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Promising Investment Opportunities(1)

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					                                                                         Overview of Korea’s Industries


                                                                         Promising
                                                                         Following active efforts to promote FDI in the wake of the 1997 Asian financial crisis,




                                                                         Investment
                                                                         268 foreign-invested companies from 21 countries have advanced into




                                                                         Opportunities
                                                                         the Korean auto parts industry, accounting for 29.7% of first-tier suppliers.




                       www.investkorea.org                                                                                                               Auto Parts
                                                                                                                                                                          2008



                                                                                                                                                                                        CONTENTS
                                                                                                                                                                         02 Korea’s Auto Parts Industry

                                                                                                                                                                                    02 Industry Overview

                                                                                                                                                 04 Position and Status of the Korean Automotive Industry

                                                                                                                                                              06 Status of the Korean Auto Parts Industry

                                                                                                                                                                                  12 Competition Status

                                                                                                                                                                               17 FDI System and Policy

                                                                                                                                                                     23 Investment Attraction Strategies

                                                                                                                                                                           24 Case Study of FDI in Korea

                                                                                                                                                                              26 Relevant Organizations




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                                                                 Korea’s Auto Parts Industry

                                                       1. Industry Overview
                                                           Automotive Industry1) (2006)                                                                                                                               Auto Parts by Item                                                                                                                           (Unit: KRW billion)

                                                                                                                                                                                                                                                                                   2004                                      2005                                  2006
                                                                                  Description                                Automotive Industry
                                                                                                                                                          Auto Industry                 Auto Parts Industry                         Detailed Item                       No. of                                 No. of                                     No. of
                                                                                                                                                                                                                                                                                          Production                                Production                             Production
                                                                            No. of Manufacturers                                    4,191                         25                          4,166                                                                Manufacturers                            Manufacturers                              Manufacturers
                                                                              No. of Employees                                     263,867                       93,272                      170,595                                Engine Parts                          687               4,849               773                   4,864                839               6,084
                                                                           Shipments (KRW billion)                                 107,150                       61,119                       46,031                                 Body Parts                           563               7,638                622                  8,835                702              10,438
                                                                          Value added (KRW billion)                                 35,842                       20,276                       15,566                      Suspension Systems and Parts                    141               1,011               131                   1,082                150               1,301
                                                                           Production (KRW billion)                                107,712                       61,506                       46,206                             Brakes and Parts                         308               2,753               308                   2,944                336               3,495
                                                                             Export (US$ million)                                   49,720                       37,284                       12,436                      Power Transmission and Parts                    488               5,320                495                  7,002                502               7,587
                                                                             Import (US$ million)                                   7,167                        3,131                        4,036                        Steering Systems and Parts                     258               1,992               259                   2,396                263               2,518
                                                                         Trade Balance (US$ million)                                42,553                       34,153                       8,400                              Wheels and Parts                         90                 944                 84                   1,051                 84               1,182
                                                                         Overseas Direct Investment                                                                                                                        Exhaustion System and Parts                    155               1,455               158                   1,701                165               2,047
                                                                                                                                    1,038                         495                          543
                                                                                 (US$ million)                                                                                                                              Safety Seat Belts and Parts                   43                 258                 42                    353                  47                357
                                                                    Foreign Investment (US$ million)                                 565                           -                               -                             Air Bags and Parts                       53                 561                 32                    602                  38                544
                                                                   Facilities Investment (KRW billion)                              5,858                        4,074                        1,784                   Source: NSO
                                                                           Ratio of R&D to Sales (%)                                 2.17                         4.51                         1.18
                                                           Source: Korea National Statistical Office (NSO); Korea International Trade Association (KITA); Ministry of Knowledge Economy (MKE);
                                                                   Korea Development Bank (KDB); The Export-Import Bank of Korea
                                                           Notes: Export, trade balance and overseas direct investment are as of 2007.




                                                           Management Performance of the Auto Parts Industry                                                                                (Unit: %, KRW1,000)       Auto Makers in Korea (2006)
                                                                                              Description                          2000       2001      2002           2003     2004        2005        2006                                                  Hyundai                      Kia                  GM Daewoo                    Ssangyong             Renault Samsung
                                                                                           Sales growth rate                       17.25      5.46      17.45          10.28    22.32       32.31       8.44                      Founded                     Dec. 1967                Dec. 1944                  Aug. 2002                   Jan. 1954                  Sep. 2000
                                                              Growth                 Growth rate of total assets                   4.02       1.68      13.83          15.56    18.03       18.56       6.71                                                                        Gwangmyeong,             Gunsan, Changwon,
                                                                                                                                                                                                                                  Location              Ulsan, Jeonju, Asan                                                            Pyeongtaek, Changwon               Busan
                                                                                Growth rate of stockholders’ equity                18.64      19.31     17.53          20.38    15.94       18.94       10.24                                                                      Hwasung, Gwangju              Bupyeong
                                                                                  Ordinary income to total assets                  2.95       7.64      9.85           8.53     7.53        8.66        6.28                  No. of Employees                 54,711                     33,005                   17,255                        7,138                     4,706
                                                           Profitability             Operating income to sales                     3.82       5.26      6.03           5.95     5.05        4.75        4.11                                           Passenger cars, SUVs, Passenger cars, SUVs, Passenger cars, CDVs,
                                                                                                                                                                                                                          Type of Vehicles Produced                                                                                     Passenger cars, SUVs           Passenger cars
                                                                             Interest expenses and net income to total assets       6.9       8.91      9.65           8.93      7.8        8.16        6.61                                           CDVs,Buses, Trucks, CSVs CDVs, Buses, Trucks, CSVs       Buses, Trucks
                                                                                Stockholders’ equity to total assets               37.5       41.6      46.87          43.8     38.71       39.15       40.44                Sales (KRW billion)               27,335                     17,440                      9,604                      2,952                     2,587
                                                             Stability                         Debt ratio                          166.7      140.4     113.3       128.33     158.35      155.45      147.26             Net Income (KRW billion)              1,526                       39                         593                       -196                       221
                                                                             Total borrowings and bonds payable to total assets    30.26      26.68     22.46          23.94    25.35       21.84       22.45              Production (1,000 units)             1,706                     1,119                        943                       123                        178
                                                                                   Gross value-added per capita                   45,154     53,846    59,369       57,499     61,870      77,482      71,974          Domestic Demand (1,000 units)             625                       272                         131                        61                        117
                                                           Productivity                     Sales per capita                      179,262    213,448   235,804     237,315     287,650     430,237     444,318               Export (1,000 units)               1,076                      841                         808                        64                        55
                                                                                    Gross value-added to output                    25.19      25.23     25.18          24.23    21.51       18.01       16.2                 Overseas Factories        China, India, Turkey, USA    China, Slovakia               Vietnam                          -                         -
                                                           Source: KDB                                                                                                                                                Source: Korea Automobile Manufacturers Association (KAMA); business and audit reports of each company
                                                                                                                                                                                                                      Notes: Production, domestic demand, and export are as of 2007.
Korea’s Auto Parts Industry




02
03                            1) ‘Automotive industry’ is divided into ‘auto industry’ and ‘auto parts industry’.                                                                                                 1) Government Estimates for 2012, Ministry of Culture, Sports and Tourism (MCST) Strategy for Advanced Tourism Industry (2008)
                                                                                                                                                                                                                  2) Foreigner occupancy rate is based on the number of users by class, while the total occupancy rate is referred to as the ratio of actual annual sales to estimated annual
                                                                                                                                                                                                                     sales of rooms by class. The source of information is 504 hotels.
                                                                                                       2.Position and Status of the Korean                                                                                In 2007, despite concern that domestic demand would weaken due to rising oil
                                                                                                                                                                                                                          prices, it maintained a relatively higher rate of increase than in recent years, as
                                                                                                         Automotive Industry                                                                                              car owners sought to buy new vehicles to replace their aging cars and private
                                                                                                                                                                                                                          consumption increased at a steady rate.
                                     Position of the Automotive Industry (2006)
                                                                                                                                                                                                                          Due to record oil prices, light-weight and small-size passenger cars showed
                                                                       Production              Value Added              Employment           Export       Trade Balance        Facilities Investment
                                                                                                                                                                                                                          notable signs of increase in demand, while that for medium and large pass-
                                                                       (KRW billion)           (KRW billion)         (thousand persons)   (US$ million)    (US$ million)         (KRW100 million)
                                                                                                                                                                                                                          enger cars declined.
                                       Automotive Industry                107,712                   35,842                  264              49,720                                       58,581
                                      Ratio of Automotive to                                                                                                  42,553                                                   Demand and Supply Trends in the Automotive Industry
                                                                            11.8                     11.0                   9.1               13.4                                         12.3                                                                                                                                  (Unit: 1,000 vehicles, %)
                                           Manufacturing
                                     Source: Korea Institute for Industrial Economics & Trade (KIET), ISTANS Major Industry Indicator                                                                                                                     2005                              2006                         2007
                                     Notes: 1) Figures in export and trade balance are as of 2007.                                                                                                                                                                             Change                           Change                    Change
                                            2) Includes auto parts.                                                                                                                                                             Production                3,699                  6.6        3,840                3.8     4,086              6.4
                                                                                                                                                                                                                            Domestic Demand               1,143                  4.5        1,164                1.9     1,219              4.7
                                                                                                                                                                                                                                  Export                  2,586                  8.7        2,648                2.4     2,847              7.5
                                     Development Stages of the Korean                                        The automotive industry, vital to the country’s manufacturing industry, accounted
                                     Automotive Industry                                                                                                                                                                          Import                    45                   32.6        55                  21.9     73               32.5
                                                                                                             for 11.8% in production, 13.4% in export, and 9.1% in employment as of 2006.
                                           high                                                                                                                                                                            Overseas Production             664                   59.7        964                 45.3    1,161             20.4
                                                                          Japan
                                                                                           USA               The automotive industry is currently at the beginning stage of maturity, having                           Source: KAMA
                                                                          France          Germany
                                                                  Korea                                      gone through the phases of assembly production and localization during the 1970s,                         Notes: Change rates are calculated on a year-on-year basis.
                                                                                          UK
                                         Core                Brazil                                          mass production and export during the 1980s, and self-development of models
                                     Capability                                   Spain
                                                                Mexico                                       during the 1990s.                                                                                         Since 2002, export in the automotive industry has rapidly increased as auto makers
                                                               China                                            As of 2007, Korea’s stood as the world’s fifth largest auto industry with 5.6%                         strengthened export strategies, improved the image of quality in overseas markets,
                                           low                                                                  of global production, 13th place worldwide with 1.8% in domestic market                                and diversified in export items as part of efforts to overcome sluggish domestic
                                             Introductory Growth           Maturity       Decline
                                                                                                                share, with exports of 2.84 million vehicles.                                                          demand. As of 2007, export stood at 2.84 million units, up 7.5% from the pre-
                                     Source: NSO
                                                                                                             The image of Korean-made cars has improved significantly of late in overseas                              vious year.
                                                                                                             markets. Korean car makers, which were once better known for price competi-                                  Despite unfavorable external conditions including the appreciation of the
                                                                                                             tiveness, are now recognized to offer higher quality competitiveness in small-                               Korean won which lead to weakening price competitiveness, overseas rivals’
                                                                                                             and medium-size passenger cars and small-size SUVs.                                                          growing emphasis on small-size passenger cars, which have been the main
                                                                                                                                                                                                                          export item of Korea, and local production at factories operating overseas, the
                                     Global Top 5 Auto Producing Countries                                                                                                          (Unit: 1,000 vehicles, %)             Korean auto industry has maintained an upward trend in exports by focusing
                                                                       2005                                                       2006                                       2007                                         on emerging markets in the Middle East, Central and South America, and
                                                  Country         Production               Ratio             Country        Production       Ratio        Country          Production              Ratio                  Eastern Europe, and pursuit of diversification in export items.
                                       1           USA                 11,947              17.8                Japan          11,484         16.5          Japan             11,596                15.9                   By region, North America is the largest importer of Korean automobiles at
                                       2           Japan               10,800              16.1                USA            11,264         16.2          USA               10,751                14.7                   29.3% (U.S. 23.5%), followed by Western Europe (19.3%), Eastern Europe
                                       3          Germany              5,758                8.6                China              7,280      10.5          China             8,882                 12.2                   (15.7%), the Middle East (11.6%), and Central and South America (10.6%).
                                       4           China               5,701                8.5              Germany              5,820       8.4         Germany            6,196                  8.5
                                                                                                                                                                                                                       Overseas production, which exceeded 100,000 cars in 2002, has rapidly grown
                                       5           Korea               3,699                5.5                Korea              3,840       5.5          Korea             4,086                  5.6
                                                                                                                                                                                                                       to reach 1.16 million, surpassing 1 million in 2007.
                                     Source: KAMA
                                                                                                                                                                                                                          Overseas production capacity will likely soar as expansion in production
                                                                                                                                                                                                                          facilities by 2008 is planned with a focus on China, the U.S., Eastern Europe
                                                                                                             Demand and Supply                                                                                            and India.
                                                                                                             In 2007, as domestic demand and export continued to increase, Korea exceeded                                 In China, the world’s fastest growing market, Korean auto makers annually pro-
                                                                                                             annual production of 4 million cars. She currently produces 5 million vehicles                               duce nearly 400,000 cars, with a localization rate of parts at 85%, working to
                                                                                                             annually if overseas production is included.                                                                 take root in the local market by revising domestic models to suit the tastes of
                                                                                                                Since 2005, passenger cars have recovered somewhat in terms of domestic                                   Chinese consumers.
                                                                                                                demand, while exports have maintained their upward trend through emerging                                 In the U.S., about US$1 billion of investment has been made to build a factory
Korea’s Auto Parts Industry




