KOTRANews 3pKOTRA & Invest KOREA

December 2016www.kotra.or.kr www.investkorea.org EXPRESS

Introducing Korea's 15p SMEsEconomic Indicators

Michael Grund Managing Director Merck Korea

IndustryEconomicAnalysis

Zone

EventOverview

WHAT DOES A TRUMPVICTORY MEAN FOR

KOREA?

KOREA’S FOREIGNINVESTMENT

OMBUDSMAN SYSTEMINTRODUCED AT

WORLD BANK GROUPFORUM 2016

TRENDS ANDPROSPECTS OF

KOREA’S AI INDUSTRYIN 2017

POHANG CITY, THEDRIVER OF ALL

THINGS SCIENCE

INTERNATIONALBUYERS AND KOREAN

COMPANIES FORGENEW PARTNERSHIPS AT

GP KOREA 2016

Ombudsman'sOffice

Read on page 10 >>

AACCCCEELLEERRAATTIINNGGDEVELOPMENT

Korea News 4pTrade News,Government & Policy

5p 8p 12p 13p

6p

For Merck,Korea isn’t just a place for business—

it’s a place for strong collaboration and innovation

KOTRA's Services 14p

Greetings From KOTRA

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Sincerely,

On behalf of the Korea Trade-Investment Promotion Agency (KOTRA), let me welcome you to the newly

launched KOTRA Express, an all-English magazine that covers everything you need to know about Korea’s

economy, trade and investment environment.

We’re well aware that a growing number of foreign investors and buyers want to know more about doing

business in Korea and with Korean companies. In order to meet this growing interest, KOTRA Express will

serve as a channel informing readers with the latest and most up-to-date information on Korea’s economic

landscape.

On that note, KOTRA Express will contain in-depth success stories, economic analyses and event overviews

of major KOTRA events for foreign companies, international buyers and Korean SMEs. The magazine also

offers insight into how you can more easily work with Korean companies through KOTRA’s services. Not

only that, we’ve included information on the latest trade news relevant to your business so that you can better

prepare for any possible market changes.

Korea’s economy is changing rapidly, which means we need to make profound changes to how we relay

such information to our readers. As such, we’ll continue to think of ways to improve our channel of communi-

cation with you. If you have any suggestions on how we can KOTRA Express can better suit your needs, we’re

always ready to listen.

Dear Readers,

Jaehong Kim / President & CEO of KOTRA

03

The 5th K-GLOBAL Silicon Valleywas held from Nov. 2-3 under the theme‘4th Industrial Revolution’. It drew atotal of 1,500 participants from compa-nies and start-ups from the virtual reality(VR), artificial intelligence (AI), Internetof Things (IoT) and autonomous vehicleindustries.

This year’s event was co-organized bythe Korea Trade-Investment PromotionAgency (KOTRA)’s Silicon Valleyoffice, National IT Industry PromotionAgency (NIPA) and the Ministry of

Science, ICT and Future Planning(MOTIE). It consisted of 1:1 export con-sultations, start-up pitches, job fair andinvestment promotion forums. In particu-lar, participants discussed the futuredirection of innovation taking place inKorean companies.

Officials from Seoul Metropolitan Cityand Jeju City also participated in theevent to showcase their VR andautonomous driving technology. In addi-tion, a total of 20 companies held jobinterviews with prospective employees.

On Nov. 9-10, MOTIE and KOTRAheld the Korea Consumer GoodsShowcase 2016 in the city of Ilsan withthe aim of expanding exports of Koreanconsumer products.

Co-organized by the Korea Institute ofDesign Promotion, the event featured a1:1 business meeting pavilion in conjunc-tion with Korea’s largest premium con-sumer goods exhibition, Design Korea2016. A total of 100 distributers from 13countries and 450 Korean design compa-

nies participated in the event.Doo Young Kim, Executive Vice

President of Strategic Marketing atKOTRA, said, “It is critical to leverageKorea’s strengths such as design andconsumer goods into key export items inthe future. We will not only focus onexporting more consumer goods to majormarkets, but also on increasing the over-all exports of Korean consumption goodsby location-specific marketing strate-gies."

K-GLOBAL SILICONVALLEY 2016 DRAWSLARGE CROWDS

KOTRA HOLDS KOREACONSUMER GOODSSHOWCASE 2016

KOTRA HOSTS GLOBALHALAL MARKET FORUM

On Nov.17, KOTRA hosted the GlobalHalal Market Forum in Seoul. The forumaimed to analyze the current status of theglobal halal market and to suggest effec-tive market entrance strategies forKorean companies.

A total of 200 Korean companiesattended the forum, reaffirming theirkeen interest in the fast-growing halalmarket.

The forum also took a closer look atMalaysia and Indonesia’s halal certifica-tion system. The world’s representative

halal certification institutes, Malaysia’sJAKIM and Indonesia’s MUI, explainedin details the policies and procedures ofthe certification system.

IK HOSTS KOREAN-GERMAN INVESTMENTFORUM

On November 3, Invest KOREA, thenational investment promotion arm ofKOTRA, and the German state ofHessen co-hosted the Korean-GermanInvestment Forum coinciding with thearrival of the investment delegation ledby Deputy Prime Minister and Ministerof the Economy of Hessen, Tarik Al-Wazir. With the support of the Korean-German Chamber of Commerce andIndustry, about 100 delegates fromHessen Trade and Invest, foreign-invest-ed companies and Korean companiesattended the forum.

Located in Hessen, Germany, Frankfurtis home to the largest Korean economiccommunity in Europe. Hessen has

become a gateway to Europe for Koreancompanies by providing connections toclients faster than any other region inEurope. Through this forum, practicalinformation for Korean and foreign com-panies looking to enter the Korean andGerman market was provided and isexpected to help companies plan theiroverseas expansion in the future.

