EIS RESEZAICH PAPER N e 10
SOUTH _KOREAN CFENICAL INDUSTRY OPPORTUNITIES FOR FOREIGN FIRMS
Bridget SPRECKLEY
Octohcr 1983
1 ct 3 "RS SOUTH KOREAN CHEMICAL INDUSTRY OPPORIUNITIES
FOR FOREIGN FUNS
Bridget SPRECKLEY
EURO-ASIA CENTRE
Fontainebleau
October 1983
Copyright 6D I Overview of the South Korean Chemical Industry
A Heavy Chemicals
B Fine Chemicals
II Analysis of three sectors identified as holding best opportunities for foreign firms
A Pharmaceutical industry
B Agrochemical industry
C Cosmetic industry
III Information important to prospective importers, licensors and investors in South Korea.
A Selling and investment guidelines
B Government supported research and development
C Investor s assessments
Sources and References I OVERVIEW OF THE SOUTH KOREAN CHEMICAL INDUSTRY
A HEAVY CHEMICAL INDUSTRY
Korea s heavy chemical industry is plagued by the absence of domestic raw materials and by the overcapacity of large dedicated plants common to the industry internationally. The profits (EBT) in industrial chemicals fell by a factor of 2.8 from 81- 82. An initial brief discussion of the inorganic and petrochemical industries will indicate that opportunities for foreign firms are largely restricted to the sale of their cheaper bulk chemicals through the international commodities trading systems. However, a few niches exist in areas where a foreign firm could invest and use its more specialised technological base to develop a temporarily protected local industry.
The Korean fertiliser industry is depressed, 1982 productions of the big manufacturers was at less than 50% capacity following a trend of reduced production which started in 1980. Exhibit (I) shows the manufacturers and their capacities with the production tonnage for the different formulation components. Fertilisers are all bought by the government through the National Agricultural Coopertives Federation and distributed to end users at set prices. In 1980 there was a 20% slump in domestic demand due to a cut in this government subsidised supplying. However, the present local usage is unlikely to rise beyond the recovered level as Korea is already amongst one of the very highest appliers of fertilisers in the world.
This excess capacity of the industry was therefore intended for export. Although the 1982 exports still stood at 1.17 mT, it seems unlikely that this can be sustained as now factories in India, China and the USSR reduce the competitivity of the Korean product. The .48 mT of fertilisers imported consist largely of potassium fertilisers - far cheaper abroad.
The government undertook a restructuring of the industry in Spring 82 closing the two plants and merging others. One of the plants shut down was that of Kyungi Chemical, an enterprise in which two Japanese companies (one of them Mitsubishi chemical) had invested $3.3m.
Resins, being used in the construction industry, are also elements of a key export industry. Due to the limited availability of quality and specialised resins domestically we see both high imports and exports and an industry also not operating at high capacity. There is thus a considerable import market for quality resins.
The Korean government is at present particularly concerned about the under-utilisation of Korea s petrochemical base, and is trying to develop the trees of intermediaries which would change this situation. It would clearly be economic nonsense for a foreign firm to become involved in the development of an analine or a propylene plant with markets of 3 and 14 th tons p.a. respectively. However, given this governmental position, it could be interesting for a firm to invest in the manufacture of higher value added speciality petrochemicals - ones which are components of a Korean export drive - and use this activity as an export base for the East Asia Region.
Major foreign investments in this sector to date are indicated in Ex (VI) and the process column Exhibit VIII) indicates as well the other technological transfers which have taken place. EXHIBIT (I)
FERTILISERS
1982 Production by formulation Component /TPA
Name (and ownership) Capacity/TPA N P K
Korea General Chemical Corp Urea 231 000 106 260
Yong Nam Chem Co Ltd (KGCC) U 55 300 25 483
C 358 000 65 308 100 061 43 278
Chinhae Chem Co Ltd U 84 100 38 686
(KGCC and Gulf Oil and Int C 180 600 33 280 500 70 21 667 Mineral Corp)
Korea Fertiliser Co Ltd U 330 000 151 800
C
Namhae Chemical Corp U 595 000 273 800
C 700 000 102 000 200 000 112 000 (75% KGCC 25% Agrico US)
Chosun Fertiliser Co Inc C 75 000
Other (eg Hankook Caprolactam Misc 391 900 33 600 45 600 (eg (NH4)2504) 830 200 395 700 176 900
TOTAL 3 000 000 1,402,800
Compiled from Korea Fertiliser Industry Association Minister of Agriculture Industry sources
EXHIBIT (III)
PETROCHEMICAL COMPLEXES IN KOREA
ULSAN PETROCHEMICAL COMPLEX
LOPE (KPCC) 50,000 MT/yr Refinery HDPE (KPIC) 280 th b per day Ethylene 70,000 (YUKONG) 155,000 MT/yr
VCM (KPCC) 60,000
PVC (K. Plastic) 205,000
Ethanol (K. Gen. Chem.) 30,000
Acetaldehyde (K. Gen. Chem)) 24,000
Styrene (Ulsan Pet Chem) 80,000
Polystyrene (Hannam Chem) 146,500
Naptha Cracker Polystyrene (Hyosung BASF) 20,000 (YUKONG) Polypropylene (KPIC) 105,000
Propylene Acrylonitrile (Tong Suh PC) 77,000 81,000 PPG (K. Polyol) 20,000
Butadiene SBR (Korea S.R) 100,000 24,000
NCB Petroleum Resin (KOLON PC) 10,000 21,200 Cyclohexane (KOCO) 36,000
Benzene Caprolactam (Hankook Capro) 33,000 56,000 Alkyl Benzene (E Soo Chem) 33,000
BTX Extr Toluene Maleic Anhydride (Dai Nong PC) 10,000 (YUKONG) 72,000
Xylenes 88,000
0-Xylene Pthalic Anhydride (Sam Kyung C)38,400 30,000
P-Xylene TPA (Sam Sung Pet Chem) 160,000 119,000 Exhibit (III) (cont)
YEO-CHON PETROCHEMICAL COMPLEX
Electrolysis Caustic Soda 227,000 Refinery (Hanyang MT/yr 380 th b Electro) per day (Honam Oil Chlorine L D P E (KPCC) 100,000 Refinery) 210,000 MT/yr
Naptha H D P E (Honam Pet Chem) 70,000 Ethylene 350,000 E D C (KPCC) 286,000 Naptha Cracker V C M (KPCC) 150,000 (Honam Ethylene) P V C (Lucky) 150,000
Ethylene Glycol (Honam PC) 80,000
P P (Honam Pet Chem) 80,000 Propylene 187,000 Octanol/Butanol (K. Gen C) 55,000/ 10,000
A B S (Lucky Ltd) 20,000 Butadiene 50,000 (Korea SR) B R (Korea SR) 25,000
Benzene Cumene (Kumho chem) 35,000 74,000 BTX Extr. Toluene Phenol (Kumho Chem) 25,000 44,000
Acetone (Kumho Chem) 15,000
Xylene Ulsan
T D I 10,000 (Chinyang Fine Chem)
Carbon Black 94,000 (Lucky Continental)
Methanol 330,000 (Taesung Methanol) KPCC Korea Pacific Chemical Corp (50/50 Dow and KEG) KPIC Korea Petrochemical Industry Co (50% Marubeni) K Plastic Korea Plastic Industry Co (Korean Explosives) KGCC Korea General Chemical Corp (Public capital) Ulsan P.Chem= (Korean Dev Bank 37%, Miwon 25%, Hankook Fertilisers 38%) Hannam Chem = (Miwon Group) Tong Suh (Hanil Synth Fibre and Asahi) P chem K. Polyol = (Toyo Menka 45%, Chin Yang 36%) Korea SR Korea Synthetic Rubber, (Kumto) Dal Nong (Mitsui Toatsu Chem Inc, Tokyo Menka Kaisha, Dai Nong) P Chem Sam Kysung = (Mitsubishi, Aekyung) Samsung (Samsung 50%, Amoco Chems 35%, Mitsui P Chem 15%) P Chem Yukong ex KOCO (W Gulf Oil) now Sunkyong control. Honam Oil = (Lucky and Caltex) Honam (Daelim Ind Co 80%, Lotte 20%) K Steel (Daewoo) Chem EXHIBIT (IV)
NEW COMPETITORS IN PETROCHEMICALS
ETHYLENE 1000 MT/YR Time of Start-up
Australia 500-600 85
Indonesia 350 83
Singapore 300 83
Saudi Arabia 1100 85
Quatar 250 84
TOP KOREAN PETROCHEMICALS EXPORTS
Product MM$
PVC 104.6 HDPE 26.7 PP 26.3 PS 16.7 LDPE 10.1
Source : Korean Society of Chemical Engineers EXHIBIT (V)
SUPPLY AND DEMAND IN PETROCHEMICALS IN SOUTH KOREA
1982/Metric Tons per year
Production Import Export SSR Capacity Plans (shipment) % Utilis- to a b c ation increase industry capacity (Delayed as part of new complex) Feedstocks Ethylene 375,838 - - 100.0 74 Propylene 224,877 25,664 - 899.0 84 Butadiene 61,682 299 9,572 117.7 83 Benzene 89,902 9,216 3,264 993.8 69 +84000for July 85 Toluene 115,631 5,816 5,624 99.8 97 + 172000 Xylenes 129,413 65,595 1,176 70.0 109 +213000 0-xylene 25,129 10,672 70.2 84 P-xylene 83,492 42,591 33,078 89.8 70 Cyclohexane 34,540 100.0 96
RMs (partly for resin) Propylene oxide - 14,184 - 0.0 Ethylene dichloride 110,009 30,994 - 78.0 38 Vinyl chloride monomer 156,854 165,940 502 48.7 74 Styrene 64,924 53,591 965 55.2 81 Acetaldehyde 8,220 - - 100.0 33
Resins Low density polyethylene 104,870 38,687 10,698 78.9 69 High density p.ethylene 120,162 9,159 26,476 116.8 86 Polypropylene 162,533 21,978 26,307 102.7 88 Poly vinyl chloride 306,719 1,719 118,108 161.1 86 +1,110000 Polystyrene 71,911 2,850 16,753 124.0 43 + 50,000 Acrylonitrile butadiene 29,558 2,380 8,179 124.4 107 +50,000 styrene resins
RMs (partly for fibres) Acrylonitrile 41,872 122,177 25.5 54 Caprolactam 42,024 83,356 33.5 127 Terephtalic acid/ 154,999 152,271 50.4 97 dimethylterepthalate
Synthetic Fibres Nylon 117,620 8,020 906,90 337 95 Acrylic 150,620 6,080 128,920 542 65 Polyester 327,710 22,560 300,410 657 60 Polypropylene 2,420 80 1,430 226 21 PVA 3,990 3,990 0 Others 3,540 3,540 0 kL,
Elastoners Styrene butadiene rubber 48,753 8,546 2,125 88.4 49 +5000 under construc- tion (SBR Latex) Butadiene rubber 15,681 7,060 1,738 74.7 62 Isobutyl isoprene rubber 15,547 0
Others Ethylene Glycol 79,900 52,262 420 59.7 na Carbon Black 58,293 3,229 1,316 96.8 47 Ackyl benzene 12,761 548 418 99.0 39 Methanol 103,443 61 6,001 106.1 31 Pthalic Anhydride 39,230 23 6,350 119.2 58 Moleic Anhydride 10,213 - 7,496 373.1 102 Polypropylene Glycol 13,111 168 - 98.7 52 Petroleum Resin 7,393 297 3,945 197.4 74 Phenol 15,105 4,059 8,359 139.8 60 Acetone 8,749 920 1,007 101.0 58 Toluene Diisocyanate - 7,294 - 0 0 2-ethyl hexanol 8,846 25,212 - 30.0 16 Butanol 571 4,791 - 10.6 50 Acetic Acid 4,658 8,795 - 34.6 15 Vinyl Acetate - 14,897 - 0 - Ethyl Acetate 3,242 69 - 97.9 64 Propylene glycol 3,116 496 - 86.3 62 ME __ 13,455 - 0 - Methyl Acrylate - 12,317 - 0 -
SSR = a/(a + b c)
Compiled from KPIA and Yukong Petrochemicals
EXHIBIT (VI)
MAJOR FOREIGN INVESTMENTS IN PETROCHEMICALS
Korean Company Line of Business Foreign investor Investment th US$
Dianong Petrochem Ind Maleic Anhydride Mitsui Toatsu + 3,264 1 other
Taesung Methanol Methanol Mitsubishi + 2 10,529
Tongsuh Petrochem Co .Aerylonitrile monomer Asahi Kesei 9,392
Lucky Continental Carbon Black Continental Carbon 2,869
Samkyung Chemical Phthalic anhydride Mitsubishi + 2 2,712
Samsung Petrochemical Terepthlalic Acid Amoco + Mitsui 15,720
Kukdo Chemical Ind co Epoxy Resin Tohto Kasel 5,569
Korea Petrochemical Ind Polypropylene Marubeni + 1 21,586 Co
Daehan Resin Chemical Synthetic Resin Nikon Yuki Kagaku 2,742 Ind co
Korea Polyol Co Ltd Polypropylene glycol Toyo Menka + Sanyo 1,167 Chem
Korea Synth Rubber Synthetic rubber Japan Synth Rubber 7,359 + Mitsui
Honam Petrochemicals Polyethylene First Chem Ind Corp 41,408 Polypropylene
Source: B. Korea August 1983 EXHIBIT (VII)
SOURCES OF PETROCHEMICAL TECHNOLOGIES Korean company Product Process Completion Date
YUKONG Ethylene Kellogg Dec 72 Propylene Kellogg Dec 72 Butadiene Shell ACN June 73 Benzene Shell Sulfolane May 70 Cyclohexane UOP Feb 74
HONAM Ethylene Lummuns Nov 79 Propylene Lummuns Nov 79 Benzene Shell Suffolane Nov 79 HDPE Mitsui Nov 79 Polypropylene Mitsui Toatsu Nov 79 Ethylene glycol Shell Nov 79 KOREA SYNTH Butadiene BASF Nov 79 RUBBER SBR JSR May 73 - Ju 82 BR JSR April 80 ULSAN PCHEM Styrene Monsanto Apr 78 - May 83 KOHAP o-and UOP July 80 p-xylene
HANYANG E.CHEM Chlorine Dow Diaphragm Jan 80 KOREA PACIFIC EDC Dow Jan 80 VCM Dow Oxy Dec 72 and Nov 79 LDPE Dow Dec 72 and Nov 79 KOREA PETROCHEM Polypropylene Amoco Aug 72-Dec 78 HDPE Amoco Oct 76-Jul 80
LUCKY LTD PVC Chloe Chimie 1984 ABS JSR Feb 78
LUCKY CON CARB Carbon Black Continental Nov 69 and Feb 80
HANHAM CHEMICAL PS Own, Cosden Dec 73-Feb 80 ABS Sumitomo, Dec 73 Nangatuck
HYOSUNG BASF PS BASF May 82
TONG SUH Acrylonitrile Sohio Aug 72-Aug 82
HANKOOK Caprolactam DSM May 84 CAPROLACTAM
SAMSUNG PETROCHEM Terephthalic Amoco April 80-Oct 82 Acid
KOREA STEEL CHEM Carbon Black Ashland Sept 81 Phthalic Von Heyden April 83 Anhydride
ES00 CHEMICAL Alkyl Benzene UOP March 73-Sept 80
TAESUNG METHANOL Methanol ICI April 76
KOREA GEN CHEM Ethanol Shell Dec 74 2-EH UCC June 82
SAMKYUNG CHEMICAL Phtholic RP Expt Oct 80 Anhydride Von Heyden Oct 72 AEKYUNG Phtholic Von Heyden Aug 68 Anhydride
DAINONG P CHEM Maleic Mitsui Toatsu Oct 76 Anhydride
KOREA POLYOL PPG Sanyo Nov 75
KOLON P CHEM Petroleum Resin Nippon P Chem Jul 77
KUMHO Phenol UOP/Allied/RP July 80
CHIN YANG FINE TDI RP March 81 CHEM
Source : KPIA of the final volume and include oxidation inhibitors, detergents, anti- foam agents, extreme pressure agents, pour-point depressants etc. The blending activity is dominated by the foreign labels. Honam s oil has a Caltex formulation (Caltex is 50% owner), KOCO has the Gulf recipe and Mobil and Shell each use their own. There are some local blenders who compete badly, and one of the M.O.S.T. objectives is to develop a formulation for the use of Korean producers. So unless a foreign firm is prepared to share or sell its technology, there is a movement away from further external participation. Imports are low (26%) and so the existing foreign participants alone will reap the benefits of the growth.
PHOTOSENSITIVE MATERIALS
These were largely (ie 66%) imported in 1980, the total market being of 110 mn$. In 1981 a black and white film developed for X-rays was put on to the market, the size of which was 14m$. The development of colour film has been a national project at KRICT and now Hyundae colour rolls are seen beside Fuji and Kodak in most parts of the country. A graphic art black and white film is also now being industrialised. Imports of these materials are now on the decrease, and any chance of participation in local production has also been missed as domestic technology is now in use.
DYES
Since Korea is the world s sixth producer of cloth and clothing, the country rates as an important world market for dyestuffs of all types. Given the stagnation of the textile industry, there is no reason to believe however that this market will grow further (approx 170 m$ in 1980). Local production is developing relative to imports which still however supply 67% of the demand.
Vat dyes are not made at all in Korea, only 15% of the demand for disperse dyes is met locally (by a single manufacturer), and only 10% for the reactive dyes. There are however 4 or 5 manufactureres of reactive dyes and, as this industry is still in its infancy, the self sufficiency ratio can be expected to increase. These dyes supercede the vat dyes in energy and water efficiency. 80% of the basic and direct dyes are already supplied domestically. 150 dyes are produced at present and the total capacity of the industry is 10,000 t pa. Amongst the top producers are Rifa (capacity 4,500t in basic dyes), Lucky Ltd (3000t), Deakwang (1680t) and Tae Hung. Lucky s new plant, opened in 1980 at Onsan, turns out 2500 t of disperse dyestuff a year, and as the factory was set up under technical cooperation with the American Colour and Chemical Corporation, the products meet international quality standards. However, due to the complexity of the technology, the small local dye manufacturers which make up the rest of the capacity, do not make the quality grade required for the export clothing industry.
KIST has defined these smaller dyeing industries as bottlenecks in need of technical help and the development institutes are carrying out strategic projects on the synthesis of reactive dyes, and of dye intermediaries ( DH and DC) so as to alleviate the monopolies of supply on some of these ingredients.
The presence of European companies as importers is already comprehensive. The potential of other Far Eastern countries is not much more promising: the Singapore and Phillipine textile industries are both faltering, in Malaysia there is a small textile industry which is already supplied by one or two large plants, in Indonesia the textiles are 95% intended for domestic use, quality dyes are not required. It is unlikely that a Korean based manufacturer would be able to sell in Taiwan, there the dye industry is more advanced than in Korea, and in Japan there is effective cartelisation of large portions of the dye producing industry. Prospects for foreign investment, having considered both the local and the required market, are limited therefore to replacement of import markets in disperse and reactive dyes. Should an import ban on those be recommended, a foreign company with large sales in the area may judge an investment worthwhile. However, this seems unlikely given that the government is developing the processes locally and intends to hand them over to selected Korean firms for whose protection such a ban would be instituted.
PAINTS
The market is estimated at 135 million t.p.a. Imports are limited (12.8 m$) and restricted to branded paints for specialised uses since only these (eg chlorinated rubber paint) can carry the 40% import duty and the heavy transport costs. Thus the market is essentially self sufficient and is divided in the same way as the production (Exhibit A). There are three thousand types of paint used, but essentially 40% is used domestically, 40% in industry and 20% in shipbuilding. Of these it is the shipbuilding application which is developing most rapidly. The overall market growth rate however is below the fine chemical average (13%) and appears to be stabilising, although the expected increase in motor car sales is a good prospect. Exports are negligable (5m$) but reach US, UK and Australia.
There are 50 paint manufacturers, although the top 7 produce 90% of the paint. The names and production capacities of the leading producers are given in Ex (B).
Technically, the standard paints are at an international level of quality. Foreign tie-ups are favoured by Korean companies for both the technology and the brand name. The reputation of the company s products is boosted and they are able to meet the requirements of foreign customers. This is particularly important in shipbuilding. Ex (C) is a list of the licencing agreements which have been made, with their values.
Given the importance of brand reputation in competition, there are opportunities for foreign companies. As an importer however they are limited. Remembering that mostly the market is one of price rather than quality, an importer, particularly from Europe can only compete in a speciality product. As a guide to the prices consult Ex (D) where the ex-factory prices of the leader are given. Due to the problems of delivery delay for such an importer, it is more advisable to deal through local stockists rather than through trading agents.
More interesting opportunities lie in the scope there is for more technical tie-ups for shipbuilding or industrial uses (a few companies are thought to be seeking such arrangements, among them Shen Heung and Shin Deng). Stability of pigments for weathering is one of the technical problems hampering Korean paint producers.
There is but one investment to date in this and its related fields and that is that of Ciba-Geigy who put 3.6 m US $ into a joint venture called the Daihan Swiss Chemical Corporation. It is the largest Korean pigment manufacturer and it produces organic pigments, pigment preparates and intermediaries for use in the following industries: paint, painting ink, plastic, rubber and artist colour.
DETERGENTS,SOAPS AND FATS
The domestic production of powder and liquid detergents is given in Exhibit (E) with the number of producers and the production shares of the most important ones. Referring to (Exhibit V) we see that for the basic ingredient of the synthetic detergent industry, alkyl benzene, the country is effectively self-sufficient. Indeed, the manufacturer of this product, Esoo chemical is only using about 40% of its capacity. Production of other surfactants is approximately 6000 t.p.a. The trade figures for detergents and their ingredients are given in Exhibit (H). Imports provide about 1/3 of the ingredient surfactants, these being more specialised products, other than alkyl benzene.
Essentially, the only two firms operating in detergents are Lucky and Aekyung. The government regulates the selling price of the end product for this reason. Competitive selling is carried out more by retail push by salesmen and advertising than by quality. Margins are therefore not good, and there is little room for a quality advantage. Opportunities for import technology development and investment would lie really therefore, only in the special detergents. Recently, a foreign investment of 1m$ was made by Shell Pacific Enterprises into a joint venture with Aekyung for the manufacture of alkylolefin sulphonate, a soft detergent for shampoos and cosmetics. The plant came on line in July 83.