                                                                                                                market entry strategies.                                                                                  with an annual production capacity of 300,000 cars. Since beginning pro-
                                                                                                                                                                                                                          duction in 2005, needed parts have been sourced at the local level as part of
                                                                                                             Domestic demand in 2006 remained sluggish at below 1.2 million cars per year,
                                                                                                                                                                                                                          efforts to expand production capacity. In addition, research institutes for tech-
                                                                                                             down from 1.6 million cars in 2002, and returned to a year-on-year increase of
                                                                                                                                                                                                                          nology and design, respectively, were also established. Therefore, the global
                                                                                                             4.7% with 1.21 million cars in 2007.
                                                                                                                                                                                                                          strategies of Korean auto makers are likely to become more sophisticated,
                                                                                                                                                                                                                          which represents a departure from previous models which focused on the
04
                              3) B                                                                                                                                                                              7) G
05
                                                                                                                 establishment of production facilities.                                                   Recently, the auto parts industry has seen the ratio of exports to sales increase,
                                                                                                                 India will be used as a global production base for small-size passenger cars,             and that of OEM on the decline, due to growth in direct export to global auto
                                                                                                                 while Turkey and Slovakia will play an important role as a strategic entry                makers and parts manufacturers, and an increase in export of domestic parts to
                                                                                                                 point to the European market.                                                             overseas factories of domestic auto makers.
                                                                                                                                                                                                              The ratio of OEM reached 86.7% in 2002, and then decreased to 78.2% in 2006,
                                     Global Production Strategies of the Korean Automotive Industry                                                                                                           while the ratio of exports stood at 7.6% in 2002, and then increased to 16.7%
                                                                                                                                                                                                              in 2006.

                                                                  Eastern Europe                                                                                                                      Sales by Year in the Auto Parts Industry                                           (Unit: KRW100 million)
                                                         Support for European Market Entry
                                                           Production Capacity: 220,000                                                                                                                                                               Sales                                     Year-on Year
                                                                                                               China
                                                                                                                                                                                                                                 OEM           A/S            Export            Total           Change (%)
                                                                                                       Global Growth Engine
                                                                     Turkey                         Production Capacity: 930,000                                                                                    2002        237,622      15,445            20,890          273,957              14.6
                                                            Eurasia Region Export Base
                                                                                                                                                                                USA                                 2003        260,602      18,242            41,544          320,388              16.9
                                                           Production Capacity: 100,000                                        Korea                                   Increasing Brand Value
                                                                                                                            Global Center                           Production Capacity: 300,000                    2004        292,361      20,465            52,812          365,638              14.1
                                                                                                                                                                                                                    2005        326,834      22,878            67,610          417,322              14.1
                                                                                                                                                                                                                    2006        360,004      23,400            76,704          460,108              10.3
                                                                                                 India
                                                                               Global Production Base for Small-size Cars                                                                                  Source: KAICA
                                                                                    Production Capacity: 500,000

                                                                                                                                                                                                           In 2007, the auto parts industry stood at US$12.4 billion (based on MTI) in ex-
                                                                                                                                                                                                           ports, up 21.6% year-on-year, while imports for the same period increased 18.9%
                                                                                                                                                                                                           to US$4 billion. The industry has posted a trade surplus for 10 consecutive years
                                                                                                                                                                                                           since 1997 when it last registered a trade deficit.
                                                                                                                                                                                                              As exports of A/S and OEM parts to the U.S. have expanded, competitiveness
                                                                                                                                                                                                              has significantly increased since the mid-1990s. In addition, Korea recovered
                                                                                                                                                                                                              from its chronic trade deficit with Japan, a sure sign of Korea’s improved
                                                                                                     3.Status of the Korean Auto Parts Industry                                                               competitiveness with its neighbor.

                                                                                                                                                                                                           Imports and Exports in the Auto Parts Industry                                                                                            (Unit: US$ million)
                                                                                                           Demand and Supply
                                                                                                                                                                                                           14,000
                                                                                                           The total amount of production in 2007 stood at roughly KRW50 trillion, up
                                                                                                                                                                                                           12,000
                                                                                                           9.1% from the previous year, and domestic demand was estimated at nearly
                                                                                                                                                                                                                                                                                                                                                 Export
                                                                                                           KRW41 trillion, up 6.9% year-on-year.                                                           10,000

                                                                                                                 Recently, the domestic auto parts industry has been on the increase at an annual           8,000
                                                                                                                 rate of 9-10% in both production and export, despite weakening price competi-
                                                                                                                 tiveness in the wake of the strengthening domestic currency.                               6,000
                                                                                                                                                                                                                                                                                                                                                          Import
                                                                                                                 This can be attributed to overseas auto makers expanding their global sourcing             4,000
                                                                                                                 and domestic auto makers increasing production and overseas investment.
                                                                                                                                                                                                            2,000

                                     Performance and Outlook for the Auto Parts Industry                                                                                                                       0
                                                                                                                                                                                                                       1990   1991   1992   1993      1994    1995      1996   1997      1998     1999     2000   2001   2002   2003   2004   2005     2006        2007

                                                                               2006                                                2007                            2008                                     Source: KITA
                                                                                                     Change (%)                               Change (%)                              Change (%)
                                       Production (KRW 10 billion)            4,601                       10.3                     5,020          9.1              5,490                   9.4
                                                                                                                                                                                                              The upward trend in export may mainly be attributed to demand from Korean
                                      Domestic Demand (KRW10 billion)         3,834                       9.6                      4,100          6.9              4,385                   7.0
                                                                                                                                                                                                              factories operating in India and China. Furthermore, the surge in exports of
                                          Export (US$ million)                10,230                      21.0                 12,400            21.2             14,800                  19.4
                                                                                                                                                                                                              OEM parts to overseas auto makers demonstrates that the competitiveness of
Korea’s Auto Parts Industry




                                          Import (US$ million)                3,394                       12.9                     4,040         19.0              4,800                  18.8
                                                                                                                                                                                                              the Korean auto parts industry has greatly improved.
                                     Source: Korea Auto Industries Coop. Association (KAICA)
                                     Notes: 2007 figures are based on estimates, while the figures for 2008 are based on forecasts.                                                                        Meanwhile, in respect to major import and export items, general purpose parts
                                                                                                                                                                                                           like road wheels and brakes can be cited as export items, while import items in-
                                                                                                                                                                                                           clude gearboxes, air bags, fuel pumps, and seat belts, most of which relate to safety
                                                                                                                                                                                                           and high technology and are imported from overseas.