KOTRA News

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On Nov. 16, 2016, South Korea andsix Central American countries (CostaRica, El Salvador, Guatemala, Honduras,Nicaragua and Panama) reached anagreement on a free trade deal. The annu-al trade volume between these two eco-nomic blocs stands at around USD 4-5billion. The Korea-Central America FTAis expected to rapidly spur each other’s

economies. Each country has adoptedvarying degrees of tariff reduction on dif-ferent sectors, citing market sensitivity asthe reason. It is all the more meaningful,however, as this is the first case for thesix Central American countries to con-clude a free trade deal with an Asiancountry.

South Korea and Vietnam are expectedto sign a deal for the Mutual RecognitionArrangement (MRA) of the AuthorizedEconomic Operator (AEO) program bythe end of this year, which will boostbilateral trade by providing an export-import fast track with simplified clear-ance. Under the AEO program, when anindividual satisfies the security manage-ment requirements of customs (law,internal control system, and safety stan-dards, etc.), Customs accredits the person

as an Authorized Economic Operationand provides the individual with prefer-ential treatment during the clearanceprocess.

As Vietnam is in its initial stage ofadopting the program, Korea CustomsService is stepping up efforts to becomethe first country to strike the MRA dealwith Vietnam. The two countries areexpected to make a deal by the end ofthis year.

Trade News

S.KOREA-CENTRALAMERICA FTA TO TAKEEFFECT

S.KOREA-VIETNAM AEOMRA TO SERVE ASEXPORT-IMPORT FASTTRACK

S.KOREA-EAEU FTANEGOTIATIONS TOSTART IN EARNEST

South Korea and the Russia-ledEurasian Economic Union (EAEU) willexpedite negotiations for a free tradeagreement. As Russia, the centerpiece ofthe regional economic bloc, started nego-tiations with Korea, the FTA negotiationswill no longer be pursued at a private lev-el but at a governmental level.

Launched in Jan. 2015, the EAEU

comprises of Russia, Kazakhstan,Belarus, Armenia and Kyrgyzstan. Theregional bloc has a total population of180 million. With the implementation ofthe FTA, both countries will significantlyexpand their economic territory and findnew growth momentum by boostingsluggish bilateral trade and investment.

Government & Policy

SEOUL CREATES A R&D‘CONTROL TOWER’FOR FOURTH INDUS-TRIAL REVOLUTION

Seoul Metropolitan City is planning toestablish the Seoul Science andTechnology Research Institute to coordi-nate R&D projects in the artificial intelli-gence, big data and IoT industries, whichwill become important pillars of thefourth industrial revolution. City authori-ties said that the institute aims to improve

the city’s innovation-driven global com-petitiveness while nurturing science andtechnology that befit regional characteris-tics. The city government said that theywill analyze case studies to predict howindustries will change in 10 years andwhat impact such changes will have onlocal communities.

S.KOREA-JAPANCHAMBERS OFCOMMERCE &INDUSTRY HOSTSUMMIT

The Korea Chamber of Commerce andIndustry (KCCI) and the JapaneseChamber of Commerce and Industry(JCCI) hosted the 10th Korea-JapanChambers of Commerce and IndustrySummit Meeting on Nov. 8 at theSheraton Grand Incheon Hotel. About 30officers of the chambers of commerce ofboth countries, including KCCIChairman Park Youngman and JCCIChairman Akio Mimura, attended theevent to discuss mutual assistance and

cooperation in the newly-rising indus-tries.

KCCI Chairman Park said that amidthe stagnant global trading market, bothcountries should tap into abundantgrowth opportunities in the emergingeconomies’ infrastructure market. Parkalso added that both countries shouldexpand their scope of bilateral coopera-tion in the state-of-the-art infrastructureindustry, which in turn will create newgrowth momentum for Korea and Japan.

Korea News

After Donald Trump’s surpris-ing upset win at the U.S. pres-idential election, many coun-tries—if not the entire

world—are wondering what this victorymeans for their own economy. Given thatMr. Trump has quite the reputation forbeing eccentric and somewhat bizarre,many worry that he might carry out thesame eccentric and bizarre ideals in hispolicies. But would he? The answer is no.Running a country is not the same as run-ning a company. In a private company,the CEO may be able to call all the shots,but the president of the United States can-not. First, the president must deal with theConstitution. Second, he must persuadeCongress. Third, he still has to appeasemore than half of U.S. citizens who havenot voted for him. Tens of thousands ofpeople have already rallied against himall over the nation. Can he turn a blindeye to them? Absolutely not. So amongall this uncertainty felt by the public, hereare some things we can be sure about.

First, under the Trump administration,the Federal Open Market Committee(FOMC) rate hike seems almost certain.FOMC members have been deadlockedfor some time between the dovish and thehawkish, rendering quick action almostimpossible. But this will change as Mr.Trump is expected to fill two vacant seatsin the FOMC with the hawkish, makingthem the majority. On top of that, the cur-rent FOMC Chairwoman Janet Yellenwill be replaced by someone who will tryto pursue a rate hike. A higher rate willbenefit the people of the middle class asthey would be able to save substantially,which in turns leads to more consumptionand consequently a more prosperous

banking industry. It will also make theU.S. dollar stronger, giving U.S. citizensgreater purchasing power abroad, whichis good news to Korea.

Under the Trump administration, therewould also likely be huge federallyfinanced investments in infrastructureacross the nation. Bridges, airports, roadsand highways are expected to be renovat-ed, upgraded or newly built under thenew administration. These public workswill definitely raise the nation’s growthrate. The federal budget deficit and gov-ernment bond issues may surge, but notmany will care as long as such decisionsboost US growth.

The Korean people have also beenclosely following the election results, asthey are curious as to see what this meansfor the Korean economy. In my opinion,for Trump, pressuring either China orKorea on trade and exchange rate issuesmay be important but not as imminent asthe rate hike and infrastructure invest-ment projects in the U.S. This is becausetrade talks with other countries requirelengthy and tedious negotiations beforeboth sides can come to an agreement.

Also, a booming U.S. economy accom-panied by a higher rate hike is one of thebest scenarios for Korea under the Trumpadministration. First, Korea could expectbetter export performance. As a majorpart of Korea’s export performance isaffected by the growth of the U.S., a stim-ulation of economic growth through

infrastructure investment would activateKorean and Chinese exports to the U.S.