The toilet soap market, although a highly competitive market is marginally more profitable than consumer detergents. Exhibit (F) shows the production in this market. The equivalent statistics for the laundry soap market are given in Exhibit (G). The trade statistics Exhibit (H) show that the soap industry is export orientated, and that import levels are negligible when compared to local production. 65% of soap exports go to the US, the remainder to Asean and the Middle East. Despite the high exports, production is believed to be running well below capacity. (Despite the under utilisation of their present saponification plant, of 9000 t p.a, Aekyung are building a new 8000 t.p.a unit which they only expect to use at 50% capacity). Yet, given the present level of economic development any considerable growth in the soap market is unlikely, indeed the laundry soaps will be. increasingly replaced by synthetic detergents.
Developments in the soap market take the form of technical agreements. Western brand names help to boost sales volume but premium pricing apparently does not then apply. Joint ventures in this field are not facilitated by the government at present, and approval is hard to obtain for a licencing agreement for more than 3% royalties. However the following agreement does exist : Lucky with Henkel (Fa), Dongsan with Procter and Gamble (Dyer) and recently Aekyung with Unilever (Lux). Pacific Chemical has agreements on certain cosmetic soap lines. The Lux agreement, for instance, capitalised on the brand awareness from the US army black market. The soap was launched in September 1982 under heavy advertising and was priced in parallel with local brands. The level of technological cooperation is minimal, just the recipe and monthly quality checks on posted samples. Production is now 25% of the company s output, this percentage is expected to grow. Aekyung will be extending its relationship with Unilever to include the Sunsilk shampoo range in 1984.
The situation for basic olechemicals is outlined in exhibit (I).
The licensing of toilet soap brand names at 3% royalties without premium pricing, and the import or the licensing of, or the investment in speciality detergents are the only possibilities for foreign firms. EXHIBIT A
PAINT - Production/1981
TOTAL 134.190 KL
Emulsion 23,280 KL 17%
Oilbased: Readymixed 9,770 7.3
Enamel 21,730 16.2
Rust preventing 8,870 6.6
Lacquer 7,350 5.5
Varnish 8,750 6.5
Slate Paint 1,590 1.2
Traffic 1,880 1.4
Thinner 18,550 14
Other 32,120 24
TOTAL 134,190 100%
EXHIBIT (B)
PAINT - Capacity of Top Producers
- Konsul Chemical Ind Co 30,000 t
Korea Chemical Co Ltd 24,000 Kl
Daehan Ink and Paint 39,000 t
Sam Hwa Paint Ind co Ltd 10,700 Ki
Cho Kwang Paint Ind Co Ltd 13,000 Kl
Hankook Asbestos Cement Ind Co 9,000 Ki EXHIBIT (C)
PAINT - Technical Licence Agreements
Korean Co Licence origin Duration of Value of contract and type agreement
Konsul Jap/Shipbuilding 78/12 to 83/12 10,000$ +2.5% Jap/Electrical 78/3 to 83/3 40,000 +3%
Korean Chem USA/Heavy duty 79/7 to 84/7 3-4% plate
Daihan Jap/Industrial 79/2 to 84/2 2.3% USA/Woodworking 78/12 to 81/12 10,000 +3% Japan/Printing ink 79/11 to 82/3 1.5-3% UK/Ship + Container 80/11 to 85/10 3%
Cho Kwang USA/Canning Plate 80/1 to 84/12 3%
Korea Asb Jap/Industrial 79/6 to 82/6 3% Cement EXHIBIT (D)
PAINT - Prices ex factory. from leader 1981.
Emulsion. Wh for Exterior 20,990 Won/ 18 litres for Interior 14,340
Ready mixed Wh 25,110
Enamel Wh 25,570
Lacquer Wh 30,650
Varnish transparent 17,220
Insulation Varnish B1 28,510
Slate paint scarlet 28,800
NB (780 W to 1$)
Source: British Embassy EXHIBIT (E)
DETERGENT
POWDER LIQUID
Production 46,456 T (Sales 99% 37,932 (Sales 102% of this) of this)
Producers Lucky M. Share 70% Lucky 46% M. share Aekyung 25% Aekyung 45% Mugung Hoe 3% Tae Peung Yen 6% Dong San 3%
EXHIBIT (F)
TOILET SOAP
Production 22,000 (Sale is 105% of this)
% Home 81 % Export 19
Producers
Dong San 42% Market share Lucky 39% Tae Peung Yanung 8% Aekyung 6%
NB CR - 95% --- 4 -
Source: MCI 1982 figures EXHIBIT (G)
LAUNDRY SOAP
Production 190,000T (Sale is 98% of this)
% Home 84 % Exp 16
Producers
Dong San 58th 30.5% Chun Kwang . 40th 21% Penung Hwa 34th 18% Mugung Hoe 34th 18% Dong Bang 7th 4% Sham Yang 6th 3% Ho Nam 2nd 1%
= 87.5% NB CR4
EXHIBIT (H)
TRADE
Soap and preparations used for soap
Imports 799 T/1237 th$ Exports 37,235T/ 22396 th$
Surfactants and prepared washing agents
Imports 15196T/ 29,119 th$ Exports 1045 T/ 1002 th$
Source: Statistical Yearbook of foreign trade Office of Customs EXHIBIT (I)
OLEIC ACID
Production 1,151 T (Sale is 99% of this) % Home 79% % Exp 21%
Producers
Chun Kwang 99% Dong San 1%
STEARIC ACID
Production 11,846 T (Sale is 98% of this)
% Sales Home 89 % Export 11
Producers
Peung Hwa 47% Chun Kwang 33% Dong -an 20%
NB CR = 100% 3
GLYCERINE
Production 8,382 T (Sales is 92% of this)
% Home 75% % Exp 25%
Producers
Dong San 45% Peung Hwa 25% Chun Kwang 19% Hugung Hoa 1%
NB CR4 = 90%
Source : MCI, 1982 figures II. ANALYSIS OF THREE SECTORS
II A ANALYSIS OF THE PHARMACEUTICAL SECTOR
Market Size and Growth
We are dealing with pharmaceutical drug preparations and their raw materials and excluding chinese medecines, sanitary aids and quasi-drugs .
The Korean market for finished drugs in 1982 valued 1 203 million dollars and is thus by far the most important fine chemical sector in the country. The market for pharmaceutical raw materials was $214 million in the same year. This market is said to be the tenth in the world, which for a country of about 35 million inhabitants, is quite considerable. During the 40s it averaged a 34% growth rate, but there has been a slow down, between 1981 and 82 the increase was of 22%.
National Health, Government Policy and Market Development
Health standards have vastly improved, although they are not yet at Western levels. The infection rate of first class epidemics is now reduced to 1% in Korea. For second class, the contamination rates are now as follows: roundworm 19.8%, leprosy .14%, tubercolosis 2.5%. However there has been an increase, with the standard of living, of adult chronic degenerate diseases by which 8.5% of the population is now affected. The expected life span is of 66 years, the average diet contains 2,785 Kcal and 84g of protein a day.
The extent of the medical services is outlined in Exhibit(A), but in essence, there are now 22 500 physicians and 315 hospitals. There are 12,000 pharmacies and twice as many pharmacists.
There is a social security scheme, and the plan is to cover 94.5% of the nation by 87. See also Exhibit (A). The situation in 1961 was such that 9.5% were covered by medical care and 28% by medical insurance. The plan has now incorporated businesses with more than three hundred employees as well as farming and fishing village inhabitants. The next expansion will add optional insurance for businesses with over five employees, and for artists, barbers and other self-employed skilled workers as well as increasing the existing benefits for special persons (elected officials etc.) It is important to note however that participants in the pharmaceutical industry feel that any impact of this health system on sales is still 5 to 10 years away and that, as we shall see later, its effects are largely on pricing and product outlets.
The real root of this market is not to be found in the institutionalised systems, but rather in the mentality of the Korean people. The tradition of Chinese medecine means that people have a far greater tendency to seek remedies for minor discomforts than a European would expect. This tendency has been facilitated in recent years by an increase in buying power and it is this, rather than health care at the national level, which has been a motor to growth. This growth, furthermore, has not occurred at the expense of the original Chinese medecines.
Market and Production Breakdown
Imported drugs are only 1.9% of the finished drug market, thus the breakdown of finished drug production by therapeutic categories (in Exhibit B) is a pretty accurate representation of the market. The growth rates of the sectors are also given. In Exhibit (C) there is a further breakdown by therapeutic use of the top categories in Exhibit (B). Some companies use the production changes of (Exhibit B) as well as a comparison with the Japanese position to assess likely movements in the future. See Exhibit (D). For instance cardio vascular drugs, which are one of the leading groups in Japan are now growing with the market in Korea. This market can be expected to begin to grow considerably faster given the high incidence of cardio vascualar disease, resulting from the high salt diet, which so far goes largely undiagnosed.
Local production of crude drugs(raw materials) for pharmaceutical products was valued at $130 mill , 60% of the country s demand of $214 million. This local production is given by therapeutic category in Exhibit (E). During the 70s there was a 60% growth as strong protection aided the development of the domestic crude drug industry, however a slow down to 21% was felt in 80- 81
due to the economic situation, the poor progress in precision fields, the opening to foreign capital and also the rise in production standard requirements. From 81- 82 as the economic brake was released and foreign investors were forced into raw materials production, growth was at 35%.
The Products
In 1981, 267 firms were producing 7273 finished drugs. About 120 of these items were selling more than 1 million won (about 1.3 th $), indeed 25% of the total pharmaceutical market is occupied by the top 50 products. See Exhibit (F) for the names and ranking of these items. The two leading products in each category are given in Exhibit (G) with their approximate market shares, to give an idea of the competition in each.
Over 100 different raw materials were produced in Korea in 1981 and the major 13 are listed in Exhibit (H). A comprehensive list of all the raw materials produced in Korea with their manufacturers is given in Exhibit (I).
The Companies
Exhibit (J) lists the names, production and growth rates of the top 72 companies in the industry. Although they represent together 71% of the industry, there is a considerable degree of fragmentation. A comparison of the shares of the top firms in Korea and in the US shows that the top of the industry is not that concentrated:
S. Korea U.S
Concentration ratio top 4 16% 26% CR top 8 24% 44%
It is particularly in the lower echelons that there are numerous companies with just one or two products. The big companies accuse these participants of contributing little and causing havoc in price and quality. The price confusion forces the leading companies to match the small ones. The most recent production figures for the top 15 companies are given in Exhibit (K). Brief notes on selected companies Exhibit (1). Selling
11.6% of sales are at present made through hospitals and clinics, the remainder through pharmacies via a dual system. See Exhibit (L). Most sales at the moment are directly through pharmacies because the wholesalers, being undercapitalised by and large, have a tendency to delay on payments and go out of business. There are also 2,457 non-pharmacist drugstores or apothecaries which only handle some drugs, these are decreasing in number as the government has stopped issuing licences.
Essentially therefore 70% of pharmaceutical use is through self-medication, with no more than 30% dispensed on the authority of a doctor. Thus, advertising and promotional expenses ae considerable and very important in selling pharmaceuticals. Some drugs which would be advertised to doctors in Europe are mass media (e.g TV, posters) advertised in Korea, for instance hypertensives, antimycotics, anti-ulcer drugs, anti-inflammatory drugs No advertising of nutrient drinks is allowed though (they are already considered to sell enough!) and antibiotics can no longer be advertised. There is some control on the truthfulness of advertising: a product may be good for you but cannot be claimed as a universal cure . The advertising infrastructure, (agencies and magazines etc) is said to be well developed. To promote a drug through the medical channels, one must remember that Korean doctors expect incentive to differentiate two competing products.
Radical changes in this distribution system are beginning to take place. Direct sales to hospitals and public health centres are on the increase, and will rise as the social security system develops. Drug dealers are not obtaining any new licences, and are therefore declining in number, pharmacists are also fewer this year. Since people will need to go to a doctor if they want reimbursement, if prescription and dispensing are not separated, this decline will continue and will lead to the demise of pharmacies. The government is also trying to unify the distribution system, so that all sales to pharmacies are via wholesalers.
Pricing is at present disorderly. Although insurance drugs have fixed prices, the inconsistency in the distribution means that some pharmacies have more margin than others and price-cutting occurs between competing outlets, even without including the parallel problem mentioned earlier between producers. Some prices of top products are given as an indication of price levels in Exhibit (C).
Imports
Although imports in 1980 tended to decrease, they have now picked up again. ,Imports are most important in crude drugs, see Exhibit (M). 60% of the crude materials for local manufacture are imported. (NB of the crude materials made in Korea, 30% are for export). Foreign invested companies import all their ingredients where possible, except for materials like shellatine for capsules which are available locally. The top imports in raw materials and finished drugs are given in Exhibit (N). These materials come in largely from the US and Japan.
Imports on the banned list basically correspond to the raw materials manufactured locally labelled B in Exhibit (I) with the addition of the footnote. However, where the local goods are not of adequate quality, or do not meet the market demand, then an import ban may be waived. Local Aspirin for instance, because it is made in a small non dedicated plant has serious stability problems, turning sour within a week of manufacture. Bayer is therefore allowed to import this product.
The import tariff of 40% on landing price is not generally steep enough to stimulate local production economically, but if there already is local production it is hard to compete on price. The tariffs are given in Section IV A.
There is to be a gradual liberalisation by 1985 which is outlined in Exhibit (R). The implication is that by then, all the 87 banned raw materials will be importable, however the wording of those guidelines clearly allows great flexibility of interpretation. Exports
Again, see Ex (M) for the totals. In Ex (0) we see that amongst the Korean exports, which are at present limited, there are many items listed which are not pharmaceuticals at all, but rather accessories and Chinese medecines. Korea s medicinal exports have been severely curtailed by the Communist Chinese who produce these traditional medecines at much lower pricer. The government s export ambitions (180 m$ for all pharma/oriental/accessories etc in 1985) will thus rely on the development of the western medecine sector. These exports go largely to Japan, but also to the US and Hong Kong - Exhibit (P). The export conditions are easy to meet : a KPTA (Korean Pharmaceutical Traders Association) recommendation and Ministry of Health approval.
Government Policies and Controls
It is the Drug and Food Affairs Bureau of the Ministry of Health and Social Affairs that is concerned with the administration of the pharmaceutical industry. The Pharmaceutical Systems Section is responsible for the administration and control of the price, distribution and advertising systems. The Pharmaceutical Affairs Section studies supply and demand regulates this through permits for import, export and manufacture. It is also concerned with standards and safety. There is a separate Narcotics section, and a National Board of Pharmacy with 44 members in advisory status.
The objectives of the government are to strengthen the competitive power of the industry to prepare it for full liberalisation in 1986. It also hopes that it will be able to compete effectively in the export market. In order to do this, the government is essentially pursuing four lines of action: restructuring of production, implementation of KGMP (Korean good manufacturing practices), rationalisation of pricing and distribution and encouraging foreign investment.
To prevent severe competition between the manufacturers, the government has made approval for manufacturing more difficult to obtain. This permission may only be granted if the production is all for export, if the facilities and economic characteristics of the operation are such that it contributes to the development of the industry, if the raw materials used are local, if the items are designated by the administration or if•the provisions are under the Foreign Capital Inducement Law. There are also some very definite refusals listed in Exhibit (Q). The government has also published guidelines inducing merger and abolition of companies, the incentives being in the form of tax and manufacturing restriction concessions. 20 such operations occurred in 1981. The government could also use the GMP requirements as a tool for this restructuring. KGMP standards are to be implemented in 1985 and will bring drugs to the quality level required for export. Since July 1982 the government has been designating firms which have achieved this standard and rewarding them with relaxation of manufacturing guidelines. Those not designated by 1985 will not be allowed to operate in 1986, and the vast majority of Korean plants do not meet these requirements today. To support these standards, the government will also be setting up a drug safety research centre for 1984.
Wholesalers are required by this year to meet the following requirments: facility area minimum 264m and capital fund minimum 300 to 500 million Won. The objective is to rationalise the system and the margins providing a strong wholesaler link. Through this confidence would be restored in the pricing system. Non pharmacist drug dealers are being phased out. The policy is to make the list price obligatory for the top 100 items, which since they represent 70% of the market, will have a considerable stabilising effect on the system. The retail price is already obligatory on all packages and 3,232 drugs are listed under the insurance system. These prices give a 45% margin (designed 12% wholesaler and 33% retailer).
Since the industry is technology intensive and requires sources of capital and raw materials as well, foreign participation is encouraged. However, there are restrictive guidelines for this and the governmental research institutes also develop processes for commercialisation. (Important, see section IV A for the guidelines and IV B for government research.) In essence, for a 50% joint venture to be allowed there must now be some undertaking by the company to produce raw materials. 100% foreign capital ownership is only allowed if it is all raw materials or all for export. There are two lines of criticism of the government policies for the pharmaceutical industry. The Korean Pharmaceutical Industry Association (KPIA) say that the majority of their members are small and medium enterprises and that import liberalisation will have a great impact on them. They feel their facility investments to meet KOMP will be lost if liberalisation occurs at the same time. Furthermore they ask that manufacturing restrictions outlined earlier should be lifted before liberalisation so that these substances can be made locally. They also recommend higher tariffs for finished drugs, (from 40 to 80%). Foreign observers on the other hand, feel that the Korean drive for self sufficiency in drugs is economic nonsense (even the Japanese do not do this). An efficient plant for the production of quality drugs has a capacity exceeding the demand of the Korean market. No foreign investor really wants, therefore, to fragment his production base, but will do so only to preserve market opportunities in the country. It is felt that the Koreans would do better by concentrating less on making everything and more on developing a speciality by the time they open their markets.
Status of Foreign Participation
Foreign investment in this industry stands at 34m $, of which 9.9m were made in 1982. Exhibit (S) is a chronological list of joint venture establishments. The first series, occuring before 1975 were subject to greater restrictions and majority shareholdings were rare, now they are more frequent. Technological licences are listed in the same exhibit. These were more numerous in the early days when they were sought for trade name purposes but the government clamped down on this in order to enhance the technological level. The terms for licensors have been improved, now the agreement may be for 5 years and 5% of sales in practice, in theory restrictions are more generous. (<10 years and <500,000 $ + 10% or < 14).
Conclusion
There are opportunities in South Korea for foreign companies with a product advantage to set up a joint venture. The Koreans are aware of the fact that many products are in fact, if sometimes only slightly, substandard, and that to best avoid these problems they need foreign technology. Outside awareness of the potential of the Korean pharmaceutical market is still in its -39-
infancy (3-4 years), yet the market is already large and growing, with the prospects of national health funded developments still ahead. The rationalisation of production and marketing now underway can only improve the profitability of the sector.
A company which could therefore identify a niche for some of its specialities, in view of the existing products on the market and the expected development of different sectors could set up a joint venture with a local company to formulate the goods, and thus have developed a price competitive base for when the market opens in a few years (tariffs will still of course, exist). Should the investor be obliged to produce some crude drugs on site to maintain the market opening, government funded efforts to imitate will be a lot less arduous, if a Korean company is already involved. However, if all raw materials imports are allowed in 1985 as advertised, there can no longer be any compulsion of this sort for a company negotiating now, and starting formulation end 1984.