06
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                                                                                                  Gearboxes (transmissions) are imported mainly from Japan (Aisin, Jatco) and                  Current Status of FDI in the Korean Auto Parts Industry
                                                                                                  Germany (ZF, Getrag, etc.), air bags from the U.S., fuel pumps from Germany
                                                                                                                                                                                               As of end-2006, 268 foreign companies have invested in the domestic auto parts
                                                                                                  (Bosch) and other EU member countries, and seat belts from Japan and Australia.
                                                                                                                                                                                               industry to the tune of US$3.05 billion.
                                                                                                  As the domestic production of diesel cars greatly expands, the import of rel-
                                                                                                  evant parts from Germany has surged, together with the increase in “buyback”                                                                                                                                                                             (Unit: US$ million)
                                                                                                  from Korean parts manufacturers operating in China.                                                                             Prior to ’95   ’96~’99        2000          2001          2002          2003          2004          2005          2006            Total
                                                                                                                                                                                                 No. of Foreign Companies             128           41            16            7            20            14             16            15            11             268
                                     Imports and Exports of Major Auto Parts (2007)                                                                               (Unit: US$1,000, %)               Investment Amount                1,271         706           226            36           150           821           321           183            76            3,051
                                                    HS                                                           Item                                          Amount        Ratio             Source: KAICA
                                                     8708 99 9000   Other parts and accessories of the motor vehicles of headings                             9,761,993     78.4
                                                     8708 30 9000   Other brakes and servo-brakes; parts                                                       368,757       3.0                  Following active efforts to promote foreign investment in the wake of the 1997
                                                     8708 29 0000   Other parts of seat belts                                                                  361,449       2.9
                                                                                                                                                                                                  Asian financial crisis, 268 foreign companies from 21 countries have advan-
                                                     8708 70 0000   Road wheels and parts and accessories                                                      270,544       2.2
                                                                                                                                                                                                  ced into the Korean auto parts industry, accounting for 29.7% of first-tier
                                                     8708 94 0000   Steering wheels, steering columns and steering boxes                                       202,660       1.6
                                         Exports                                                                                                                                                  suppliers.
                                                     8708 93 0000   Clutches and parts                                                                         150,325       1.2
                                                                                                                                                                                                  Most are manufacturers of high value-added parts that utilize advanced tech-
                                                     8511 90 9000   Parts of electrical ignition or starting equipment for internal combustion engines         145,435       1.2
                                                                                                                                                                                                  nologies. Among the world’s top 30 parts suppliers by sales, Delphi, Visteon
                                                     8708 40 0000   Gear boxes                                                                                 127,074       1.0
                                                                                                                                                                                                  and JCI (U.S.), Bosch, Siemens and ZF (Germany), Yajaki and Denso (Japan),
                                                     8512 90 0000   Parts of lighting or signaling equipment                                                   108,294       0.9
                                                                                                                                                                                                  and Valeo (France) are active in the domestic auto parts industry as investors.
                                                     8708 92 0000   Silencers (mufflers) and exhaust pipes                                                     99,470        0.8
                                                     8708 40 0000   Gear boxes                                                                                1,066,938     26.3               Except for Aisin, a maker of transmissions, the world’s top 10 parts suppliers
                                                     8708 99 9000   Other parts and accessories of the motor vehicles of headings                              890,633      22.0               operate in Korea via their respective subsidiaries.
                                                     8409 99 2000   Parts for diesel engines                                                                   424,519      10.5                  These 9 top-tier parts manufacturers supply 27 domestic firms as foreign in-
                                                     8708 95 9000   Other parts of air bags                                                                    265,114       6.5
                                                                                                                                                                                                  vestors.
                                                     8413 30 4000   Fuel, lubricating or cooling medium pumps for internal combustion piston engines           221,876       5.5
                                         Imports                                                                                                                                                  In most cases, foreign investors own more than 50% of the equity interests in
                                                     8708 30 9000   Other brakes and servo-brakes; parts                                                       133,444       3.3
                                                                                                                                                                                                  these foreign-invested firms, while only three possess less than 50% in foreign
                                                     8708 29 0000   Other parts of seat belts                                                                  128,525       3.2
                                                                                                                                                                                                  equity ownership.
                                                     8708 94 0000   Steering wheels, steering columns and steering boxes                                       95,807        2.4
                                                     8708 30 3000   Electronic control brakes                                                                  95,105        2.3               In addition to the world’s top 10, 38 manufacturers are also involved in the
                                                     8708 93 0000   Clutches and parts                                                                         72,111        1.8               domestic auto parts industry including TRW Automotive (11th), ZF (12th)
                                     Source: KITA                                                                                                                                              and Valeo (13th), all of which are among the world’s top 100 auto parts manu-
                                                                                                                                                                                               facturers.
                                                                                                As domestic auto makers operating overseas increase local production, an increa-                  These companies also have over 50% in equity ownership with managerial
                                                                                                sing number of auto parts manufacturers enter the overseas markets on their own                   rights.
                                                                                                or in alliance with their trading partners.
                                                                                                                                                                                               The World’s Top 10 Auto Parts Manufacturers Operating in Korea
                                                                                                  As of the end of 2006, 87 domestic parts manufacturers operated overseas with
                                                                                                                                                                                                 Investor Company       Ranking                                                            Foreign-invested Company
                                                                                                  205 factories in 17 countries, demonstrating the prevalence of globalization in
                                                                                                                                                                                                       Bosch              1        Kamco, Robert Bosch Korea Mechanics & Electronics, Korea Bosch Diesel
                                                                                                  the auto parts industry.
                                                                                                                                                                                                       Delphi              2       KDS, Korea Delphi Automotive Systems, Daesung Electric, Delphi Diesel Systems Korea, Delphi Automotive Interior and System, Delphi Korea
                                                                                                  With global expansion in the operation and production of auto makers, the auto
                                                                                                                                                                                                 Magna Powertrain          3       Magna Powertrain Korea
                                                                                                  parts industry will likely see exports increase, although the growth in exports
                                                                                                                                                                                                       Denso               4       Denso PS Electronics, Denso PS, Doowon Climate Control
                                                                                                  will only remain effective until car manufacturers operating overseas can source
                                                                                                                                                                                                 Johnson Controls          5       Johnson Controls Automotive Korea, Johnson Controls Automotive Interiors Korea
                                                                                                  auto parts at the local level.
                                                                                                                                                                                                      Visteon              6       Visteon Interiors Korea, Dukyang Ind., Halla Climate Control Corporation
                                                                                                  In the long term perspective, the supply and demand system will likely be kept                        Lear               7       Lear Korea, DK Lear Korea, Mseat
                                                                                                  at a stable level through localization of auto parts, as the auto parts industry                    Faurecia            9        Daeki Faurecia
                                                                                                  shifts its focus toward global sourcing with the popularity of the buyback                    Siemens VDOAutomotive     10       Korea EMS, Siemens Automotive Systems, Siemens Halla
Korea’s Auto Parts Industry




                                                                                                  phenomenon. However, if the domestic production base is not to be expanded,                  Source: KAICA
                                                                                                  domestic demand for auto parts will likely stay at current levels.




08
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                                     Domestic parts manufacturers, which are controlled by the world’s top-tier firms, tend to             Investment Status by Country (2005)                                                                                                            (Unit: US$ million)
                                     have high-level technology and larger negotiating power versus purely domestic parts                                                  Japan               USA          Germany             UK           France           Netherlands    Australia           Canada
                                     manufacturers in their relations with auto makers. Therefore, the existing trading rel-                   No. of Companies               104               62                38            10                 9              5              4                   2
                                     ationship in which auto makers are at an advantage over their parts suppliers is likely to               Investment Amount               652               971               701           64                237            129            10                   25
                                     change significantly.
                                                                                                                                                                          Sweden               Spain         Hungary           Italy            China          Singapore      Others             Total
                                       Parts manufacturers having been under the umbrella of domestic auto makers acquired                     No. of Companies                2                   2               2            2                  2              2              7                257
                                       by foreign investors, will likely face increased global competition as they are integrated             Investment Amount                7                14                69            2                  2              28            36               2,947
                                       into the global sourcing networks of foreign-invested companies.                                    Notes: Others include Denmark (US$12,337,000), Malaysia (US$4,840,000), Austria (US$8,044,000), Cayman Islands (US$2,884,000), Luxembourg (US$9,680,000),
                                                                                                                                           Norway (US$389,000), Mauritius (US$1,485,000). (One case for each) = A total of 21 countries
                                     Among 268 foreign-invested firms, first-tier parts suppliers in direct trading with domestic
                                     auto makers are 172 in number and account for 36.0% of the domestic OEM parts mar-
                                     ket with delivery of 12.9 trillion won.                                                               Investment Status by Foreign Investment Ratio (2005)                                                                                           (Unit: US$ million)
                                       Compared to 2005, the number of companies has decreased by one, while the amount                                                100%               99.9~90.0%       89.9~80.0%        79.9~70.0%           69.9~50.1%           50%           49.9% or less        Total
                                       of delivery is up 12.3%.                                                                             No. of Companies             74                   10                   9                8                   23             42                 91              257

                                       Among the first-tier parts suppliers invested in by foreign companies, 85 companies                 Investment Amount           1,458                  120                 120            228                    257            368               401              2,947

                                       possess over 50% in foreign equity ownership, delivering 6.1 trillion won (16.9%                                           Kamco, Robert
                                                                                                                                                                                                                                               Daesung
                                                                                                                                                                                                                                                                     Dongsuh
                                                                                                                                                                   Bosch Korea          Modine Korea,      Remy Korea,         Mando,                            Industrial, Valeo Doowon Climate
                                       of total domestic delivery).                                                                         Major Companies        Mechanics &          Morgan Korea,        Visiocorp        Schaeffler       Electric,           Pyeong Hwa,     Control, Gwang
                                                                                                                                                                   Electronics,          Pacific Valve      Pungjeong,       Korea, GMB      Dukyang Ind.,         Korea Delphi    Jin Sang Gong,
                                                                                                                                                                   Korea Wiper            Industrial      Korea Omyang          Korea        Halla Climate          Automotive      Gates Korea
                                     Large auto parts manufacturers with advanced technologies enter Korea with the expect-                                           Blade                                                                    Control               Systems
                                     ation of using the country as an axis for executing their global network strategies.
                                                                                                                                           Notes: No. of companies investing in 50.1% or higher stakes: 124 (48.2%)
                                       Global auto parts suppliers tend to have a majority equity ownership in their invested
                                       firms in Korea as part of their strategy.
                                                                                                                                           Delivery by Foreign-invested Companies among 1st-tier Suppliers
                                       Despite major auto producing countries in the region like Japan and China, Korea is
                                       seen as a country of significant strategic importance based on factors like market size                 As of the end of 2005, 173 parts suppliers in the 1st-tier, among 257 foreign-invested firms, delivered products totaling
                                       and production environment.                                                                             KRW11,538 billion, a figure exceeding 35% of total auto parts deliveries.



