings and convenient amenities including shopping, sporting, and medical facilities in

Daegu-Gyeongbuk.

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4-1. Overview

The automotive cluster in the Gyeongbuk-Gyeongnam region is the largest in Korea, producing

approximately 2.2 million units per year (42.5% of national production, 2008). Four automakers

Hyundai Motors, Renault Samsung, GM Korea, Daewoo Bus operate manufacturing facilities which

are complemented by surrounding industrial complexes in Steel (Pohang), IT/Mobile (Gumi), and

Machinery (Changwon).

4. Automotive Industry in Daegu-Gyeongbuk

◆Auto parts suppliers in Daegu Gyeongbuk

Source: DGFEZ

※ GM Korea replaced the GM Daewoo brand in 2011.

Company

Hyundai Motors

Renault Samsung Motors

GM Korea

Daewoo Bus

Main Car Model

Elantra, Genesis, Azera, SantaFe, etc.

SM3, SM5, SM7, QM5

Chevrolet(Cruise, Spark)

BX, FX, BH, BS series

Capacity (million /yr)

1.7

0.3

0.21

0.009

◆Major Automotive Companies in Daegu Gyeongbuk

Plant Location

Ulsan

Busan

Changwon

Ulsan, Busan

Total Capacity in Daegu Gyeongbuk 2.219

4-2. High Quality Human Resources and Research

As of 2009, 15,000 students are enrolled in programs for automotive engineering, advanced

materials and mechanical engineering at prestigious institutions such as POSTECH, Kyungpook

National University, Keimyung University and Yeungnam university.

Many research and testing institutes have teamed with private companies to conduct product

testing/measurement, evaluation and core technology development. Within the machinery sector,

DMI (Daegu Machinery Institute of Components and Material Foundation) possesses core

technologies and POMIA (Pohang Institute of Metal Industry Advancement) has developed

advanced metal/material technologies. Components research (sensor and embedded systems) is

carried out by DGIST (Daegu Gyeongbuk Institute of Science and Technology), while module-

based research is done at IT/Automotive Innovation Center. In addition, Gyeongbuk Hybrid

Technology Institute is conducting R&D activities for lightweight vehicles.

4-3. Daegu-Gyeongbuk’s auto parts makers

As of 2010, approximately 1,500 auto parts suppliers can be found in the Daegu-Gyeongbuk region.

Considering that Hyundai Motor plays the leading role (75% of auto production) in Daegu-

Gyeongbuk, it is not surprising that the majority of auto suppliers (63% in Daegu, 72.5% in

Gyeongbuk) have a business relationship with Hyundai Motor. For the most part, these companies

are located in the cities of Daegu, Gyeongju, Gyeongsan and Yeongcheon. While many of these

companies have less than 50 employees, several auto parts suppliers are thriving with over 20

companies recording annual sales over USD 100 million.

Daegu 54

Gyeongbuk 69Region

Hyundai

34(63.0)

50(72.5)

Kia

2(3.7)

1(1.4)

GM-Korea

11(20.4)

7(10.2)

Ssangyong

1(1.8)

1(1.4)

Renault-Samsung

1(1.8)

7(10.2)

Daewoo Bus

2(3.7)

1(1.4)

Other

3(5.6)

2(2.9)

◆Relationships between Tier 1 suppliers and automakers Unit: Tier 1 supplier, (% of total suppliers)

Tier 1 suppliers to auto makers

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◆Major Automotive Parts Companies in Daegu-Gyeongbuk(over USD 100 million revenue)

Company Name Revenue (Million USD) Items Location

Hyundai Mobis 9,663.6 module, AS parts, air bag Gimcheon

Korea Delphi Automotive Systems 1,009.4 energy& engine,chassis/thermal/steering/driveline/safety systems, car electronics

Gyeongju

Sungwoo Automotive 463.8 engine/chassis/transmission parts, alloy,wheel, battery Pohang

