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Expansion of Korean Service Businesses Abroad and Measures for Support

Author Moon Jong-chol, Koh Dae-young, Cho Hyun-seung, Kim Chun-kon Date 2017.12.26 Page
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Service is emerging as a core keyword in Korean industrial policy. The share of services of gross domestic product (GDP), employment, job creation, exports and even foreign direct investment (FDI) has been growing. Whereas FDI in the Korean manufacturing sector has stalled somewhat since 2010, FDI in services has been steadily increasing. Yet despite these changes, Korean policy on industrial development and exports has been almost exclusively focused on manufacturing. It is thus time to begin research into measures needed to boost the Korean services sector, including for facilitating overseas expansion of Korea’s service businesses.

 

The policy initiative backgrounding this study is an interdepartmental effort announced in July 2012 with the title “Measures to Boost Global Expansion of the Korean Service Sector: Providing a Strategic Roadmap” (hereinafter, “the Roadmap”). Since organizing the Economic Policy Coordination Meeting in June 2010 to accommodate discussions on policy measures supporting the global expansion of Korean service businesses, the Korean government has commissioned research with a view to identifying which specific service industries and countries to target and developing a strategic roadmap to support this global expansion. The prospective service industries were chosen on the basis of the importance of the markets they target and their potential for growth. The list of industries to receive support was finalized by selecting prospective industries after considering a number of qualitative factors, including whether multinational corporations (MNCs) have already entered the Korean market, how prepared Korean companies are for global expansion and the potential for overseas expansion. Based on this final list of selected service industries, quantitative criteria, such as the size of the target countries’ markets, GDP and other such demand-determining factors as well as the characteristics of specific industries were used to determine the pool of possible target countries. The final target countries were then selected in consideration of local government policies and the prior experience of Korean businesses in those countries (Table 1).

 

The Korean government has since released specific policy measures promoting service industries, such as the Service Economy Development Strategy, the Steering Group for the Global Expansion of Service Industries in 2016, and the Steering Strategy for the Global Expansion of Services. In light of these policy developments, we strive, in this study, to analyze the current status of these policy measures and identify implications for future policy improvements.

 

Performing research on the global expansion of service industries is more difficult than research manufacturing, mainly because of the particularities of international service transactions. Manufacturing produces physical and tangible goods that can be traded. Services, on the other hand, are intangible and can be traded in far more various and complex ways. The General Agreement on Trade in Services (GATS), signed onto by the member states of the World Trade Organization (WTO), recognizes four modes of international service transactions as shown in Table 2.

 

The problem, however, is that a sizable portion of international service transactions cannot be categorized into any of these modes, and some of them carry the attributes of two or more. The multifaceted and complex nature of trade is manifest in services, complicating research on trade in services.

Our central focus in this study is on foreign investment in services falling under Modes 3 and 4.?