                                                                                                                                           Financial Results of Foreign-invested Companies (2005)
                                                                                                                                                                                                                                                                                R&D Investment (%)
                                                                                                                                                                                    Operating Profit Margin (%)         Dividend Payout (%) (Dividend/ Net Income)
                                                                                                                                                                                                                                                                                      (Sales/R&D)
                                                                                                                                            Foreign-invested Firms                              6.2                                        41                                             1.97
                                                                                                                                                Domestic Firms                                  5.3                                        16.9                                           1.8

                                                                                                                                           Notes: The average operating profit margin of the domestic manufacturing industry is 6.0%.
Korea’s Auto Parts Industry




10
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11
                                                                                                                                                                                                                                      industry as a whole, the Korean auto parts industry has also seen an increase
                                                                                     4.Competition Status                                                                                                                             in the ratio of large firms (7.0% for 2001 10.1% for 2006).

                                                                                                                                                                                                                                   Delivery by Auto Maker                                                                                                                                    (Unit: KRW100 million)
                                                                                          Development Stages of the Auto Parts Industry
                                                                                                                                                                                                                                                                                                Delivery Amount                        No. of companies to which delivery is made
                                                                                          Auto parts total roughly 20,000 in type, making it difficult to assess development                                                                                                                                                                                                              Ratio of Delivery (%)
                                                                                                                                                                                                                                                                                     2005                          2006                         2005                   2006
                                                                                          stages on a “one size fits all” basis. However, on average, the Korean auto parts industry
                                                                                                                                                                                                                                          Hyundai Motor                             150,036                       155,853                       377                    366                         57.0
                                                                                          is viewed to be in the growth stage.
                                                                                                                                                                                                                                            Kia Motors                              98,408                        108,761                       391                    372                         62.4
                                                                                              Companies producing wire harnessing and certain types of springs have moved their                                                             GM Daewoo                               47,890                        64,178                        307                    304                         66.9
                                                                                              production base to China, and it is expected that they will do so for other items as well.                                                Ssangyong Motor                             15,645                        13,755                        237                    220                         46.6
                                                                                              In contrast, producers of diesel engine parts, engine fuel pumps, ABS systems, and                                                        Renault Samsung                              9,961                        11,461                        146                    133                         44.3
                                                                                              transmissions, whose imports enormously exceed exports, are mostly in the intro-                                                             Daewoo Bus                                2,899                         3,227                        178                    186                         64.7
                                                                                              ductory stage in case of high-tech products. Therefore, such parts are still considered                                              Tata Daewoo Commercial Vehicle                    1,995                         2,769                        192                    196                         56.9
                                                                                              to be in the import substitution stage.                                                                                                           Total                               326,834                       360,004                       1,828                 1,777                        59.1
                                                                                                                                                                                                                                   Source: KAICA
                                                                                              Among others, a common-rail fuel injection system, or CVT (continuously variable
                                                                                                                                                                                                                                   Notes: The ratios of delivery to sales are based on auto makers’ sales.
                                                                                              transmission), and some variable transmissions depend mostly on imports to meet
                                                                                              demand. By 2010, these products are predicted to reach the growth stage.
                                                                                                                                                                                                                                   The exclusive trading system which has been the target of criticism due to the
                                                                                                                                                                                                                                   dependence of auto parts manufacturers on their respective parent companies
                                     Development Stage by Sector in the Korean Auto Parts Industry
                                                                                                                                                                                                                                   has shifted toward an open trading system that, since the Asian financial crisis,
                                                                                         Production                                                                Trade                                                           has allowed them to transact with a variety of those on the demand side.
                                                       HS Code                                                                                             Export-Led             Export-Led
                                                                                                                             Import        Trade                                                        Transition to
                                                                     Introduction   Growth      Maturity       Decline                                  (Non-competition         (Competition in
                                                                                                                           Replacement    Balance                                                      Developing Country          No. of Companies with Multiple Trading Partners
                                                                                                                                                        in developing country)   developing country)

                                            Present                                                                                                                                                                                                                                                                                        No. of Parent Companies in Transaction
                                       A               8409992000                                                                                                                                                                                                             Description                                                                                                                   Total
                                              2010                                                                                                                                                                                                                                                                           1             2             3            4             5       6 or more
                                            Present                                                                                                                                                                                                 No. of Companies on the Demand and Supply Side                          461          228            109           62            41          21           922
                                       B               8413304000                                                                                                                                                                      2005
                                              2010                                                                                                                                                                                                                             Ratio (%)                                    50.0         24.7           11.8         6.7            4.4         2.3         100.0
                                            Present                                                                                                                                                                                                 No. of Companies on the Demand and Supply Side                          460          218            98            68            39          19           902
                                       C               8708210000                                                                                                                                                                      2006
                                              2010                                                                                                                                                                                                                             Ratio (%)                                    51.0         24.2           10.9         7.5            4.3         2.1         100.0
                                            Present                                                                                                                                                                                Source: KAICA
                                       D               8708392000
                                              2010
                                            Present
                                       E               8708400000                                                                                                                                                                     The ratio of companies with only one trading partner accounted for 55.4% in
                                              2010
                                                                                                                                                                                                                                      2001. This figure, however, decreased slightly to 51.0% in 2006.
                                            Present
                                       F               8708999000                                                                                                                                                                  By item, chassis, power trains, and electric parts, which are high in terms of tech-
                                              2010
                                     Indu- Present                                                                                                                                                                                 nology level, are traded with a large number of auto makers, while parts relating
                                      stry
                                     Total  2010                                                                                                                                                                                   to suctions and exhaust devices and exteriors and interiors are traded with a rel-
                                     Notes: 1) A = Diesel Engine Parts, B = Pumps for Liquids for Internal Combustion Engines, C = Safety Belts, D = Electronic Control Brakes, E = Gear Boxes, F = Other                          atively smaller number of auto makers.
                                               Parts for Automobiles
                                            2) The stages are difficult to define with accuracy. The growth stage shows a relatively high rate of increase in production, while the maturity stage sees an
                                               upward trend in production slow down.
                                                                                                                                                                                                                                   No. of Auto Makers in Transaction by Item

                                                                                                                                                                                                                                                             Average
                                                                                                      Trading Relationship in the Auto Parts Industry                                                                                                    Electric Parts
                                                                                                                                                                                                                                               Body, Exterior, Interior
                                                                                                      The auto parts industry consists of parts suppliers numbering nearly 900 in the
                                                                                                                                                                                                                                                           Powertrain
                                                                                                      first-tier and up to 3,000 in the second and third tiers.
                                                                                                                                                                                                                                       Fuel Suction and Exhaust Devices
                                                                                                        Nearly 10.1% (91) of those in the first-tier are large firms, and 89.9% (811) are
Korea’s Auto Parts Industry




                                                                                                                                                                                                                                              Drive, Front, Door, Head
                                                                                                        small or medium enterprises. The total delivery amount stood at 36 trillion                                                                            Chassis
                                                                                                        won as of 2006.                                                                                                                                                   0                 1               2                      3             4
                                                                                                        Small- and medium-size manufacturers account for the absolute majority. How-                                               Source: Survey by KIET (Oct. 2004)
                                                                                                        ever, as the auto parts industry increases in importance in the automotive


12
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13
                                                                                                    Current Status of Manufacturers in the Auto Parts Industry                                                    Division of Parts by Function and Major Manufacturer

                                                                                                    Hyundai Mobis (KRW8,168 billion), Wia (KRW2,592.4 billion), Mando (KRW                                        Function             Name of Part                     Name of Major Part                                                       Major Company

                                                                                                    1,582.2 billion), Halla Climate Control (KRW1,376.4 billion), Korea Delphi                                                                                                                                 Auto Makers

                                                                                                    Automotive Systems (KRW1,118 billion), and Dymos (KRW1,004.3 billion) are                                                                                 Cylinder Head/Block                              Deadoung, Doosan Infracore, Yeonghwa Metal
                                                                                                                                                                                                                                                              Piston                                           Dong Yang Piston, Dongsuh Industrial, Korea Toto Co.
                                                                                                    among Korea’s 6 leading auto parts manufacturers whose annual sales respec-
                                                                                                                                                                                                                                Engine Body                   Crank-shaft, Connecting Rod                      Daechang Forging, Korea Flange, Sammi Metal Products
                                                                                                    tively exceeded 1 trillion won as of 2006.
                                                                                                                                                                                                                                                              Cam-shaft                                        Yoosung Enterprise, Lee Won Precision, Tae Chang
                                                                                                          They are first-tier suppliers which produce major parts such as transmissions,
                                                                                                                                                                                                                                                              Piston Ring, Cylinder Liner                      Yoosung Enterprise, Riken of Korea
                                                                                                          accelerators, and brake systems.
                                                                                                                                                                                                                                                              Bellows                                          SJM, SDB Bellows
                                                                                                          Among these, Hyundai Mobis, Mando, and Wia perform part of the assembly                                                                             Cooling Module                                   Halla Climate Control, Samsung Climate Control, Denso PS, Korea Delphi Automotive Systems
                                                                                                          process, which is being conducted by auto makers, through the delivery of                                Power                                                Radiator, Condenser                    Halla Climate Control, Samsung Climate Control, Denso PS
                                                                                                                                                                                                                                Cooling Device
                                                                                                          modules which explains their designation as 0.5-tier parts suppliers.                                   Generator                                             Fan Motor                              Denso PS, Dongyang Mechatronics
                                                                                                          In addition, some manufacturers like Halla Climate Control, SL, and Dymos                                                                                     Fan Shroud                             Ecoplastic, Daihan Calsonic

                                                                                                          have also been working to become module-based producers through the manu-                                                                           Fuel Tank                                        Sejong Industrial, Donghee Industrial

