Executive Summary

1. Introduction

2. Theoretical Background

3. Data and Methodology

3-1. Data and TFP Estimation
3-2. Methodology: Quantile Regression

4. Empirical Results

4-1. Main Results
4-2. Shape of Quantile Regression Curves: Exporters vs. Non-exporters
4-3. Robustness: Alternative Volatility Measure
4-4. Exchange Rate Volatility with Adjacent Major TradingPartners: China vs.Japan

5. Discussion and Conclusion

References

Appendix. Production Function Estimation Results 

  This study examines how exchange rate volatility can influence total factor productivity (TFP) in various dimensions. Using Korean manufacturing plant-level data for 1990-2007, we first compare and contrast the effects of exchange rate volatility on TFPs between two different exchange rate regimes―pegged and free floating. We find that the exchange rate volatility had a negative effect on productivity in both regimes but this negative effect was greater during the period when exchange rate fluctuation was restricted, compared to the period with free floating rate. We also find that the negative effects of the volatility on productivity were heterogeneous over TFP quantiles and exhibited an inverted W-shape curve. In particular, the negative effects were more pronounced for exporting plants that had the lowest or highest TFPs. 

Executive Summary

1. Introduction

2. Construction of Data Sets

2-1. Deriving Net Value Added in Exports
2-2. Offshoring
2-3. Transaction Costs

3. Value Added in Exports and Ricardian Comparative Advantage

3-1. Empirical Model and Data
3-2. Empirical Results
3-3. Robustness Check

4. Offshoring and Transaction Costs as a Source of Comparative Advantage

4-1. Empirical Model and Data
4-2. Estimation Results

5. Conclusion

Appendix

References
 

  This study tests whether Ricardian comparative advantage is valid for value added in exports that does not include intermediate inputs imported from various industries in a number of countries. Using a panel data on valued added contents of bilateral exports, we find that changes in the labor productivity lead to growth of value added in exports. This implies that Ricardian comparative advantage is an important determinant of exports in longitudinal changes. The estimated coefficients of the observed productivity turn out to be larger than those of CDK (2012), implying that Ricardian comparative advantage has greater influence on determining the patterns of trade in a world with global value chains.
  This study also investigates the role of offshoring and transaction costs in comparative advantage. We use data on value added in exports, offshoring in materials and services, and transaction costs at the country and industry-level for the period 1995-2009 calculated from World Input-Output Table which covers 40 countries and 14 manufacturing industries. Employing a system GMM estimator to alleviate the potential endogeneity problem, we find that services offshoring has positive effects on comparative advantage while material offshoring affects it negatively. We also find that transaction costs have a negative effect on comparative advantage. Moreover, it turned out that there is a magnification effect of transaction costs on the induced value added in exports.
 

   The conventional wisdom on full currency convertibility is that countries should pursue it with a steady and gradual approach, because it can be destabilizing, for instance as with s peculative currency attacks, erosion of monetary policy effectiveness, and additional risks faced by financial institutions.   
   This paper aims to identity domestic institutional requirements for successful currency convertibility in Korea. Authorities should undertake reforms in the following four areas to accompany capital account liberalization: establishment of a sound and consistent macroeconomic policy framework; establishment of a strong prudential and supervisory framework; improvement of the market infrastructure for local capital and foreign exchange markets; and enhancement of risk management capabilities for financial institutions. This study emphasizes, among others, the importance of a credible macroeconomic policy stance, consistent with t he exchange rate regime, and a financial market structure sufficiently strong and flexible to allow for an effective defense against speculative currency attacks. Also examined are the Chinese government’s concerted policies to internationalize the renminbi(RMB) and the mechanics of recent speculative attacks on the RMB. The paper determines that despite the speculative pressures, the Chinese authorities can continue on with the RMB internationalization policy as they have sufficient resources and safeguard policy tools to sustain the currency convertibility program.
   To conclude, the Korean won can be successfully internationalized if it pursues foreign exchange liberalization policies with accompanying reforms to strengthen its macroeconomic, financial, and prudential regulatory policy framework. 