Delphi Automotive Systems 387.5 recliner, track, height adjuster, latch, swivel&removal, seat Daegu

Ecoplastic 330.9 bumper, trim Daegu

SL 297.3 head/rear/fog lamp, chassis Gyeongsan

Valeo Electrical Systems Korea 291.8 engine/electrical systems Daegu

Pyeonghwa Automotive 272.3 latching system, system module, hinge, striker,door checker Gyeongju

PHC Valeo 266.0clutch disc, clutch cover, release bearing, facingSAT/, SATIC, hydraulic products, torqueconverter, DMF

Gyeongju

Samwon Steel 194.2 multi-leaf springs, parabolic leaf springs Pohang

SL Lighting 186.1 head/rear/fog lamp, washing system Daegu

Korea Powertrain 177.4 torque converter, engine pulley, A/T parts, M/Tparts, engine parts Gyeongju

Iljin BearingIljin Bearing 152.2 door checker, tie rod, corner module, ball joint,wheel bearing Daegu

Sangsin Brake 136.2 brake pad, brake shoe assembly, brake liningbus/truck, brake assembly Gyeongju

Pyunghwa Oilseal Industry 134.7 bearing/diff,side/water/axle/engine/ shockabsorber/lip/valve stem seals Gyeongju

Kyungchang Industrial 129.4 cable, tank, pedal, lever Gyeongju

Daechang Seat 127.5 front/rear seat frame assembly, spare tirecarrier Daegu

Kwangjin 116.0 regulator, door module, body parts Daegu

Shinyoung 114.4 fender, t/gate, hood, back, RAD SUPT COMPL Yeongcheon

Youngshin Precision 109.6 power steering oil pump, hydraulic valve lashadjuster, mechanical lash adjuster, MDPS part Daegu

Sambo Motors 105.5 transmission parts, engine parts, fuel parts Gyeongju

4-4. Specialized areas of Daegu-Gyeongbuk’s auto part makers

Body/chassis components such as door frames and seat frames are the most commonly

manufactured item (34.5%) in Daegu-Gyeongbuk. This is followed by engine components (16.6%)

and electric/electronics parts (10.9%). With regional auto manufacturers specialized in

manufacturing process engineering and press molding, Daegu-Gyeongbuk has a competitive edge in

automotive parts/materials manufacturing and high tech electric/electronics parts.

1.0

0.8

1.5

1.0

1.5

1.3

0.8

0.6

1.2

1.1

0.8

Gyeonggi

Seoul

Ulsan

Incheon

Daegu

Jeonbuk

Daejeon

Gyeongbuk

Busan

Gwangju

Gyeongnam

BRAKE

1.1

1.0

1.0

0.6

1.3

1.0

0.6

0.4

1.1

1.1

1.6

DRIVE,T/M

1.0

1.2

0.3

1.0

1.5

0.6

1.8

1.8

1.1

0.9

1.0

ELECTRICALPARTS

1.1

1.1

1.0

0.8

1.1

0.8

0.8

0.4

0.9

1.0

0.8

ENGINE

1.0

1.2

1.0

1.9

0.4

0.3

0.4

0.4

0.4

0.3

0.6

INTERIOR

1.1

0.8

1.0

0.8

1.5

0.9

0.2

0.4

0.8

0.5

1.0

STEERING

1.0

0.8

1.5

0.8

0.5

3.3

0.3

0.3

0.7

0.9

1.2

Suspension

0.7

0.7

0.6

0.5

1.0

0.6

1.8

8.3

2.1

0.9

3.1

MaterialsRegion

◆Regional Index of Patents in Korea

※ Base is 1.0Source: Korea Institute of Patent Information, 2010

◆Percentage of Manufactured Items in Daegu-Gyeongbuk

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5-1. Raw Materials

Automotive parts complexes in Daegu-Gyeongbuk offer convenient access to materials companies

producing aluminum, magnesium, steel, and plastic. Single component makers account for 55%,

followed by 12% for large module makers, and 33% for other products. Three hundred large and

medium size companies produce steel products (150) and non-steel products (150), in addition to

molding and casting companies (120 cast iron, 80 non steel) and plating firms (300) playing a

fundamental role.