                                                                                                          facture of certain modules and sub-modules.                                                                           Fueler                        Fuel Pump/Water Pump                             Jico, GMB Korea, Myung Hwa Ind
                                                                                                                                                                                                                                                              Oil Pan                                          SL, Hwanshin
                                                                                                    Of companies on the list of the global top 100 auto parts manufacturers by sales
                                                                                                                                                                                                                                                              Manifold (Suction/Exhaust)                       Daerim, Samjoo Machinery
                                                                                                    in 2006, Hyundai Mobis ranked 25th at US$5.7 billion, and Mando 77th largest
                                                                                                                                                                                                                                                              Muffler/Pipe                                     Sejong Industrial, Dongwon Metal
                                                                                                    at US$2 billion.                                                                                                            Suction/Exhaust Device
                                                                                                                                                                                                                                                              Catalytic Converter                              Sejong Industrial, Daeki Faurecia, Dae Ji Metal
                                                                                                                                                                                                                                                              Throttle Body                                    Motonic, Daewoo Precision
                                     Korea’s Top 15 Auto Parts Manufacturers                                                                                                           (Unit: KRW100 million)
                                                                                                                                                                                                                                                                                                               Dymos, Hyundai Powertech, S&T Dynamics
                                                                 Company                          Capital        Delivery Amount        Sales          No. of Employees             Major Product                                                             Gear Shift Lever                                 SL, Kyung Chang Industrial
                                                                                                                                                                                                                                Transmission
                                       1                      Hyundai Mobis                        6,953             46,192            81,680               4,016                Modules & Systems                                                            Gear, Shaft                                      S&T Dynamics, Kyung Chang Industrial
                                                                                                                                                                                                                   Power
                                       2                               Wia                         1,138             19,497            25,924               1,630               Transmissions, Axles                                                          Oil Pump                                         Korea Automotive Systems, Magma Powertrain
                                                                                                                                                                                                                 Transmitter
                                       3                          Mando                            1,650              9,847            15,823               3,600             Brake Systems, Modules                                                          Propeller Shaft                                  Korea Automotive Systems, Daeseung
                                       4             Korea Delphi Automotive Systems               1,383              9,685            11,181               2,001                   Overall Parts                               Other Power Electric Parts    Pedal (brake, clutch, accelerator)               Kyung Chang Industrial, Donghee Precision
                                       5                          Dymos                            1,500              9,587            10,043               1,100                 T/Ms, Axles, Seats                                                          Clutch/Clutch Parts                              Valeo Pyeong Hwa, Seojin Clutch
                                       6                   Halla Climate Control                   1,014              8,230            13,764               1,612                  Air Conditioners                                                           Floor, Roof, Side, Back Panel                    Austem, Sungwoo Hitech, Ilji Technology, Sewon Precision Industry
                                                                                                                                                                                                                                Panel, Frame
                                       7                    Hyundai Powertech                      2,400              6,514             8,516               1,024                     Auto T/Ms                                                               Cross & Side Member                              Sejong Industrial, Hwashin, Daewoo Engineering, Austem
                                       8                       S&T Daewoo                           969               5,021             5,209               1,287               Suspension Modules                              Bumper                        Bumper (front/rear)                              Ecoplastic, Sungwoo Hitech, Plakor, LG Chem
                                       9                     Sejong Industrial                      119               4,388             3,247                745                   Silencers, Pipes                                                                                                            Pyeong Hwa Automotive, GwangJinSangGong
                                                                                                                                                                                                                    Body
                                       10                    Hyundai Autonet                       2,078              4,279             7,950               1,145            Audios, Navigation systems                                                       Door Frame                                       Sungwoo Hitech, Dong Won Metal
                                       11                      Korea Flange                         966               3,730             5,516                574                      C.V. Joints                               Door Module                   Door Lock                                        Pyeong Hwa Automotive, Daeki Automotive
                                       12                  Kyungshin Industrial                     122               3,665             4,880               1,062                  Wire Harnesses                                                             Window Regulator                                 GwangJinSangGong, Daeki Automotive
                                       13                       Hanil E-wha                         413               3,407             5,176                779                      Door Trim                                                               Door Trim                                        Ecoplastic, Hanyl, Hanil E-wha
                                       14       Robert Bosch Korea Mechanics & Electronics          218               3,381             3,148                615              Common Rails, EMS, TCU                            Chassis Module                                                                 Hyundai Mobis, WIA
                                       15                      Daewonsanup                          194               3,348             3,724                740                        Seats                                                                 Axle Assembly                                    Dymos, S&T Dynamics, Korea Flange, WIA
                                     Source: KAMA                                                                                                                                                                               Axle                          Axle Shaft                                       Korea Flange, Hanil Forging Industrial, Daeil Industry
                                     Notes: Based on delivery amount as of 2006
                                                                                                                                                                                                                                                              Bearing                                          Iljin Bearing, FAG Bearing Korea
                                                                                                                                                                                                                                                              Brake Assembly                                   Hyundai Mobis, Mando, Korea Automotive Systems
                                     Global Ranking of Major Auto Parts Manufacturers                                                                                                  (Unit: US$100 million)                                                 Brake Booster                                    Mando, Korea Automotive Systems, Korea Delphi Automotive Systems
                                                                                                                                                                                                                                Brake
                                                                  2003                                    2004                                  2005                                   2006                                                                   Disc, Drum & Hub                                 Korea Automotive Systems, Mando, Nam Yang Metals, Myung Hwa Ind
                                                         Company                 Sales          Company               Sales            Company                Sales            Company                 Sales       Chassis                                    Lining & Pad                                     Sang Sin Brake, Koreaberal
                                            1           Delphi (U.S.)            262        Bosch (Germany)            272         Bosch (Germany)             284         Bosch (Germany)             297                                                    Shock Absorber                                   Mando, Korea Automotive Systems, Daewoo Engineering
                                            2         Bosch (Germany)            232          Delphi (U.S.)            241           Denso (Japan)             229            Delphi (U.S.)            244                      Suspension                    Spring (leaf, suspension coil), Stabilizer Bar   Dae Won Kang Up, Sam Mok Kang Up
                                            3          Denso (Japan)             169        Magna (Canada)             199          Magna (Canada)             228           Denso (Japan)             240                                                    Arm                                              SL, Donghee Precision, Hwashin
Korea’s Auto Parts Industry




                                            4          Visteon (U.S.)            165         Denso (Japan)             199            Delphi (U.S.)            226          Magna (Canada)             239                                                    Steering Gear (manual, power system)             Mando, WIA, S&T Dynamics, Korea Delphi Automotive Systems
                                            5            Lear (U.S.)             157     JonhnsonControls (U.S.)       195    JonhnsonControls (U.S.)          194    JonhnsonControls (U.S.)          195                      Steering                      Steering Column & Shaft                          Mando, S&T Dynamics, Nam Yang Ind.
                                            6         Magna (Canada)             153          Visteon (U.S.)           177         Aisin Seiki (Japan)         179         Aisin Seiki (Japan)         194                                                    Steering Knuckle                                 Sammi Metal, S&T Dynamics, Namyang Ind.
                                                                                                                                    Hyundai Mobis                           Hyundai Mobis                                                                                                                      Hyundai Mobis, Dukyang Ind.
                                       Korean                                                                                                                   49                                      57         Interior
                                                    Mando (ranked 78th)           13      Mando (ranked 92nd)          12            (ranked 25th)                           (ranked 25th)                                      Cockpit Module                Crash Pad                                        Hyundai Mobis, Dukyang Ind., Koryeo Industry
                                      Company                                                                                                                                                                    & Exterior
                                                                                                                               Mando (ranked 77th)              15        Mando (ranked 77th)           20                                                    Combination Meter                                Denso PS Electronics, Unick

14                                   Source: Automotive News

                              3) B                                                                                                                                                                                 G
                                                                                                                                                                                                                7) Golf courses operating on a non-membership basis, Article 14 of the Act on the Installation and Use of Sports Facilities.
15
                                Division of Parts by Function and Major Manufacturer (cont.)
                                Function          Name of Part
                                                                           Air Bag
                                                                                     Name of Major Part                                                     Major Company
                                                                                                                             Hyundai Mobis, Daewoo Engineering, Korea Delphi Automotive Systems                                            FDI System and Policy
                                                                           Car Stereo & Audio, Navigation System             Hyundai Mobis, Hyundai Autonet, Bontec
                                                                           Heater Unit/Air Conditioner                       Halla Climate Control, Doowon Climate Control, Daihan Calsonic, Denso PS
                                Interior &    Interior                     Seat/Seat Belt                                    Hanil E-wha, Hanyl, Daewonsanup, DBI, Das
                                 Exterior                                  Console Box, Ash Tray, Knob, etc.                 Ecoplastic, Dongil Industrial, Il Heung, Korea Fuel-Tech
                                 (cont.)      Exterior                     Garnish, Radiator Grille, Emblem, etc.            Ecoplastic, Samshin Chemical                                                     1. FDI Incentives
                                                                           Wiper Module                                      Korea Wiper Blade, Denso PS, Fukoku Simpson Korea
                                                                                                                                                                                                                                                                                                                       (as of Feb. 2008)
                                                                           Sun Roof Module                                   Webasto Korea
                                                                           Wheel Disc, Wheel Cover/Cap                       Austem, Ecoplastic                                                                          Incentive                                             Details