Movement of Korean won andJapanese yen after Trump victory(Nov.3=1.00)

Furthermore, a higher rate in the U.S.will induce the depreciation of the wonexchange rate, which is also conducive tohigher export performance. Of course,some challenges might arise, especiallyas the Japanese yen depreciated fasterthan any other currency after the U.S.election. This may mean that Korea’sprice competitiveness against Japan’smay slightly weaken. But despite somebumps in the changing of administrationsin the U.S., the Korean economy won’tbe heavily affected as long as exportscontinue to surge.

By Professor Se Don ShinDean, Sookmyung Women’s University

Former Senior Economist,Bank of Korea

seshin@sm.ac.kr

05

What Does a TrumpVictory Mean for Korea?

Economic Analysis

Source: Bank of Korea

06

International buyers turned their eyesto Korea this week for the country’sGlobal Partnering (GP) Korea 2016,an event that helps Korea’s SMEs

enter the global value chain as a partssupplier to foreign companies. Held onNov. 15-16 at the K-Hotel in Seoul, thisyear’s GP Korea was held alongside theMinistry of Trade, Industry and Energy’sKorea Materials & Components-PpuriIndustry Week.

Organized by KOTRA, 243 domesticSMEs and corporations of middle stand-ing had a chance to promote their prod-ucts to buyers in 1:1 partnering meetings.57 major companies from all over theworld participated in GP Korea, includingbig names like China’s Huawei Device,Japan’s Hitachi High-Tech Materials andIndia’s Minda Corporation. Over 600consultations took place during the two-

day event, resulting in USD 23 millionworth of contracts and MOUs.

Most notably, China’s largest rollingstock supplier CRRC took part in thebusiness consultation meetings. It dis-cussed supply agreements with domesticrailway part suppliers regarding high-speed train installation technology andrailway equipment. In just the first half of2016, CRRC saw its overseas ordersincrease 126 percent to CNY 14.9 billion(USD 2.2 billion). As the overseas high-speed train industry continues to expand,the company attended the event to lookfor relevant Korean suppliers in this field.

One particular company that was eagerto partner up with Korean companies wasChina’s Huawei Device, a leading globalinformation and communications technol-

ogy (ICT) solutions provider. Driven byongoing innovation and open collabora-tion, Huawei has managed to establish acompetitive ICT portfolio in China andbeyond. “The smartphone is no longer justa device; it’s a solution that connects thedigital world to real life. Korea is knownfor its electronics and smartphones, andwe hope to work with Korean companiesthat can offer us cutting-edge technolo-gies”, says Leostone, Marketing Managerof Huawei Device.

Together with 1:1 business consulta-tions, the GP Consulting Hall was operat-ed on-site to resolve grievances of domes-tic companies and provide useful informa-tion. For SMEs nearing contract signing,in particular, the Consulting Hall providedfruitful discussion on financing, techno-

International Buyers andKorean Companies Forge

New Partnerships atGP Korea 2016

Event Overview

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logical guidance and overseas certifica-tion acquisition. As part of governmentefforts to deliver customized public serv-ices and generate new jobs in a creativemanner, an initiative also known as

‘Government 3.0’, K-Sure, KoreaElectronics Technology Institute, KoreaTesting & Research Institute and KoreaInstitute for Advancement of Technologyparticipated in the event to resolve anychallenges facing domestic companies.

Also noteworthy is the fact thatAustria’s seven global corporations tookpart in GP Korea, as they hoped to pursuejoint research and development (R&D)projects with domestic SMEs. Ubimet, aweather forecasts provider for Formula 1competitions, signed an MOU with DIGI-PARTS for the joint development of auto-mobile navigation software. APEXEngineering, a material technology com-pany, also signed an MOU with T4L andagreed to jointly develop carbon fiberreinforced plastic products. To furtherspur cooperation in the field of R&D, theInternational Cooperation R&D Forumprovided an insider’s look at the variousfunding that organizations in Korea and

Europe could apply for.Dooyoung Kim, KOTRA’s Executive

Vice President of Strategic Marketing,said “Despite sluggish exports, domesticparts and materials companies canincrease their exports and enter local mar-kets by making joint R&D efforts withoverseas corporations. I hope that thisyear’s event will serve as a platformwhere domestic SMEs and companies ofmiddle standing can upgrade their exportperformance through joint R&D with for-eign companies.”

By Esther OhExecutive Consultant/KOTRA

estheroh@kotra.or.kr

Buyer InterviewAt Global Partnering Korea 2016,

we had a chance to interview Annika Roest, Purchaser fromUltraShip ApS. Here’s what she had to say about the event.

Please introduce us to your com-pany.

UltraShip started off in 2014. It’s adivision below the Danish companyUltragas, a wholly owned subsidiary ofSociedad Ultranav Limitada, which is theshipowning/operating unit of the familyowned Ultramar Group of Santiago,Chile. The company deals with the opera-tion of gas vessels.

What do you hope to get from GPKorea this year? Do you have anythoughts on how theevent can be improved?

We came out here to get to knowKorean suppliers to extend our network.We’re looking for companies that canprovide parts for gas vessels, whichinclude things like valves and engine

parts. We also just signed an agreementwith Korean suppliers at an MOU cere-mony during this event. But most of all,we’re hoping to establish long-term,meaningful partnerships through GPKorea.

GP Korea is a good event because weget to know companies we might not havea chance to get to know. But I think someimprovements could be made becausethere were some companies that didn’tmatch what we were looking for. I think itwould be a good idea to have more back-ground information on the potential part-ners before meeting them.

What are some of the advantagesof Korean parts/materials?

We already do business in Korea sowe’re well aware that Korean companies

offer goodquality products. We alsoreceive products from the country veryquickly and the companies here offer verygood prices. Overall, we’re very pleasedwhen it comes to doing with Korean com-panies.

What are your future plans on col-laborating with Korean compa-nies?