Executive Summary

1. Introduction

2. Literature Review

3. Estimation Strategy

3-1 Data Description
3-2 Model Specification
3-3 Econometric Issues

4. Estimation Results

4-1 Regular Workers
4-2 Temporary Workers
4-3 The Relative Demand between Permanent and Temporary Workers

5. Concluding Remarks

Appendix

References 

In this paper, we examine the impact of outward foreign direct investment (OFDI) on the overall employment, using Korean industry-level data for the period 2007-2014. We further decompose the effects of OFDI into types of foreign investment and workers’ skill levels, separately for each employment status (permanent and temporary), so that we capture whether the MNEs initiating foreign investment prefer to employ temporary instead of permanent workers. Our main findings show that there is little evidence of the impact of OFDI on the overall industry employment of permanent workers, while OFDI is positively associated with the overall employment of temporary workers. Besides, OFDI leads to an increase in the number of jobs created for medium-skilled workers regardless of employment status, whereas there is a negative relationship between OFDI and the temporary employment of low-skilled workers. To be more specific, efficiency-seeking and export-platform-seeking types of OFDI is associated with an increase in the employment of medium-skilled workers.

   The Russian economy has recently taken a sharp turn for the worse because of the shift in the global economy following the crisis in Ukraine and its critical impact on the Russian economy in general. As a result, Russia is facing the worst economic condition since 2009, recording a negative 3.7% growth in 2015. The purpose of the following research is to analyze the change in the Russian economy following the outbreak of the Ukrainian crisis in terms of two core causes: Western economic sanctions against Russia and the decline in oil prices.
   The crisis in Ukraine has fundamentally altered the international relations within Eurasia. Not only that, Russia and Ukraine are sitting in their worst disunion since the dissolution of Soviet Union, but the Russian-Western relation also remains to be sharply discordant. Most notably, the economic sanction war is still in progress between the Russian and the Western world, and the following are the key elements of Western sanctions against Russia. First, the European Union and the United States are pursuing target sanctions upon the core areas of the Russian economy, rather than the trade embargos or the block in currency exchange. Secondly, in the case of the European Union, the specific range of economic sanction is comparatively narrower than that of the United States. On the other hand, the Russian government has imposed an import embargo and restrictions on select items upon the Western nations that are participating in the economic sanction. The core characteristic of the Russian economic sanction against the West is that the embargo is only restricted to items imported by Russia; this was a strategical plan aimed to promote the national industry amidst the Western economic sanctions and dropped oil prices through import substitution.
   The Western economic sanctions and the decline in oil prices had negative effects on the Russian economy. The former of the twoincluding the prohibition of the Western sale of military or strategic resources to Russia and the restriction of sale on energy facilities and advanced technology-discouraged foreign trade, led to financial instability and built uncertainty regarding the Russian market. Accordingly, a decreased inflow of the capital for businesses affected by the sanction, increase in currency exchange risk, discouraged business activity, capital outflow caused by lowered Russian market confidence, and decrease in investment have followed. The latter of the two had the greater impact on the shift in Russian economy. Approximately 30% of Russia’s GDP relies on exportation, and raw material export constitutes 90% of the entire exportation activity, wherein two-thirds are oil and natural gas. Due to the nature of the Russian industry structure and export items, the decline in oil prices is reinforcing an economic recession in Russia by inevitably contributing to the decrease in energy resource export, decline in economic growth, worsening of financial expenditure over revenue, devastation in value for Russian Ruble, sharp decline in stocks, reduced investments, diminished productivity in industries, and weakened domestic market. Ultimately, it was the key shifting points in the post-Ukrainian crisis international economy (viz. Western economic sanctions and decline in oil prices) that worked as the core cause of the deterioration of Russia’s economy. It can be asserted that the basic conditions of lower oil prices had the worst effect on Russian economy as a whole, while the Western economic sanctions relatively had limited effects.
   The following are the speculated policy implications proposed under the scope of this study. A prolonged economic sanction war between the West and Russia, along with the dichotomic opposition that has formed, greatly limited the Korean government’s policy options in breadth. In addition, as the North Korean nuclear crisis provoked a sharp tension and opposition within the Korean peninsula, a three-nation joint industrial venture of the Rajin- Khasan project by South Korea, North Korea, and Russia has also entered a complete cessation. However, it is noteworthy that Japan, while being a participant in the sanctions against Russia, is in the process of strengthening its approach towards Russia since the North Korean nuclear crisis. Accordingly, South Korea must readjust its existing policies by comprehensively and objectively evaluating the achievements and future tasks of Russia-related Eurasia Initiative policies. Such evaluative efforts must not only take the unique nature of the current state of affairs and the potential for future collaboration into consideration, but also focus on devising new plans for cooperation with Russia. To this end, it is necessary to look toward different directions in constructing a new actual cooperative system between Korea and Russia, in its continued expansion of both civilian and governmental networks, and in devising and advancing Korea-Russia partner projects. Plans for an additional degree of coexistence and mutual cooperation that can give practical benefits to Russian economy ought to be prioritized over focus on non-repetitive ceremonial events. Specifically, Korea must devise particular plans that can contribute to projects such as modernization of the Russian industry, development of the import substitution industry, industrial innovation, and enhanced productivity. Such is a model for a new industrial collaboration between Korea and Russia, and it is a construction of Global Value Chain. If the environment of sustainable cooperation between the two countries is formed through such endeavors, the Korean-Russian relation may open the door for a new stage of progress: 3.0 Era of Korean- Russian Partnership.
 