                                              Battery                                                                        AtlasBX, Global & Yuasa Battery, Hyundai Enercell
                                                                                                                                                                                                                     Tax Reduction   Qualifications
                                                                           Cable                                             Infac, Kyung Chang Industrial, Daedong System
                                              Wiring                                                                                                                                                                                 1) Foreign companies engaged in industry support services or sectors involving high tech-
                                                                           Connector                                         Korea Electric Terminal, THN
                                                                                                                                                                                                                                     nology, or those that are based in a foreign investment zone or free economic zone are eli-
                               Electricity    Motor                        ABS, Door Lock, Fan, Heater, Power Window, etc.   Denso PS, Dongyang Mechatronics, Kamco
                                                                                                                                                                                                                                     gible to receive reduction on corporate, income, and local taxes (acquisition, registration and
                                              Sensor                       Air Bag, Thermo. & Temp., Crank-shaft, etc.       Inzi Controls, Kefico, Unick, Daewoo Engineering
                                                                                                                                                                                                                                     property taxes); 2) In case that the capital goods used for business purposes are subject to
                                              Lamp                         Head, Rear, Room, Turn Signal, Fog Lamp, etc.     SL, So Gu Industrial, Shin Woo Mechatronics, Il Heung                                                   reduction of corporate tax or income tax, customs tariffs are exempted on the capital goods
                                              Control Unit                 ECU, TCU                                          Kefico, Siemens Automotive Systems, Robert Bosch Korea Mechanics & Electronics                          for which the import declaration is completed within three years from the date of investment
                              Source: KAICA; Hana Institute of Finance                                                                                                                                                               notification.
                              Notes: Korea Automobile & Auto Parts Industry Suppliers Directory (2007) referred to for English terms.
                                                                                                                                                                                                                                     Application Procedures
                                                                                                                                                                                                                                     Application for prior checking on tax reduction: to confirm the existence of a high-degree
                                                                                              Changing Environment and Promising Products in the Auto Parts                                                                          technology
                                                                                              Industry                                                                                                                               Application for tax reduction
                                                                                                                                                                                                                                       Relevant organization: Ministry of Strategy and Finance (www.mosf.go.kr)
                                                                                                   Efforts by auto makers to save costs have led to the expansion of opportunities for                                               Decision and notification of tax reduction will occur within 20 days from the application date
                                                                                                   modulation and global sourcing among parts manufacturers. Diversification of
                                                                                                   customer needs and growing emphasis on the environment and safety have also
                                                                                                   resulted in the strengthening of technology development for electric parts and                                    Cash Grant      Qualifications
                                                                                                   future car parts.                                                                                                                 A foreign investment whose foreign-equity stake is over 30% and 1) at least US$10 million in
                                                                                                                                                                                                                                     the industry support services sector; 2) includes high-degree technologies, or is a greenfield
                                                                                                   In particular, the strengthening of global sourcing contributed to the increase in                                                investment in parts and materials manufacturing; 3) newly built/expanded R&D facilities in
                                                                                                   OEM deliveries by Korean parts manufacturers with high quality competitive-                                                       fields related to industry support services or high-degree technology businesses, or research
                                                                                                   ness at a lower price to global auto makers. Furthermore, foreign auto makers                                                     facilities of non-profit corporations invested in by a foreign national; or 4) cases where the
                                                                                                   operating in Korea will also likely create opportunities for auto parts suppliers                                                 investment amount, etc. do not meet the necessary requirements, but the investment is deemed
                                                                                                   to participate in global sourcing to expand.                                                                                      to have a significant impact on the domestic economy and/or is deemed eligible for a cash
                                                                                                                                                                                                                                     grant by the Foreign Investment Committee
                                                                                                   Domestic auto makers are adjusting their sourcing strategies to let key modules
                                                                                                                                                                                                                                       5% or more of the investment amount is paid in cash with the upper limit to be determined
                                                                                                   be developed and delivered under the responsibility of parts suppliers. In addition,                                                by a closed formula
                                                                                                   module parts can be cited as a promising item as auto makers plan to increase the
                                                                                                                                                                                                                                     Application Procedures
                                                                                                   modulation rate up to 50% in the future from a mere 12% in 2001.
                                                                                                                                                                                                                                     Negotiation and grant application/evaluation
                                                                                                   Amid forecasts that the ratio of electric parts will likely increase to 40%, car elec-                                              Relevant organization: Ministry of Knowledge Economy (www.mke.go.kr)
                                                                                                   tronics, including safety, A/V and navigation systems, will likely grow faster than                                               Decision of grant and contract conclusion
                                                                                                   expected. In particular, IT technology and quality, in which Korea has a competitive                                                It shall not take more than 60 days from application to contract conclusion.
                                                                                                   edge, will make the car electronics industry competitive in the global market.                                                    Payment of cash grant
                                                                                                                                                                                                                                       In a lump sum or in installments up to 10 times for a maximum duration of 5 years
                                                                                                      With regard to car electronics, auto makers are showing a tendency to add an
                                                                                                      interface to connect with external devices, or use bluetooth technology, rather                                                Legal Usage: Limited to funds to support employment and training, land purchase and lease,
                                                                                                      than pursue built-in devices, in an attempt to cut production costs.                                                           construction costs, costs to cover installation of facilities necessary for business establish-
Korea’s Auto Parts Industry




                                                                                                                                                                                                                                     ment, capital goods and research equipment purchasing costs
                                                                                                      Parts manufacturers can tap into markets on their own, making it possible for
                                                                                                      Korean manufacturers, which are at a relative disadvantage in trading with
                                                                                                      auto makers overseas, to gain access to new markets.




16
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                                                            Foreign Investment Zones (FIZ)
                                                                                                                                                                   Tax Reduction Standards for Foreign-Invested Companies and Other
                               Site Location
                               Support                                                                                                                             Grants (as of Apr. 30, 2008)
                                                           Stand-alone type FIZ
                                                            Overview: Designated as the site of an individual foreign-invested company, as determined              Reduction of National and Local Tax *                                                                 (Unit: US$ million)
                                                            by the investor’s request of region, timing, and other preferences so as to attract large-size
                                                                                                                                                                                                                        Investment            Reduction Period
                                                            investment                                                                                                      Category                   Type                                                                  Ref.
                                                                                                                                                                                                                          Amount                and Details
                                                            Designation criteria: Manufacturing -at least US$30 million; Tourism -at least US$20 million;
                                                            Logistics - at least US$10 million; R&D -at least US$2 million                                          High-degree Technology
                                                                                                                                                                    Businesses                    Manufacturing             n/a                7 years in total
                                                            Relevant law: Foreign Investment Promotion Act (FIPA)                                                                                                                            (100% for the first
                                                                                                                                                                                                  Manufacturing At least US$30 million             5 years,        Hiring more than
                                                           Complex-type FIZ                                                                                         Companies in a Stand-                                                                         10 employees with
                                                                                                                                                                                                                                            50% for the following
                                                            Overview: Operated based on lower rents. This refers to an area divided into predesignated              alone Type FIZ                     R&D         At least US$2 million                          master’s degree or
                                                                                                                                                                                                                                                   2 years)
                                                            sections for lease or sale, for the purpose of attracting small- and medium-sized foreign-                                                                                                                  higher
                                                            invested companies possessing cutting-edge technologies.                                                Companies in a Complex-                                                    5 years in total
                                                            Designation criteria: Manufacturing, logistics, etc. with at least 30% of foreign investment ratio      type FIZ
                                                                                                                                                                                                                                             (100% for the first
                                                            and an investment of at least KRW50 million                                                             Companies in an FEZ           Manufacturing At least US$10 million             3 years,
                                                            Relevant law: Foreign Investment Promotion Act (FIPA)                                                                                                                           50% for the following
                                                            Reference: http://www.kicox.or.kr/sub04/sub02.jsp                                                       Companies in a Business
                                                                                                                                                                    City Development Zone                                                          2 years)

                                                            Free Trade Zones (FTZ)
                                                                                                                                                                   * Local taxes to be applied at varied reduced rates between 5 to 15 years according to local government ordinance
                                                            Overview: Free trade zones were introduced for the purpose of promoting FDI and trade and
                                                            operate as a customs-free zone. FTZs provide the ideal location for foreign-invested com-
                                                            panies to operate manufacturing and logistics simultaneously (industrial complex type,                 Reduction and Exemption of Customs, Individual Consumption Tax, Value-added Tax, etc.
                                                            airport/seaport type).
                                                                                                                                                                                    Category                                Relevant Tax                  Object               Ref.
                                                            Designation criteria: Foreign-invested companies, domestic companies, businesses in
                                                            logistics and trade, etc.                                                                               High-degree Technology Businesses            Customs, individual consumption tax,
                                                            Relevant law: Law on Designation and Operation of Free Trade Zones                                      Companies in a Stand-alone Type FIZ                    value-added tax              Capital goods    On condition
                                                            Reference: http://www.ftz.go.kr                                                                                                                                                             imported with    of importing
                                                                                                                                                                    Companies in a Complex-type FIZ
                                                                                                                                                                                                                                                        invested cash    within 3 years
                                                                                                                                                                    Eligible for Tax Reduction
                                                            Free Economic Zones (FEZ)                                                                                                                                                                   Capital goods    from the date
                                                            Overview: FEZs are distinguished from existing manufacturing-centered industrial complexes              Companies in an FTZ Eligible for                                                                     of foreign
                                                                                                                                                                                                                              Customs                   imported with
                                                            in that they are characterized as an industrial complex with international schools, hospitals           Tax Reduction                                                                                        investment
                                                                                                                                                                                                                                                        investment in-
                                                            and broadcasting stations for the purpose of inviting knowledge industries and high value-              Companies in an FEZ Eligible for                                                    kind             notification
                                                            added service industries, as well as having foreigner-friendly living conditions.                       Tax Reduction FEZ
                                                            Designation criteria: Foreign-invested companies, manufacturing or logistics companies,
                                                            medical organizations, educational institutes, financial organizations, etc.
                                                            Relevant law: Law on Designation and Operation of Free Economic Zones
                                                                                                                                                                   Tax Exemption for a High Degree Technology Business *
                                                            Reference: http://www.fez.go.kr/
                                                                                                                                                                       Whether or not the business of a foreign-invested company is a high-degree technology business (as stip-
                               Financial Support           Qualifications: A foreign-invested company where the foreign equity stake is at least 30                    ulated by the Tax Exemptions and Exceptions Act) is determined through deliberation by the Foreign Invest-
                                                           percent, or where a foreign individual is the largest shareholder                                           ment Deliberation Council of the Ministry of Strategy and Finance. The requirements are as follows:
                                                                                                                                                                            The technology shall have a profound economic or technological impact on the national economy, and
                                                            Support Coverage: Cost of staff education and training, cost of hiring personnel, and
                                                                                                                                                                         be essential to improving the industrial structure and strengthening industrial competitiveness; The
                                                            projects to build infrastructure within a foreign investment zone or to enhance the living
                                                                                                                                                                         technology shall have been introduced to the country less than 3 years prior, or shall be economically
                                                            environment
                                                                                                                                                                         and technologically superior to already introduced technologies even through it was introduced more
                                                                                                                                                                         than 3 years ago; Most of the processes using the very technology shall be carried out domestically.
                               Other                        National and public property lease and rent reduction
                                                                                                                                                                       The tax reduction for a business already recognized as a high-degree technology business is the same as
                                                              Rents may be reduced by case, up to 50%-100% through certain procedures.
                                                                                                                                                                       that for companies that invested into FIZs, regardless of investment conditions and locations.
                                                            Project Manager (PM) designation and operation
                                                            Exemption on restrictions regarding the total investment amount                                            The products and technology items falling under the high-degree technology business category are limited
                                                            Permission to construct a new factory within the capital area                                              to the list announced by the Ministry of Strategy and Finance in 2006.
FDI System and Policy




                                                              Foreign-invested companies in an industrial complex of a growth restriction area, which
                                                              satisfy certain conditions                                                                           * The translation of Tax Exemptions and Exceptions Act into English by the Ministry of Government Legislation
                                                                                                                                                                     is in progress, and can be referred to in English on the Invest KOREA website, www.investkorea.org from Sep.
                               Source: Invest KOREA, Guide to Investing in Korea (Feb. 2008)                                                                         2008.
                               Notes: 1) For more details, please refer to the full text of the source, which is available at www.investkorea.org in PDF format.
                                      2) As the new government is in the process of revamping the FDI-related legal system, please visit the Invest KOREA at
                                         www.investkorea.org for the most recently updated information.
18
                        3) B
19
                               Site Location Support - Reduction of Rent *
                                                                                                                                                       2. Government Support Policies for the Auto Parts
                                                                                 Contents of Support
                                                                                                                                                          Industry
                                 FIZ

