Korea-advised-to-seek-mega-sized-M&A
Shown above is the head office of the Korea Chamber of Commerce and Industry (KCCI). The outfit came up with a report advising the country to seek more mega-sized M&As. Photo courtesy of KCCI

The country fails to secure large-sized foreign investments

Over the past decade, the world saw more and more large-sized mergers and acquisitions (M&A), but South Korea failed to benefit from the trend, according to a report on April 17.

The Korea Chamber of Commerce and Industry (KCCI) came up with a research report, which urged the country to put forth brisk efforts to join the M&A festival.

A mega-sized M&A refers to an acquisition deal whose total tops $5 billion.

The proportion of the mega-sized M&A stood at 29.9 percent in 2011, but the figure jumped to 39.7 percent last year. Its number also almost tripled from 69 to 197 during the period.

Broken down by country, the proportion rose 4.2%p in the United States, 28.4%p in China, and 29.1%p in Germany over the period. But there has not been a single mega-sized M&A in Korea since 2016.

“The mounting number of mega-sized M&As is due to the rise of the digital convergence industry and the tendency to avoid expensive Greenfield investments,” a KCCI official said.

“The trend would speed up because of the acceleration in digital transformation and the resultant uncertainties in global market growth and the trade environment.”

The Seoul-based outfit also said that the average reinvestment rate from FDI revenue in the OECD member countries rocketed from 29 percent in 2013 to 44 percent in 2020.

But the rate dipped from 49 percent to 18 percent during the period.

“The increases in such major economies as the United States and Japan were seemingly attributable to their policies of classifying retained earnings as a type of FDI along with equity investment and long-term loans,” the official said.

“In comparison, Korea did not include reinvestment in FDI totals before February 2020, which appears to explain the disappointing performance.”

KCCI International Trade Division Vice President Lee Seong-woo said that the country should deal with the changed structure of the global investment after the trade conflict between the United States and China.

“Competition in new supply chains for high-tech materials and components will become stiffer through practices such as re-shoring,” Lee said.

“Based on the green and digital new deals, we must nurture new businesses. For mega-sized M&As, various regulations regarding overseas funding should be boldly scrapped.”

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