We plan on attending a number ofevents in the future, and many of them areorganized by KOTRA. There will be anevent in Denmark next year hosted byKOTRA of a similar nature and we’relooking forward to participating and get-ting to more promising Korean companiesthrough these meetings.

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Re-emergence of artificial intelligenceThe term artificial intelligence (AI) was first coined by J.

McCarthy at the Dartmouth Conference in 1956. Simply put, AIis technology that artificially creates human intelligence. Thescope of AI study has continuously expanded, starting off withthe notion of ‘computationalism’ to the more recent ‘connec-tionism’. Computationalism first emerged as people began todevelop computers with the aim of creating machines capable ofperforming intellectual activities like human beings. However,there were many limitations, especially since machines areunable to communicate with humans. This later gave way toconnectionism. As opposed to computationalism, connectionismargues that AI can construct artificial neural networks to imitatethe human brain and continuously reduce human errors by iden-tifying similar patterns. Connectionism has been instrumental inbringing about major achievements in the field of AI, includingGoogle's AlphaGo, IBM's Watson and Apple's Cortana.

Changes in lifestyle due to AIArtificial intelligence technology will naturally bring about

changes in the way of life. First, it will change people’s con-sumption patterns and product marketing strategies. In the past,consumers decided to buy a product because of its functions butnow, they do so because of the services offered by AI technolo-gies. As a result, the service industry will become more impor-tant than the manufacturing industry.

For example, when Apple and Google provide services forautonomous vehicles, the question will not be whether the carruns well on the road, but rather what kind of smart services canit provide for its users. In addition, focusing on electric vehicles

can potentially open doors for other companies which do nothave automobile engine technologies. Therefore, technologicaladvancement of artificial intelligence will not only transform theindustry, but corporate culture and consumption patterns as awhole.

Trends of major global companies(IBM) IBM developed an artificial intelligence system called

Watson. As of the first half of 2016, more than 3,500 partnersare participating in developing Watson, and more than 270applications are being commercialized. These major companiesinclude ANZ (Australia), Bumungrad (Thailand), CaixaBank(Spain), Metropolitan Health (South Africa) and Red Ant. IBMis trying to formulate a Watson-centered ecosystem that can pro-vide real-time data analysis services to users.

(Google) Google is developing AI technologies to upgrade itsengine and develop new applications. Areas of applicationinclude home automation (Nest), automobiles (Google car),voice recognition (Google Now) and photo recognition (GooglePhotos). Google's ultimate goal is to become an artificial intelli-gence company itself. In order to develop its artificial intelli-gence engine, Google is focusing on securing relevant technolo-gies mainly through the acquisition of start-ups in the field ofrecognition (video, face, gesture), natural language processingand machine learning (deep learning), while developing its ownartificial intelligence engine.

(Apple) It wasn’t until recently that Apple established opti-mum grounds for technological development in the field of arti-ficial intelligence. The company is now developing technologiesonly in specific fields such as virtual assistance and automo-

Trends and Prospects ofKorea’s AI Industy in 2017

Although still in its early stage, Korea’s AI industry will make moreprominent changes to people’s consumption patterns in the next year

Industry

09

biles. Apple recently hired a large number of researchers (86people) to integrate artificial intelligence into the field of per-sonal assistance. It’s thus working hard to build a strong envi-ronment for technological development and securing technolog-ical competitiveness by acquiring start-ups like VocalIQ andPerceptio. In October 2015, when these two firms wereacquired, Apple CEO Tim Cook said he would develop andintegrate technologies only in the areas where they could proveto be competitive.

(Facebook) Facebook is developing technologies focusing onimage, sound and natural language processing with a strategy tomake the network smarter and more personalized. In December2013, Facebook presented the possibility of applying artificialintelligence technology to its services by recruiting ProfessorYan Le Cun from New York University, an eminent professorin the field of deep learning technology. The company acquiredWit.ai, a speech recognition startup in January 2015, andreleased a virtual assistant deploying AI technology “M” to thepublic in August 2015. Facebook is developing technologieslargely focusing on drones, artificial intelligence and VR tech-nology. It is also deploying strategies to make its social mediaapplications available anywhere in the world.

To sum up the business strategies of major AI developers,there are three general trends: the support of enterprises, thestrengthening of its own applications and the exploring of newbusiness domains. When it comes to supporting enterprises,IBM is the most well-known for developing various applica-tions for Watson. The second strategy is to develop the compa-ny’s own applications. Google, Apple and Facebook are follow-ing this strategy as they have developed or are developing a per-sonal assistant service to captivate their users and to make themuse their services at all times. Thirdly, the example of the busi-ness expansion strategy is Google and Apple’s attempt to devel-op autonomous vehicles. These companies are using artificialintelligence to explore a new business domain that they havenever set foot in before.

Trends of Korean AI companies and 2017 marketforecast

(Samsung Electronics) The company introduced 'S Voice', asmartphone application with voice recognition technology. Itfocuses on developing stable voice recognition technologywhich specializes in natural language processing. It is alsodeveloping technology with quality speech recognition, even ina noisy environment.

(NAVER) Through the use of artificial intelligence, NAVERcurrently provides users with various functions like N Drive andauto-complete function. When users upload pictures in thecloud system, N Drive automatically classifies and places themin various categories like animal, food, and text. With the auto-complete function, certain search suggestions pop up on thesearch box as users type in the first few letters based on analysisof their past search results. Internet service providers (for portal,mailing, backup, etc.) such as Google and Apple are developingthis technology as their core technology.

(Hyundai Motors) Since 2010, the company has aggressive-

ly expanded its development of autonomous vehicles. In 2012,it succeeded in developing a highway driving support system.Based on images, voice recognition and deep learning technolo-gy, the highway support system includes functions such as lanedeparture warning, lane keeping assistance, rear side warning,vehicle speed control and autonomous emergency braking.

(NCSOFT) NCSOFT established its own AI center, consist-ing of the artificial intelligence lab and the natural languageanalysis lab in 2012. In the artificial intelligence lab, researchersare finding ways to combine deep learning technology with thecompany’s gaming system to adjust the level of difficultyaccording to the skills of the user. In the natural language analy-sis lab, researchers are mainly developing technologies convert-ing recognized voice into text to facilitate NPC(non-playercharacter)-to-user and user-to-user communication.