This paper aims to estimate time-series data of China's direct investments on North Korea from 2000 to 2015. In order to achieve such a goal, problems of official and unofficial reports related to the subject are presented first. Then, original estimates are drawn by utilizing firm-level overseas direct investment data and proxy variables.
The estimation process starts from aggregation of data appeared in all press releases and earlier studies. A basic analysis on collected items suggests that China's ODI on North Korea has continuously increased from 2004 to 2012, except for a brief period around Pyongyang's second nuclear test in 2009. Investments seem to enter a downturn after the third test in 2013. Such a trend matches the one suggested by China's Ministry of Commerce(MOFCOM) by and large; however, there was a big difference between the two in volume and trend of ODI from 2004 to 2005. Therefore, some revisions are needed to obtain reasonable time-series data.
This paper suggested the first stage estimates by matching former data of Chinese firms to newly obtained lists. The number of samples is almost doubled even after filtering out flawed ones. Based on a more reliable set of data, estimated amount of China's investment on North Korea after 2000 is 759.98 million dollars total. This estimate is 1.74 times larger than figures reported in MOFCOM, implying that a significant portion of ODI turns out to be unrecorded especially during 2005-2007.
In order to further include unofficial investments, the second stage estimates are presented by constructing a proxy from bilateral trade data. For example, since a large part of unreported investments take the form of barter trade, North Korea's mining facilities imports from China are likely to indicate a similar trend with Chinese ODI on DPRK mines. North Korea's own demands, deduced from government spendings data, are subtracted. The final result implied that investments not reported to MOFCOM are even more; estimated total flows are 1001.16 million USD, about 2.42 times than official figures. It is highly probable that most of the missing parts are barter-like ones, and such a type of ODI are still prevalent.
The above results offers a new insight on North Korean regime's rate of foreign exchange earnings. If the rise in DPRK's exports of natural resources after 2000 is mainly driven by barter-like investments from China, actual foreign exchange earnings are much lower than increments from the export surge. Considering that primary products induce only a minor inter-industrial effect and investments last a short term, the conclusion of this paper resulted in a slow recovery of North Korean industries despite normalization of mines after mid-2000s. 