                                 Stand-alone type FIZ                                                                                                         Technology Development Projects for Auto Parts
                                 Rent: Over 10/1000 of the site value      100% rent reduction                                                                The Korean government has two separate initiatives: the “Mid-term Strategic
                                 Complex-type FIZ                                                                                                             Technology Development Project” and the “Core Base Technology Develop-
                                 Rent: Approx. 10/1000 of the site value                                                                                      ment Project”, as part of efforts to cope with the changing paradigm in auto
                                 Rent reduction                                                                                                               technology.
                                    High-degree technology & investment of at least US$1 million: 100% reduction                                                 With regard to “Tasks for Mid-term Strategic Technology Development”, the
                                    General manufacturing & investment of at least US$5 million: 75% reduction                                                   purpose is to develop in an integrated manner synthetic system technology
                                                                                                                                                                 and core technology, both of which are expected to boost significantly the
                                 FTZ                                                                                                                             competitiveness of Korea’s backbone industries within 5 years.
                                 Rent: Approx. 10/1000 of the site value
                                                                                                                                                                 In most cases, technology relates to both modules and systems. Korea has al-
                                 100% rent reduction
                                                                                                                                                                 ready accomplished six tasks in 2005, while several remain in progress in-
                                    A foreign-invested company whose new investment totals at least US$10 million
                                                                                                                                                                 cluding a 5-speed automatic transmission and full cockpit module.
                                    Foreign-held equity stake totals at least 30% of the foreign investment ratio whose new investment totals at
                                    least US$1 million
                                                                                                                                                              Support of Mid-term Strategic Technology Development Projects                                                                         (Unit: KRW million)
                                    A new investment of at least US$500 thousand into a cutting-edge technology, high-degree technology and/or
                                                                                                                                                                                                                            Host Organization     Government Contribution            Contributed Amount
                                    industry-supporting service business                                                                                                           Project Name
                                                                                                                                                                                                                             (Project Period)          (Total Cost)              2004                     2005
                                 FEZ                                                                                                                                                                                      Hyundai Motor Company                             Completion of
                                                                                                                                                                 Development of 5-Speed Automatic Transmission                                        3,418 (8,547)                                       -
                                 Rent: Approx. 10/1000 of the site value                                                                                                                                                      (’98.11-’02.10)                               project in 2002
                                 Rate of rent reduction (to be determined by the FEZ authority)                                                                                                                              Dukyang Industry                               Completion of
                                                                                                                                                                     Development of Auto Full Cockpit Module                                          4,977 (9,946)                                       -
                                                                                                                                                                                                                               (’00.12-’04.8)                               project in 2004
                               * For a foreign-invested company whose investment ratio is at least 30% or which constructs a new factory,                                                                                       KATECH1)
                                support of up to 50% of the total investment amount can be awarded.                                                            Development of Auto Front-end Cooling Pack System                                      9,419 (15,156)            1,948                1,784
                                                                                                                                                                                                                               (’01.10-’04.7)
                                                                                                                                                                                                                                 KATECH                                                          Completion of
                                                                                                                                                                   Development of Auto Chassis Corner Module                                          8,209 (16,694)            2,151
                               Financial Support by the Central Government *                                                                                                                                                   (’01.10-’05.7)                                                   business in 2005

                                            Category                                                     Support                                                                                                                 KATECH
                                                                                                                                                              Development of High Voltage (42V) System Parts and System                               6,958 (14,102)            2,164         2-stage to be pursued
                                                                                                                                                                                                                               (’02.11-’05.8)
                                                                           A foreign-invested company which hires at least 20 new employees is
                                                                                                                                                                      Diesel Engine Technology Development                       KATECH
                                Cost of Staff Education and Training       eligible to receive a monthly grant of between KRW100-500 thousand                                                                                                         6,027 (10,927)            1,950                2,178
                                                                                                                                                                  in Response to Regulations on Exhaustion Gas                 (’03.9-’06.8)
                                                                           per employee for a maximum of 6 months.
                                                                                                                                                                                        Total                                                        39,008 (75,372)            8,213                3,962
                                                                           A foreign-invested company which hires at least 20 new employees is                Source: MKE
                                Cost of Hiring Staff                       eligible to receive a monthly grant of between KRW100-500 thousand                 Notes: 1) Korea Automotive Technology Institute
                                                                           per additional employee for a maximum of 6 months.

                               * Target industry/company and grant conditions are stipulated differently in the ordinances of each local government.          Meanwhile, the purpose of the “Core Base Technology Development Project”
                                                                                                                                                              is to support technology development in energy, environment and high-tech sys-
                                                                                                                                                              tems by taking advantage of the infrastructure constructed in four areas of tech-
                                                                                                                                                              nology (electronics parts, auto parts, semiconductors and production), which un-
                                                                                                                                                              derlie the entire industry via their collectively large impact.
                                                                                                                                                                 In the automotive industry, core base technologies for a “100km/2 low-
                                                                                                                                                                 pollution car”, combined with environment-friendly, highly-efficient and
                                                                                                                                                                 sophisticated technologies, are under development.
                                                                                                                                                                 The development project consists of 37 tasks with a total cost of KRW51.85
FDI System and Policy




                                                                                                                                                                 billion including light-weight car bodies, parts development, energy efficient
                                                                                                                                                                 engine parts, transmissions, air conditioners, and parts development relating
                                                                                                                                                                 to safety and convenience.
                                                                                                                                                                 Although it includes development tasks relating to the car body and engine,
                                                                                                                                                                 the development project concerns parts-related technology in most cases, led
                                                                                                                                                                 by parts manufacturers or KATECH.
20
                        3) B                                                                                                                           7) G
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                                                                                                    In order to develop Korea into a global supply base for parts and materials, the
                                                                                                    government-led support policy for parts and materials is designed to develop
                                                                                                    source technology for core parts and materials, two key aspects which are essen-
                                                                                                    tial to increasing competitiveness and promoting technology innovation in all
                                                                                                                                                                                                                                    Investment Attraction Strategies
                                                                                                    areas including parts and materials. Furthermore, new opportunities will be
                                                                                                    created to participate in global sourcing.

                                          Auto Parts-related Support under the Parts and Materials Technology Development Project                                                 (Unit: KRW million)    In Harmony with Technology Development Trends
                                                                                                                                    Project Expenses by Year                                                    Modulation, environmental friendliness, a shift toward electronics, as well as safety
                                                                                               2000          2001             2002           2003           2004          2005      Total (cumulative)          are among the mainstream trends in technology development. However, as Korea
                                                    Government Contribution                   1,736          1,483            3,759          9,775         17,340        12,750          46,843                 still remains technologically weak in those areas, the nation must attract invest-
                                                        Total Project Cost                    2,622          2,441            5,732          16,307        29,131        21,959          78,192                 ment from global auto makers, thus allowing the domestic automotive industry
                                                 No. of Projects being supported                2              -                4              6                6           -               18                  to secure technological competitiveness.
                                          Source: MKE


                                                                                                                                                                                                         Utilizing Structural Changes within the Industry
                                                                                                      Major technology development is being conducted with a focus on areas with
                                                                                                      potential for global sourcing, import substitution and technological implications.                        The mainstream trend is that overseas production and global sourcing of auto
                                                                                                      In auto parts alone, there are 18 development tasks in operation with a total of                          parts are on the increase as part of efforts to secure competitiveness for major
                                                                                                      KRW78.2 billion subsidized.                                                                               finished car makers. Furthermore, on the part of global auto parts manufacturers,
                                                                                                                                                                                                                their sales and profitability have been decreasing due to restructuring efforts of
                                                                                                                                                                                                                major finished car makers, including factory lockouts. In light of these circumstances,
                                                                                                                                                                                                                therefore, self-help efforts will likely be made among the parts manufacturers
                                                                                                    Industrial Technology Base Establishment Project
                                                                                                                                                                                                                to secure new sources of revenue generation in need of the analysis of and mar-
                                                                                                    In an attempt to provide assistance to auto parts manufacturers lacking personnel,                          keting strategies for their prospective buyers.
                                                                                                    equipment and facilities, the government and other relevant organizations are
                                                                                                    conducting policy-initiated projects necessary to establish a technology base for
                                                                                                    the automotive industry, together with other technology development projects.                        Complementing Current Trends of FDI Attraction in Korea
                                                                                                      The “Industrial-Academic Joint Research Base Building Project” is currently                               Foreign firms tend to enter the domestic market mainly by participating in, or
                                                                                                      underway with the purpose of making available research devices and equip-                                 acquiring, equity ownership in manufacturers acting as suppliers to domestic
                                                                                                      ment, pilot test equipment and pilot line facilities to universities, research                            finished car makers, and will accordingly take full advantage of the buying
                                                                                                      centers and companies.                                                                                    policies of domestic finished car makers. In other words, as many foreign com-
                                                                                                      Led by the Korea Automotive Technology Institute and Seoul National                                       panies invest in Korea in anticipation of their growth in tandem with finished car
                                                                                                      University, 5 development projects have been started to the tune of KRW51.3                               makers, a matching process is under way to combine overseas investor companies            Outlook for the Domestic Automotive
                                                                                                      billion, which includes the establishment of a laser processing technology                                with their potential targets of investment in Korea.                                      Industry
                                                                                                      base and an environmental assessment center for rubber and plastic parts.                                                                                                                            Growing importance of R&D capacity of
                                                                                                                                                                                                                                                                                                           domestic auto makers as they become
                                          Support Status of Industrial-Academic Joint Research Base Building Project                                                                                     Investing on an Individual Corporate Basis                                                        partners of large manufacturers and other
                                                                                                                                                                                  (Unit: KRW million)
                                                                                                                                                                                                                                                                                                           specialized firms in new car development.
                                                                                                                   Host Organization      Government Contribution      Contributed Amount                       For those companies which have already invested in Korea, a stronger cooperative
                                                                    Project Name                                                                                                                                                                                                                           Modulation progresses in full swing
                                                                                                                    (project period)        (total project cost)          2004             2005                 network must be established to promote additional investment.
                                                   Establishment of an Auto Parts Technology Base                  KATECH (’90-’02)           29,500 (30,004)       Support terminated        -                                                                                                            Electronization of auto parts
                                                                                                                                                                                                                For newcomers desiring to invest in Korea, an analysis on investment intent and
                                           Establishment of a Car-Making Laser Processing Technology Base      KATECH (’02.6-’07.3)            5,400 (7,189)              1,200            1,080                                                                                                           Expansion of major automakers’ global
                                                                                                                                                                                                                capacity and one-to-one information and services are provided.
                                               Establishment of a Base for an Environmental Assessment                                                                                                                                                                                                     outsourcing
                                                                                                               KATECH (’03.4-’08.1)            6,400 (8,600)              1,080             750                  e.g. : Provision of basic information necessary to establish a business model by
                                                   Center for Auto Parts Made of Rubber and Plastic                                                                                                                                                                                                        Increasing overseas production of auto
                                                                                                                                                                                                                        company, industrial competition status, production factors, market trends,
Investment Attraction Strategies