5. Competitiveness of Automotive Industry in Daegu-Gyeongbuk

◆Daegu-Gyeongbuk Automotive Industry Value Chains

Source: Daegu Gyeongbuk Development Institute

5-2. Processing and Machinery

The systematic structure of the auto supply chain has resulted in highly specialized segments with

strong cost competitiveness; particularly in the raw materials and processing industry. Local metal

companies have advantages in hot rolling, extrusion manufacturing process, and tempering skills for

non-steel like magnesium and aluminum. Notable complexes include plating and molding in Daegu,

and molding in Gyeongbuk.

Highly competitive edge in process/manufacturing machineries provide a competitive advantage for

Daegu-Gyeongbuk automotive electrical/electronics, auto chassis components and power train

products in Korea. Construction machineries have also gained competitiveness through government

programs and incentives.

5-3. Local Government support for auto parts industry

The governments of Daegu and Gyeongbuk have implemented several programs to support the

automotive industry. Research for high efficiency/high performance/lightweight automotive

components will be carried out at KATECH (Korea Automotive Technology Institute) Daegu

Branch and Daegu Gyeongbuk Auto Parts Development Association.

Another key initiative is a USD 145 million Green Car Components Project. Daegu-Gyeongbuk is

developing eco-friendly automotive technologies, such as ultra-light material manufacturing, low

emission components and advanced automotive that are aided by superior IT infrastructure and

automotive electronics industry.

◆Major Industrial Distribution in Korea(No. of employees)

<Metal/Materials> <Machinery> <Automotive>

No. of employees

10~5051~150151~400401~800800~

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A Proving Ground for Intelligent Vehicle & Transport System is currently under construction within

the DGFEZ Daegu Technopolis district. This facility (USD 88 million, 385,000㎡) will be Korea’s

first public automotive testing facility, and part of a greater development plan to become specialized

in intelligent automotive components R&D and manufacturing. Additionally, Gyeongbuk Provincial

Government plans to establish Institute of Construction Machineries Components Technology in the

DGFEZ Gyeongsan R&BD District.

◆Major Support Programs

Program Description Period Funding

Mechatronics Supporting and planning mechatronicsproducts development

2010~2013(4 years)

KRW 5.4billion

Green CarComponents

Supporting and planning for 4 advancedtechnologies.Setting up test & evaluation infrastructure,developing secondary battery component

2010~2013(4 years)

KRW 66billion

Metal Product CompetitiveEnhancement

Improving metal products CompetitivenessSupporting pilot product development

2010~2013(4 years)

KRW 4.6billion

Hybrid Car Components/Materials Enhancement

Hybrid car components developmentEnvironment Friendly vehicle componentsdevelopment

2010~2013(4 years)

KRW 4.6billion

※ 1 USD = 1,100 KRW

6-1. Intelligent Automotive Components

Possessing a competitive edge in mobile and electronics technology, Daegu-Gyeongbuk has beencarrying out intelligent automotive development project. As a part of this project a ProvingGround for Intelligent Vehicle & Transport System is currently under construction within theDGFEZ Technopolis district. This facility (USD 88 million, 385,000㎡) will be Korea’s firstpublic automotive testing facility, to become specialized in intelligent automotive componentsR&D and manufacturing. Due to strong automotive manufacturing potential coupled with a high-levels of IT technology, Korea’s intelligent automotive market is expected to grow to KRW 48trillion by 2015, occupying 60% of the auto industry.

6-2. Hybrid and Electric Vehicles

According to the Ministry of Knowledge Economy. Korea auto manufacturers will produce 1.2million green cars by 2015, exporting 900,000 units. Hyundai-Kia released its first full speed electricvehicle, BlueOn, to the public sector and will release BlueOn commercially in 2013. A hydrogenvehicle, i-Blue (HKAG), will be introduced in 2011 as a pilot product (1,000 units) with massproduction (10,000 units) scheduled for 2015.