   This study aims to identify the reason Korean construction companies are increasingly making inroads into emerging countries, to review major risks that Korean companies could face in these markets and to make suggestions for managing those risks.
   In the second chapter, the study examines the changing conditions for the foreign market entry of Korean construction companies. The recent fall in oil prices has caused the financial aggravation of major oil producing countries in which Korean construction companies are concentrated in, leading to a cease in new construction orders or payment delays on completed construction projects. Furthermore, major oil producing countries are increasing their share of PPP (public?private partnership) investment projects in the place of government-funded construction projects, due to the recent decline in government revenues caused by lower oil prices. It seems inevitable that Korean companies, which mostly obtained orders through contracts with foreign companies, will have to expand their share of investment development projects. In
this case, the risks they must consider are likely to jump dramatically compared to EPC (engineering, procurement, and construction management) contracts. Such changes brought about by low oil prices and the consequent higher risks will be unavoidable, especially since Korean companies are seeking more aggressive entry into the construction markets of emerging countries in line with the shrinking Europe and U.S. market shares in the world construction market, and the growing share of emerging countries in Asia, the Middle East and Latin America in the wake of the 2008 financial crisis.
   Amid this changing climate, the study reviews the various risks presented by emerging countries in the third chapter. In emerging countries, certain domestic laws differ from global standards, and the rule of power often holds dominance over the rule of law. Governments are quick to overturn their policies. Such risk can be classified as country risk, which can be handled in various ways. The ISDS (Investor State Dispute Settlement) system is the most effective and powerful tool that can be used, compared with domestic courts, the WTO dispute settlement system, and the international commercial arbitration system. This is because investors have a choice of their own arbitrators with knowledge in the construction industry, can stand on their own, and can argue against the host country’s measures directly. In fact, most of the ISDS is concentrated on emerging countries and construction industries in the broad sense. With 152 countries parties to the convention and equipped with a powerful self-contained implementation system, the ICSID(International Centre for Settlement of Investment Disputes) has handled more than 75% of all ISDS cases.
   In the fourth chapter, this study analyzes leading cases which contain legal issues directly related to country risk. In Chevron vs Ecuador, denial of justice can be more easily handled if there are relevant articles in the BIT (Bilateral Investment Treaties). The arbitrators viewed the BIT articles as special laws to international customary law. In Saipem vs Bangladesh, international commercial arbitration can be turned into a cause of ISDS, if the ward of the international commercial arbitration is annulled by the host country without legal grounds. In Quiborax vs Bolivia, even nationalization or expropriation with public purposes can be illegal if the public purposes are disguised. In Fraport vs Phillippines, it was confirmed that the investor can be protected by provisional measures if the host country commences groundless criminal procedures. With these findings, this study makes a number of proposals for both Korean oversea construction companies and the government. As for companies, more attention must be paid when drawing up contracts, for the place of arbitration is crucial in the case of annulments. Construction companies should also prepare in advance for disputes, by collecting evidence and setting up action plans. As for the government, it is important to provide companies with the lessons of the ISDS awards in a timely manner. Given their limited resources, special attention has to be paid to SMEs. The government should also update existing BITs, as up-to-date BIT articles are the key to winning ISDS cases.
 

   This research aims to call attention to the astonishing growth of the Japanese e-commerce market, which has grown to become the 4th biggest in the world in 2014, and propose policy suggestions for increasing Korea’s e-commerce exports to Japan.
   To achieve this end, this research analyzes Japan’s e-commerce market and the statistical data on Korea’s e-commerce exports to Japan, and conducts a survey of Korean companies exporting to Japan through e-commerce platforms.
   The findings of the research are as follow: First, the Japanese e-commerce market, presently the 4th largest in the world, is expected to continue to grow in the future. Particular growth is expected in the digital market, which includes online games, e-publishing, etc.
   Second, one of the reasons Korea’s e-commerce exports in 2015 increased more than threefold compared to the year before is because the Korean government started to include goods for list-clearance in its export statistics; since list-clearance does not require information such as company size or item name, the value of trade classified under “others” or “no sorting” has increased significantly.
   Third, according to export statistics, Korean e-commerce exports to Japan depend heavily on items that belong to the two fields of fashion and beauty (comprising 61.6% of the total).
   Fourth, a survey of Korean companies exporting to Japan using the e-commerce platform shows that the companies find factors such as promotion & marketing, complicated export declaration process, etc. as the most serious bottlenecks in e-commerce exports.
   Fifth, the survey results revealed that there is a need for the Korean government to primarily focus on the three tasks of simplifying the export declaration process, supporting companies’ marketing and PR activity, and providing one-stop support through export promotion organizations.
   In terms of policy suggestions for boosting Korean e-commerce exports to Japan, this paper proposes three recommendations: creating a one-stop export system, diversifying export products, and simplifying the export declaration process.
   First, an e-commerce export support center could perform a general range of services?from acting as a substitutionary CSS (Customer Service System) for foreigners, translation services, to providing information on overseas marketing and customs clearance?and ultimately serve as a base camp for expanding exports.
   Second, export products should be more diverse. When it comes to diversifying export products, qualities such as “marketability” in the Japanese retail market need to be considered. Products that match the needs of Japan’s increasingly aging e-commerce population have emerged as a promising catalyst to increasing exports, and thus should also be considered. Diversifying sales channels (such as through supporting individual online shopping malls) will be necessary as a measure to diversify export products.
   Third and finally, it will be necessary to address the growing need to simplify the export declaration process. To achieve this end, the “Simplified Export Declaration System for E-Commerce,” introduced in July 2014 with the purpose of expanding e-commerce trade, should continue to be publicized. At the same time, further inquiries should be made to identify which parts of the export declaration process need to be simplified. Another issue to be addressed is the use of lump-sumvaluation, a problem created by the decision to include the list-clearance in export statistics. One possible solution could be to introduce an ICT- or AI-based technology that, upon entering the company name and the item name, automatically adds in the corresponding company size and the HS code.
 

