Inflation and Interest Rates in South Korea (Republic of Korea):

South Korea has done well in terms of economic growth. Its inflation rate has been
2.5% on average between 2007-2015, which have came down to 0.7%; lowest in this
period, which is always sought by economies who want to bring down their inflation.
They have brought down inflation in energy sector to negative figure (-0.4% in 2014)
(OECD, Country Statistical Profile: Korea 2015). This shows that there is a lot of
opportunity in the country, since people their dont find it expensive to purchase
products. Investors always tend to look at the purchasing power of people before
making decision to move to that country. On the other side low Inflation tends to bring
down Interest rates in the economy, which may be somehow disappointing factor for
investors, because they want high interest rates in return of investments. South
Korea`s real interest rate has been 3.7% in 2014 down from 6.1% in 2006. Highest
interest rate was 6.1% (World Bank, Country Statistical Profile: Korea (Rep), 2015),
which was seen in 2006, since than South Korea has regularly brought down their
interest rate, where they are encouraging domestic parties to borrow from financial
institution (banks).
But South Korea has done well by supporting the cause of investors by giving them
tax exemptions, which will be discussed later on.

Debt and Deficits in South Korea:

South Korea has been developing rapidly, and has become one of the top countries
in Asia, because of its infrastructure development and educational expenditures, etc.
The government of South Korea is facing the problem of funding such schemes, and
in order to fulfill the requirement of funds, they have been taking Loans. Their Debt
(as a % of GDP) has gone up to 53.5% in 2014, average debt to GDP rate has been
39.8% between 2007-2014 (OECD, Country Statistical Profile: Korea 2015). Which
can indicate that the government would be facing budget deficits, but in the case of
South Korea, their budget deficit is not too high, but it is 1.2% of GDP in 2014, but
the problem is that they have seen Budget Surplus only once in a decade, that was in
2009. South Korea`s revenue has stood calm over the period of 2007 through 2014,
but they have increased their expenditure (as a % of GDP) from 29.7% in 2007 to
32% in 2014, this increase in expenditure as a % of GDP is not that significant
(OECD, Country Statistical Profile: Korea 2015). Koreas elevated household debt of
gross disposable income and a conservative fiscal stance have weighed on
consumer spending and domestic demand.
South Koreas tax authority is National Tax Services. Taxes in South Korea are
divided into two broad categories: national and local taxes. National taxes are further
disbursed into internal taxes, custom duties. While local taxes are further disbursed
into following categories: provincial taxes, and the country taxes.
However, foreign investors with a permanent business in South Korea pay corporate
income tax, on an income sourced via South Korea. Foreign companies, who are not
permanently established and the source of income is South Korea, than they are
going to pay 2-20% tax rate on income (Korean Tax Policy, 2012).

(Country Analysis)
3) Context

Resources:
In 2015, the population of South Korea was recorded at 50.46 millions, an increase of
around 0.23% in 2014. In 2015, number of births had exceeded the number of deaths
in the country. The gender ratio is 994 males when Females are 1000, which is low
according to world ratio of 1016 males when females are 1000 (Country
Meters/South Korea, 2015).
North Korea, Taiwan, Japan, Nepal, Hong Kong, Macao, China, and India are located
nearest to South Korea, where North Korea is touching its borders only, which is
relatively not as developed country as South Korea (World Map).
South Korea has bilateral Investment Treaties with all of its neighbors, which are
included in 99 countries, including China, India, Brazil, European Countries, Hong
Kong, Japan, etc. (investmentpolicyhub.unctad.org).
South Korea despite its high growth rate has relatively been poor in natural
resources. There was a time when the country was heavily forested, but thanks to
the policy of urbanization, South Korea had largely stripped trees. However, due to
poor results South Korea had started with a program of reforestation. The country
has a very limited amount of other resources, which are: oil, coal, iron ore, limestone,
graphite, tungsten, and molybdenum (Doing business in Korea, RSM (Audit, Tax, and
Advisory)).
Higher saving, investments, educated labor, and export oriented strategies have
been the reason for the success of South Korea. However, the most important factor
has been investment in education, and development in human capital.
Before the economic growth was seen in South Korea, it had improved the
educational sector, so as to get a very skilled labor force. Economic as well as social
motivation was seen as strong motivators for people to demand more education.
South Korea`s society is homogenous in the terms of culture, language, race, etc.
and in this case education was the only option for citizens of South Korea to get a
social status.
South Korea stands at a rank of 30 out of 124 countries in 2015 on Human Capital
(Human Capital Index, 2015), and an important element for this success is the export
oriented development strategy that was adopted during 1980s. In order to meet the
results from this strategy, vocational schools were seen as important factor to get
such quality. A law Vocational Training Law was established, and around 3% of labor
force was used get training from vocational institutes. Aside from this, the
government also placed some subsidies for organizations to get their labor trained,
South Korean human capital was also raised by upgrading their country with the help
of science and technology. There was a ministry of Science and Technology was
given duties for R&D, science & technology, and human capital development in 1967.
In 1970s some research institutes were established in the areas of
telecommunications, ship manufacturing, electronics, machinery, chemicals, and
energy (OECD Review on Evaluation and Assessment Frameworks for Improving
School Outcomes South Korea 2010).