Hospital needs are growing, and foreign companies which will have more expertise in supplying this channel could find an advantage there. A product advantage in the treatment of adult degenerate diseases would also be a good opening, given the prospects of increase in detection and incidence of these complaints. EXHIBIT (A)
MEDICAL SERVICES
Establishments Number Professionals Number
General Hospital 82 Physicians 22 564 Hospital 223 Pharmacists 24 366 Clinics 6344 Dentists 3 620 Dental Clinics 2024 Oriental doctors 3 015 Oriental Medecine Nurses 40 373 hospitals + clinics 2328 Midwives 4 833 Tubercolosis hospitals 6 Nurse Aids 61 072 Leprosy hospitals 6 Medical technicians 8 955 Affiliated Clinics 266 TOTAL 114 435 Midwife Clinics 488 TOTAL 123 37
Pharmacies 123 37 Apothecaries (non pharmacist) 2457 Druggists (restricted drugs) 655
TOTAL 15 449
NB Utilisation of hospital beds - 78% national hospital 81% general and private hospital
SOCIAL SECURITY EXPANSION PLAN
Total Percentage Coverage Year Medical Medical Medical of Population Security Insurance Care
1981 37.5 28 9.5 1982 39.5 30 9.5 1983 47.0 37.7 9.3 1984 64.4 55.4 1985 65.7 56.8 9.0 1986 71.8 8.9 1987 94.5 71.8 8.8 Source: Yakup Shinmun - 41 -
EXHIBIT (B)
FINISHED DRUG PRODUCTION BY THERAPEUTIC CATEGORIES (1982)
In thousands $US equiv
Code Drugs (for) 1981 1982 % Growth
110 Central Nervous System 120 810 142 055 18 120 Perepheral N.S 10 335 27 375 165 130 Sensory Organ 8 135 9 245 14 140 Anti-Allergy 10 995 13 405 22 190 Other NS and sensory organ 225 365 62 210 Circulatory Organs 27 705 33 590 21 220 Respiratory Organs 45 760 44 690 (-2) 230 Digestive Organs 123 185 163 855 33 240 Hormones 21 700 27 895 29 250 Urogenital and Anal 12 835 17 880 39 260 Skin 43 930 54 410 24 290 Other for each organ 170 170 0 310 Vitamins 65 285 60 100 -8 320 Nutrients, Tonics 131 305 167 480 28 330 Bloody and Body fluid 124 95 15 240 22 340 Agents for artificial vessel - 345 - 390 Other metabolism 67 780 71 465 5 410 Tissue Activators 145 315 117 420 Anti neoplastic 4 590 14 565 -1 490 Other Tissue Cell 1 485 1 745 18 610 Antibiotics 182 420 231 380 27 620 Chemo therapeutics 30 805 25 865 -16 630 Biological Preparations 19 175 23 780 24 640 Anti parasite 8 375 10 610 27 710 Pharmaceutical aids 1 410 1 075 -23 720 Diagnostic Aids 810 1 480 82 730 Public Sanitation 13 735 19 680 43 740 Miscellaneous agents 7 765 11 715 51 790 Drugs not for treatment 2 385 740 -68 810 Narcotics 420 495 18 890 Narcotics 5 330 4 920 -7
TOTAL 981 090 1187 910 21
12000 RAW MATERIALS 96 810 130 870 35
TOTAL 1077 900 1318 780 22
Source : Korean Pharmaceutical Industry Association -42-
EXHIBIT (C)
BREAKDOWN OF THERAPEUTIC CLASSES RANKED BY VOLUME - (1981)
Category No of items Production amount thousand (won)
610, Antibiotics 461 142,289,820 Antibiotics against gram positive germ 102 30,185,306 Antibiotics against gram negative germ 11 1,861,644 Antibiotics against Anti-acid-fast germ 45 25,392,114 Antibiotics against gram positive germ, rickettia and virus 34 6,057,032 Antibiotics against gram positive and gram negative germ, ricketia and virus 117 37,035,995 Antibiotics against fungus, amoeba and virus 21 2,811,649 Combined antibiotics 81 18,644,956 Other antibiotics 50 20,301,120
320, Nutrient 322 102,418,761 Calcium preparations 9 42,162 Mineral preparations 57 2,226,690 Carbohydrate preparations 47 7,925,019 Organic acid preparations 1 787 Protein and Amino acid preparations 34 18,230,007 Internal organ preparation 4 688,510 Drugs for children 2 226,525 Other preparations 178 73,079,058
230, Drugs acting on digestive organ 970 96,083,863 Dental and oral agents 29 914,668 Remedies for peptic ulcers 128 18,016,072 Stomachics and digestive enzyme preparations 197 31,580,700 Antacids 122 14,557,856 Anti-emetics and Emetics 30 1,356,163 Cholagogues 39 2,263,943 Intestinal antiseptics 187 12,998,339 Laxatives and Enemas 83 2,915,986 Other drugs acting on digestive organ 155 11,480,133
110, Central Nervous System Drugs 991 94,232,334 General Anaesthetics 11 977,043 Hypnotics and Sedatives 16 51,612 Anti-epileptics 22 686,926 Anti-pyretics and Analgesics 730 80,553,641 Analeptics and Stimulants 13 731,679 Analgesics 13 389,809 Tranquilizer 108 4,760,279 Other agents for central nervous system 78 6,072,340 390, Other metabolic agents 315 48,970,145 Lipophil factor preparations 34 1,795,043 Antidotes . 106 23,479,006 Remedies for habitual poisoning 3 58,652 Lactagogues 4 82,229 Enzyme preparations other than digestive 68 8,239,412 enzyme Anti-diabetics 14 1,794,290 Other Metabolic agents 86 13,521,511
310, Vitamins 586 50,920,891 Vitamin A,D preparations 13 13,761,080 Vitamin 81 and its preparations 27 239,732 Vitamin B and its preparations (Excld B1) 115 4,773,955 Vitamin C and P preparations 37 1,352,782 Vitamin E and K preparations 72 3,090,292 Combined Vitamin preparations 143 13,485,787 Multi Vitamins preparations 72 3,431,657 Combined and Multi Vitamins with Mineral 33 7,524,068 Other Vitamin preparations 56 3,261,533
260, Dermatics 513 34,265,799 Organic disinfectants 72 1,380,478 Inorganic disinfectants 36 500,094 Agents for purulent infections 40 1,667,070 Anodyne, Antipuric, Astringent and Anti- flammatory for topical use 90 14,592,195 Agents for Ectoparasitic infections 173 9,262,743 Skin Softener 22 1,465,004 Agents for Hair 20 1,541,561 Other dermatics 60 3,856,650
220, Drugs acting on respiratory organ 387 35,964,024 Respiratory stimulant 4 12,914 Antitussives and expectorants 349 34,757,512 Gargles 4 64,992 Other drugs acting on respiratory organ 30 1,128,604
210, Circulatory system drugs 392 21,608,728 Cardiacs 32 2,497,995 Antiarrhythmic drugs 16 373,817 Diuretics 69 1,036,165 Anti-hypertensives 62 3,150,231 Other Antihypertensive 5 293,940 Vasoconstrictors 5 136,425 Vasodilators 60 3,304,543 Drugs for anteriosclerosis 25 1,025,668 Other drugs for circulatory system 118 9,789,941 240, Hormones 244 16,925,113 Pituitary Hormones • 2 5,297 Salivary gland Hormones 2 19,655 Tyroid and Parathyroid hormones 13 211,863 Anabolic hormones 8 58,014 Adrenal hormones 128 12,384,028 Male hormones 27 953,590 Female hormones 24 2,518,174 Combined Hormones Preparation 13 470,104 Other Hormones 7 304,385
120, Peripheral nervous system drugs 196 8,061,102 Local anaesthetics 18 284,373 Skeletal muscle relaxants 43 2,132,610 Autonomic nervous system drugs 33 775,932 Antispasmodics 95 4,838,615 Diaphoretics 4 18,038 Other preparations 3 11,531
620, Chemotherapeutics 282 24,027,516 Sulfa drugs 124 5,759,292 Anti-tubercolosis drugs 60 6,535,729 Anti-leprosy drugs 4 143,658 Anti-syphilitics 1 733 Furan deriv. Preparations 22 . 50,509 Other chemotherapeutics 71 11,537,593
(NB 1$ equivalent to 780 won at time of report)
Source : Korean Pharmaceutical Industry Association Yakup Shinmoon - 45 -
EXHIBIT (D)
COMPARISON OF PRODUCTION IN SOUTH KOREA ANC, JAPAN (ranked according to S Korea) 1982
Category KOREA JAPAN Production (M$) GR Production (m$) GR%
to
610 231 27 3500 11 320 167 28 461 16 230 164 33 1306 14 110 142 18 1575 10 390 41 5 1504 .2 310 60 -8 1102 18 260 54 24 912 5 220 45 -2 368 5 210 34 21 1790 3 120 27 165 329 -3 240 28 29 398 14 620 26 -16 123 6 630 24 24 648 12 730 20 43 86 4 250 18 39 169 30 330 15 22 410 11 140 13 22 180 23 640 11 27 na 130 9 14 222 17 800 5 -5 na 420 5 -1 506 2
Company source -46-
EXHIBIT (E)
RAW MATERIAL (CRUDE DRUG) PRODUCTION BY THERAPEUTIC CATEGORY IN S KOREA 1982
Category Drugs (for) Production (thousands US $ equiv)
110 Central Nervous System 8 393 120 Peripheral N S 405 140 Anti-allergy 387 210 Circulatory system 10 910 220 Respiratory system 2 299 230 Digestive tract 9 644 240 Hormones 2 415 250 Urogenital and Anal 4 260 Epidermic 1 767 290 Others for organs 220 310 Vitamins 2 696 320 Nutrients, Tonics 1 302 330 Blood and Body Fluids 625 390 Metabolic Drugs 4 414 420 Anti neoplastic 313 490 Others for tissue cell 16 610 Antibiotics 47 898 620 Chemotherapeutics 11 469 630 Biological preparations 2 592 640 Antihelminthitics 1 513 710 Pharmaceutical aids 10 694 720 Diagnostic Aids 100 730 Public Sanitation 669 790 Not for treatment 2 444
TOTAL 123,250
(NB Problems of definition cause number discrepancies of approx 5%)
Source: KPIA -47-
EXHIBIT (F)
PRODUCTION OF BIG ITEMS (1981)
Products ranked Therapeutic Use Manufacturers Produc- GR % tion (m 80-81 $ equiv)
Bacchus D Nutrient drink Dong A 52.5 23.6 Wonbi D Nutrient drink Il-Yang 17.9 33.9 Ursa Hepatonic Dae Woong 11.8 64.1 Kanamycin Antibiotic (v.acid- Dong A 8.18 18.5 fast germ) Saridon Chon Kun Dang 7.00 55.7 Gas Whalmyungsu Stomach Dong Wha 6.97 29.2 Rifampin 150 mg Antibiotic (v Yu Han 6.93 0.6 tubercolosis) Alps D Nutrient Drink Dong Wha 6.77 48.1 Panpyrin Oral Liquid Cold antipyretic 6.63 19.6 analgesic Pancold A Cold antipyretic Dong Wha 6.03 na analgesic Guronsan Vermont Nutrient drink Yung Jin 5.76 na Sam Wha Tang Antipyretic analyesic Dong Kwang 5.64 na Festal Stomach Handok 5.64 na Albumin Blood preparation Green Cross 5.63 12.3 Biovita Internal antiseptic Il Dong 5.09 33.6 Whalmyungsu Stomach Dong Wha 4.79 24.5 Rhinathiol Cap Bronches Hyun Dai 4.36 346.5 Aminofusin Protein/amino acids Yung Jin 4.32 6.0 Rifodex Cap Antibiotic Chong Kun Deng 4.11 60.8 Aminofusin Protein/amino acids Yung Jin 4.08 46.8 Norumo Puly Antacid Il Yang 4.04 22.5 Gag Myong Soo Stomach Sam Sung 4.00 54.2 Gelfos Anti peptic Ulcer Bo Ryung 4.00 94.3 Mexolon Liquid Digestive Agent Dong A 3.88 59.1 Vibramycin Antibiotic, Pfizer Korea 3.88 6.9 Contac 600 Antihistamine Yu Han 3.84 25.0 Cefamezin Antibiotic Dong-A 3.82 94.0 Thymisin Antitussive and Dae Woong 3.82 37.9 Expectorant Amcillin Cap Antibiotic (gram +ve) Chong Kun Deng 3.78 64.2 Celestone G Cream Corticosteroid Yu Han 3.76 20.4 Panto P Antipyretic Analgesic Sam Sung 3.69 34.1 Urofam Chemotherapeutic Dae Woong 3.68 225.3 Gemuron Vitamins and Minerals Dee Woong 3.67 19.2 Sam Jung ton Nutrient drink Il Wha 3.61 143.2 Bactan D Nutrient drink Sam Sung 3.59 127.2 Woo Whang Chung Sim Woun Circulatory System Choseon Pharm 3.52 70.3 Choong Wee 5% Dextrose Nutrient injection Dae Han Choong 3.33 12.1 Wee Nikin Oral Liquid Antipyretic Analgesic Chong Kun Dang 3.29 117.7 Neuer Cap Anti peptic ulcer Je Il 3.25 124.0 Mool Pas A Anodyne, antipuritic Hyun Dai 3.24 47.6 antiflammatory Neo Pas Anodyne antipuritic Dee Il 3.18 23.3 antiflammatory Bronchicum Antitussive and Pacific Chemical 3.18 143.9 Expectorant Penbrex Cap 250 mg Antibiotic (gram +ve) Yung Jin 3.12 3.6 Norumo Oral Liquid Antacid Il Yang 3.09 13.6 Kedacillin I V Antibiotic (gram +ve) Han Il 3.07 23.9 Dee II Bend Sanitary Aid Dee Il 3.03 22.0 Evasol Protein/amino acids Dae Han Choong 3.00 43.3 Wee Pipemic Cap Chemotherapeutic Sam A 2.96 257.1 Plasmanate Blood Preparation Green Cross 2.85 18.5 Plasol Protein/amino acids Je Il 2.80 946.5 Prima Tab Chemotherapeutic Dong A 2.79 862.5 Ryongaksan Antitussive and Bo Ryung 2.79 12.7 Expectorant F Killer Aerosol 420 mg Insecticide Sam Sung 2.68 -22.0 Sin Sin Pas Anodyne, Antipuritic, Sin Sin 2.67 26.3 Anti-inflammatory Lasix Tab Diuretic Han Dok 2.65 25.1 Minocin Cap Antibiotic (broad Yu Han 2.64 -0.3 spectrum) H2 Tab Anti peptic ulcer Dee Han Choong 2.60 87.2 Wee - 49 -
Tagamet Tab Anti peptic ulcer Yu Han 2.57 3.9 F Killer Aerosol 600 mg Insecticide Sam Sung 2.52 160.4 Home Keeper Aerosol Insecticide Dong Wha 2.46 2.8 Oxymycin Cap Antibiotic (broad Chong Kun Dang 2.45 36.4 spectrum) Venapollo A Vitamins and Minerals Yu Yu 2.39 10.6 Skainar Tab Otorhinological Hanil 2.37 88.1 Hanacin Cap Antibiotic (broad Chong Kun Dang 2.34 27.2 spectrum) Dae Il Pas Anodyne, antipuritic Dae I1 2.23 -3.8 Antiflammatory Ssang Kum Tang Antipyretic Analgesic Hanil Corp 2.28 -7.6 Bestase Tab . Stomach Dong A 2.27 29.9 Helocetin Cap Antibiotic (broad Chong Kun Dang 2.24 -55.1 spectrum) Pamoxin Antibiotic (gram +ve) Dong Wha 2.22 60.1 F Killer Mosquito Coil Insecticide Sam Sung 2.14 33.2 Legalon Antidote Bu Kwang 2.14 36.4 Compound Ulerimin Anti peptic Ulcer Dae Han Choong 2.12 20.6 Wae Pancreon F Stomach Yung Jin 2.11 33.2 Lincocin S S 600 mg Antibiotic Korea Upjohn 2.11 147.2 Dulcolax Laxative Boehringer 2.11 34.7 Ingelheim Amphojel M Antacid Dong 2.10 36.7 Talcid Antacid Bayer 2.10 109.4 Varidase oral Tab Non digestive enzymes Yu Han 2.10 27.4 Amikin Antibiotic Bo Rung 2.06 16.7 Kushim Heart Bo Ryung 2.06 6.4 Antiphlamine Antipuritic, Anodyne Yu Han 2.02 39.3 Antiflammatory Tathion Antidote Dong A 2.01 5.2 Kimotrosi Metabolic agent Je I1 2.01 317.5 Aspirin Children Antipyretic, Analgesic Bayer Korea 2.00 32.9 Kimotab Tab Non digestive enzymes Je I1 1.94 5.0 Asthma S Antitussive and Il Yang 1.93 29.8 Expectorant -50-
Aspirin. Anti pyretic Bayer Korea 1.90 62.4 Terramycin Antibiotic (broad Pfizer Korea 1.85 -8.9 spectrum) Danzen Tab Non digestive enzyme Hanil 1.83 35.9 Bee Com Vitamins complex Yu Han 1.82 10.7 Amoxapen Cap Antibiotic (gram +ve) Chong Kun Dang 1.77 17.7 Vipax Vitamins and Minerals Il Dong 1.75 6.5 Ssangwha Tang Antipyretic Analgesic Hanil Corp 1.75 313.2 Feldene Antipyretic Analgesic Pfizer Korea 1.71 114.1 Baralgin Tab Antipyretic Analgesic Han Dok 1.69 13.1 Hivinal Multi vitamins Han Dok 1.69 27.1 Talampin Cap Antibiotic (gram +ve) Dong A 1.67 54.9 Ferrum Tab Mineral Nutrition Dae Han Choong 1.65 66.9 Wae Ativan Tranquiliser Il Dong 1.64 0.2 Coritussal Antipyretic Analgesic Bu Kwang 1.62 45.5 Indopen Antipyretic Analgesic Il Dong 1.62 24.0 Kool Tab Digestive agent Chung Gei 1.61 132.9 Hydergine Circulatory system Dong Wha 1.59 48.7 Myambutol Coated Tab Sulfa drug Yu Han 1.55 -18.5 Kedacillin Antibiotic (gram +ve) Hanil 1.55 -16.6 Cefamezin Antibiotic (broad Dong A 1.52 -22.0 spectrum) Japanese B Encephalitis Vaccine Dong Sin 1.52 128.5 Vaccine Naxen Antipyretic Analgesic Chong Kun Deng 1.50 -20.5 Monotan F Insecticide Pacific Chemical 1.50 46.6 Bacacil 400 mg Antibiotic (gram +ve) Pfizer Korea 1.49 - Bactrim Tab Sulfa drug Chong Kun Dang 1.48 24.2 Koko Syrup for Children Antitrussive and Sam A 1.48 130.8 Expectorant Neusan Antipyretic Analgesic Dong A 1.46 102.6 Duspatalin Tab Digestive Agent Dae Han Choong 1.44 Wae Cephatrex Antibiotic (broad Bo Ryung 1.44 12.6 spectrum) Kiung When Antiemetic Bo Ryung 1.42 29.7 Amolex Cap Antibiotic (gram +ve) Yung Jin 1.42 -14.2 - 51 -
Azintal Tab .4 Digestive Agent Il Yang 1.42 - Tab .9 Vermax Antihelminthetic Yu Han 1.37 14.5 Velosef Antibiotic (broad Il Sung 1.36 10.3 spectrum) .9 Plascam .7 Blood preparation Dong Sin 1.33 24.1 .7 .5 .2 .1 .1 .1 .9 .9
.2 .5 .0 .9 .7 .5 .6 .0
.5
.5 .6
.2 .8
.6
.6
.7 14; .2 -52-
EXHIBIT (G)
PRODUCTS SHARE IN PARTICULAR MARKETS Product Company Estimated Market Share
110, General Anesthetics Halotan Inj Il Sung 30% Epontal Inj Bayer 28% Ketalar Yuhan 8.6%
Anti epileptics Orphid Tab Bukwang 72% Phenytoin Na Inj Sam Jin 28%
Antipyretics, Analeysics Saridon Chong Kun Dang 28% Aspirin for Bayer 11% Children liquid form Panpirin S Dong A 34% Pancold A Dong Wha 30% syrup form Konasyrup Sang A 23% Novaking syrup Dong Kwang 19%
Analgesics Antiinflammatory Naxen Tab Chong Kun Dang 18% Feldene Capsule Pfizer 12% Yuhan 6.8% Potent antiinflammatory Pentacocin Inj Dae Won 76%
Analeptics and Stimulants Timing Tablet Crown 100% Tranquilizers major Trittico Cap Kuk Je 20% Metlevil Tab Dong Wha 18% minor Ativan Tab Dong 39% Zerdasil Tab Il Yang 12% Other drugs affecting CNS Trenstan Cap Sam Jin 86%
210,Muscular Blocking Agents Analysin Tab Chung Gei 34% Trancopol Tab Je I1 26% Mioblock Inj Yuhan 11% Antispasmodics Buscopan Boehringer 21% composition Buscopan Boehringer Baralgin Handok 7%
130, Opthalmic vasoconstrictor Sun Star Sam Il 38% Vizine (drops) Pfizer 18% Opthalmic antibiotics Sindotop Kukje 33% Teramycin Pfizer 22% (ointment) Otorhinological agents Skinar Cap Hanil 66% Naviztar Sam Chung Dang 10% 140, Antihistamines Contac 600 Yuhan 41% Actipid syrup Sam Il 11%
210, Cardiacs Kushim Bo Ryung 85% Cardoinphin Tab He Wae 15% Antiarrythmics Tenormin Tab Hyun Dai 45% Herban Tab Hanil 30% Piuretics Laxiz Handok 65% Aldacton Tab Kun Wha 12% Antihypertensives Bendicon Cap Bayer 36% Esidri Tab Handok 16% Vasodilators Persanthin Tab Boehringer 19% Linstene Il Yang 13% Drugs for arteriosclerosis Liparoid Tab Hyn Dai 52% Pantmin Tab Je 18% Other Drugs for circulatory Hydergine Tab Dong Wha 22% system Decakinone Cap Hanil 20%
220 Respiration stimulants Cytomack inj Yung Jin 100% Antitussives and Expectorants Zimicin Dae Woong 24% liquids Bronchicum Pacific Chem 13% other Rhinathiolcap Hyundai 18% Ryongaksan Bo Ryung 13%
230 Dental and Oral Agents Insadol Tab U.E.0 28% Drugs for peptic ulcers Noel Cap Je 20% Togametabling Yuhan 22% H2 Tab Choong Wae 12% Drugs containing antacid Gelfos Bo Ryung 35% Amphogel Il Dong 12% Combined digestives (liquid) Gas Whalmyung Su Dong Wha 28% Sam Sung Gas Myung Soo 19% Digestives Festol Handok 20% Norumo Pulv. Il Yang 14%
230 Antiemetics and emetics Tosmin Dong Sung 51% Spida Hanil 22% Intestinal antiseptics Chung Ro Whan Dong Sung 16% Lopetin Cap Yuhan 10% Lopetin syrup Yuhan 10% Lactobacillus preparations Biovita Dong 69% Bentruxacid cap Dong Koo 9% Laxatives and Enemas Dulcorax Boehringer 81% Picolone drops Sam Il 6% Other digestive organ drugs Mexolan Dong A 4% Dustpatarine Tab Chung Wae 19% 240 Thyroid and Para-Thyroid Komzivoid Tab Bukwang hormones Anabolic Hormones Dacamid Cap Shering 91% Dexamethasone Prep Oradexon Inj Yuhan 20% Dexacolon Tab Pacific Chem 33% Oradexon Tab Yuhan 10% Prednisolone Predisolone Tab Pacific Chem 33% Sherisolon Shering 14% Betamethasone Prep Celestamine Tab Yuhan 40% Betamethosene Inj Han 01 22% Other adrenal hormones Triamcinelone Inj Dong Kwang 33% Dephometral Inj Upjohn 28% Male Hormones Depovirin Inj Handok 36% Andriol Soft Yuhan 24% Capsule Female Hormones Premarin Inj Kuhn Pung 34% Kumovit Tab Shering 27%
250 Urethral disinfectant Cernilton Tab Dong Koo 100% Oxytocin Methergin Inj Dong Wha 29% Orathsin Inj Handok n.a Oxytocin Inj Yuhan 20% Emmenagognes Salvia Sam Chun Dung 44% Oymenzin-S McNeil 20% Contraceptives Minibora (30) Shering 29% Sou loop Hanil 22% Lyndiol and Miniol Yuhan 21% Urogenital organs (other Betadine Vaginal Hyundae 18% drugs) supp Carnes ten Bayer 17% Gynodaktarin Yuhan 17% Antimenorroidal agents Potanal Handok 35% Coibenal S.0 Tab Handok 20%
260 External disinfectants Potadine Sam Il 31% Betadine Solution Hyundai 30% For Purulent Infections Celestone G Yuhan 17% Sterocin G Chung Gei 10% Anodyne Antipuritic Anti- Antiphlamine Yuhan 70% inflammatory (creams and Manthoradam lotion Yung Jin 19% lotions) Agents for ecto-parasitic Carmestine Bayer 13% infections Ecolon Hanmi 7% Skin Softener Lip Clean Sang A 56% Vaselin Gauze Sang A 10% Anti-dandruff Selson Pacific Chemical 56% Erica C Dong A 44%
310 Vitamin A and D Ganyuku Dae Woong 99.8% Vitamin B Aronamin gold Dong 25% Beecom Yuhan 22% Vitamin C Yuhan CS Yu Yu 30% Vital C Yu han 16% Vitamin E and K Grandpherol Yuhan 42% Torizal Han Mi 16% Multi-Vitamins Gemron Dae Woong 17% Venapollo-A Yu Yu 12% -55-