But it’s not only major companies that are developing theirAI systems; SMEs and start-ups are as well. Although they haveyet to commercialize their products, various SMEs and startupsare developing technologies to apply AI and increase the effi-ciency of their applications. The number of SMEs developingAI technology is also increasing because there is demand fromthe government and big corporations. DIOTEK, Cldi, UBIC,KonoLabs, Lunit, Standigm and MindsLab are newly-risingplayers and they are gaining attention in the market.

Prospects for domestic artificial intelligence industryin 2017

According to the Ministry of Science, ICT and FuturePlanning, which cited Hyundai Research Institute, the global AImarket will grow from KRW 3.6 trillion (USD 3.1 billion) in2013 to KRW 6.4 trillion (USD 5.4 billion) in 2017. KTEconomic Management Research Institute predicted that themarket will grow to KRW 27.5 trillion (USD 23.4 billion) by2030. It is expected that the domestic AI market will increasefollowing such global trends, but there will be no dramaticchanges because the industry is still in its infant stage.

Revitalization planAlthough the government has initiated projects such as

Exobrain and DeepView with an aim to develop core artificialintelligence technologies, there are still some hurdles to getthrough to revitalize the AI industry. First, more diverse partici-pants should participate in the process of developing technolo-gies. This will not only increase supply but also demand for rel-evant technologies. Second, more efforts should be put on creat-ing a code of ethics or moral standards for artificial intelligence,as opposed to the primary focus having been put on developingapplications. Third, unnecessary regulations should be adjustedor eradicated in advance.

By Wang-hun SeokElectronics and

Telecommunications Research Institute (ETRI)whseok@etri.re.kr

10

Founded in Darmstadt, Germanyin 1668 by Friedrich JacobMerck, Merck is the world's old-est science and technology com-

pany specializing in the fields of health-care, life science and performance materi-als. Around 50,000 employees work in 66different countries to further developtechnologies that improve and enhancelife. These technologies include cutting-edge systems for scientific research andproduction and liquid crystals for smart-phones and LCD televisions. It’s no sur-prise then that the company has set upshop in Korea to expand its life scienceand performance material sector. Mostrecently, Merck established the M-LabCollaboration Center in Songdo, Incheonto provide biopharmaceutical manufac-turers with an ideal environment to solvetheir toughest challenges and acceleratedevelopment and production of new ther-apies.

Dr. Michael Grund, Managing Directorof Merck Korea talks to KOTRA Expresson what makes Korea a well-cultivatedlandscape for its technological develop-ment.

What made Korea an ideal placefor business for a company likeMerck?

Korea’s economy is characterized by asmall number of companies (conglomer-ates), which represents the lion’s share ofthe Korean economy. These conglomer-ates have a global footprint and occupy

top rankings in their respective business-es. Merck came to Korea more than 20years ago and supported the tremendousgrowth of the Korean economy by closecollaboration with these players from thevery beginning. The joint success story ofthe Korean display industry and Merck,the global market leader in display mate-rials, is just one prominent example.Consequently Merck did not only investinto the supply chain and production ofits parts, but also in the R&D and applica-tion/training centers to mutually benefitboth partners. Merck appreciates the con-tinuous support from the Korean govern-ment, the country’s stable economic envi-ronment and the people’s can-do spirit.Korea shaped the markets with its uniqueset-up in the past and will do so in thefuture. In this sense, the country can beregarded as the “lab of the future”.

How can Korea become a moreideal investment and businessdestination for foreigncompanies?

We appreciate a stable, predictablebusiness environment, including issuesdealing with regulation or taxation

because we are thinking of making long-term investments. As a local Merck-sub-sidiary, we compete with other Mercksubsidiaries for resources; continuoussupport from the government is verymuch appreciated so that our headquar-ters can continue to stay committed anddo business in the country.

Does your company have strongbusiness partnerships with domes-tic companies here inKorea?

The majority of our business is withglobal Korean companies. We are onlysuccessful because we seamlessly collab-orate from the earliest R&D stage, whichis based on mutual trust and cooperation.This is the major pillar of our success.

What are some of the goals thatyour company has for Korea andNortheast Asia? Are there any fur-ther investment activities that willtake place here?

Merck is where our customers are; ourbusiness in the Asia Pacific region todayalready outperforms our business inEurope. We are prepared and willing to

Accelerating Development For Merck,

Korea isn’t just a place for business—it’s a place for strong collaboration and innovation

Michael GrundManaging Director Merck Korea

Interview

11

invest into future growth engines. InKorea, for example, we are focusing ontechnologies in electronics and display,biotechnology and other promising futuredrivers of growth. Our most recent exam-ples commitment include opening ourOLED application center last year, estab-lishing M-Lab in Songdo this year andsigning a memorandum of understanding

(MOU) with Incheon Free EconomicZone (IFEZ).

Speaking of M-Lab, why didMerck choose Songdo in particu-lar and what does the companyhope to achieve through M-Lab?

Songdo in Incheon is one of theworld’s biotech hotspots, as it hosts R&D

and is the operation site of global Koreanplayers in this field. Merck does every-thing to support these companies to besuccessful; that’s why we moved our M-Lab to Songdo. In our M-Lab, our cus-tomers can explore our products and serv-ices, get training that is classroom basedand hands-on, develop their processes byeasily optimizing them in our fullyequipped, non-GMP environment andspeed up their overall time-to-market.Together with the continuous supportfrom Incheon city and IFEZ, we can cre-ate a more complete bio ecosystem.

What is your advice to foreigncompanies interested in extend-ing their reach to Asia?

Korea has a proven track record and isranked at the top in a number of indus-tries. But the global economy is changingand the recipe of the past might not workin the future any more. To master thechallenges of the future, global cross-col-laboration between companies and organ-izations is mandatory. This needs to bethe common long-term benefit of bothpartners, and relationships must be found-ed on mutual respect and trust. I stronglyrecommend building this relationship firstto establish a prosperous business.

