The Ministry of Strategy and Finance (MOSF) asserted in a report, 'Trends, Characteristics and Implications of Korea's M&A and Outward Greenfield Investment,' that policy support is necessary to stimulate small and mid-tier enterprises' overseas M&A.
Recently the increase in OFDI (Outward Foreign Direct Investment) by Korean enterprises was analyzed to have more advantages, such as securing of advanced technologies and sales networks, than disadvantages, capital outflow, etc.
According to the report, as a result of compilations by the United Nations Conference on Trade and Development (UNCTAD), the world's total OFDI, which had contracted in 2008 due to the financial crisis, reached US$1.51 trillion in 2011, exceeding the US$1.47 trillion level before the crisis (2005~2007).
In particular, China's OFDI, buying advanced enterprises through M&A, increased sharply to US$68 billion in 2010 and Japan's OFDI also expanded centering on M&A.
On the other hand, Korea's OFDI in 2011 stood at US$25.59 billion (remittance basis); and the investment method also continued to be greenfield-type OFDI (US$19.8 billion), constructing production bases overseas and establishing sales networks rather than M&A (US$5.8 billion). Most of the investors were large enterprises (US$21.6 billion) compared with small & medium enterprises (US$4 billion). The growth of direct investments in China and Southeast Asia for relocation of declining industries and exploration of new markets slowed to 0.7% after growing 29.1% in the 2000~2007 period.
The ratio of cumulative OFDI vs. GDP was 13.8% in 2010, falling behind the 41.4% rate of advanced countries and the global average of 32.6%. It just approaches the average of developing countries (15.7%).
MOSF emphasized, "For Korea to transform itself into an advanced economy from a developing country, it is important to prepare global production networks through expansion of OFDI by enterprises."
The ministry pointed out that when considering the recent activity of China and Japan, the government needs to prepare systematic environments with a focus on M&A investment. It added that for small and mid-tier enterprises, the government and related organizations should build infrastructures, including provision of information and cultivation of specialized manpower, and exert policy efforts, expand financial support, etc.