320 Mineral preparations Ferrova Bu Kwang 64% Ferrum S Chung Wae 35% Carbohydarte Preparations Dextrose 5% Chung Wae 34% Dextrose 5% Dai Han 12% Protein and amino acid Aminofusin L Yung Jin 19% preparation Aminofusin Yung Jin 15% Anti Anemia Ferun Tab Chung Wae 37% Maszigen B12 Je 17% For Babies Varidus Sam A 58% Babylamine Dong 42%. Other nutrients/tonics Bacchus D Dong A 58% Wonbi D Il Yang 21%
330 Fluid supply Reomacrodex Il Sung 42% Normodex Inj Il Sung 40% Hemostatics Transamin Cap Je 34% Transamin Inj Je 33% Anticoagulants Heparin inj Chung Wae 100%
390 Drugs for liver dose Urusa Dee Woong 45% Tathion Tab Dong A 7% Remedies for habitual PAM Tab Choong Wae 66% poisoning PAM A Tab Choong Wee 34% Enzyme preparations Kimotab Je 27% Varidase Tab Yuhan 19% Antidiabetics Diabanese Pfizer 35% Daonyl Handok 21% Other metabolic agents Komotrocy Inj Je 20% Mirapront N Bukwang 9% Malignant anti-tumours Futraful Je 53% F.H Je 29% Methotrexate Yuhan 9% Other anti-tumours Maroviben Inj Sam Jin 44% Madecasol Tab Dong Kuk 15%
610 Penicillin Preparations Hostacillin Inj Handok 22% Penicillin G Handok 13% Sodium Ampicillin Preparations Ampicillin Cap Chong Kun Dang 22% Penbrex Cap Yung Jin 20% Amoxicillin preparations Pamoxin Cap Dong Wha 22% Amoxapen Cap Chong Kun Dang 21% Cephalosporin preparations Cefamezine Inj Dong A 12% Duricef Cap Bo Ryung 7% Erythromycin Preparations Lincocin Inj Korea Upjohn 23% Erythro Cap Chong Kun Dang 8% Chloramphenicol preparations Herocetin Cap Chong Kun Dang 32% Chloramphenicol Medica 22% cap Tetracycline Preparations Vibroinycin cap Pfizer 15% Oxyincin cap Chong Kun Dang 11% Streptomycin Preparations Streptomycin Han Dock 40% sulphate Streptomycin Inj Chong Kun Dang 18% Streptomycin Inj Yuhan 8% - 56 -
Gentamycin preparations Gentamyin Inj Kukje 26% Gentamyin Inj Dong Sin 25% Kanamycin Preparations Kanamycin sulphate Dong A 39% Inj Amikin Inj Bo Ryung 15% Rifampicin preparations Rifodex Cap Chong Kun Dang 46% Rifampicin Cap Yuhan 33% ABs against fungus Fulvicin Tab Hyndai 55% Mycostatin oint Dong A 15% Combined ABs Ampliclox Cap Chong Kun Dang 59% Dicloxacilin Dong Wha 11%
620 Sulfa drugs Bactrim Tab Chong Kun Dang 26% Uprin Tab Dong Wha 15% Ethambutol preparations Ethanbutol Tab Se Shin 43% Myambutol Yuhan 29% Anti-tubercolosis drugs Tuberactin Inj Kuhn pang 19% Pyazolina Sam Sung 13% Pyrazinamide Tab Yuhan 10.3% Other chemotherapeutics Prima Tab Dong A 18% Pipemic Cap Sam A 13%
630 Vaccines Japanese B Dong Shin 37% Encephalitis Vaccine Blood preparations Albumin Green Cross 40% Albumin Dong Shin 25%
640 Anti-plasmodium Tiberal Tab Chong Kun Deng 35% Fasigyn Pfizer 21% Antihelminthics Vermox Yuhan 25% PTI com Chong Kun Dang 17% -57-
EXHIBIT H
PRODUCTION OF MAIN CRUDE DRUGS (1981)
Raw materials Use Manufacturer Production GR% (millions $)(wrt 80)
Urokinase Fibrinolytic Korea Green 9.40 9.5 Cross
Soluble kanamycin Amino glycoside Dong Myung 3.91 3.9 sulphate (antibacterial)
Trimethropim Chemotherapeutic Dong Wha 2.71 55.8 (urinary)
Ampicillin Penicillin anti- Yung Jin 2.44 5.8 trihydrate biotic
Amoxyllin Penicillin anti- Dong Wha 2.28 115.6 biotic
Cimetidine Anti-ulcer Choong Wae 1.74 28.8
Sulphamethoxazole Sulphonamide Yung Jin 1.74 21.6
Ampicillin Penicillin anti- Yung Jin 1.74 52.2 anhydrous biotic
Doxycycline Tetracycline anti- Pfizer Korea 1.64 22.1 hydrate biotic
Pivampicillin Penicillin anti- Choong Wae .76 59.2 hydrochlorine biotic
Oxytetracycline Tetracycline anti- Pfizer Korea .73 -28.6 hydrochloride biotic
Amoxycillin Penicillin anti- Yung Jin .73 2.1 trihydrate biotic
Sulphamethoxazole Sulphonamide Dong Wha .69 30.8
Source Yekup Shinmoon -58-
EXHIBIT (I)
LIST OF RAW MATERIAL MANUFACTURERS
15-el
. Manufacturing protection past now • Import protection B banned (see also footnote)
. Underlined are most important RM productions
ITEMS MANUFACTURERS
B Acetanilide Union Fine Chem B Acetaminophen Asia Pharm, Sampoong, Union Fine Chem Sung Do Acetylsalicylic Acid Hyun Dai, Dan Il Adenosylcobalamine Seoul Pharm Albumin Tannic Acid Sung Do Amikacin Sulfate Bo Ryung Aluminium Hydroxide Gel Yu Yu, Il Dong, Il Yang Aluminium Hydroxide Mag- nesium Carbonate Co Dried Aluminium Phosphate Gel Bo Ryung B 3-Amino-5-Methylisoxazol Yung Jin B 6-Aminopenicillanic Acid Seoul, Yung Jin B Aminocaproic Acid Je B Aminophylline Sam Poong, Inwha Amoxicillin Dong Wha, Chong Kun Dong, Il Dong, Bo Ryung Amoxicillin Monohydrate Seoul Pharm Amoxicillin Trihydrate Bo Ryung, Dong Shin, Chong Kun Dang, Seoul, Yung Jin, Kukje, Dae Woong Ampicillin Dong Wha, Bo Ryung Ampicillin Anhydrous Seoul, Yunq Jin, I1 Dong B Ampicillin Sodium and Seoul, Chong Kun Dang, Yung Jin, Bo Ryung derivatives B Ampicillin Trihydrate Chong Kun Dang, Seoul, Dong Shin, Yunq Jin, Dai Han Choong Wee -59-
Dextrous Anhydrous Dai Han Choong Wae Glucose Anhydrous Dai Han Choong Wae B Aspergillus Samil Basic Aluminium Sodium Hyun Dai Carbonate Berberin Tannate Asia Pharm Benorylate Dong Betamethason Yu Han Corp, Chung Gei Betamethason, Dipropionate Chung Gei Betamethasone Valelate Yu Han Corp Bezoar Woo Kwnag, Chun Il Benzoic Acid Sam Nam B Benzylbenzoate Soo Do Benzoylthiamindisulfide Dong Bisacodyl Kosandang B Bismuth Subnitrate Korean Heavy Stone B Bromelain Je Il B Butyl-p-oxybenzoate Dan Il B Caffein Sam Poong, Union Fine Chem Caffein Anbydrous Sam Poong Caffein Sod. Benzoate Yung Jin Calcium Carboxymethyl Korea Ginseng Pharm, Bolak Cellulose B Calcium Panthotheinate Sam Poong B Carbarsone Union Fine Chem B Castor Oil Dong Yang Oil Fat Chem Carbocystein Dan Il Carboxylic Acid Bo Ryung S-Carboxymethylcystein Chun Se B Cephalexin Dong Shin, Dong Wha, Bo Ryung, I1 Dong Cephaloxyl monohydrate Dee Woong Cephaloridin Yu Yu Cephalothin Sodium Chong Kun Dang Cephazolin Sodium Dong-A, Yu Han B Chloramphenicol Chong Kun Dang, Kuk Je Chloramphenicol Micronized Chong Kun Deng, Kuk Je and derivatives - 60 -
Chloramphenicol Palmitate Chong Kun Deng, Kuk Je and derivatives Chloramphenicol Succinate Chong Kun Dang and derivatives B Chlorpheniramin Maleate Sam Poong Cimetride Dae Han Choong Wae Cimetidin Dong Wha, I1 Dong, Yu Han Corp Dai Han Choonq Wae B Cloxacillin Sodium (oral) Yung Jin B Cloxacillin Sodium Yung Jin (injection) B Cloxacillin Sodium Chong Kun Dang, Dong Shin monohydrate Cloxacillin Trihydrate Seoul Pharm Crostridium I1 Dong Crude Urokinase Green Cross, Dong-A, Shin-Ra Cyclandelate Sam Won Diastase Dong-A, Kyung Ki B Diclofenac Sodium Han Dok Dicloxacillin Sodium Yung Jin, Dong Wha Diphenyl Glycin Yung Jin Diphenylhydantoin Sam Won Diphenylhydantion Sodium Sam Won Dizet Kyung Ki B Dried Aluminium Hydroxide Il Yang, Sam Nam Gel Dried Aluminium Phosphate Kang Nam B Dried Yeast Jeil Universal, Cho Hung Epinephrine Je Erythromycin Estolate Yung Jin B Ethambutol Yu Han, Chong Kun Dang, Handok Pacific Chem B Ethoxybenzamide and salts Dan Il, Dong Wha, Shin Poong Ethyl Linoleate Han Il Corp B Ethyl-p-oxybenzoate Dan Il 5-Fluorouracil Je Furosemide Han Dok B Futraful Je Gamma Aminobutylic Acid Je - 61 -
Ginseng Total Saponin Pacific Chemical Glucose-l-Phosphate Disodium Dong Shin Glucose-l-Phosphate Dong Shin Diarginate Glybenclamide Han Dok B Glycerin Lucky B Glyceryl Guaiacolate Dan Il, Shin Poong Glycyrrhizin Acid Kyung Nam Glycyrrhizin K Kyung Nam Guaifenesin Union Fine Chem Heated Human Plasma Protein Green Cross Hepto Ferrous Gluconate Shin Poong Hetacillin Calcium Kuk Je, Yung Jin B Hetacillin Potassium (Inj) Yung Jin B Hetacillin Potassium (oral) Yung Jin Ibuprofen Lysin Kuk Je Isoaminyl Citrate Yung Jin B Isonicotinic Acid Hydrazid Yu Yu, Asia Pharm (sodium) Isonicotinic Acid Yu Han Methansulfonate B Kanamycin Sulfate Donq Myunq Kanamycin Soluble Donq Myunq Lipase Pacific Chem Liquid Paraffine Keuk Dong Shell Loperamide Asia Pham Yu Han Corp L-Lysin Mi Won Lymecyclin Kuk Je dl-Mandelic Acid Sam Won Magaldrate Dong Shin Magnesium Carbonate Kang Nam Magnesium Hydroxide Yu Yu, Il Dong Magnesium Oxide Kang Nam Magnesium Silicate Il Yang B Magnesium Stearate Yu Yu B Mebendazole Shin Poong Meclofenoxate Hcl Dae Han Choong Wee - 62 -
Meclofenoxate Phosphate Dee Han Choong Wae Mecrizin Hcl Sam Won B Metacyclin Hcl Kuk Je, Pfizer B Menthol Kyungnam, Bolak Methylbenacrizin Woo Chun B dl-Methylephedrin Sam Poong B dl-Methionin Yu Yu Asia Pharm B Methyl-p-oxybenzoate Dan Il, Il Yang B Methylsalicylate Dan Hyun Dai B Metoclopramide Dong Wha, Dong-A Metoclopramide Hcl Dong Wha Neusilin Il Yang Nicotinamide Yu Yu, Asia Pharm Ox Bile Extract Kang Nam, Bo Ryung Oxolinic Acid Shin Poong, Je B Oxytetracyclin Pfizer, Chong Kun Dang B Oxytetracyclin Hcl Pfizer, Chong Kun Dang B P-Amino-Salicylicacid Yu Yu B P-Amino-Salicylicacid Sam Sung, Sung Do Hydrazide Pancreatin Han Il Corp, Kangnam Phenbufen Bo Ryung, Yu Han Corp B Phenacetin Asia Pharm, Sam Poong, Union fine Chem Phenylamin Maleate Han Dok Phenytoin Kosan Dang Phenytoin Sodium Kosan Dang Phthalidyl Ampicillin Yung Jin Pimemidic Acid, Trihydrate Dai Woong, Dong Wha, Shin Poong Piperacillin Yu Han, Sam Sung B Pipethanate Il Yang Pivampcillin HCL Dee Han Choonq Wae B Plaridoxim Hcl Dae Han Choong Wae Sam Won B Probenecid Han Mi B Proglumide Han Mi B Propyl-p-oxybenzoate Dan Il, Il Yang Propylenglycol Mi Won Pyrazinamide Sam Won - 63 -
B Pyrantel Pamoate Pfizer, Ii Yang Pyridoxin Hcl Bo Ryung Riboflavin Buthylester I1 Dong Riboflavin Lacticaid Ester Dai Woong Riboflavin Tetrabutylate Sam Poong Ribostamycin Sulfate Dong Myung
Rifcampicin Chong Kun Deng S-Lase Pacific Chem
• B Salicylamide Dan Il, Sung Do Scolpolia Ext Il Yang, Kyung Yak Soda Lime Kong Shin Sodium Benzoate Bolak Sodium CMC Bo Lak Sodium Cyclamate Cho Hung Sodium Dihydroxy Aluminium Dae Woong Carbonate Sodium Lauryl Sulfate Tae Dong Sodium Methan Sulfonate Yu Yu Sodium Saccharine Kum Yang, cho Hung, Je I1 Ind Sodium Salicylate Sung Do, Dan Il Sod Salcylate, Carbasochrome Asia Pharm B Sorbitol Lucky Streptococcus Faecalis Bo Ryung Stearic Acid Pfizer Korea B Sulfadimethoxine Yung Jin B Sulfadimethoxine sodium Yung Jin B Sulfamethoxazole Donq Wha, Han Mi, I1 dong, Yung Jin, Shin Poong B Sulfamonomethoxin Je Sulfazolin Sodium Dong-A B Sulpyrin Dong-A, Han Dok, Union Fine Chem Synthetic Aluminium Silicate Il Yang, Kang Nam Tartaric Acid Kwan Am Taurin Dong-A B Tetracyclin Chong Kun Deng, Pfizer, Kuk Je B Tetracyclin Methylen Lysin Dai Han Choong Wae B Theothyllin Sam Poong, Bo Ryung B Thiamin Disulfide Yu Yu, Asia Pharm B Thiamin Hcl I1 Dong, Asia Pharm, Shin Poong - 64 -
B Thiamin Mononitrate I1 Dong B Thiamin Propyl Disulfide Il Dong B Thiamin Tetrahydrofuryl I1 Dong Disulfide Thioctamide Dong-A Tochopherol Nicotinate Chong Kun Dang B Trimethoprim Chong kun Dang, Donq Wha t Han Mi, Sam Il, Sam Won B Tranexamic Acid Je Tolnaftate Il Yang Urokinase Dong Shin, Green Cross Ursodeoxycholic Acid Dae Woong
Footnote: Also Banned are:
Benzene hexachloride Gamma globulin Inositol Insonicotinic acid hydrazide sodium Methane sulphanate Mefenamic acid Microbial digestive enzymes and lactobacillus of bacillus subtillis stains Combinations of penicillin and streptomycin or penicillin and sulfa drugs. D phenyl glycine Sigma mycin Sulfa granidine Tannic acid albumin Tolampicillin Formyl rifamycin
Source : KPIA - 65 -
EXHIBIT (3)
PRODUCTION AMOUNT OF 72 LARGE FIRMS IN 1981 (Production over 1 billion won)
Rank Manufacturers $m GR wrt 80
1 Dong A 113.7 29.5 2 Chong Kun Dang 64.2 32.2 3 Yu Han 60.6 20.8 4 Dong Wha 52.4 36.8 5 Yung Jin 45.3 8.7 6 Han Dok 35.7 17.2 7 II Yang 34.6 35.7 8 Daehan Choong Wae 33.6 41.6 9 Dee Woong 32.4 71.2 10 Il Dong 29.6 26.1 11 Pfizer Korea 25.9 4.8 12 Sam Sung Pharm 24.1 45.2 13 Bo Ryung 23.7 50.7 14 Hanil 23.1 23.9 15 Je Il 22.8 50.9 16 Korea Green Cross 22.6 17.8 17 Hyun Dai 18.1 59.8 18 Dong Shin 18.2 41.1 19 Kuk Je 14.1 11.5 20 Pacific Chemical 12.9 26.8 21 Boehringer Ingelheim 11.9 43.6 (Korea) 22 Dong Kwang 11.3 70.8 23 Bu Kwang . 10.45 39.5 24 Dae Il 10.2 14.3 25 Bayer Korea 10.1 41.5 26 Il Sung 9.7 20.2 27 Kwang Dong 9.6. 23.2 28 Sam Il 9.4 14.9 29 Yu Yu 9.2 13.4 30 Sam A 9.1 57.2 31 Korea Upjohn 8.6 51.6 32 Sam Jin 7.9 62.5 33 Chung Gei 7.8 64.4 34 Choseon 7.2 50.5 35 Sang A 6.8 52.2 36 Tai Kwang 6.3 43.7 37 Hanil Corp 6.1 31.2 38 Han All 5.5 34.4 39 Ahn Gook 5.4 73.1 40 Dong Sung 5.4 12.5 41 Dong In 5.3 10.4 42 Il Wha 5.2 61.2 43 Medica Korea 5.1 31.5 44 McNeil Korea 4.9 29.8 45 Han Mi 4.9 50.3 46 Dae Han 4.8 23.5 47 Sin Sin 4.7 22.8 48 Sam Sung Drugs 4.5 11.2 49 Dong Myung 4.1 12.9 - 66 -
Rank Manufacturers $m GR%
50 Asia Pharm 3.9 51.4 51 Shin Poong 3.9 75.2 52 Dai Won 3.5 9.7 53 Schering Korea 5.3 58.9 54 Sam Chun Dang 3.2 53.4 55 Su Do 3.1 35.9 56 Kuhn Il 2.0 69.8 57 Yung Il 2.9 45.7 58 Shin Il 2.7 54.9 59 Dong Ku 2.7 103.1 60 Hae Woi 2.6 39.3 61 Kyung Nam 2.5 21.7 62 Korea Central 2.3 75.4 63 Dong Il 2.2 39.9 64 Silla 2.0 20.0 65 Choseun New Pham 1.7 28.1 66 Dong Bang 1.7 82.7 67 Soon Chun Dang 1.7 36.9 68 Nam Kang 1.6 20.3 69 Ahn Jin 1.6 52.4 70 Han Yu 1.4 53.7 71 Hap Dong 1.4 20.2 72 Sam Hi 1.4 22.7
Total of these Cos 976.3 31.7
NB 72 hold 70.6% of the total market
Source : Yakup Shinmoon -67-
EXHIBIT (K)
PRODUCTION OF MAJOR COMPANIES IN 1982
Manufacturer Production Growth rate m$ 82/81
Dong A 141 23.4%
Chong Kun Dang 80 24.7%
Yu Han 70 15.9%
Dong Wha 64 21.5%
Yung Jin 51 11.9%
Han Dok 42 18.9%
Il Yang 43 25.1%
Jung Wae 43 28.3%
De Woong 40 23.4%
Il Dong 37 19.9%
Pfizer Korea 28 9.6%
Bo Ryung 34 38.2%
Sam Sung 34 43.0%
Han Il 26 14.2%
Je Il 29 27.9%
Total 762 14.1%
Source:KPIA -68-
EXHIBIT (L)
DISTRIBUTION OF PHARMACEUTICALS
36% Wholesalers of sales 774
Pharmacies Manufacturer 52.4% 12,337
Hospitals and 11.6% Clinics 6659
Numbers of each establishment for the whole country given
PRICES OF LEADING PHARMACEUTICALS
in W ($equal at time to 780W) Bacchus D 1900 for 10 units (bottles) Alps D 2900 for 10 units (bottles) Wombi D 2900 for 10 units (bottles) Ursa 200 per capsule Kanamycin 600 per bottle of capsules (treatment series) Saridon 50 per tablet Gas Wholmyunsu 150 per bottle treatment Rifampicin 150 per capsule of 150 mg Panpyrin oral liquid 150 per bottle treatment Albumin Inj 75 per dozen ampoules Biovita 1700 per bottle of powder (>treatment series) Wholmyungsu 200 per bottle treatment Rhinathiol capsule 1500 per capsule Contac 600 100 per capsule
Source: local pharmacy - 69 -
EXHIBIT (M)
TRADE
(in millions of US $) 1982
IMPORTS % of 81 EXPORTS % of 81
Crude Drugs 125 138 40.7 100.7
Finished Drugs 23 185 8.4 76.7
TOTAL 192.5 91.5 Including oriental medecines, sanitary aids, quasi drugs
Source: KPIA -70-
EXHIBIT (N) IMPORTS
Raw Materials
Rank Item Grade Unit Quantity Amount (US $)
1 7-Aminodeacetoxy 95%up kg 3,460 688,906 Cephalosporanic Acid 2 Allethrin 90%up /I 7,400 662,000 3 Ascorbic Acid USP 11 75,255 837,278 4 Bacampicillin HC1 95%up II 3,088 688,030 5 Cefazolin Free Acid 98%up II 1,080 1,627,200 6 Cephaloridin BP It 941 741,420 7 Cimetidine 98%up II 9,330 1,885,448 8 Dibekacin Sulfate - II 70 609,000 9 Erythromycin Estolate BP II 7,720 989,974 10 Erythromycin Thiocyanate 75%up II 5,249 512,721 11 Gelatin USP II 202,002 921,027 12 Gentamycin Sulfate II II 1,197 803,140 13 Hyoscine-N-Butyl bromide 98%up II 518 568,165 14 Lactose USP II 655 532,799 15 Limcomycin Hydrochloride II II 3,750 602,502 16 Lysozyme Chloride 80-98%up II 3,057 502,406 17 Minocycline HC1 USP II 809 1,102,000 18 Mosquito Coil Powder - 11 50,905 755,968 19 Normal Serum Albumin - 11 1,090 1,931,400 20 Penicillin G-K - bou 41,963 742,463 21 Penicillin G Potassium - 11 93,000 1,668,000 22 Pipemidic Acid Trihydrate 98%up kg 11,050 2,248,056 23 Piroxicam 97%up II 55 660,735 24 Plasma Protein Fraction - II 432 681,200 25 Prednislone . KP III 11 801 790,475 26 Propylene Glycal USP 11 797,535 976,449 27 Sodium Sulbenicillin 8.4mcg/mg kg 2,050 779,000 28 Standardized Pancreatic Enzyme - II 21,000 584,930 29 Streptokinase Streptodornas - unit 1,150,000 653,700 30 Tobramycin USP kg 62 922,985 31 Ursodesoxycholic Acid 98%up II 3,710 1,187,000
Source: Yakup Shinmoon - 71 -
Finished Drugs Rank Item Form Unit Quantity Amount (US $)
1 Adriamycin Inj 10mg vial 17,167 245,757 2 Album-Hepa Capsule 100Cap btl 25,000 144,920 3 Colgate MFP Tooth 171mg dozen 176,660 579,014 4 Duricef Cap 12 S btl 60,000 375,000 5 Didoquin Forte 4% 1/2 Ounce/Tube dozen 23,800 109,416 6 Intralipos 10% without 500m1 btl 15,000 105,000 set 7 Krestin Powder box 480 124,480 8 Licodaine HC1 2% 1.80cc X 50 cat 275,000 128,775 9 MMR D.N cc vial dozen 164,000 432,960 10 ZMR dozen 350,000 819,000 11 Octocaine HC1 2% 50 cart can 85,000 317,975 12 Picibanil btl 3,100 230,380 13 Preortan Inj 20 Test X 5 box 5,600 113,717 14 Preparation H dozen 9,000 108,350 Suppository 15 Specific Disensitising Compleate Set 1,559 190,843 Vaccine 16 Tegretol Tab 50 Tab box 28,000 131,048 17 Venopland Inj 200 Amp box 1,900 153,533 18 Wobe Mugos Dragees 200 dragee pack 8,500 278,008 -72-
EXHIBIT (0)
EXPORTS Raw Materials
Item unit Quantity Amount (US $)
1 Ampicillin Anhydrous kg 12,575 1,460,340 2 Ampicillin Trihydrate II 7,470 675,978 3 Cephalothin Sodium 11 572 564,847 4 Crude Cryoprecipiated II 184,850 978,641 Fraction 5 Empty Gelatin Capsules - - 1,329,744 6 Human Chorionic kg 2,415 1,560,100 Gonadotrophin 7 L-lysine Monohydro- II 24,000 161,728 chloride 8 Mefenamic Acid II 10,295 181,327 9 Kanamysin Sulfate II 1,750 315,000 10 Sodium Lauryl Sulfate II 73,000 336,357 11 Sulfamethoxazole II 26,390 684,300 12 Tetracyline HC1 II 17,790 494,485 13 Tocopheryl Nicotinate 11 2,105 130,744 14 Trimethoprim 11 34,304 1,507,865 15 Urokinase 11 4,164 11,060,102 16 Saccharin - - 13,681,744 -73-
Finished Drugs
Item unit • Quantity Amount (US $)
1 Amclo Caps box 20,000 170,000 2 Baby Powder pcs 38,400 129,024 3 Bacchas-D box 5,000 126,630 4 Buscopan Tab btl 40,790 127,578 5 Combantrin Oral Cart 22,000 174,174 Suspension 6 Combantrin Tab box 130,000 121,717 7 Cyanocobalamin Inj vial 868,101 338,466 8 Fasigyn Tab box 11,940 177,590 9 Gelfos It 36,800 258,020 10 Gentamicin Eye/ vial 380,133 143,024 Ear Drops 11 Gentamicin Sulfate Inj 11 530,563 224,273 12 Haemaccel btl 5,800 158,600 13 Lucky Tooth Paste pcs 2,031,260 850,618 14 Minipress Tab btl 76,600 587,939 15 Molton-S 11 574,061 734,518 16 Persantin Tab II 50,000 310,382 17 Woohwang Chungsim Won pcs 300,000 1,200,000 18 Essence of Korean btl 143,208 168,279 Ginseng 19 Jin Sam Jung It 78,195 118,097 20 Korea Ginseng Extract btl 106,560 514,044 21 Korean Ginseng 11 110,736 500,984 Sahmooltang 22 Korean Ginseng Tonic 11 37,464 149,670
Source : Yahup Shinmoon - 74 -
EXHIBIT (P)
EXPORT BY COUNTRIES AND PREPARATIONS
Country Total Raw Finished Materials Drugs in thousand US $
1 Japan 30,049 15,898 2,227 2 US 10,746 4,034 317 3 Hong Kong 9,867 203 2,707 4 WG 7,804 5,580 142 5 Iran 7,479 98 843 6 Pakistan 3,491 1,062 1,941 7 Switzerland 2,744 2,674 - 8 Formosa 1,895 541 548 9 Thailand 1,744 967 192 10 Singapore 1,226 281 248
Source : Yahup Shinmoon -75-
EXHIBIT (Q)
MANUFACTURING APPROVAL
The government denies manufacturing approval for the following items:
Liquid preparations of antipyretics or antiphlogistics of stimulants or excitants.