                                            Establishment of Base for Hybrid Car Power Train/ NVH Systems          SNU (’04.9-’09.8)           5,000 (7,100)              1,000             900                                                                                                            makers
                                          Establishment of Base for Performance Test Systems for Hybrid Cars KATECH (’04.12-’09.9)             5,000 (7,675)              1,000             900                         government policies, etc.
                                                                         Total                                                                51,300 (60,568)             4,280            3,630
                                          Source: MKE




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                                                                                                                                                                                 Marked Accomplishments

                                                              Case Study of FDI in Korea                                                                                         GM Daewoo has built a solid foundation upon which to grow as a strong Korean auto-
                                                                                                                                                                                 maker. GM Daewoo sold 128,332 units in Korea in 2006, which was a 19.2 percent
                                                                                                                                                                                 increase from 2005 and the highest growth rate among Korean car makers. For 2007,
                                                                                                                                                                                 GM Daewoo sold 130,542 vehicles in the domestic market, growing its sales steadily
                                                                                                                                                                                 since 2004.
                                                                                                                                                                                 For 2007, GM Daewoo posted record sales and a third consecutive year of profits in
                                                                         GM Daewoo Auto & Technology Co. (GMDAT)                                                                 what was its fifth year of operation. GM Daewoo’s domestic sales and exports together
                                                                                                                                                                                 amounted to 960,186 complete vehicles in 2007, a 25-percent increase over its perfor-
                                                                          Corporate Overview                                                                                     mance in 2006. Broken down, the figures reveal a stunning contribution to Korea’s export
                                                                                                                                                                                 performance.
                                                                           History: Following an invitation by the Daewoo Group’s creditors led by Korea Develop-
                                                                           ment Bank for potential bidders for the stricken Daewoo Motors Corp, General Motors                   The company’s record on exports paints an even more glowing picture. Exports of com-
                                                                           (GM) duly submitted its bid for the company in October 2000. Terms were agreed to the                 pleted vehicles leapt to 829,644, a 30-percent increase over 2006. Exports of complete
                                                                           following year with GM and its partners Suzuki and Shanghai Automotive Industry                       knockdown (CKD) kits increased by 22.1 percent to 926,446 units in 2007. In fact, the
                                                                           Corporation (SAIC) taking 66.7 percent of the equity in return for a cash investment of               value of exports by GM Daewoo more tripled from 2003 to 2007.
                                                                           US$400 million. From a capacity utilization of less than 50 percent in 2003, it had risen
                                                                           to above 100 percent by the end of 2007. Employment has doubled to 16,000 and GM
                                                                                                                                                                                 Future Development
                                                                           Daewoo has even rehired 1,605 former Daewoo Motor Co. employees who had been laid
                             Next generation Lacetti to be released in     off by the former Daewoo Motor Co. back in 2001.                                                      Since its establishment in 2002, GM Daewoo has carried out a steady cadence of new
                             Nov. 2008
                                                                                                                                                                                 vehicle launches. Now, it offers an impressive line-up of vehicles from the mini-car
                                                                           Investment: GM had particular interest in the DMC vehicle assembly line in Gunsan;                    segment up to sport utilities. In 2007, starting with the introduction of 7 all new or
                                                                           the then-new assembly and gasoline/LPG plant at Changwon; the powertrain plant at                     improved vehicles - Tosca Premium 6, Gentra X and Winstorm MAXX, Veritas etc. -
                                                                           Boryeong (which was acquired in 2003); and the assembly plant at Tu Hiep in Vietnam.                  GM Daewoo will revamp its entire line-up between 2008 and 2010.
                                                                           Included in the deal were the design, engineering, research and development, sales, mar-
                                                                                                                                                                                 For development of new vehicles, GM Daewoo invested 3 trillion won in the design
                                                                           keting, and administration assets located in Incheon. Noticeably absent from the list of
                                                                                                                                                                                 engineering and manufacture of new products from 2005 to the end of 2007, and has
                                                                           Daewoo assets purchased by the GM consortium was the Bupyeong assembly and
                                                                                                                                                                                 committed itself to an additional investment of 3 trillion won in 2008 and 2009. The
                                                                           gasoline/LPG engine plant, the site of some of the bitterest labor strife in Korean history.
                                                                                                                                                                                 way forward for GM Daewoo within the GM Group was made clear by its designation
                                                                           The company opened its T4 engine factory in Changwon in December 2002 to produce                      as the home of GM’s global architectural development teams for its mini and small
                                                                           0.8-liter, 1.0-liter and 1.2-liter engines, which gave GM Daewoo a strong position in the             car programs.
                                                                           mini and small car market segments.

                                                                           In 2003, GM Daewoo spent 50.1 billion won (US$41.85 million) to acquire the former
                                                                           Daewoo Powertrain. The powertrain facility is manufacturing GM Daewoo’s new high-
                                                                           tech six-speed automatic transmissions which made its first appearance in the mid-size
                                                                           sedan Tosca early this year. The acquisition was part of a 1.7-trillion won “Invest in
                                                                           Korea” plan announced in March of that year. Three years after the formation of company,
                                                                           and having matched GM global productivity standards, GM Daewoo acquired the
                                                                           Bupyeong plant in October 2005, which at 6,500 square meters became the largest of
                                                                           the GM Daewoo manufacturing plants.

                                                                           In May 2006, the company’s diesel engine plant in Gunsan, North Jeolla Province came
                                                                           on stream. GM Daewoo opened its 132-billion won powertrain facility at its Changwon
                                                                           location to produce 1.0-liter and 1.2-liter DOHC engines and five-speed automatic trans-
                                                                           missions in November 2007. Major infrastructure investments by the automaker to sup-
Case Study of FDI in Korea




                                                                           port and improve the efficiency of its business include a “KD” (knockdown) packing
                                                                           operation at Incheon Port that opened at the end of July 2006. In the fall of 2007, the               Winstorm, the first SUV of GM Daewoo with an eco-friendly diesel engine
                                                                           company officially opened the 477,443-square meter GM Daewoo Cheong-Na Proving
                                                                           Ground in the Incheon Free Economic Zone (IFEZ). Built at a cost of US$110 million,
                                                                           the new installation includes a test track and research and development facilities, and
                                                                           was built to improve the efficiency and safety of GM Daewoo products.
24
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                                                     Relevant Organizations

                                 Public Organizations                Ministry of Knowledge Economy                                 www.mke.go.kr/
                                                                     Ministry of Foreign Affairs and Trade                        www.mofat.go.kr/
                                                                     Korea National Statistical Office                              www.nso.go.kr/
                                                                     Korea Customs Service                                     www.customs.go.kr/
                                                                     The Korean Intellectual Property Office                 english.customs.go.kr/
                                                                     Korea National Tax Service                                 www.nta.go.kr/eng/
                                                                     The Bank of Korea                                              www.bok.or.kr/
                                                                     Statutes of the Republic of Korea                               elaw.klri.re.kr/
                                                                     Korea Trade and Investment Promotion Agency                   www.kotra.or.kr/
                                                                     Invest Korea Journal                                       www.ikjournal.com/

                                       Institutes                    Korea Institute for Industrial Economics & Trade               www.kiet.re.kr/
                                                                     Korea Institute of Science and Technology Information          www.kisti.re.kr/
                                                                     Korea Development Institute                                     www.kdi.re.kr/
                                                                     Samsung Economic Research Institute                        www.seriworld.org/
                                                                     The Institute for Industrial Policy Studies                     www.ips.or.kr/
                                                                     Korea International Trade Association                            www.kita.org/

                         Local Governments (in alphabetical order)   Busan Metropolitan City                                      www.busan.go.kr/
                                                                     N. Chungcheong Province                                         www.cb21.net/
                                                                     S. Chungcheong Province                                        chungnam.net/
                                                                     Daegu Metropolitan City                                     www.daegu.go.kr/
                                                                     Daejeon Metropolitan City                               www.metro.daejeon.kr/
                                                                     Gangwon Province                                                eng.gwd.go.kr/
                                                                     Gwangju Metropolitan City                                        eng.gjcity.net/
                                                                     Gyeonggi Province                                             invest.go.kr/eng/
                                                                     N. Gyeongsang Province                                  www.gyeongbuk.go.kr/
                                                                     S. Gyeongsang Province                                       english.gsnd.net/
                                                                     Incheon Metropolitan City                                english.incheon.go.kr/
                                                                     Jeju Special Governing Province                                www.jeju.go.kr/
                                                                     N. Jeolla Province                                         www.jeonbuk.go.kr/
                                                                     S. Jeolla Province                                        www.jeonnam.go.kr/
                                                                     Seoul Metropolitan Government                              english.seoul.go.kr/
                                                                     Ulsan Metropolitan City                                    english.ulsan.go.kr/


                                 Free Economic Zones                 Incheon Free Economic Zone (IFEZ)                               eng.ifez.go.kr/
                                                                     Busan-Jinhae Free Economic Zone (BJFEZ)                       www.bjfez.go.kr/
                                                                     Gwangyang Bay Area Free Economic Zone (GFEZ)                        gfez.go.kr/


                                      Auto-related                   The Korean Society of Automotive Engineers                 www.ksae.org/eng/
Relevant Organizations




                                                                     Korea Automotive Technology Institute                       www.katech.re.kr/
                                                                     Korea Automobile Manufactures Association                    www.kama.or.kr/
                                                                     Korea Auto Industries Coop. Association                  www.kaica.or.kr/eng/



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