6-3. Secondary Battery

Over USD 430 million of foreign investment has been recorded in the secondary battery industry inGyeongbuk Province, particularly in the city of Gumi. The attractiveness of the region is due itsequidistance from Korea’s two largest automotive secondary battery producers: LG Chem (Ochang)and Samsung SDI (Ulsan). Foreign investments have been concentrated on carbon materials,separators and core materials for lithium ion batteries and other advanced batteries.

6-4. Lightweight Components

Daegu-Gyeongbuk controls 52% of Korea’s metal industry, and the bulk of R&D is carried out inthis region. R&D centers are developing high strength/lightweight components and materials toimprove the performance and fuel efficiency of vehicles. The main focus of their research will be on;aluminum chassis, ultra light automotive components, magnesium molding & die casting, plasticextrusion molding and heat & surface treatments.

6. Promising Business Areas in Daegu-Gyeongbuk

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6-5. Bus and Special Vehicles

KIMM (Korea Institute of Machinery and Materials) and Daewoo Bus plan to manufacture hybrid

diesel buses by 2012. The hybrid buses are expected to exceed the performance and efficiency of

existing Euro 4 Diesel buses, with 40% better fuel mileage, and 20% less carbon emission.

Gyeongbuk Provincial Government plans to establish Institute of Construction Machineries

Components Technology in the DGFEZ Gyeongsan R&BD District to foster the growing special

vehicle market.

6-6. Imports of Auto Parts

Major imported components are gear box/transmission, diesel engine components, airbag

component, fuel pumps and brake parts. Automatic transmission/gear box are the largest import

accounting for approximately 27% of total auto part imports.

6-7. Future Prospects

Considering high levels of IT and battery technology, Korean auto industry will increase its global

presence through expansion to BRIC markets. The implementation of trade agreements such as the

Korea-India CEPA (2010), Korea-EU FTA (July 2011), Korea-US FTA and Korea-Peru FTA (est.

2011), will also benefit Korean-based auto component companies.

Gear Box, Transmission

Diesel engine components

Airbag components

Fuel pumps (internal combustion engine)

Brake parts

Others

Total

2008

1,212,621

410,494

239,024

170,441

159,635

2,155,927

4,348,142

2009

900,597

320,573

166,771

120,874

150,541

1,719,316

3,378,672

◆ Imports of Major Automotive Components

Source: Korea International Trade Association (2010)

Unit : thousand USD

2010(Jan~Nov)

1,231,236

410,348

203,065

170,040

212,975

2,267,687

4,495,351

7. DGFEZ

Daegu Gyeongbuk Free Economic ZoneSoutheast region of Korea34.09㎢ (Daegu, Gumi, Gyeongsan, Yeongcheon, Pohang)IT Convergence, High-tech Transportation Components, Green Energy,Knowledge-based Service

Official NameLocationAreaMajor Industries

District Area Target Businesses

① Gumi Digital 6.24㎢ solar PV, secondary battery, next generation display

② Daegu Technopolis 7.27㎢ solar cell, fuel cell, futuristic automotives

③ International Culture Industry 0.07㎢ software development, broadcasting(IPTV)

④ Suseong Medical 1.79㎢ foreign hospital & medical school, medical tourism, medical devices

⑤ International Fashion Design 1.18㎢ fashion school, commercial facilities

⑥ Daegu Innovation 1.03㎢ medical equipment, new medicine development, medical R&D

⑦ Gyeongsan R&BD 6.27㎢ RFID, LED, medical equipment, construction machinery

⑧ Yeongcheon Industry 1.67㎢ automotive parts & materials, intelligent ship components,aerospace

⑨ Yeongcheon High-Tech Park 5.40㎢ mechatronics parts & materials, intelligent automotive parts& materials, logistics