Liquid preps of stomachics, of gastric antacids, of antiemetics, of digestive organ agents, of nutrients tonics and alteratives.
Combined preparations of vitamins, of sex hormones EXHIBIT (R)
OUTLINE OF IMPORTS LIBERALISATION
1 Mid 1982 to mid 1983.
allow - High consumption products where local production does not satisfy demand.
Products made by oligopoly of labs for a period.
Products where imports should stimulate competitivity of local products.
Products made by high energy processes.
2 Mid 1983 to mid 1984
Items under extended protection, but where it would be impossible to secure international competitive power.
Items which would stimulate competition amongst local producers.
Oligomonopolistic items directly relating to national life.
3 Mid 1984 to mid 1985
Items less intensive on skilled labour.
Items which are large consumers of resources
Oligomonopolistic items excluded from 1 and 2.
Refer to Periodic Announcement for Import and Export, Ministry of Commerce and Industry. EXHIBIT (S) Cont
TECHNOLOGICAL LICENCING
Company Counter part Country Period
Johnson Korea S C Johnson U.S.A 80 3.13-85 3 Sang-A Mikasa Japan 81 2.23-86 2 Dong-A Dow Chemical U.S.A 80 8. 9-85 8 Yu Han A. B Astra Sweden 80 8. 9-85 8 Dong Wha Leo Denmark 81 8-86 8 Je-Il Daiichi Japan 80 1. 9-85 1 Bo-Ryung Penaten Pharm West Germany 8011 5-85 11
Source: Yahup Shinmoon EXHIBIT (T) SOME COMPANY DATA.
DONG A
In Group also Rami (Cosmetics), Food, Drink and Bottles. Pharma Sales (1982) 112.9 m $ with 4.2% net profit on turnover, 5% sales spent on advertising Technical cooperation Squibb, Dow. Amano Pharma, Yamanouchi Pharma, Taisho, Meiji, Fujisawa, Ono. Daughter Companies joint venture Dong Myung with Meiji Seika Kaisha for the manufacture of Kanamyin, Gentamycin, Vistamycin, raw materials joint venture Korea McNiel. Subsidiary Daedung Pharma for marketing. joint venture with Johnson and Johnson for baby products and cosmetics later Products Bacchus D (45% of sales) Antibiotics eg Kanamycin and Cefamycin (15%) Digestives eg Mexolon, Bestase (10%) Exports 2% of sales R and D 3 PhDs and 30 staff Plant GMP at Anyang since 80 for formulation Banwol to be a new fermentation and synthesis plant. New Developments Arrangement with Wellcome expected Investigating potential of crop protection and software engineering YUHAN CORP Pharma sales (1982) 61 m $ with 6.2% net profit after tax. -Several joint ventures in minority holding with foreigners. Shering for antibiotics and dermatologicals. Cyanamid for Tagmet, Zentel, Auranifin. Smith Kline and French. Kimberley Clark for sanitary aids.
Local Joint Ventures Yuhan Chemical Industry for Rifcampycin with KTAC. Yuhan Rox for Chlorox and disinfectants w private interests. Make and sell products of Lederle, Shering, SK and F, Sumitomo, Astra, Qrganon, Carlo-Erba, Parke-Davis, Gruhental. Products Antibiotics, (23.8% market share) vitamins (14%). Epidermal (6.6%), Peptic Ulcer preps (4%). Exports 4.5% of sales. R and D Development of new dosage forms, and synthetic processes. Plant : GMP at Anyang 76.
CHONG KUN DANG Sales 1982 80 m $ with 6.1% net profit. Joint Venture Rhone Poulenc Pharmaceuticals 50/50. Products Antibiotics, Rifcampicin and sulphamides.
HANDOK REMEDIA First foreign joint venture, and biggest at present. 33% Hoechst Sales 36m$ in 81 with 5.4% profit on turnover.
BAYER PHARMA KOREA 50% Joint Venture with a private shareholder. Sales 1981 104. Products Aspirin, Talcid (antacid), Canesten (antimycotic) Purex (skin), Bendigon (antihypertensive) Raw materials are manufactured in Korea for the antimycotic and for Biltricide, nematoside.
PFIZER KOREA Sales 25.9 m$ Joint venture with Central Pharmaceutical Company (50/50), a company which does not otherwise exist. Products Doxycycline, Oxytetracycline, Feldene, Vibramycine, Terramycin, Bacacil. - 80 -
III B ANALYSIS OF THE AGRO CHEMICAL SECTOR Market Size and Growth The pesticide market in fungicides, herbicides and insecticides for rice and other crops will be considered. Although insecticides and plant growth regulators are sold in Korea, this is in such small proportions to the whole that our considerations will largely ignore them.
All agrochemicals sold in Korea are locally formulated, and the annual sales in 1981 are thus estimated at $ 205 million. This corresponds to nearly 2% of the world market. The growth rate is still considerable at 20%, although between 78 and 80 it was at 30%.
Agricultural Production and Pest Control
22% of the land is under cultivation, and these 2.19 million hectares (1981) are utilised at 125%. The planting area for the principal crops is given in Exhibit (A). So although we see that rice has by far the greatest acerage, there is a considerable amount of barley, soya bean and red pepper as well and indeed all non-rice crops together cover an equivalent area to rice. The tonnage production, which is another indication of pesticide type requirement, is also given in Exhibit (A). The important pests on rice are rice blast, sheath blight, bacterial leaf blight, stemborers, planthoppers and leafrollers. The incidence of infestation and the level of control are indicated in Exhibit (B). Thus we see that rice blast and the stemborer are controlled by heavy applications, more than twice a year, of pesticide. The evolution of this situation is indicated in the second part of that exhibit. We see that over those three years there was a dramatic increase in the main rice pests due to a maintained level of control. Other fungal diseases have required however a complex programme of control for comparatively little progress, and the infestation by other insects has shown a considerable rise. The planning area for rice pesticide application was 870% of the total, consistent with 81, and no changes were expected in 1983.
Government Policy and Pest Control
The slow down in the growth of the market ( 81- 82) is attributed to a change in governmental guidance, which recommended a 30% reduction in - 81 -
frequency of application to farmers. Thus, although the quantitative growth in the market cannot be expected to be very great, due to the already heavy applications, the direction taken by the government in favour of less environmentally harmful pesticides of better quality promises to cause higher growth in the value of the market. So in the coming years the growth in volume cannot be expected to surpass 10%, the growth in value will probably be of 15%.
The Break Down of the Market
In Exhibit (C) we see the value in US$ of the products formulated under the summary categories. Products for rice account for some 60-65% of the sales. In all, herbicides make 20% of the sales while the other two pesticide categories have about 40% each. There are about 200 products on the market and the names, volumes and values of each of these may be obtained in detail from Ref 1. The leading products in each category in 1982 are tabulated according to volume and their technical suppliers are indicated in Ex (D). The key products in the minor categories, miticides and plant growth regulators, are given in the same exhibit.
There are 11 big formulators holding between them 99.5% of the market. Supply is very concentrated with Hannong Corporation by far the largest seller and the top 4 holding 71% of the market. The market shares are broken down by formulator in Exhibit (E).
The Selling of Agrochemicals
Exhibit (F) illustrates diagramatically the two key sales channels. 35% of sales are made to the National Agricultural Cooperative Federation (NACF), which buys half of the pesticides for rice, and little otherwise. These prices are controlled, though not subsidised, and shipments are made directly to the unit cooperatives or the big farms. The gross margins in this market are effectively limited to 10%. The free market is more profitable and it is here that all the non-rice products are to be found. Thus there is market differentiation between channels as regards the products carried. Some fairly standard products are carried though in the free market at very low margins in order to provide a more complete service. In Exhibit (F) there is a summary of the percentage (in money terms) of products bought by the NACF and an indicative list of prices as set by them. Clearly these and parallel products have their price limited by their price in this channel.
One agrochemical firm expects the costs breakdown to be as follows: of the factory price, 65% is active ingredient and 35% includes other ingredients, packing and formulation and a gross margin. On top of this there is 10% VAT and 15% on sales promotion and technical development.
Demand for the product is generated through farmer s meetings, demonstration plots and advertising. Heavy television advertising in July and August is used, as well as posters and pamphlets etc. Incentives for the stockists are also used and salesmen try to influence opinion leaders by approaching the branches of the 140 rural guidance officers. Hannong dominates the market with their sales division since only the following 5 companies together are equivalent in size. They sell 75% of their goods on the free market, but since their provincial liason offices sell strictly through wholesalers many competitors get round them by going directly to the retailers.
Active Ingredients, Local and Imported
72.4 m$ worth (1982) of technical materials are imported and 40.6 m$ worth are made locally, local self-sufficiency stands therefore at 35%. The table in Exhibit (G) summarises the situation for our key categories in terms of tonnage. Of the active ingredient items that are produced, 98% of the requirements are met (listed Exhibit (G)). If 35% of the active ingredients are supplied in Korea, 27% come from Japan, 20% from Europe where Germany has the lion s share, and 17% from the USA. We see that it is in herbicides that the import market is least interesting, and in non-rice fungicides that the market is greatest. Fungicides and insecticides for rice are still imported in large quantities.
84% of the active ingredients are purchased by the top 11 formulators and their purchase share and trend is given in Exhibit (H). The active ingredient supplier determines the firm who will formulate and sell their product. An arrangement thus arises where the formulation technology is transferred by the active ingredient manufacturer, who becomes the formulator s exclusive supplier. Summary profiles of the 3 top formulators are given in Exhibit (I).
The local suppliers of active ingredients are listed Exhibit (3) with their production levels. These companies are much smaller than the formulators who command their market but particular ownership or supply relationships assure their sales. KORAG is for instance a joint venture between Monsanto and Hannong. 78% of its production is Machette of which 98% is sold to Hannong (see Exhibit (K) for remaining detail and similar descriptions for the other major active ingredient producers). There is a fair trade law which would restrict 100% direct sales to the parent.
It must be noted that although there is local production of active ingredients, many of the intermediates for these are still imported. In 1981 the total figure for such imports stood at 24.5 m$.
Export and Development
Exports of formulated agrochemicals stood in 1981 at 5m$, 2.4% of production and 10% by weight of active ingredients were also exported. The markets are in Europe and South East Asia. Exporters find their greatest problem is the expertise gap at the level of the general trading companies. Since it is a recent export, no GTC has yet developed the specialisation, yet since these relatively small companies need the financial support and the networks, they use the GTCs while promoting to the buyers themselves. Despite these handicaps, the Koreans feel that this will be a strong export field and support the industry with public research funds and financing to producers of quality goods with competitive marketing methods.
The Korea Technical Advancement corporation, (KTAC) is already participating in two ventures in this field, Hanjung (Orthrane, Difolatan) and further involvement of KAIST is expected (eg Carbamate insecticide intermediates, Plant growth regulators, Pyrethroid and Organophosphorous insecticides...) Conclusion
There is concern amongst foreign companies involved in this field in Korea about two things: there will be a gradual decline in their market share as local active ingredient manufacturing grows faster than the whole market, the problems of trademark expressed by the foreign Agricultural Chemical Suppliers Group. Registration of a product is a sign to the potential copier that it can be sold in Korea.
However, there is potential for foreign involvement in the sale or manufacture of active ingredients at present imported. It is a growing market, with export potential to South East Asia in the medium term, looking for the sort of quality products which would be within the capability of a European firm. Non-rice products would be more profitable and there is a considerable gap in fungicides.and insecticides here.
