South Korean Firms Eye Indonesia as a Base

11 July, 2011 | Source: The Jakarta Globe

As Indonesia’s economic stock rises, more global companies are looking for opportunities in Southeast Asia’s largest economy, including multinational firms from South Korea.

A growing number of Korean companies are looking to move their regional headquarters from Singapore and Kuala Lumpur to Jakarta, said Moon Jae-do, deputy minister for international affairs at Korea’s Ministry of Knowledge Economy.

In an exclusive interview with the Jakarta Globe, he said Korean companies were keen to invest in Indonesia and participate in the government’s new economic master plan, or MP3EI.

“Many large Korean companies are moving their regional headquarters to Jakarta,” he said. “Indonesia is a big market, and it’s growing fast and can become a manufacturing base for Korean companies.”

According to Moon, Korean companies plan to invest $12 billion in Indonesia over the coming years in industries such as steel, retail, finance and infrastructure. This figure includes the funds to be contributed by steelmaker Posco under its $6 billion deal with state-owned Krakatau Steel.

The joint venture to build one of the largest steel plants in the region broke ground in December. The first phase of construction is expected to be completed by the end of 2013.

“Posco is investing in steel plants in order to add value,” said Moon. “Korean companies are looking to bring new technology to Indonesia as they see that Korean technology can complement Indonesia’s natural and human resources.”

In May, Indonesia and South Korea signed a memorandum of understanding on economic cooperation in Bali. The countries agreed to foster partnerships in seven sectors, including industry, energy, agriculture and defense.

The deal was the first concrete action from Seoul following President Lee Myung-bak’s commitment to contribute to the Acceleration and Expansion of Indonesia’s Economic Development 2011-2025 (MP3EI) plan, which involves establishing six economic corridors, each with a specific focus.

With more than 1,300 Korean companies operating in Indonesia, the Korean business community is a significant force on the local business landscape. The vast majority of these companies are small- and medium-sized enterprises but increasingly, the chaebols , or larger conglomerates, are now looking at investing in Indonesia.

Apart from Posco, other chaebols that have announced new investment plans include Lotte Mart, Kiwoon Securities, Samsung C&T, LG International, Korea Western Power, Korea South East Power and the SK Group.

Moon noted that more Korean companies would head to Indonesia if Jakarta provided greater incentives and improved the investment climate. The key challenges, he said, were lack of infrastructure and complicated administrative processes.

“The Indonesian government is moving in the right direction as economic policies are more predictable and systematic.”

Moon stressed that if Indonesia wanted to attract more technologically-oriented investment, the government needed to provide greater incentives. This was Korea’s experience when the country started on its journey from being a poor agriculture-based economy in the 1960s to a modern industrialized nation.

“We try to give as much incentives [as we can], such as tax holidays, land allocation and establishing free economic zones to create a positive investment environment,” he added.

“The Korean economy has a good record in having such master plans since the early 1960s where we were able to mobilize resources systematically,” Moon said.

“With the new master plan, Indonesia can become a manufacturing base for Korean companies in the Asean region.”

 

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