By Esther OhExecutive Consultant/Invest Korea

estheroh@kotra.or.kr

K-Hightech Forum(California, USA)

Organized by KOTRA and SeoulBusiness Agency, the K-HightechForum will take place in California on

December 5-10. The forum, to takeplace in Silicon Valley and LosAngeles, seeks to spur investment inKorea’s promising companies andexpand networks with American com-panies. The event will particularlyfocus on industries dealing with IoT,autonomous vehicles, VR, AR, IT,games and clean energy. 11 promisinghigh-tech companies based in Seouland Daejeon will participate in theevent while 50 local venture capitals,accelerators and angel investors willattend. The event will also include net-working meetings and presentationpitches for investors.

Korean Expo 2016(Mumbai, India)

The Korean Expo 2016, organizedby KOTRA and hosted by MOTIE,will take place in Mumbai, India fromDec. 19 to 20. Held at BombayExhibition Center (Hall 5), approxi-mately 100 Korean companies willattend to showcase their consumergoods, electronics, cosmetics and fash-ion products to 500 buyers from Indiaand the Southwest Asia region. TheKorea-India Cooperation Forum andConsumer Goods Showcase are alsoscheduled to take place on the sideline.

Upcoming KOTRA Events

12

On the invitation of the World BankGroup (WBG), I visited its headquartersin Washington D.C. to attend the “Invest-ment Policy Forum 2016” on Nov.1. Inparticular, I participated in the high-levelpanel discussions that enabled variousinvestment stakeholders to gain a deeperunderstanding of key issues. Theseinclude the political economy of regulato-ry conduct affecting retention and expan-sion of FDI and the systemic investmentresponse mechanisms enabling a morecoordinated and timely response of gov-ernments in addressing issues arisingfrom investors.

Within this context, I had the opportu-nity to present on Korea’s Ombudsmansystem and share the recent major opera-tional reforms that the Office of theForeign Investment Ombudsman (OFIO)has gone through since its founding in1999. Specifically, our office has recentlyshifted our grievance-collection systemfrom ‘passive call-waiting’ to ‘proactiveoutreach’. Previously, nine “home doc-tors” used to await emergency callsregarding foreign investor grievancesfrom foreign-invested companies inKorea. But home doctors have rarelyreceived calls since then. Even if they didreceive the call, it was too late to respondproperly. To prevent this from occurring,we now proactively reach out to compa-nies to listen to their complaints andproblems. Under the leadership of the

Ombudsman, we go out in small groupsand prescribe solutions on-site after care-fully listening to business-related chal-lenges.

Another operational reform is that wehave organized a new senior advisorygroup comprising of renowned scholars,retired professors and retired high-rank-ing government officials. These days, for-eign companies with more advancedtechnologies suffer from grievances dueto the complexity of the issues involved.For the same laws and decrees, differentgovernment agencies have different inter-pretations. Consequently they have to payheavy taxes and fines. When things getworse, they wrap up their business andleave the host country. To avoid suchunfortunate events, we utilize the highlevel of expertise of senior advisers. Byeffectively leveraging their professionalinputs, we can resolve the grievances atrelatively smaller expenses.

The purpose of the forum was to maxi-mize the investment potential of interna-tional trade and investment agreements.The World Bank is keen on the flow ofFDI as it believes that this brings substan-tial benefits to the world economy andparticularly to the economies of develop-ing countries. The benefits to the hostcountry include easier access to worldmarkets, transfer of capital, technologyand managerial skills. To realize the max-imum benefit of FDI, the World Bank

believes that foreign investment shouldnot only stay in the host country butshould also be expanded. To make thistask possible for their client countries,namely developing countries, the Bank istrying to design a coherent investmentpolicy and promotion strategy that can beadopted by their client governments.

According to the Bank’s observations,many developing countries attract for-eign-invested companies but many ofthem also leave the host countries for tworeasons: they realize that the variousincentives promised by the host govern-ments no longer exist or there is no placeto go when they encounter unexpectedproblems and difficulties except throughan expensive court process. But the Bankpeople say that Korea is exceptionallydifferent, as the country has theOmbudsman system which provides nec-essary services for foreign investors. Assuch, the World Bank has ranked Koreaas the fifth easiest place to do business.

The forum came to an end by review-ing the result of the Bank’s recentresearch on the failures of FDI in devel-oping countries. The research team pointsout that macroeconomic instability andpolitical risks are two principal factorsthat would make foreign investors leavethe host countries.

Due to many factors taking place bothinside and outside the country, Koreashould take heed of potential risks thatmight undermine its macroeconomic sta-bility and political landscape. If Koreaisn’t ready to preemptively manage suchrisks, the country could end up facinganother economic recession, most notablyin the field of FDI. Therefore, the countryshould pay close attention and managesuch risks to prevent any issues fromemerging in the future.

By Dr. Jeffrey I. KimForeign Investment Ombudsman

jeffikim@kotra.or.kr

Korea’s Foreign Investment Ombudsman System Introduced at

World Bank Group Forum 2016

Ombudsman's Office

13

Long known as the hub of technologyand research & development (R&D),Korea now has its eyes set on the roboticsindustry.

Last month, Korea announced that itwould inject KRW 500 billion (USD 445million) into the robotics industry overthe next five years. The country has 20pilot projects scheduled for the next twoyears and is actively developing and com-mercializing advanced manufacturingrobots. The Ministry of Science, ICT andFuture Planning also announced it wouldspend KRW 2.2 trillion (USD 1.9 billion)over the next 10 years to foster self-driv-ing cars, smart cities, artificial intelli-gence (AI), virtual reality (VR) and aug-mented reality (AR).

For foreign investors looking to enterthe fast-developing industry, they shouldtake a close look at Pohang City, locatedin North Gyeongsang Province.

LocationPohang City is the main seaport of the

Daegu-Gyeongbuk region on Korea's eastcoast. It is located about 110 km north ofBusan and about 360 km southeast ofSeoul. By train, it is 1.5 hours to Daegu,and 2-3 hours to both Busan and Seoul.The Pohang Airport also provides domes-tic access to other parts of Korea.