A supply agreement with a local formulator is one way to approach the local market, although in the longer term an investment might be considered; A joint venture, with a formulator for instance, would have the advantages of participation in the growing tendency towards the local manufacture, of joint interest in protection of the product and guaranteed sales. (See section IV for import tariffs and investment guidelines.) - 85 -
EXHIBIT (A)
CROPS OVER 45,000 HA. IN 1982
Crop Area in hectares
Rice 1,212 300 Barley 119 689 Naked Barley 190 455 Soy bean 202 000 Sweet Potato 56 000 Radish 53 100 Chinese Cabbage 48 900 Apple 47 400 Red Pepper 120 000 Tobacco 50 000 Mulberry 45 000
CROP YIELD IN 1981
Crop Tonnage (thousands)
Rice 5 448 Barley 1 218 Potatoes 1 663 Misc Grains 163 Pulses 327 Fruit Vegetable 717 Leafy/Stem Vegetable 3 643 Root Vegetable 2 086 Flavour Vegetable 989 Fruits 1 026
Source MOAF -86-
EXHIBIT (B)
INFESTATION AND CONTROL IN RICE (1981)
Disease/Insect Infestation Control (% planted) (% of area planted)
Rice blast 18 260 Sheath Blight 41 76 Bacterial Leaf Blight 10 48 Others 2.5 5
Rice Stemborer 5 250 Plant and Leaf Hoppers 45 120 Grass Leaf Roller 11 n.a ( 79 36) Others 14 n.a ( 79 88)
DEVELOPMENT OF CONTROL (Indexed from 79)
1979 1980 1981 Infestation Control I C I C
Blast 100 100 56 110 15 93 Sheath Blight 100 100 47 62 44 76 Bacterial Leaf Blight 100 100 24 205 23 169 Others 100 100 86 2,500 65 2900
Stemborer 100 100 14 102 7 91 Hoppers 100 100 16 66 20 72 Leaf Roller 100 100 23 na 26 na Others 100 100 243 na 362 na
Source: ACIA -87-
EXHIBIT (C)
FORMULATION IN 1981 OF PESTICIDE CATEGORIES. (1981) in millions in mill- equiv US $ ions kg
Rice Fungicide Seed disinfectant 1.35 Rice Blast 45.26 Sheath Blight 2.1 Leaf Blight 1.6 Seedling Blight .85 Blast and Sheath Blight .28
SUB TOTAL 51.5 25.5
Insecticide Rice Stemborer 35 Plant hopper 11.3 Fungi-insecticide 1.2
SUB TOTAL 47.5 45.4
Herbicide 21.5 38.7
Non-Rice Fungicide 29.6 5.4
Insecticide 28.5 10.5
Herbicide 14.7 5.5
TOTAL 193.3 131.0
Miticides 6.2 .7 Spreaders 2.8 .3 Others 3.0 1.3
SUB TOTAL 12 2.3
GRAND TOTAL 205.3 133.3
Source: ACIA 414
-88-
EXHIBIT (D)
KEY PRODUCTS
MAJOR FUNGICIDES (over .5 m$ in 1982)
PRODUCT PEST Q TY AMOUNT SUPPLIERS (M/T) (US$)
1 Fuji-One Rice Blast 745 8,251,950 Nichino 2 Dithane M-45 Bitter Rot 1,510.00 3,875,825 RICH, Farmoplant, BASF, Pannwalt, Karlo, Halm, Mont. 3 Hinosan Rice blast 408 3,553,680 Bayer 4 Oryzamate Rice Blast 230 3,220,000 Meiji 5 Beam Rice blast 58 2,713,257 Elilly, DEC Local 6 Kitazin Rice Blast 447 2,600,754 DOC local, KEC local 7 Difolatan Bitter Rot 214 2,055,767 Chevron, HJC 8 Topsin Canker 208 1,535,280 Nisso 9 Polyoxin Alternaria 20 1,335,991 Kakken leaf spot/ sheath blight 10 Valida Plant Hopper 45 1,316,536 Takeda 11 Daconil Bitter Rot 154 1,047,200 Showa Dia 12 Kasugamin Rice Blast 17 1,046,316 Hokko 13 Neoasozin Sheath Blight 255 1,031,756 SAC, OCI 14 Blamycin Soft Rot 49 944,280 Meiji 15 Tachigaren Seedling Blight 30 903,762 Sankyo 16 Sankel Leaf Blight 200 892,716 OCI,SAC,YIL 17 Antracol Bitter Rot 322 636,807 Bayer Leaf Mould 18 Kitavax Rice Blast 25 575,000 JHC
TOTAL AMOUNT 37,556,880 EXHIBIT (D) cont
MAJOR INSECTICIDES 82)
PRODUCT PEST Q TY AMOUNT (US$) SUPPLIERS (M/T)
1 Paden Rice Stem 728 6,274,857 Takeda borer 2 BPMC Plant Hopper 1,046 5,582,841 KEC, JHC, KSC, DOC, KAOCIL 3 Diaton Stem borer 521 4,711,613 SAC 4 Elsan Leaf and Plant 405 3,160,950 KEC,SHC Hopper/Stem borer 5 MEP Plant Hopper 432 2,896,975 Bayer, Cheminova, Sumika 6 Furadan Plant Hopper/ 189 2,702,420 Bayer, FMC Stemborer 7 Dursban Stemborer 349 2,373,602 DOW 8 EPN Leaf roller 242 2,050,654 SHC,KEC 9 Lebaycid Stemborer 274 1,738,490 Bayer 10 Metasytox Aphids 282 1,575,967 Bayer, KEC, DOC 11 Decis Leaf roller 2 1,305,000 Roussel 12 Reldan Stemborer 143 1,257,676 DOW 13 DDVP Leaf roller 280 1,072,145 HJC,SAC 14 Ortran Aphids 69 1,061,101 Chevron, HJC 15 DEP Leaf Roller 262 1,032,979 SAC,HJC 16 Parathion Leaf Roller 157 940,080 Cheil, SAC 17 Pirimor Aphids 40 760,000 ICI 18 Dimecron Aphids 142 720,820 C-G 19 Malix Tobacco budworm 85 620,500 Hoechst soil
TOTAL 41,838,677 -90-
MAJOR HERBICIDES
(Over 0.4 m$ in 1982)
PRODUCT USE Q TY AMOUNT SUPPLIERS (M/T) (US$)
1 Machete Upland/ 2,057 6,584,512 Korag Paddy 2 Gramoxone Orchoid 557 3,164,515 HNC 3 Lasso Upland 373 1,400,850 Korag 4 Piperophos Paddy 96 1,030,508 C-G 5 Paraco Upland 160 908,107 OCI 6 Saturn Paddy 154 547,316 Kimika 7 Hitok Paddy 103 469,270 KAOCIL 8 Modown Paddy 57 459,840 Mobil 9 Round-up 28 452,908 Monsanto 10 Bassagran Paddy 42 406,980 BASF
TOTAL 15,424,806
Key to Korean Companies:
KEC Korea Explosives Company JHC Jin Hung Fine Chemicals Co KSC Korea Steel Chemical Co DOC Dong Oh Chemical Co KAOCIL Korea American Organic Chemical Industries Ltd SAC Seoul Agricultural Chemical SHC Seo Han Chemicals HJC Han Jung Chemicals OCI Oriental Chemical Industry DEC Daeil Chemical Co YIL Young Il Chemical Co HNC Han Nong Corp - 91 -
EXHIBIT (D) Cont
Miticides over .5 m$ in 1981
Trademark Tons US $ millions
Cytin - WP Plictran 134 2.3 Pragi - WP OMITE 149 .94 Fenbutan - WP Torque 23 .59
Plant Growth Regulators over .5 m $ in 1981
Tons US $ millions
Growth Inhibitor 219 1.27 Growth Promoter 57 .69 Colouring Promoter. 12 .62
Source: ACIA EXHIBIT (E)
MARKET SHARES OF THE BIG FORMULATORS (1982)
Hannong Corp 36.4 % Oriental Chemical Industry 13.5 Kyung Buk Agricultural Chemicals 13.2 Seoul Agricultural Chemicals 8.2 Dong Bang Agricultural Chemicals 7.1 Misung Agricultural Chemicals 5.9 Hankuk Samkong Co 5.7 Chunjin and Company Agricultural 3.6 Chemicals Young Il Agricultural Chemicals 1.7 Daehan Agricultural Chemicals 1.7 Cheil Agricultural Chmeicals .9
CR4. = 71% CR 8 =_ 93 .6%
Company source. - 93 -
EXHIBIT (F)
DISTRIBUTION OF PESTICIDES
NACF Province County Unit on behalf of level level coop farmers
FORMULATORS FARMERS
Wholesaler Dealer 150 to 200 4,000
Source: Company
NACF Purchases as % of total
Rice Fungicide 51% Other Fungicide 14% Insecticide 57% Insecticide 6% Herbicide 35% Herbicide 0%
TOTAL 51% TOTAL 8%
(i.e. 91% of NACF purchases)
Source: ACIA EXHIBIT F (cont)
NACF Prices of top products
Product Unit % Active Price $/unit ingredient
Fuji - one 1 40 8.1 Hinosan 1 30 6.0 Kitasin kg 2 0.4 Beam kg 75 53 Machete kg 6 .6 Saturn kg 7 .6 Hitok kg 7 .7 Modown kg 7 1.2 Paden kg 50 7.9 BMPC kg 50 5.1 Diaton kg 3 .6 Elsan kg 47.5 8.1 MEP kg 50 7.3 Furadan kg 3 0.9
Source: ACIA
Selling Experience Estimates for Formulators
Hannong 8.2% of Sales on Sales and Promotion OCI 6.5% of Sales on Sales and Promotion Seoul 7.3% of Sales on Sales and Promotion Dong Bang 12.4% of Sales on Sales and Promotion
Source: Listed Cos EXHIBIT (G)
SOURCES OF ACTIVE INGREDIENTS (1981)
IN METRIC TONS
LOCAL IMPORTED SELF-SUFFICIENCY %
Rice Fungicide 1256 2095 37 Insecticide 2866 2050 58 Herbicides 2975 680 81
Other Fungicide 388 3826 9 Insecticide 143 746 16 Herbicide 1554 133 92
Source: ACIA
Active Ingredient items made locally (1981)
Technical Name Trade Mark Action
Neozin Tech Neoasozin Fungicide 3 Sheath Blight IB Tech Kitazin Fungicide 3 Rice Blast Medi Tech Sankel Fungicide 3 leaf Blight Zineb Tech Zineb Fungicide 3 Bitter Rot Carboram Tech Kizvax Fungicide on Barley TMTD Tech Fungicide Phenazin Tech Phenazin Fungicide 3 leaf Blight Thiopan Tech Fungicide 3 Rice Blast Captafol Tech Fungicide 3 Bitter Rot Parathion Tech Parathion Insecticide 3 leaf roller Dasuzin Tech Diatone Insecticide 3 Stem Borer EPN Tech EPN Insecticide 3 leaf roller PAP Tech PAP Insecticide 3 leaf Hopper PAP Tech Elsan Insecticide 3 leaf roller BP Tech BPMC Insecticide 3 Plant Hopper MIPC Tech MIPC Insecticide 3 Plant Hopper DDVP Tech DDVP Insecticide 3 leaf Roller DEP Tech DEP Insecticide 3 leaf roller Acete Tech Insecticide 3 aphids Meta Tech Methyl demeton Insecticide 3 aphids Meta Tech Domet Insecticide 3 aphids Nitfen Tech TOK Herbicide For horticulture Buta Tech Machete Herbicide for Rice Alra Tech Lasso Herbicide for Horticulture Paraco Tech Gramaxone Herbicide for Horticulture 2 - 4 D Tech 2 - 4 D Herbicide for Rice 2 - 4 P Tech 2 - 4 D Ethyl Herbicide for Rice Chlot Tech Do-X Herbicide for Rice MH Tech MH Growth regulator Entheplan Entheplan Growth regulator Tomatoton Tomatoton Growth regulartor -96-
EXHIBIT (H
PURCHASE OF ACTIVE INGREDIENTS PER FORMULATOR
(1982) Remarks
Change Company Amount % 81/82 Total
Han Nong Corp US$42,970,949 38.02 6.35% up Oriental Chemical Ind 16,705,280 14.78 19.27% down Kyung Nong Agr Ch 15,738.524 13.93 18.48% down Misung Agr Chem 7,063,303 6.25 25.10% up Seoul Agr Ch 6,963,726 6.16 0.9% down Dong Bang Agr Ch 6,757,188 5.98 23.82% down Hankook Samkong 6,459,151 5.71 15.61% down Young Il 4,202,080 3.72 6.09% up Chunjin and Co 3,838,309 3.40 0.67% down D aehan Agr Chem 1,495,481 1.32 66.46% down Cheil Agr Chem 825,600 0.73 21.53% down
TOTAL AMOUNT US$113,019,596 100% 8% down
Source: Tech Mats Stets EXHIBIT (I)
FORMULATOR PROFILES HANNONG Originated from the Japan Agrochemical Corp and became the Korea Agrochemical Corp after the war.
50/50 JV with Monsanto to make Round-up Lasso and Machete.
Technical supply agreement with ICI on Gramoxone.
Hanjong, formed with KAIST (see Govt. Research) cooperation, active ingredient maker of the group. Sales in 1982 69 m$, gross margin, 19.3% and net profit 1.1%.
R and D department of 16 people.
Buys 35% Korea Sister Companies and SAC
22% Japan Michino (also Takeda/Sankyo)
17% US Dow (also Rohm and Hass)
26% Europe Bayer (also ICl/Sandoz)
OCI Buys 34% Korea Oriental (also SAC)
39% Japan Takeda
24% US Eli, Lily Shevron
Not exclusively an Agricultural Chemical Company. Involvement in other industries means its total sales were 92 m$ in 1982, with a gross margin of 19.6% and net profit of 2.1%. - 98 -
KUNG NONG was Kyung buk
Keocil was a Joint Venture with a US company, now amalgamated with Dong Oh, the other daughter company.
Buys 42% Korea Dong Oh
10% Japan Shows Deamand
24% US FMC Rohm and Haas
24% Europe C-Geigy Roussell Uclaf.
DONG BANG Sales 14 m$ in 1982 with Gross Margin at 15.4% and no net profit.
• Buys 30% from Korea Jinheung (SAC) 43% from Japan Sumitomo Hoko Chem.
9% from US Uniroyal 18% from Europe Rhodia Shell Karl 0 Helm SEOUL AGRICULTURAL CHEMICALS
Sales 16 m$ in 1982 with Grass Margin at 23% and 4% net profit.
Buys 38% from Korea SAC (OCI)
7% from Japan (Kumiai)
37% from US Eli Lily
18% from Europe C-G/ BASF
Sources: Companies Financial Statements Tech Mat Stets - 100 -
EXHIBIT (J)
LOCAL ACTIVE INGREDIENT MANUFACTURERS
Production in 1982 - US$
Korag Co., Ltd 8,438,270 Seoul Agri. Chem. Co., Ltd 5,949,999 Seo Han Chem. Co., Ltd 4,277,001 Dong Oh Chem. Co., Ltd. 3,172,971 Hahn Jung Chem. Inc 3,268,864 Korea Explosives Co., Ltd 2,912,733 Han Nong Corporation 2,742,265 Jin Hung Fine Chem. Co. Ltd 2,742,067 (WKTAC) Korean American Organic Chem.Ind 1,850,321 (Now joined W Dong Oh) Oriental Chem. Ind. Co, Ltd 2,219,452 Korea Steel Chemical Co., Ltd 939,093 Cheil Agri. Chem. Co., Ltd 825,600 Dong Yang Elanco Co., Ltd 704,605 Young Il Chem. Co., Ltd 510,473 Daeil Chem. Co., Ltd. 70,875
Total Amount: 40,552,332
CR4 54% of local production 19% of total consumption
(Exchange rate W740/US$ at Aug. 1982.)
Source: Tech Mats Stats - 101 -
EXHIBIT (K)
RELATIONSHIPS OF ACTIVE INGREDIENT MANUFACTURERS
- KORAG is a Monsanto/Hannong Joint Venture
78% of production is MACHETE of which 98% to HNC
17% of production is LASSO of which 83% to HNC
5% of production is ROUND UP of which 71% to HNC
- HANJUNG is a Hannong/KATC J.V.
27% of production is DEP of which 70% to HNC
15% of production DDVP of which 65% to HNC
53% of production Captofol of which 68% to HNC
- SEOUL AGRICULTURAL CHEMICAL
79% of production is Diazinon of which 22% to SAC
10% of production is Neosozin of which 18% to SAC
4% of production is DDVP of which 100% to SAC
2% of production is DEP•of which 100% to SAC
2% of production is Parathion of which 100% to SAC
3% of production is Sankel of which 30% to SAC
Much of this technology is European and was therefore obtained from KAIST.
- SEOHAN
60% of production is PAP of which 61% to Samkang
36% of production is EPN of which 15% to Samkang
3% of production is 24D of which 59% to Samkang
Both independent, assume formulation agreement.
- DONGOH a daughter of KYUNG NONG
78% of production is Kitazine of which 91% to Kyunbuk Agrochemical
15% of production is BPMC of which 100% to Kyunbuk Agrochemical
Source: Tech Mats Stets. Companies. -102-
III C ANALYSIS OF THE COSMETIC SECTOR
Market Size and Growth
We will be concerned with products for skin care, face and nail colouring and perfumes. Toiletries such as soap and commodity shampoo are excluded from this treatment.
Domestic output in 1982 totalled 270 m$ and during the first half of 1983, sales of the Korean companies were of 180 m$. The market therefore rates around 1% of the world market. It is growing however considerably faster due to Korea s present stage of economic development. The growth rate over the last 3 years has averaged 25%. There is also a separate duty free market for tourists which totalled 6 m$.
Participants in the industry estimate that it will be ten years before the growth of the cosmetic market runs parallel to that of the economy. There is also no doubt that the introduction of foreign brand names is stimulating this growth in sales. Some obsevers feel however that this is only a temporary situation and that "the cosmetic industry will remain underdeveloped as long as the customers look for high prices and foreign labels and as long as the manufacturers, taking advantage of this concentrate more on raising prices and less on improving quality." Whichever way you look at it though, there is considerable business potential.
Production Base and Market Breakdown
There are 32 members of the cosmetic industry association and sales figures are only available for the top 26. The industry is however very concentrated, with 70% of the sales coming from the top two companies, Exhibit (A). Profiles of some of these companies are given in Exhibit (G).
The largest sector of the market (60%) is in skin care products which come in many forms, several of which are listed with the breakdown figures in Exhibit (B). The men s cosmetic market stands at present at about 8% of the total, but is growing more rapidly. -103-
Market Characteristics and Selling
In contrast to Europe, skin care is the emphasis of the Korean market: the climate is harsh on the skin and the preoccupation in beauty care is with the complexion. The taste in colours is particular, bright colours are considered vulgar and colour coordination is particularly important. Due to the consequent inability to sell some lines of products created by technical agreements with foreigners, the manufacturers are now moving towards surveying the market for preferences.
Another aspect of the market which has a considerable bearing on sales success is the type of selling. 92% of cosmetics sales are made by door to door sales ladies. Service is personal, and up to 3 months credit is extended, with purchase in monthly installments. The remaining 8% of sales are through shops, and companies like Peeres and Shiseido (Pacific) which rely heavily on this channel are at present at a relative disadvantage.
Illustrations of sales channels are given in Exhibit (D). The saleswomen receive 35% commission on door to door sales. We see that Pacific Chemicals has the most comprehensive network and it, like several other manufacturers, is beginning to develop the department stores of Seoul as an outlet for its more exclusive lines. Special shampoos and hair products are sold in a different channel, to beauty parlours. Pacific already uses such a system, and Hanguk is planning to launch L Oreal shampoos this way, with training sessions for hairdressers.
Prices door to door being negotiable are rather hard to establish, however, Exhibit (E) should give an idea of the pricing of Korean products and the premium obtained on foreign brand names (2-3 x other prices). Imported foreign brand products are however 3 times as expensive again. Companies will produce new brands more than once a year given 20% price differentials between existing forces of different qualities and older and newer lines. Some observers say they do this, and recently scramble for technical tie-ups, because they know the customers attach more value to the label than to the product. Indeed, seven companies were instructed by the government to alter their advertising for Korean made foreign brands so as to - 104 -
distinguish them from the real foreign products. There is no doubt that very large margins are made on these brand names. Even on the local names, companies are reluctant to reveal ingredients or cost price. The Ministry of Health and Social Security conducted some research giving the following figures:
Retail Price Estimated cost of manufacture in Won
A Korean brand milk 5 800 2 930 nourishing cream 3 800 1 920 lipstick 2 500 1 280
Advertising is through television, newspapers, brochures and samples. Occasionally companies sponsor beauty pageants. Companies expect to spend 10-13% of sales on advertising for local brands, but at a launch of a new foreign brand, the estimate is 25%. There is a degree of seasonality to the selling, skin care products are 20% up in autumn and colour in spring.
Imports
A total of 60 million $ of goods were imported in 1982. Included in this are 90% of the raw materials for the manufacture of cosmetics which are valued at 18 million US $. Sources are Japan, US and France. Locally only ginseng base, shampoo detergents and alcohols are available. There is one local maker of perfume and cosmetic raw materials, French Korean Aromatics, otherwise they are all imported.
The widely publicised liberalisation of imports is still very limited, being blocked by an emergency import tariff of 80% on all such products. In order to import a product the approval of the Health Ministry must be sought, a certificate of free sale and a specimen must be produced. The authorities want to be sure the product is sold in its domestic market and is not just designed for exports to Korea. There are severe limitations as to who is allowed to import. It must be a cosmetic manufacturer or a trading group with usual licences of pharmaceutical products or cosmetic raw materials. This Implies, according to the regulation, export figures of 1 million $ p.a, a laboratory costing 5 million won, a depot licenced by the Ministry of Health as well as employing a pharmacist. This limits the possible companies and effectively Lucky/Bando Dong A, Daewoo, Pacific Cosmetics, Hanguk and Aekyung are the candidates. The schedule of products to be allowed is given in Exhibit (F).
Even the Korean radio says that this liberalisation is of little commercial interest, the price at retail still being too high. Indeed very few have taken it up. Pacific Chemical is planning to import Dior perfumes, it reckons it can sell them even though the price is three times the most expensive on the market now, currently it imports Lauder goods. Hanguk will also be importing Magie Noire perfumes of the LancOme line.
Exports
In 1982 a mere .3% of production was exported to the value of 835,000 $ and this is largely accounted for by Pacific Chemicals ginseng line Sammi . More than three quarters of this went to W. Germany, U.S. and Hong Kong. There are twelve exporting companies in all though, including also Dong A, Hanguk, Peeres, Jinro/Julia and Richwood Trading Co. Hanguk exports tiny quantities at present (50 m $) based on one time deals, but is hoping to use LancOme s network to export in due course.
Development and Opportunities
The liberalisation of imports has been an issue of confrontation between the Economic Planning Board and the Ministry of Commerce and Industry - the latter would protect local industry for longer. However, most cosmetic companies have taken the position that, given the presently forbidding import duties and the eventual opening of the market, a foreign partner in manufacture provides the quality and the name which will be necessary for this future competition, at a price well beneath the imported goods. Foreign companies have been willing to price their technology at 5.5% of sales, given that these sales are at a high premium. Although 10% payments are supposed to - be permitted, the effective maximum favored by the government due to the foreign exchange restricions is 5.5%. - 106 -
Some Korean companies, when faced with this policy decision, have tended to take the opposite line: not being prepared to sell someone else s brand es well as theirs they sought to avoid paying expensive royalties. The results in the last year of Hanguk and Kayang for instance have shown that the growth in sales, of own brands as well, more than covers the royalty expense.
This trend, favouring technical licensing agreements, is not yet paralleled by foreign investments. The opening of the sector to 50/50 invest- ment from abroad in Oct. 1982, has so far been limited to the establishment of a Johnson/Dong A joint venture in baby care products. Developments can be expected here when the tariff advantages desgned to benefit on site manu- facture are in place. The plan is to reduce the tax on raw materials, which is at present equivalent to that on finished goods. Rami is however said to be negotiating a joint venture.
Although the market at present pulls away from it, the government is seeking-4o enoourege-produeers to favour -shop over door to door distritutidn: As a reaction to the over-pricing, cut price stores started in 1981, sporting 20-40% reductions, and these have shown successful sales of all brands. There is reason to believe that in the next few years there will be a swing in pricing and distribution patterns. One new entrant to the market is counting on this: Aekyung (a soap producer) begins in November to manufacture basic skin products under license with Cheeseborough Ponds. They will be sold in large bottles through the company s customary channels (chain stores etc.) at prices 60% lower by gram weight than existing equivalent products.
In the short-term, therefore, there are opportunities for a firm . with a brand name to sell it at a premium on the Korean market via a licensing agreement with a local manufacturer. In the medium term a joint venture may become a possibility, in which case choice of a partner outside the present industry may permit exploitation of their conventional sales channels with a less exclusive product as the market broadens. - 107 -
EXHIBIT (A)
DOMESTIC COSMETIC OUTPUT (1982)
Growth Rate - lst half 83 Sales millions US $ Share of total relative to 1st Firm equiv - in 1982 - % half 82 -
Pacific Chemical Industry 136.5 48.8 16.3
Hanguk Cosmetics 51.5 18.3 49.3
Peeres Ltd. 33.5 12.0 27.7
Jinto Julia Ltd 20.1 7.2 76.5
Lami Cosmetics 18.0 6.4 23.2
Kayang Ltd. 11.6 4.1 89.8
Pacific Cosmetics 4.4 1.6 38
Han Mi Cosmetics 1.5 .6 50.7
Fl Jim Chemical .8 .3 38.4
Yukan Corp. .8 .3 -44.6
NB: These top ten companies have 99% of the market. However, the lists available in the sources extend to 26 companies.
Sources: Korean Commercial Press Report Korean Chamber of Commerce and Industry - 108 -
EXHIBIT (B)
PERCENTAGE SALES OF COSMETICS BY TYPE (1981)
Percentage of Total
Skin care 60.5 moisturiser (nourishing) 20.3 cream (nourishing) 13.8 moisturiser 9.5 massage cream 6.8 soft moisturiser 6.7 cleansing cream 2.1 nourishing pack 1.3 nourishing oil .3
Make up 19.7 Colour (eyes, nailsn lips) 11.8 Face Powder 2.9 Foundation 5.0
Haircare 16 Shampoo 12.3 Cream 2.2 Rinse 1.5 Perfume/Eau de Toilette 1.1 Perfume .3 Eau de Cologne .8
Bath 1.0
Others 1.4
Source: K. Cosmetics Industry Association
COSMETICS PRODUCTION - SUMMARY (1982) in metric tons
Cosmetic Cream 1693 powder 870 lotion 3707
Perfumes 1888
Source: Annual report of the current industry production survey - 109 -
EXHIBIT (C)
TECHNICAL LICENSING AGREEMENTS IN COSMETICS.
Since the start of these agreements as encouraged by the FCIL (1979) 16 companies have been involved. The prinicipal ones are given here.
% Output Under Royalties Korean Company Licensors Agreements Duration (% of sales)
Pacific Chemical Clairol (US) .005 5 years $300,000 Hanguk Cosmetics Lanceome/L Ordal (Fr) 12.0 5 years 5.5% Peeres Max Factor (US) 1.5 3 years 5.5% Julia Kose (Jap) 6.0 na na Kayang Coty (US) 80.1 3 years 5.5% Pacific Cosmetics Shiseido (Jap) 86.1 5 years 5.5% Rami Wells (W. Ger) 4.9 5 years 3-5% Han Mi Chemical Revlon 100 5% Iljin Chemical na 12.0 na Tongsong Pharma na 6.0 na na Hanguk Swallow na 18.1 na na Bampia na 60.9 na na Lucky Helen Curtis 5 years 3-5% Beiersdorf Nivea 5 years 5% Bo Ryung Penaten 5 years 5%
Complied from . Yakup Shinmoon . Commercial Press Report
N.B. A technology cooperation agreement in this industry tends to involve technical experts to assist 1-2 months at the start-up, regular quality controls of samples subsequently, and occasional return consul- tation visits. - 110 -
EXHIBIT (D)
SALES NETWORKS
- with numbers of participants where available
PACIFIC CHEMICAL Sales persons Beauty Salon 200 Bath house..