Players of the Game:

The political state-players in the South Korean economy are: the President, Prime
Minister, Deputy Prime Minister, Secretary General presidential secretariat, Secretary
for economic affairs, Secretary for foreign and national security affairs, Secretary for
Political affairs, and all the ministers in the parliament.
Nongovernmental academic experts have considerable influence on government
decision-making. Academic experts participate in diverse statutory advisory bodies
established under the office of president and prime minister. Advisory commissions
are usually dedicated to special issues of the presidents policy preferences. Many
advisory commissions have been abolished after the change of government. The
selection of scholars is very narrow and exclusive. The process of naming experts
remains highly politicized and expert commission reports are utilized according to
their political rather than their scholarly value. Beyond their work in commissions,
scholars are often tapped to serve in government positions
(nationsencyclopedia.com/Korea-South-POLITICS-GOVERNMENT-AND
TAXATION).
While International key players in the case of South Korea are International Monetary
Fund (IMF), Organization for Economic Co-operation and Development (OECD),
United Nations (UN), FTA with the US and the EU, and the G-20. These players have
a strong influence on the decision making of South Korean government.
Departments to look for:
The tax collection is handed over to the National Tax Service, whose prime job is to
collect taxes via easy procedures. The central bank (Bank of Korea), the foreign
exchange market in South Korea is Korea Exchange Bank, Korea Exchange
handles trading securities, National Intelligence Service, Ministry of Legislation,
Korea Fair trade commission, Korean Industrial Property Office, Small and Medium
Business Administration, Korea Trade & Investment Promotion Agency, Korea Trade
Commission, Korea Customs Services, Korea Consumer Protection Board, Korea
Food and Drug Administration, Board of Audit and Inspection, and the Supreme
Court of Korea

Rules of the Game:

Informal Rules:
Gender Role:
There is a traditional touch in the gender role in South Korea. Where, women are
rarely seen in important positions in the government or any company. South Korean
women are majorly employed in western companies (FDIs), but very rarely in local
firms. However, social values come in to play when they have interactions with men,
where they find it difficult to have interaction with men (referenceforbusiness.com,
Doing Business in Republic of Korea).

Culture:
South Korea is considered to be highly-context cultural country. Koreans have more
focus towards the delivery of message rather than focusing just on words.
Relationship within communication plays a vital role in their culture. This have an
affect on the social norms, and formality during office hours, this in result can create
a much larger emphasis on diplomacy.
In order to conduct a successful business in South Korea, it is necessary to have
good relations with Korean workers, without this kind of a relation it is difficult to
communicate in their culture. In the culture of South Korea, unofficial rules have been
as important as written laws. This is even applicable with ones relations with the
government (referenceforbusiness.com, Doing Business in Republic of Korea).
Formal Rules

Intellectual Property Rights Protection:

South Korea had amended its patents, trade secret, copyright, and trademarks
during 2011-12 to conform the free trade agreement (FTA) to the US, and the
European Union. It helps in stronger protection for geographical identifications for
products: agricultural, and wines.
Patents as well as trademarks needed to be registered with the Korea Intellectual
Property Office (KIPO), with the help of licensed local agent. Foreign traders will be
able to register these patents, trademarks in their own names, and would be
receiving the same benefits as are received by Koreans (Doing business and
investment in South Korea, 2012).

Personal Information Protection:

Personal Information Protection Act (PIPA) was initiated in 2011, where all
organizations whether for-profit, or not-for-profit must be acting as per the
requirement in PIPA. No threshold has been set for individuals on the size of the
company. Entity that is going to process the personal information have to disclose
some elements of the information of the owners, and have to get permission before
the collection of information. Any company not having compliance with PIPA may
cause the problem of administrative penalty, civil law suit, or criminal penalty (Doing
business and investment in South Korea, 2012).

Regulatory Legislation:
Moreover, the Foreign Investment Promotion Law (FIPL) has been placed that deals
as a base law for foreign investors. For foreign exchange, Foreign Exchange
Transaction Law (FETL) was applicable, which is dealing with foreign exchange, and
external deals. Since FDI is considered as local organizations that are established
under domestic laws and regulations, there have been same laws applicable to them
as are applicable for domestic held companies (Doing business and investment in
South Korea, 2012).

Tender Offer Rule:

If an individual, who is owning no less percentage than 5% of equity, purchased from
minimum of 10 persons at over-the-counter market, whose duration is six months,
that individual is required to be purchasing these shares through a tender. If not
complied as described, individual would be held under criminal sanctions. The
individual would be exempted his voting rights (Doing business and investment in
South Korea, 2012).

Land Acquisition:
South Korea is a very friendly country for foreign investors, as they are allowed to
acquire any size of land in the country, but of course there are some conditions. The
permission is required in certain areas as: acquiring military facilities, any cultural
site, and islands. Once the contract is agreed upon the land acquisition, the next step
would be to file a report to the municipal governor within 2 months from the date. But
if an investor is coming from a kind of country who has set restrictions for Korean
locals to acquire a land there, will be reciprocated in South Korea (Doing business
and investment in South Korea, 2012).