  Although the judgment on the legitimacy of SPS measures fell completely under the state's sovereign rights in the past, it has been placed under international trade regulations due to increased trade liberalization. The WTO agreement judges the legitimacy of SPS measures based on The Agreement on the Application of Sanitary and Phytosanitary Measures (the “SPS agreement”). However, the ambiguous regulations of the SPS Agreement make it difficult to identify its original meaning. As the WTO DSB has defined and clarified the meaning of the SPS agreement recently, it would be important to prepare for possible SPS disputes through research on established SPS dispute cases.
  This study briefly explains the contents of the SPS agreement and dispute settlement procedures of the WTO SPS, reviews SPS dispute cases handled by the WTO DSB (Dispute Settlement Body), and analyzes the interpretation and application of WTO SPS regulations. Furthermore, it investigates various issues related to SPS measures and identifies the policy implications of the SPS Agreement. The study also intends to provide a reference for Korea's sanitary quarantine policies and to build the basic data for future academic research.
  This study deals with the EC-Hormones case (1998), Australia-Salmon case (1998), Japan-Agricultural Products case (1999), Australia-Salmon (21.5) case (2000), Japan-Apples case (2003), Japan-Apples (21.5) case (2005), EC-Biotech Products (“GMOs”) case (2006), Canada/U.S.-Hormones Suspension case (2008), U.S.-Poultry case (2010), Australia？Apples case (2010), India-Agricultural Products case (2015), U.S.-Animals case (2015), and Russia-Pigs case (2016).
  The major issue in the SPS dispute cases so far has been whether the measures are based on risk assessments (§5.1). Additionally, whether the measures are more trade-restrictive than required (§5.6) and whether there are arbitrary or unjustifiable distinctions (§5.5) were often checked too. In recent cases, the WTO DSB reviewed whether the measures are based on international standards (§3.1) and whether the Members recognize the concepts of pest- or disease-free areas and areas of low pest or disease prevalence (§6.2) and ensure that their SPS measures are adapted to the SPS characteristics of the area (§6.1).
  The implications that this research holds for Korea are as follow.
Firstly, Korea will try to conduct comprehensive and specific risk assessments to obtain sufficient scientific evidence that demonstrates the measures are based on rigorous and scientific principles. Secondly, it will be necessary to prepare for newly-arising issues such as adaptation to regional conditions and equivalence. Third, there is a need to promote interest and understanding about international standards. Beginning with the publishing and updating of Korean translations for major international standards, it will also be important to actively contribute toward the establishment of proper international standards throughout negotiations, and to ensure that Korea's SPS policies develop in a manner that is in line with these international standards, thus reducing potential trade conflicts with our trade partners. Lastly, as Mega FTAs stipulate similar provisions to the guidelines of the SPS committee and recent decisions of the WTO DSB, it is important to keep an eye on the recent Mega FTAs' SPS Agreement.
  The SPS agreement does indeed contribute to the elimination of unreasonable sanitary standards. However, the SPS agreement is overly dependent on the concept of “scientia vincit omnia (scientific panacea),” as the purpose of the SPS agreement is to prevent SPS measures from being used as disguised protectionism. Therefore thorough preparation with respect to scientific evidence is required to introduce and maintain the sanitary-quarantine system. We expect Korea to take objective and proper SPS measures that fully protect human, animal or plant life or health by developing and improving the quarantine system. 