Territorial Agents Door to Door 700 Saleswomen 16,000 CUSTOMER
Pacific Commercial Franchises Corp. 900
Cosmetic Corners 170
Supermarkets 1,200
Chain stores 4,000
Dept. stores (Amore line)
HANGUK
Regional agents Saleswomen 743 target 83 13,200-target 83 CUSTOMER (exclusive but independent)
Hanguk consellors 2,000 (inform about product)
Dept. stores -(LancOme line)-
KAYANG
Sales Agents Saleswomen 163 10-20 each (874 in Seoul) CUSTOMER
Department Stores (new channel 9/83)
Sources: Companies and French Embassy EXHIBIT (E)
Prices of Cosmetics Products at Seoul Dept. Store, selected from a representative local brand name line and a foreign brand name line.
Midamoa (Peeres) LancOme (Hanguk)
Skin cleansing cream 120g 5600W Crème de Massage 60m1 8500W Skin massage cream (lemon) 11
Skin emollient 150m1 5600/6800W Nutribel (emulsion lemon refresher 11 II nourissante hydratante) 75m1 14000W Milk lotion 11 11 Skin softener 11 11 Bienfait du matin 50m1 12000W Astringent If 11 (crème de Jour) Lemon lotion 11 11 Lotion adoucissante 150m1 9000W Tonique douceur 150m1 8000W
Lotion demaquillante 100m1 8500 yeux Douceur demaquillante 150m1 9000
Nail Varnish 13g 2500 Nail Varnish 14m1 5000
Lipstick std.6g 3000 Lipstick std 7000
Face Powder 14g 6500 Face Powder 13g 8500
Shampoo 200m1 2800 Hair Rinse 200m1 3800
For Men
Aftershave 140m1 4000 Lemon lotion 11 11 Hair powder 60g 4000 Skin cream /1 11 Eau de Cologne 100m1 7000
NB: 780W roughly 1$ at time of investigation
Source : Researcher s observation, Lotte - 112 -
EXHIBIT (F)
IMPORT LIBERALISATION from 1/83 Perfume, Eau de Cologne Eye shadow, liner, mascara, pencil
Hair preparations: tint, oil, dye, cream, spray
Toothpaste
also from 1/84 Powder Hair preparations: conditioner, straightener, permanente
Manicure products: base coat, under coat, nail cream, nail lotion, extender, polish and enamel removers...
Eye lotion and make-up remover
Child lotions, oils and creams
Skin pack and nourishing oils
Shaving cream Shampoo
NB: Perfume and cosmetics can be imported to tax free shops without the specific approval of the health and Social Affairs Ministry.
Sources: French Commercial Reports. Korean Chamber of Commerce Korean Cosmetics Association - 113 -
EXHIBIT (G)
PROFILES OF SOURCE COSMETIC COMPANIES
PACIFIC CHEMICAL CO.
75% of the companies total sales (140 mW) are in cosmetics. Division I (cosmetics sales) has dominated market for 38 years. Breakdoown of sales in the division (1/2 83) as follows:
Skin Care 52.8 % (holding 50% of this market) Make Up 17.6 % Hair care 12.6 % Men s products 7.5 % Body and Bath 20.9 % Baby 2.0 % Fragrance 1.7 % Others 1.9 %
Sell 900 types of cosmetics under the following brands
Women Men
Amore - the prestige" label Quenam with these lines - Sammi - ginseng. Tatkim Buroa - aloe ver y jel.
Mibora and Fanifin are the popular lines.
Lauder imports Dior perfumes to be imported
1979 Licence agreement with Shiseido, manufactured by Pacific Cosmetic (100% subsidiary) and sold through Pacific Commercial Corp. PACIFIC CHEMICAL sells most of its own products door to door.
Advertising expediture is 12% of sales Three factories.
HANGUK COSMETICS
In 81 had 61% Gross Margin on Sales and 17.9% Net Profit.
They estimate 50% of their sales in skin care products (17% market share), 35% in make-up. Began activities with the technical cooperation of Japanese companies (Yu Yu/Dando/Nihon Emulsion) Still buy a lot of RMs from Japan.
In 1981 they concluded technical agreements with LANCOME/L OREAL and launched some of those new lines in Feb 1983. - 114 -
Product lines are as follows:
Women Men
Under the Jutanhak label, Mandom label each with 20-30 items Gatsby - 5 items and a 20% price differential Versus - 8 items
Veragen Saerobon Marmelon
Lancame/L Oreal 55 items sold with 40% premium on top local brand
Development of new products in response to Market Surveys (24 surveyors in company) is .considered of primary importance.
RAMY (LAMI) COSMETICS
Member of Dong A (Pharma) Group.
Cosmetics and hair products manufactured, the latter under agreement with WELLA GMBH (W. Germany).
Contracts to supply Chinaman Corp and Mijoo Co of the US with lotions, milks, cold cream etc...
Negotiating JV. with Estee Lauder.
KAYANG
Prime example of the dynamism of a licensed producer. Launched its own products Nadri in 79 Technical license with COTY (International Distribution and Marketing - IDM of UK and Pfizer consumer of US). First products under this agreement in April 81. Now include skin care, face colour, Nail varnish, Shampoo, Fragrance and Casablanca for men. The Coty products are estimated to be 70% of their sales in quantity and 80% in value. - 115 -
IV INFORMATION IMPORTANT TO FOREIGN PARTICIPANTS
IV A. SELLING AND INVESTMENT GUIDELINES
The establishing of a Representative or Liason Office may be the first move of a foreign company. The operations of such an office are restricted to non-income producing activities, it must nevertheless report first to the bank of Korea. To sell products locally, a company can operate through a combined liason office for supervision and a distribution agent. Selling agents can operate, either as distributors with inventories for their own account, or as straight agents who sell on a commission basis. To issue official selling offers or quotations which will be recognised, an agent must be registred with the KTAA (Korean Trading Agents Association) which provides, therefore, a comprehensive directory.
Branches are to apply for registration through the Bank of Korea which seeks aproval from the relevant ministry. A registered branch may conduct business for profit and since mid 81 they are allowed import ad export licences. Branches must pay corporate taxes on their income from Korean operations and other taxes such as VAT. A branch may be established as a repatriating or non-repatriating entity. If repatriating, the procedure for remitting is through designated foreign exchange banks. A branch cannot manufacture or own shares in a Korean company (or perform financial services without Ministry of Finance authorisation). In practice, there is a requirement which severely limits the number of branches: in order to sell foreign products and issue selling offers in Korea, the branch must be registered with the KTAA. This membership is rare for foreigners (e.g. Hoescht operates a selling branch).
Foreign Capital Inducement law which concerns direct foreign investments, portfolio investments - i.e, without management participation - loans and transfer of technology. Selling licenses for different products may not be available to the same organisations. Multinationals find, for instance, that they are unable to sell agrochemicals through a joint venture in pharmaceuticals. Pfizer Korea is in a strange position as regards Teramycin sales. This antibiotic is also used to control a plant bacterial disease and this company must sell this product in Korea via a Japanese agrochemicals distributor. This explains why multinational companies may set up several joint ventures in Korea (eg Lilly).
There are guidelines as to the nature of technology inducement licenses which may be sold as outlined in the FCIL. The service must fall under one of three categories listed in Exhibit (A) and must comply with the criteria given in the same exhibit. The other statements in the outline are minimum guarantees to such foreign licensors:
- payment shall be made by foreign means of payment - the terms of contract shall be not less than one year - tax (income or corporation) on such payments exempted for 5 years, then applied at 50% - remittance abroad of royalties for imported technologies is guaranteed.
Royalty agreements may be fixed or fluctuating. Fixed royalties may be arranged in several ways: on a fixed sum or installment basis, or calcu- lated on the basis of facility capacity and ratio of operation. Fluctuating ratios are on the basis of sales, net or volume. The size of these agreements is limited, and although the guidelines may state that agreements up to 10% of sales are automatically agreed, in practice limits are often set below this level by the government. (Details available under special sectors).
Foreigners may invest in a stock corporation which can, unlike a branch, manufacture locally in the normal way under the provisions of the FCIL. The basic rights and guarantees for such investors include the following: - 117 -
- property guarantee - overseas remittance of dividends - remittance of principal and interest. - repatriation of capital - real estate ownership - reinvestment of dividends - employment of foreign nationals - same treatment as Korean nationals
The investment must comply to certain guidelines with respect to percentage ownership and nature of business. However, there are tax and other incentives under these FCIL provisions.
Investments may also be made under the FECL (Foreign Exchange Control Law). Under these conditions there are no guarantees of profit repatriation nor are there tax holidays. However, an application under these provisions gives a better chance of entering a business where the government is not seeking foreign investors, because there are no inventives which cost the government revenue.
In practice, most foreign investments are made under the FCIL and the procedure for doing this in outlied in detail (eg Ref. 2). In essence, the application must be submitted to the Ministry Of Finance. This is reviewed with relevant ministries and the authorisation is refused or not within ten days if the invesment is less than $ 3 million. The authorisation allows the commencement of construction and the import of the capital goods. The goods for investment must be capitalised within 18 months. The company must apply after thirty days to a district tax office for a business license which is certified twice annually. Foreign invested companies must comply with the regulation that 5% profits each year are retained until this reaches 50% of capital. Permission is granted to the company to operate as an exporter/importer if there is evidence that imported raw materials are for their own use.
In a joint venture, the ratio of directors on the board must be parallel to the ratio of equity. It is worth noting that the shares subscribed by foreign equity may be in cash, kind, technology or industrial - 118 -
property rights. Some foreign joint ventures have therefore been created with minimal financial outlay. However a foreign investor who has set up a joint venture is of course prohibited to effect for his own account any transaction which falls within the class of business carried out by the company without the consent of the local partner.
The guidelines for FCIL investments (Ref. 8) in the chemical industry are outlined in Exhibit (B). Thus we can see for instance that an investment of over 50% for the manufacture of surfactants is impossible, and that for 50% or less the surfactant must be bio-degradable. The full extent of the tax system is represented in Exhibit (C). The incentives under the FCIL are given in Exhibit (D) and the deductions allowed from income in tax accounting are listed in Exhibit (E). The tax benefits to foreign companies do vary according to the industry, the manufacturing of medical products not being eligible for these tax inventives.
Foreign investors may either own or lease land, in practice only companies in need of a plant site are granted permission to own land. Locations in industrial estates are "encouraged". They are cheaper and benefit from a better infrastructure and are more or less mandatory any way. In all, 26% of the available land on the 23 industrial estates remains available, see Exhibit (1) for details. The advantages, qualifications and facilities of the major locations are given in Exhibit (G). Note that there are two free export zones where an investment ratio in excess of 50% is allowed if the goods are all for export.
Summary data for investors on human resources, transportation communications and utilities are given in Exhibit (H). The wage of the average production worker in the chemical and petroleum industries is 295 equiv. $ US per month and the literacy rate of the population is 97%. Political activities by unions, acts of sabotage, violence and strikes are prohibited. There is a temporary law regarding labour unions and foreign invested enterprises: before entering into collective bargaining agreements, an application must be submitted to the Ministry of Labour Affairs. Large Korean companies traditionally adopt a paternal attitude to their employees providing numerous non taxable benefits, such as transport, lunches, housing where remote or housing loans, cash gifts for weddings and funerals. Import restrictors and tariffs are given in refs 15 and 16. The list of goods in Exhibit (I) is of those for which import permission is not automatic, special consideration would be necessary. The tariffs for chemicals are given in Exhibit (J).
The weighted average tariff rate at the end of 1982 is 11.6% however, they range up to 150%. There is a plan to gradually replace the present differential system by 1988 with an equivalent tariff system: raw materials at 5-10% and products at 20%. At present a flexible tariff system is in operation and temporary adjustments up or down of 50% may be made as can be seen in the exhibit. Clearly, some imports which are not restricted are instead blocked by tariff policy on the product.
Terms of payment. Most commonly payment by importers is by letter of credit, however, documents against payment and against acceptance are increasingly used. The procedure of these is outlined in Ref 5. Barter deals may also be negotiated.
A few exports are restricted, but most items are automatically approved. The government supports exports and availability of loans etc. is thus enhanced. Exports from Korea also benefit in entry to Japan for example from 3rd world country export allowances, making the entry 10% cheaper than it would be from Europe.
In the field of product protection, patents are guaranted for 12 years and are not renewable. They are also subject to cancellation if they are not used 2 consecutive years. If an industrial patent has not been registered in Korea within one year of its use in the originating country, it is considered by Korean law to be in the public domain. Chemical and pharmaceutical companies can acquire only process, not product, patents (the implications of this are discussed in the next section).
Trademarks are protected by law for ten years, are renewable once, and must be used to remain valid each year. Foreign investors may use their own names only if their country is one of the 18 with such an agreement, otherwise they must operate through the agent.
Trademarks and patents have to be approved by the patent office which generally restricts registration for those linked to a technology transfer agreement, foreign equity participation or long term supplier. EXHIBIT (A
TECHNOLOGY INDUCEMENT LICENCES
The categories under such a service must fall are :
a) A service applying high-level industrial technology. b) A service for the construction of industrial facilities and their smooth operation, or for improvement in quality of manufactured products. c) A service, the domestic supply of which is impossible.
The criteria to be applied when the authority concerned grants authorizations or approvals in accordance with the provisions of the Foreign Cpaital Inducement Act are as follows:
••••■•••
a) Projects which greatly contribute to the improvements of the balance of international payments; b) Projects which contribute to the development of key industries or public utilities; c) Projects which contribute to the development of the national economy and the social welfare; d) Projects that contribute to the development of overseas export markets; e) Projects for use in the manufacture of machinery, industrial parts and the development of design industries; f) Projects that are deemed unprofitable in terms of time and expense if they are to be developed at home; g) Projects whose marginal effects are deemed certain in terms of production and cost.
Technology introduction in the form of raw materials or intermediary goods, or for the purpose of using trade marks of of utilizing sales effects will not be allowed.
•••
Source: Korea Chamber of Commerce and Industry - 121 -
11(H11111 (II) INVESTMENT GUIDELINES
Category I - inventments where foreign share may be up to Inn% are. considered for the rut Intinetrirsts wafer the condition s atated any)
S1TC G a te N" Monufeclure of Guideline for Permission Competent Ministry
35125 Pesticides 0 Allowed only for manufacture of MOAF agricultural medicines element which satisfies at least one of the following conditions;
1. Items which are not produced in Korea.
2. Items which are difficult to compound in Korea. •
35139 Synthetic Resins, Plastic ° Allowed only for manufacture of MCI Materials and Artificial artificial fibers. Fibers, except Glass.
35221 Biological Products ° Allowed only for manufacture of MOMS/MOAF medicines which satisfies at least 35222 Medicinal Chemicals one of the following conditions; and Botanical Products other than Antibiotics 1. Manufacture of base intermediary M materials 35223 Antibiotics " 35224 Medicaments 2. Manufacture of veterinary medicines MOMS/MOAF whose total products are for export
3. Allowed only for the manufacture of “ 35229 Drugs and Medicine base intermediary materials for veterinary medicines (Allowed only - -to projects which include highly advanced technology).
a 35136 Synthetic Fibres a 35139 Synthetic Resins, Plastic finterloils tend Mnro-,nude Fibers except Glass.
I of 35211 Paints Hosed on Artificial Resins a 35212 Paints Based on Cellulose Derivatives a 35213 Other Oil Paints
35214 Water Paints MCI a 35215 Japan
35216 Paint Related Products N
35219 Paints, Varnishes and N Lacquers.
35221 Biological Products 0 Allowed only for manufacture of MOMS/MOAF medicines which satisfy at least one of the following conditions;
35222 Medicinal Chemicals and 1. Manufacture of medicines including the production of base intermediary materials which are necessary in view of domestic demand and supply.
35223 Antibiotics 2. Projects which are expected to contribute to the improvement of the national health and the 35224 Medicaments development of medicines manufaturing sector.
35229 Drugs and Medicines. 3. Projects deemed necessary for . domestic price stabilization. 4. Projects which are expected to contribute to the development of veterinary medicines manufacturing sector. - 121a -
35231 Soaps • Allowed only for manufacture of high MCI grade toilet soap. 35232 • Synthetic Surface-Active Agents • • Allowed only for manufacture of non-pollution surface-active agents. 35233 Toothpaste MOHS 35234 Perfumes and Cosmetics
35239 Soap mul Cloaninq Preparations, Perfumeq, Cosmetics and Other MCl/MORS Toilet Preparations.
35291 Adhesives and Gelatin • Allowed only for manufacture of MCI non-pollution adhesives end industrial adhesives
35292 Explosives and Pyrothechnic products
3529 3 Matches N
35294 Carbon Black N
35295 Wax and Polishes • Allowed only for manufacture of wax N for household furniture, metal, and special cleaner
35296 prepared photographic and N Cinematographic Goods
35297 Printing Ink and Writing Ink MCI
35298 Essential Oils and Related Products
35299 Other Chemical Products. N
35302 Lubricating Oils and Greases : Category II - Investments where foreign slave may be up to 50% it considered for the following, under the contione stated (if any)
SIM Code N° Manufacture of Guideline for Permission Competent Ministry -... 35111 Organic Chemicals, including Cyclical and Non-Cyclical Compounds, except Industrial MCI Cases
35112 Inorganic Industrial Chemicals, except MCI Industrial Gases
35113 Industrial Gases, except Chlorine and other Halogens, Natural Gas and Other Crude Hydro- Carbons
es 35114 Synthetic Organic Dyestuffs
• 35115 Dyeing and Tanning Extracts and Synthetic Tanning Materials x 35116 Pigment and Colouring Materials 35117 Gum and Wood Chemicals .
35119 Basic Industrial Chemicals. " « 35121 Nitrogenous Fertilizers • 35122 Phosphatic Fertilizers "
35123 Potassic Fertilizers " N 35124 Composite and Complex Fertilizers
35125 Pesticides • Allowed only to the projects which manufacture agricultural chemicals end quasi-medical products. 35131 Synthetic Rubber MCI 35132 Condensation, Polycondensation en Polyodditioo Productn 35133 Polymerizntion end Copolymerization Products « 3 1,114 Rcuoocrnted Cellulose nod Chemical Derivatives of Cellulose •
35135 Regenerated Fibres EXHIBIT (C)
DIAGRAM SHOWING PRESENT TAX SYSTEM IN SOUTH KOREA
Income Tax Corporation Tax Direct Inheritance and Gift Tax Internal Tax Assets Revaluation Tax Tax Excess Profits Tax
Value Added Tax Liquor Tax National Indirect Telephone Tax Tax Tax Stamp Tax Customs Special Excise Tax Tax Securities Transaction Tax Defence Tax Tax Tax Provinces Acquisition Tax (Do) Registration Tax Licence Tax
Province Tax Inhabitant Tax Ordinary Special Property Tax Tax Cities Automobile Tax (Seoul, Farmland Tax Pusan) Butchery Tax Local Horse Race Tax Tax Cities City and (Si) City Planning Tax County Community Facility Tax Earmarked Tax Counties Workshop Tax Tax (Gun)
Source: Korea Exchange Bank EXHIBIT (D)
TAXES SUBJECT TO REDUCTION AND EXEMPTION FOR FOREIGN INVESTED ENTERPRISES
Tax Taxation Basis Tax Rates Tax Reduction or exemption
Income Tax on Amount of Income 6% - 55% Exemption for 5 years, Uincorporated or earnings 50% reduction for ensuing enterprises 3 years, on foreign owned ratio.
Corporation Tax 1) Income in each 20% - 33% Exemption for 5 years, business year 50% reduction for ensuing 3 years, on foregn owned ratio 2) Income in liquidation
. Wages and Salary Foreign employees 6% - 55% Exemption for 5 years Income Tax working in foreign invested enterprise, or under technology inducement contract
Dividend Income Amount of dividends 25% Exemption for 5 years Tax received 50% reduction for ensuing 3 years
Tax on Technology Income from 20% - 25% Exemption for 5 years Income supplying technology 50% reduction for ensuing (royalty) 3 years
Interest Income Gross receipt or 25% Exemption for approved derived from interest foreign loans on loans or deposits
Customs Duty Ad valorem basis 5% - 100% Exemption for approved (C.I.F. price) capital goods
Property Tax Assessed value of 1) Land: Exemption for 5 years, land, vessels, mining 0,3% - 5% 50% reduction for ensuing district, etc. 2) House 3 years, on foreign Vessels: owned ratio 0,3% - 5% 3) Mine lot: W50/hec
Property Acquisition price 2% Exemption for 5 years, Acquisition 50% reduction for ensuing 3 years, on foreign owned ratio
NB. VAT is 10% (this is temporary normal VAT 13%) VAT and special excise tax are also exempted on capital goods imported by a foreign investor under import authorization for capitalization Registration tax for stock corporation is 2% of paid in capital.
Source: MOF -124-
EXHIBIT (E
DEDUCTIONS FROM TAXABLE CORPORATE INCOME
. Accelerated depreciation allowance - 20% is added to normal depreciation for machinery and equipment used for mining and manufacturing (>12 hours day usage) -40 - 80% for fixed assets constructed or installed with 60% or more Korean raw materials or machinery,
-30% for businesses earning foreign exchange.