⑩ Pohang Fusion Tech 3.76㎢ fuel cells, wind power, new materials

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7-1. Daegu Technopolis

■ Location : Dalseong gun, Daegu

■ Area : 7.27㎢■ Development period : 2006~2013

■ Land available now

■ Targets : Solar cell, Fuel cell, Futuristic automotives

Daegu Technopolis is designed to become a research &business development hub. Various national institutes anduniversity branches specialized in cutting-edgetechnology and science are in the process of locatinghere.The Korea central government designated DaeguTechnopolis as a Special R&D Zone (Jan. 2011),enabling tenant companies greater opportunities toparticipate in national projects and receive increasedincentives. The district received another boost whenHyundai IHL announced that it will begin construction ofa USD 100 million manufacturing and R&D facility forautomotive LED lamps in April 2011.

◆ Land use plan

◆Overview

Total Industrial andR&D facilities

Commercialfacilities

Residential andsupport facilities

Public facilities(incl. Green area)

Area(㎡) 7,265,599 2,910,546 122,042 1,504,832 2,728,179

Total(%) 100,00 40.05 1.68 20.72 37.55

7-2. Yeongcheon Industry District

■ Location : Yeongcheon City, Gyeongbuk■ Area : 1.67㎢■ Development period : 2008~2012■ Land available now■ Targets : Automotive parts and materials, Intelligent

ship components, Aerospace

Yeongcheon Industry District is being developed as asupply base for components used in vehicle, shipbuilding,aerospace and wind power.Yeongcheon is located in the middle of the auto valleywhich links the automotive, shipbuilding and wind powersupply chains and thus plays a pivotal role in theproduction and supply of mechatronics parts.Relying on its attractive location just 50 minutes fromDaegu and Busan, Yeongcheon Industry District offersinexpensive land (approx. KRW 120,000/㎡) andconvenient access by ground (500m from YeongcheonIC), sea (50min. to Busan and Pohang Port), air (50min. toDaegu and Gimhae International Airports) and rail(10min. from train station).

◆ Land use plan

◆Overview

Total Industrial andR&D facilities

Commercialfacilities

Residential andsupport facilities

Public facilities(incl. Green area)

Area(㎡) 1,668,614 1,088,757 42,564 3,924 533,369

Total(%) 100,00 65.25 2.55 0.24 31.96

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◆ Tax benefits

Eligibility- Manufacturers, tourist hotels, general facilities and seminar halls : Over USD 10 million of FDI- Logistics and medical facilities : Over USD 5 million of FDI- R&D facilities : Over USD 1 million of FDI

Financial Assistance- Tariff on capital goods : 5 years exemption- Acquisition and property taxes : Exemption 100% for 15 years- Income and corporate taxes : Exemption 100% for 3 years and 50% for 2 years

Tax benefits for foreign workers : Uniform 15% tax rate appliedTax benefits for foreign engineers : 50% income exemption for 2 years

Manufacturers : Over USD 30 million of FDITourists : Over USD 20 Million of FDILogistics : Over USD 10 Million of FDIR&D Facilities : Over USD 2 million of FDI

Income and corporate taxes :Exemption 100% for 5 years and 50% 2 years

◆ Financial support

Building lots supported and distributed at low price for foreign enterprises.National and public property : Rental fee reduced, private contractFinancial support for the construction of main infrastructure.

◆ Labor environment

Provisions of labor standards act notapplicable to DGFEZ Details

Employment quotas No obligation to fill quotas for special classes of workers [elderlyworkers, veterans and workers with disabilities]

Restriction on labor Employers will have greater freedom to hire temporary workers forlonger period

Mandatory paid leave Employers are not required to offer paid leave to employers or paidspecial monthly leave for women[but must offer unpaid leave]

◆ Better living conditions for foreign residents

Measures to improve living conditions Details

Education Operation of Daegu International School [K-12]

Broadcasting Establishment of additional foreign language radio station Increased foreign language television channels

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