In addition, the Pohang Port boastsexcellent conditions as a bridge to theDaegu Metropolitan City and the NorthGyeongsang region. Divided into theNew and Old Port, the new port is respon-

sible for supporting the steel industrysuch as POSCO, while the old port han-dles sand and oil products.

Pohang is also part of the Daegu-Gyeongbuk Free Economic Zone.Established in 2008, the Daegu-Gyeongbuk Free Economic Zone(DGFEZ) offers customized facilities andinfrastructure to companies operating inthe Korea and Asia-Pacific market.

Pohang Fusion Tech DistrictLocated in the heart of Korea’s East

Coast Energy Cluster is the nation’slargest wind power and nuclear complex,also known as the Pohang Fusion TechDistrict. The district is especially accessi-ble to two major ports, and is well suitedfor companies looking to deliver goodseither internationally or to the Koreanmarket. The region is looking to househigh tech industries in the sustainableenergy, biotechnology and industrialmaterial industries. The district will pro-vide land for the bio-medical, new materi-als, energy and R&D industries as well asforeign schools and international hospi-tals.

As part of the DGFEZ, the PohangFusion District provides foreign-investedcompanies and developers with cus-tomized financial support in the form oftax exemptions, cash grants, reduced rentand other subsidies in accordance withthe Free Economy Law (Article 16Clause 1). In particular foreign-investedcompanies in the manufacturing andR&D industries are eligible for up to 100percent tax exemption for the first fiveyears and 50 percent tax exemption forthe following two years.

Pohang University of Science andTechnology (POSTECH)

Along with the Pohang Fusion TechDistrict, Pohang University of Scienceand Technology (POSTECH) is dedicated

to science and technology for buddingengineers and technological development.POSTECH consistently ranks as one ofthe best universities in the world and ishighly regarded as a national researchfacility.

The Korean government and foreignbusinesses have also shown its support ofthe institute. Four government-operatedresearch centers of the Institute for BasicScience (IBS) to promote research inbasic sciences are located at POSTECH.In addition, the Max Planck Society ofGermany and POSTECH established theMax Planck-POSTECH Center forAttosecond Science and the Max Planck-POSTECH Center for Complex PhaseMaterials.

Furthermore, the POSTECH BiotechCenter was founded in 2000 to incubatethe development of biotechnological sec-tors such as immunology, pharmaceuti-cals and nanobiotechnology. Its SmartCampus system allows students to accessscientific and technological informationvia smart phones and mobile devices aswell as laptops. In 2010, for the first timeamong Korean universities, POSTECHimplemented a Desktop Cloud Service,providing a convenient and secure com-puting environment.

For more information,visit eng.pohang.go.kr

Pohang City,the Driver of All Things Science

The Pohang Fusion Tech District andPOSTECH have been driving Korea’s robotics industry on a global level

Zone

14

Did you know?

KOTRA offers you a quick andeasy way to buyKorean products!

buyKOREA is the fastest way to view products and makeonline transactions with Korean suppliers. You can make pay-ments with the KOTRA Online Payment Service (KOPS), aneasy-to-use, secure online payment service that enables non-Korean buyers to pay with their credit card (Visa, Mastercard,JCB). This means you can save time since you won’t have togo through the hassle of making offline transactions. Realtimeshipping status of your package is also available on thebuyKOREA website once the seller has shipped the productthrough the Express Mail Service (EMS).

For more information, check out buyKOREA.org.

Buyer makesthe order &

payment

Process 1

Korean sellersends the P.Qfirst and thebuyer makesthe payment

Process 2

The buyer placesan order, statingthe product and

price

Placing order

The buyer checksthe product and

the price

Confirm the P.Q

Foreign Buyer

Foreign Buyer

Settlepayment

with a credit card

Foreign Buyer

Checkthe payment

anddeliver

the product

Korean Seller

Korean sellermakes a price quotefor the product andsends it to the buyer

Sending the P.Q

Korean Seller

Korean Seller

How to use KOPS

What arethe benefits of KOPS?

1) Securely receive ordered product from Korean exporters

2) Saves time as you won't have to go to the bank in person

3) Enables buyer to enjoy 30-day credit granted by credit card issuer

KOTRA's Services

15

November 20161,178.9

20101,156.3

20111,108.1

20121,126.9

20131,095.0

20141,053.2

KRW-USDForeign Exchange Rate

GDPNominal (USD million)

PPP (USD million)GDP Growth Rate

(Y-o-Y) (%)

2015105,870.7

Jan.-Sept. 201672,078.5

201118,655.8

201250,835.0

201381,148.2

201484,373.0

Balance of Current Account

(Unit: USD million)

(Unit: USD)

Source: The Bank of Korea, November 2016

(Unit: USD million)

(Unit: KRW)

Foreign TradeExportsImports

Trade Balance

201427,98935,436

201527,222 36,612

201627,632.8 37,948

201325,998 33,824

GDP Per CapitaNominal

PPP

2015526,757 436,49990,258

Jan.-Oct. 2016405,076330,35974,717

2011555,214524,41330,801

2012547,870519,58428,285

2013559,632515,58644,047

2014572,665525,51547,150

20141,410,0001,685,033

3.3

20151,377,5001,748,777

2.6

20111,202,7001,559,447

3.7

20121,222,4001,611,273

2.3

20131,305,4001,640,377

2.9

Source: The Bank of Korea, November 2016

Source: The Bank of Korea, November 2016

Source: International Monetary Fund, October 2016

Source: Korea International Trade Association, November 2016

Cloud

Address: 3F Pangyo Seven VentureValley, 17, Pangyo-ro 228beon-gilBundang-gu, Seongnam-su,Gyeonggi-do, 13487,Republic of Korea

Tel: +82-31-627-3000Fax: +82-31-600-5169

E-mail: chul@mdstec.com

MDS Technology

Contact Info:

Established in 1994, MDS Technology is a fast-growing leader of embeddedsolution companies in Korea. MDS Technology provides comprehensive, cut-ting-edge embedded solutions in diverse sectors such as the automotive, mobile,digital device and aerospace industry.