. 3 years carry-over of loss is granted . Tax deductible reserve for export losses or overseas market development . Entertainment expenses (limited to 2% of capital, a. 1% of revenue or 8 000 $) . Deferred charges in organisation or research expense, stock and bond issuing costs amortised according to allowed time periods . Foreign exchange losses resulting from installment payments of foreign currency liabilities. EXHIBIT (F)
LAND AVAILABILITY AND OCCUPANCY OF INDUSTRIAL ESTATES (Dec 82)
(Unit: 1,000 m2)
Estates Available Remaining Occupying Area Area Enterprises
Masan Free Export Zone 588 8 89
Iri Estates 1,147 115 103 Free Export Zone 294 102 17 Industrial Estate 853 13 86
Korea Industrial Estate 3,045 372
Gumi Industrial Estate 10,489 390 225
Changwon Machinery 22,260 6,790 125 Industrial Estate
Yeocheon Petro Chemical 9,200 1,240 26
On San Industrial Estate 13,190 7,947 16
Ban Weol Industrial Estate. 6,314 2,386 358
Local Industrial Estates 18,882 4,105 826
Incheon 1,003 - 45 Sungnam 1,313 174 Chuncheon 406 26 27 Wonju 301 - 22 Chungju 2,044 522 67 Daejeon 1,028 - 87 Junju 1,326 - 54 Kwangju 2,268 43 161 Mokpo 370 - 34 Daegu 588 - 82 Pohang steel related I.E. 5,498 1,673 59 Non gong 2,294 1,762 Cheon anh 291 - 11 Jeong eub 152 79 3
"IL Ay. :0 Private Industrial Estates 413 - 119 Youngdungpo Machinery I.E. 122 - 67 Incheon Machinery I.E. 291 - 52
Total 85,528 22,981 2,259 [xHIBIT (6),
PROFILES OF MAJOR INDUSTRIAL ESTATES
foRUlaions on Entnte Major Advantages Qualification for Occupancy Eligible Types of Sales in the Charges of Prices Business Domentic Market Sale
Masan Free 1. Application of pertinent 1. Foreign-invested enterprises 22 types of business All products lease Plant sites/3.C65Ai Export lone limn and regulations is 100% sole-investment by can be housed auto- should be each month waived or eased. and foreigners are permitted maticelly. Other exported Standard Xactory: 2. On-the-spot completion (Priority to joint-ventures) types can be housed U$0.915/0e of administrative affairs 2. Domestice enterprises with the approval of each month 3. Various tax exemptions 3. Definite export prospects the Minister of Com- and reductions 4. High foreign exchange "Beres and Industry. 4. Full support facilities earnings 5. Technical competence 6. Extensive labor requirements
Iri Free Same as above Same as above Same as above Same as above Lease Plant site:U$0.035/02 Export Zone each month Standard factory: U$0.763/m . each month
Korea Export 1. Low land price Domestice enterprises or No limitations No restrictions Sale Sales price varies Industrial 2. Full suport facilities joint ventures with foreign Estate investors (Priority to joint ventures) . , Cumi 1. Various tax exemptions Same as above 1. Electronic, Same as above Sale U$15.0/s2 Industrial and reductions electronicaly Estate 2. Financial support related industries 3. Low land price and others. 4. Fulle support facilities 2. Textiles and others . -
Changwon Same as above Same 88 above Materials, Elements Same as above Sale U$21.6/e2 Machinery Componenents, Machinery, Automo- . bile components Marine Machinery, etc. - _
Local I. Various tax exemptions Any one of the following can No limitations Same as above Sale Sale price varies Industrial and reductions be housed 2. Low and price 1. Exporting enterprises 3. Full support facilities 2. Foreign invested enterprises 3. Specialized and systematized medium industries 4. Indigenous local industries _., FXHIBIT (6) (cunt)
SUPPORT FACILITIES AND TRANSPORTATION IN MAJOR INDUSTRIAL ESTATES
. . Estate Water Supply Harbor Facilities Transportation
• Railroad Seoul - Masan (express) : 5 hra. Susan - Masan (express) : 1 hrs. Masan Free Export Zone 10,000 tons/day Two 20,000 ton-class • Express way Seoul - Masan : 6 hrs. vessel wharfs Susan - Masan : 1 hr. Deagu - Masan : 2 hra. . . Iri Free Export Zone 20,000 tons/day Three 8,000 ton-class 0 Railroad Seoul - Iri : 4 hrs. vessel wharfs Daejeon - Iri : 1 1/2 hrs. • ° Express way Seoul - Iri : 3 1/3 hrs. Daejeon - Iri : 1 1/2 hrs.
• Railroad Estate 1,2,3 .Yougdungpo : 3 miles Korea Export 32,000 tons/day Incheon Harbor can Estate 4 - Bupyung : 3 miles Industrial Estate be used (Cargo handing Estate 5,6 - East Incheon : 3 miles capacity : 11,728 • Express way 30 minutes, Seoul to Incheon thousand MIT) • Air Estate 1,2,3 .Kimo Airport: 9 miles
Susan Harbor can be • Railroad Gumi - Seoul : 3 1/2 hra. used Gumi - Seoul : 2 hrs. Gumi Industrial Estate 110,000 tons/day (Cargo handing capacity s° Express Way Gumi - Seoul : 3 hrs. 20 million MIT) Gumi - Susan : 2 1/2 hrs. • Air Deagu- Seoul : 50 min.
• Railroad Changwon - Seoul : 6 1/2 hrs. Changwon Machinery 20,000 ton-class vessel Changwon - Susan : 1 hr. Industrial Estate 200,000 tons/day wharf • Express way Changwon - Seoul : 6 hrs. • Air Seoul - Susan : 1 hr.
Yeocheon Petro-chemical 172,000 ton-class ° Railroad Yeosu - Seoul : 6 1/2 hrs. Industrial Estate 275,000 tons/day vessel wharf ° Express way Yeosu - Seoul : 6 hrs. • Air Seoul - Yeocheon : 1 hr.
On San Industrial 20,000 ton-class Estate 275,000 tons/day vessel wharf 0 Express way Yeosu - Seoul : 6 hrs. . • Air Seoul - Yeocheon : 1 hr.
Ban Weol 1,000 ton-class • Rail road Suweon to Incheon rail Industrial Estate 150,000 tons/day vessel wharf ° Express way Suweon to Incheon Industrial way . I
Source : HOF EXHIBIT (H)
HUMAN RESOURCES (Nov/Dec 82)
Summary of labour conditions
Description Remarks
Dismissal 1. Notification 30 days in advance After at least 6 months working 2. Not notified, payment of 30 days wage
Retirement Pay 30 days average wages for each Company with 16 or year of continuous service more employees
Payment of Wage 1. No minimum wage 2. Additional 50% of ordinary Overtime,nightwork, daily wage or work on holiday 3. At least 60% daily wage During a period of closure
Paid Holidays 1. One day off with pay a week Perfect attendance and Leave 2. One day leave with pay a month Perfect attendance 3. 8 days leave with pay a year Perfect attendance 4. 3 days leave with pay a year 90% attendance Legal holidays (14)
Health check Annual physical examination Applies where firm has 5 or more employees
Industrial Accident 1. 60% of average wage Absence from work Compensation 2. 50% - 1,340 days of average wage Disability
Working Hours 1. Standard-8 hours/day 48 hours/week 2. Junior workers (13-18 years old) 7 hours a day, 42 hours a week (less than 13 years may not be employed)
NB. 2-4 bonuses a year, each equivalent to a monthly salary, are part of the standard package.
Source: MOF 14
EXHIBIT (H) (cont.)
TRANSPORTATION Roads 12 247 km which 24% paved freight rates : one way - for each km. tons .12 $ US charter - for 2/12 tons and 45 - 85 $ US 8 hr. day
Rail 6 100 km of which 75% electrified freight rates : for each 50 km .ton .85 - 1 $ US
Air cargo charge rates, eg Seoul - Munich min $ 62 and rate (<45 kg) 12.7 $
COMMUNICATION
eq to W. Germany
Telegraph 55 cents per word Telephone $ 1205 for 1st 3 mins. Telex $ 301 for 1st 1 min. Air Parcel $ 10 for 1 kg $ 66 for 10 kg Surface Parcel $ 5 for 1 kg $ 13.5 for 10 kg
UTILITIES
Price of electricity for industry
Class Unit Demand Charge Energy Charge
Small Industrial Less than 20 KV or W 3,921 per KW W 54,58 per KWH Power Less than 500 KW for the contracted for all energy with 20 KV and over demand consumed
Large Industrial 500 KW and over W 2,979 per KW W 51,35 per KWH power (A) with 20 KV and for the contracted for all energy over demand consumed
Large Industrial 1,000 KW and over W 1,992 per KW W 46,85 per KWH power (B) with 140 KV and for the contracted for all energy over demand consumed EXHIBIT (I)
RESTRICTED IMPORTS
Customs Code Description
2817 Hydroxides or Peroxides of sodium or potassium 2832 Chlorates and Perchlorates, Bromates and Perbromates, Iodidates and Periodates.
2842 Carbonates and Percarbonates, commercial ammonium carbonate containing ammonium carbanate, soda ash.
2801 hydrocarbons (Toluene, o-xylene, p-xylene, styrene)
2902 Halogenated derivatives of hydrocarbons (vinyl chloride, chloroethylene, chlorofluoroethane, dichlorodifluoromethane, trichlorodiethane, benzene hexachloride, lindane ....) 2903 Nitrobenzene
2904 Propylene glycol (subject to recommendation of KPTA if for medicaments or cosmetics.)
Acylic alcohols and their halogenated, sulphonated, nitrated or nitrogenated derivatives.
Pentaerythri tal
2906 , Phenol
2911 Acetaldehyde
2913 Acetone
2914 Acetic Acid Ethyl acetate
2915 Maleic anhydride Pthalic anhydride Terephthalic acid Dioctyl orthopthlalates
2930 Toluene disocyanate
2935 Caprolactam
3205 Some acid, basic and cationic dyes
3401 Cosmetic and liquid soaps
Source: Annual Imported Export Notice. EXHIBIT (J)
TARIFF SCHEDULES
Customs Code Description Normal Temporary Tariff
2710 Lubricating oils/greases 30
2711 Petroleum gases and other gaseous hydrocarbons 10
290101 Unsaturated acylic hydro-
carbon - eg butadene 10 OMR
29010407. Styrene 20
3102 Nitrogenous fertilisers 20 but, 31020200 Ammonium nitrate 25
3103 Phosphtic fertilisers 20
3104 Potassic fertilisers 0 -
3201/3 Tanning and dyeing estracts 30 -
3213 Inks 40 -
3205 Synthetic organic dyestuffs 30 20
3208 Prepared pigments 30 -
3209 Varnishes, lacquers, paints 40 - If without colour 30 -
3818 Composite solvents for 30. - varnishes
- 132-
B AGROCHEMICALS TARIFFS Customs Code Description General % (No temporary measures)
284814 Arsenates, Arsenites 25 290202 Ethylene Dichloride 10
29030301 Nitrobenzene 20
2907 Halogenated, Sulphonated Nitrated or Nitrosated derive 20 of phenols or phenol alcohols
29250103 Ethyl Carbamate 20
3811 Disinfectants, Insecticides, Fungicides, Herbicides, PGRs put up in forms for sale. 20
C COSMETICS TARIFFS Code Description General Temporary A
3301 Essential Oils 30
3304 Mixtures of 2 or more oderiferous substances and mixtures with a basis of one or more of these substances of a kind used as raw material, perfumery, food, drink or other industries. 50 60
3306 Perfumery, cosmetics and toilet preparations, aqueous distillates and solutions of essential oils 50 60 NB Widely reported as emergency 80% 3401 Soap, organic surface active products and preparations 30
3402 Organic surface active agents and preparations. IV B GOVERNMENT SUPPORTED DEVELOPMENT
In the early days of the Korean Chemical industry, plants were built by foreign companies and trouble shooting was carried out by Japanese technicians. Korea now finds itself in these early industries with no pilot plants to test process changes and therefore tied to the original factory supplier for essential materials like catalysts.
Nowadays, for the purpose of developing Korea s technological resources the government supports research and development organisations. The two which concern the various chemical industries are KAIST (Korea Advanced Institute of Science and Technology) and KRICT (Korea Research Institute of Chemical Technology). The former deals with other fields as well and is an organisation arising from a merger of the original development centre and a high level technical college. KRICT was recently created and since its activities started two years ago, its contribution so far has been limited when compared to that of KAIST which has been in operation 15 years.
KAIST has 15 PhDs who supervise up to 30 projects at a total value of 1 1/2 million $. On average the project finding is as follows: 71.3% governmental, 28.4 from industry and 2% from overseas. Chemistry and Chemical engineering account for 18% of the projects, but 30% of the money spent. Government endowed package contracts, which are where most government money is spent, are geared in the chemical industry to the strategically important fine chemicals , i.e, those with economic potential for an early commercialisation, and also to bottlenecks in medium industry (e.g, technical assistance to small and medium dyeing industries). The Korea Technical Advancement Corporation (KTAC) is wholly owned by the research institute. Through equity participation the organisation commercialises products developed under government sponsorship. Exhibit (T) shows examples of companies thus assisted and lists other technologies KAIST developed in the chemical field, it also lists the strategic areas where further such developments will take place on government initiative. Thus we see that this organisation has succesfully established syntheses of several organic pharmaceuticals which leads foreign interests in this field to call it a government founded pirating agency, with no parallel in the world . Indeed companies can go and ask the insitute to develop a parallel process to one patented in the country, paying only a proportion of the project costs. Furthermore, the institute automatically receives copies of any new process patented.
This puts foreign investors in the pharmaceutical field in a particularly tight corner: many 50% joint ventures are established under the Ministry of Finance guideline condition manufacture of medicines including the production of base and intermediary materials , if they obey this requirement they risk losing the proprietory information which they spent millions to develop through the very act of patenting it. Legally the burden of proof is on the imitator only if the original, and not a superceded patent is held by the imitated. This is rarely the case in such industries and the procedure to prove your case is a very lengthy and expensive one. Several stances are taken by foreign companies, some with burnt fingers avoid introduction of any further technology, others take a high profile and challenge an imitator with all the legal might and money of a multinational corporation, ensuring that he runs considerable financial risks by making such an affront, others adopt a less expensive line effectively delaying obedience to the guideline.
The new organisation KRICT, with twice as much chemical manpower as KAIST, is where the exclusively chemical projects will now be carried out. The second part of our Exhibit (II) lists the 100% government sponsored projects to take place there. The Chemical Engineering Department is particularly busy providing pilot plants and process flow analysis for private companies. A few top companies now have research wings (Lucky, CKD etc). Their activities at present are limited to the level of end product formulation.
There is no original research taking plae at this stage in Korea and while the threat to foreign investors is real the benefit to Korea of its present policies is questionable. The drive for independence felt at every level in the country means that intermediates must be developed and made on scales that are often far from efficient. In the longer term, the fine chemical industry will have to compete directly with the exterior, and its strength will only be ephemeral if limited specialisation keeps production costs higher and if it remains without a foundation in original research. EXHIBIT (1)
KATC COMMERCIALISATIONS
PRODUCT COMPANY date Notes established
PHARMA 3 Formyl Rifamycin Yuhan Chemical 1980 25% Antibiotics Company Ltd KTAC (Antitubercolosis) equity
AG CHEM Orthrane (Insecticide) Korea Agricult- 1980 ural Difolatan (Fungicide) Hanjung Chemical c. 1981 Company
OTHER N Butyl Inorganic Handuk co Ltd c. 1981 compounds (PVC Stabiliser)
Rhodium Trichloride Chong Kun Dang c. 1981 (Polymerisation catalyst)
OTHER TECHS DEVELOPED AT KAIST/KIST
PHARMA Cephalosporin Antibiotic from Penicillin Ethambutol Antibiotics Praziquantel lung and liver distoma medicine Cimetidine peptic ulcer drugs Futrafur anti cancer drug Mebendazol antihelminth drug Ibruprofen anti inflammatory medicine
AG CHEM Organophosphorus broad insecticides for vegetable and citrus crops Carbamate insecticides for vegetable crops Pyrethroid contact insecticides - also for household aerosols. EXHIBIT (II)
GOVERNMENT (100%) CONTRACTS
KAIST Strategically important fine chemicals
Speciality polymers Nylon engineering plastics Emulsion polymers for pollution free coating Thermo plastic polyethylene Oxizodiline derivatives fungicides on rice Mancozeb Pheromone of rice stem borer Carbostyril derivatives Cyanuryl fluoride and reactive red dye
KRICT
Semi conductors and silicone chemistry Colour film Additive formulations for lubricant oils Sweetener like Searle s aspartam Carbon fibre
Active ingredients in pharma and pesticides (details n.a) IV C INVESTOR S EXPERIENCE
Foreign investors in Korea have advantages particular to them and also export advantages as described in the first section (IV A). However, a discussion of criticisms and comments based on the experience of European investors in Korea will put these rules and guidelines into their practical context. It must first be noted that all of these are subject to the interpretation of the ministry concerned and the veto of the local industry association, thus nothing is hard and fast, furthermore translations are often confusing and appear, in different versions, to be suggesting opposed things.
Although European investors feel that the economy is moving in the right direction they have found the over-optimistic governmental forecasts problematic. If the dependence of the Korean economy on the US situation and oil prices was recognised there would be fewer surprises for unsuspecting investors.
The beneficial provisions of the FCIL are however upheld, yet the five year tax exemption clause is not a factor in encouraging investment since new companies incur losses in the first couple of years which would anyway be offset against the next. On the administrative side, although requests for Joint Ventures are now dealt with within a reasonable time frame, foreign participants feel that more simplification would help. The high job turnover in the minsistries also means that reliable collaboration is often undermined.
The factors which have induced investment are thus these overoptimistic forecasts, real or feared restrictions in original business and the protection expected in servicing the domestic market, the good location as a base on the Pacific Rim and the low labour costs. The government is much criticised for its inconsistencies which affect foreign invested enterprises on these sensitive points. When the promised protection is not forthcoming for instance, the joint ventures suffer considerably, putting into question the whole investment strategy. There are occasions where the government in fact acts in the other direction, by putting higher import levies on the components than on the product. A system of specific assurances as offered in Brazil or India would overcome this problem. The government has also been, in some cases, the only agent acting against, and rendering unrealistic, its own forecast. Furthermore, if countries are to profitably establish joint ventures in Korea as a base in the Pacific Rim, then they must have the possibility of serving both the domestic and the export markets. There has also been a significant upward movement in wage rates over the last three years and although this upward spiral has been curtailed by recent control on inflation, any continuing such tendency would make Korea a less competitive site for investment.
Besides concerns about the need for a more even governmental hand and greater simplicity, European investors find that there is a credibility gap in the copyright and patenting procedures and no commitment for a long term relationship from either the Korean partner or the government. Process patents (for pharmaceuticals) are scarcely enforceable and given also the short duration of patents there is little incentive to licence products or establish joint ventures in Korea if the investment cannot be recovered in other ways. European participants have found a certain disinterest by the Korean partner in looking at a joint venture as a long term relationship, and the government is felt to take an export-oriented approach to foreign investment under which the investor fades out once he has performed his catalytic function.
Further difficulties of European investors include the prices of raw materials and energy which are 3 times higher, the fact that import liberalisation appears to apply only to local industry, that many ingredients must be bought from local companies protected by an import ban, and that payment delays may extend up to 240 days. Some complain of administrative interference and problems in remittance of technology licence income or dividends due to short supply of foreign exchange.
There is however a movement to rewrite the FCIL next year on the basis of an agreement to liberalise direct foreign investment in order to attract as much capital and technology as possible. Furthermore the movement towards diversification of sources can only serve as an advantage to European interests. The key to a successful investment in Korea which avoids all but the most serious problems outlined above (product security) is to find a project which all three parties (government, foreigner and Korean) find in their best interest. The projects which get squeezed are for instance upstream of a key export industry and are not of the calibre to cater for it alone, and equivalent imports must be permitted to keep the strategic industry competitive. Thus the choice of a joint venture partner is also crucial. Many foreign businessmen claim that the strength of the contact system in Korea (school, college, military) is such that a foreign investor would be seriously handicapped alone. The Koreans prefer to negotiate with the Japanese, they think of profit and not of power and find that the Westerners always want everything to be clear and organised by themselves . There is no doubt that contracts are not viewed in the same way and that the Korean concept of justice is rather different. -140-
REFERENCES
Korea Development Annual Report - Production 1982-1983 Bank Survey •
Yukong Petrochemical Industry in 1982-1983 Korea
Petrochemical Industry Petrochemical Industry in 1982-1983 Association Korea
Society of Chemical Paper on the petrochemical 1982 Engineers industry
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French Embassy Cosmetics Market and 1982 Import Notices
Korea Times Cosmetics Prices June 1983
Credit Lyonnais Cosmetics Market 1982
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Korean Traders Association Foreign Trade Procedures in 1982 Korea Korea Trade Promotion How to Trade with Korea 1983 Corporation Ministry of Finance Investment Guide to Korea 1983 Ministry of Finance Questions and Answers for 1983 your Investment in Korea
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KAIST KAIST May 1982
PACHEC TECHNOLOGY TRANSFER May 1983 Proceedings The Korean Experience
Bayer Pharma Dr Bauer
Bayer Vetchem (Korea) Ltd Mr Wipper
ICI (Export) Ltd Dr Nock, Dr Cook, Mr Biscke Mr Yu KN
BP Far East Ltd Mr Cooper Representative
Pfizer Korea Ltd Mr A Staempffi Senior VP
Rhone Poulenc Group Mr L Muller General Delegate
Hoechst Korea Ltd Mr J Hoelzlein President
Mr Kim, Chung Nook Agricultural Div
Ssanyong Oil Ambassador Hynn
Yuhan Corporation Dr Zeon Y.0 Managing Director Mr Chung, C.Y Manager Development Department.
Dong A Pharmaceutical Co Ltd Dr Kang, Shin-Ho Chairman Mr Chung, Se Hong Manager Overseas Trading Hannong Corporation Mr Choi, Dae Hwan . Manager Purchase Department Hankook Cosmetics Ind. Co. Mr Kwonn, Koo Sang Managing Director Ltd Mr Oh, Sang-Soo Manager Foreign Trade
Pacific Chemical F... Co Ltd Mr Lee, Kwang-Ho Manager Market Research
Kayang Co. Ltd Mr Lee, Sung C President
Aekyung Co Ltd Mrs Chang, Young Shin President Mr Kim, Yong Nam Manager Production
Lucky Ltd Mr Song, C.H. Assistant Manager, Planning Mr Park, Chun Deuk Planning (HG DO) (Household goods) Mr Lee, Y.J Assistant Manager, Marketing (HG DV) Mr Park, KJ Assistant Manager (Plastics Div) 2nd Dept Div.
Ministry of Science and Mr Kim, Se Kwon Councillor for Technology Science and Technology
Korean Pharmaceutical Mr Nam, Co So Managing Director Industry Association Miss Ahn, Hae Sung Pharmacist, Research
Korean Research Institute Mr Lee, Jae H. Research Director of Chemical Technology Dr Ryu, Eung Kul Organic Chemistry Dr Oh, Sea-Wha Dyestuffs
Korea Advanced Institute Dr Song of Science and Technology.
Korean Chamber of Commerce Mr Baik, J.G Economic Research and Industry Department
Ministry of Finance Mr Song, J.J Deputy Director Foreign Investment Promotion Division Bank of Korea Mr Yoon Statistics Division