“Predictability is what matters most for global companies,” said James Kim, chairman of the American Chamber of Commerce in South Korea (AMCHAM). “With an exodus out of China becoming a reality, we are receiving an influx of many inquiries from companies looking to move their Asia-Pacific headquarters to South Korea.”
That explains why AMCHAM published its first report on attracting global companies since its foundation in 1953. “Korea now has probably the last chance to become a major business hub of Asia and we cannot sit on the sidelines,” Kim said.
AMCHAM’s report, “Korea’s Strategy for Attracting Global Companies’ Asia-Pacific Headquarters,” highlights a corporate exodus from China that began with the U.S.-China conflict and the COVID-19 lockdown. As global companies have left China, South Korea, Singapore, and Japan have emerged as alternatives. South Korea is geographically closest to China and has excellent industrial infrastructure including power and IT, and could be the biggest beneficiary of the exit from China, according to AMCHAM’s analysis. “Countries hosting Asian headquarters increases the likelihood that additional investments such as investments in building factories will be made in the region,” the report said.
The report also compared the performances of Singapore and South Korea in attracting companies. Singapore has more than 5,000 companies with Asia-Pacific headquarters, compared to less than 100 in South Korea. South Korea’s figure is not even close to Hong Kong (approximately 1,400), which many companies have left.
AMCHAM cited regulations as a reason why South Korea struggles to attract foreign companies despite its excellent infrastructure and living conditions. The report cites criminal liability risks for CEOs as the number one reason. “Compared to Japan, Hong Kong, Singapore, and other countries, South Korea imposes much heavier prison sentences or fines,” AMCHAM said of the Serious Accident Punishment Act, which discourages CEOs who will play key roles in their headquarters in the future from coming to Korea according to the report. “Korea needs to hold accountable only those who knowingly engage in criminal activities,” the report said.
The report also cited Korea’s digital regulations as a deterrent to overseas tech companies interested in coming to Korea. In the Global Cloud Ecosystem Index, which measures the degree of regulations on cloud computing, South Korea ranked second from the bottom with a score of 7.7, just above China at 6.5. This is significantly lower than Hong Kong (8.6), Japan (8.7), and Singapore (8.8). “In South Korea, it is hard to get into government-led cloud services unless you have your own data center,” the report said, “It is in contrast to Singapore where you can bid regardless of whether you have a data center or not.”
South Korea’s low labor flexibility and 52-hour workweek are also obstacles. “In Singapore, it is much easier to hire or lay off workers depending on business situations than in South Korea,” AMCHAM said. “In South Korea, it is too difficult to increase and decrease workforces depending on business situations because it is difficult to fire people once they are hired.”
The report also called for lowering South Korea’s corporate taxes. Currently, South Korea’s top corporate tax rate is 24 percent, much higher than Singapore’s 17 percent and Hong Kong’s 16.5 percent. The gap widens when you consider that Singapore offers a 5 to 10 percent corporate tax cut for companies headquartered in Asia. Thailand and Malaysia also reduce corporate taxes by 5 to 10 percentage points for companies headquartered in Asia.
“Korea’s investment attractiveness is not high considering the cost of labor, land, and regulatory and labor conditions,” the report says, adding that incentives for companies with Asian headquarters in South Korea are needed.
The report is not all negative about South Korea. The fact that so many global companies want to leave Singapore, which serves as an Asian hub, is an opportunity for Korea. “Many companies in Singapore are struggling with high labor costs and consumer prices,” Kim said, “There are many analysts who say that Singapore is saturated.”