With branch offices in countries like Singapore, India and Thailand, MDSTechnology also provides Window Embedded OS and Windows MobileSolution for partners in Southeast Asia, India and Oceania. The company notonly develops software development tools, it also provides debugging solutions(TRACE 32) for design automation, test automation and invehicle infotainment.Most notably, the company participated in the Ministry of Trade, Industry andEnergy's International Materials & Components Forum on Nov.15-16 to show-case its state-of-the-art technology.

As a unique IT convergence solution company, MDS Technology has attracteda prominent client base of about 1,500 companies, including Samsung, LG,Hyundai and SK. As it continues to expand its business to the ICT field, includ-ing IoT and big data, MDS Technology shows no sign of slowing down.

Each month, KOTRA Express introduces one Korean SME that seeks to expand its network. In theDecember issue, we take a look at one of Korea’s most promising IT companies.

Economic Indicators

Introducing Korea's SMEs

December 2016

Tax NewsDecember 2016

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Q.

A.

What is the amount of acquired treasury stocks that is deducted fromunappropriated corporate earnings?

'The amount of treasury stocks acquired by a listed stock corporation during the relevant businessyear as prescribed by Ordinance of the Ministry of Strategy and Finance and retired within one month'(Article 93 (10) 3 of the Enforcement Decree of the Corporate Tax Act) is deducted when calculatingcorporate tax on unappropriated corporate earnings. Such an amount shall be the amount of all treasurystocks acquired in accordance with the methods and procedures prescribed by Article 341 of theCommercial Act retired within one month of the date of final acquisition.

Source: Ministry of Strategy and Finance (Nov. 1, 2016)

Q.

A.

What form of division is required to defer a divided company’s transfer income?

A domestic company divided its manufacturing business division and lease business division andestablished a separate company consisting of the divisions. In this case, if the newly created companycomprehensively succeeds the two business divisions and their assets and liabilities, and the new com-pany can be operated independently with the main physical and human resources remaining identicalto before the division, it shall be deemed that the requirement in Article 46 (2) 1 (a) of the CorporateTax Act is met, and therefore the transfer value of the net assets received by the divided company shallbe the book value of net assets (refer to the formula below).

* Transfer value of net assets of a divided company = Transfer value received by a divided compa-ny, etc. from a company established through division – Book value of net assets at the registration dateof division of a divided company, etc.

Source: National Tax Service (Nov. 2, 2016)

December 2016

Tax News

In the case that a vessel acquired through a bare boat charter hire purchase contract (hereafter “vessel inquestion”) is transferred to a new company created through an unqualified spin-off, the tax base for valueadded tax for the vessel in question shall be decided based on Article 29 of the Value Added Tax Act.

* Article 29 (1) & (3) of the Value Added Tax Act Article 29 (1) The tax base for value-added tax on thesupply of goods or services shall be the total value of all supplies of goods or services provided during the rel-evant taxable period.

Article 29 (3)The value of supply under paragraph (1) means each of the following. In such cases, it shall include pay-

ments, rates, fees, or all other things of value, whatever their names are, which are provided by recipients ofgoods or services, but exclude value-added taxes:

1. Where payments are given in money: The payments: Provided, that when payments are given in any foreign currency or other foreign exchange, they mean the value converted in the manner prescribed by Presidential Decree

2. Where payments other than money are given: The market price of goods or services supplied by the supplier himself/herself

3. Where a business is closed: The market price of goods in stock at the time of closing the business4. Where deemed that goods or services are supplied under Articles 10 (1), (2), (4)

and (5) and 12 (1): The market price of goods or services supplied by the supplier himself/ herself5. Where deemed that goods are supplied under Article 10 (3): The value prescribed

by Presidential Decree based on the acquisition value, etc. of the relevant goods6. Where goods or services are supplied through credit sales, installment sales, etc.:

The value prescribed by Presidential Decree in consideration of the types, etc. of supply

Source: National Tax Service (Oct. 7, 2016)

Q.

A.

In the case that a vessel transferred through a bare boat charter hire purchasecontract is transferred, how is the tax base for value added tax calculated?

December 2016

Tax News

Q. In the year-end tax adjustment, what income deductions apply toresidents and non-residents?

TypeDeductibility

NoteResident Non-resident

Total wage & salary incomeIncluding foreign-

source income

Domestic-source income

Foreign residents under Article 3 of the Income Tax Act, liable to pay tax on foreign-source income when it is paid in or remitted to Korea

Deductions for wage and salary income ◯ ◯

Personaldeductions

Basic deductions(Self, spouse, dependent family) ◯ Self only

Additional deductions (The aged, the disabled, qualified female taxpayer, etc.)

◯ Self only

Pension contribution deduction ◯ ◯Deductible for participants of a pension plan

Specialdeductions

National health�Employment Insurance ◯ X

Housing fund X X A foreigner is not deemed a householder

Other income deductions

Pension savings etc. ◯ X

Contribution paid to small-sized company, & self-employed mutual aid association

◯ X

Home purchase savings X X A foreigner is not deemed a householder

Investment association ◯ X

Credit card usage ◯ X

Interest Payment for Housing Rental Loan without a Lump-sum Payment ◯ X

Workers in S/M enterprises which maintain the same employment level ◯ X

Long-term Collective Investment Securities Savings ◯ X

Employee stock ownership association contribution ◯ ◯

Deductible for members of an association

Tax credits

Tax credit for wage & salary income ◯ ◯

Child Tax Credit ◯ X

Retirement account tax credits ◯ X

Special tax credit(insurance·medical, educational, donation)

◯ X

Tax credit for monthly Rent X X A foreigner is not deemed a householder

Taxpayer association credit ◯ ◯For tax withheld by an association for its members

Foreign tax credit ◯ X

Standard tax credit ◯ X

For more information, please contact the International Tax ResourceManagement Office of the National Tax Service (82-44-204-2873˜4).

Employment