   Vietnam has taken the spotlight as a representative low-wage production base in Southeast Asia. Recently, very high estimates were made regarding Vietnam’s growth potential due to the favorable economic conditions such as stable inflation, robust economic growth, increase in FDI inflow, multi/bilateral FTAs, AEC(ASEAN Economic Community) and so on. As abundant low-wage workers, political stability, large scale population became positive factors attracting investment to Vietnam, FDI inflow to Vietnam is increasing rapidly. Recently, with Korean companies eyeing Vietnam as a strategic production base, Vietnam has emerged as a major investment destination which accounted for 40% of Korea’s investment to Southeast Asia. Therefore, the time has come to review Korea’s investment strategy to Vietnam, considering the country’s increasing strategic importance. That requires us to make reference to cases of investment strategies of the major investors such as USA and Japan, and revise the investment strategy to suit Korean Companies.
   Although the Vietnamese economy has been sluggish during the global finance crisis, internal and external economic conditions such as inflation, trade, investment, and industrial structure have improved and economic growth rate returned to the pre-crisis level (6.68%) in 2015. Recent robust economic growth of Vietnam is due to the surge of FDI inflow, which reached an all time high of 14.5 billion USD. In terms of trade, China and USA account for the biggest shares in Vietnam’s trade; yet as the amount of trade between Korea and Vietnam increased, Korea also emerged as the 4th largest export and 2nd largest import destination of Vietnam. Vietnam’s potential as a global production base will only get bigger due to recent favorable internal and external economic condition, but there are a few negative factors as well; such as corruption, lack of skilled workers, and inefficiency of SOE (State Owned Enterprises). According to the Doing Business Index of the World Bank Group, which analyzes the business environment across economies, Vietnam ranked 90th out of 189 economies. Among 10 indicators for business environment analysis, Vietnam scored relatively high in dealing with construction permits, registering property, and acquisition of credit; but low in payment of taxes, protecting minority investors and resolving insolvency. Recently, investment environment of Vietnam has become more favorable due to improvement in FDI and employment terms by the revision of foreign investment laws and labor regulations.
   Vietnam’s economic growth and industrialization began with a program of economic reform called ‘Doi-Moi’ in 1986. Since the lifting of US trade sanction on Vietnam in 1994, Vietnam started to attract large scale FDI projects. Based on FDI, Vietnam was able to achieve industrialization and rapid economic growth. In the 1990s, investment in labor-intensive industries from major Asian investors such as Japan, Korea, and Taiwan accounted for the major share of FDI in Vietnam. However, as the main FDI sectors changed from labor-intensive to technology and capital-intensive industry, Vietnam’s industrial structure has been transitioning to include more high value-added industries. Before the global financial crisis, Korea’s direct investment to Vietnam had mainly focused on labor-intensive industries, with large scale investments in electric-electronic industries by MNCs starting to increase following the global financial crisis. While initial investment represented the major share in Korea’s total investment in Vietnam, the share of extension investment began to increase and FDI sectors also diversified since 2014. Japan’s direct investment started to increase since Vietnam’s accession to the WTO in 2007, and the Vietnam-Japan EPA in 2009. Japan has operated a consultative group organized by economic units, and also improved the business environment by establishing exclusive industrial parks for Japanese investors. Meanwhile, US-Vietnam economic relations mainly focused on trade rather than large scale FDI. Bilateral trade and investment environment are expected to improve as a result of the conclusion of the TPP in 2015. The US also had a summit meeting with Vietnam on important agendas such as effectuation of TPP, and dispute-settlement in the South China Sea as a part of its rebalancing strategy to Asia. Based on large-scale FDI attraction, Vietnam is pursuing to take part in GPN(Global Production Network) corresponding to the entry of major investors into the Vietnam market. However, there are still lingering problems such as lack of infrastructure and skilled workers which remain as barriers to GPN. The Vietnamese government is promoting physical and institutional improvement by operating a variety of consultative working groups.
   Vietnam became a major investment destination for Japan through the latter’s ‘Thailand plus one’ strategy, enacted in order to reduce the risk associated with Japan’s high dependency on the Thai market. In addition to the traditional type of FDI, there has also been rapid increases recently in Japanese M&A investment in the Vietnam market. Entry modes of Japanese companies in Vietnam market are diverse, and includes cluster strategy based on anchor companies, local partnerships like OEM, licensing, joint venture, and partnership with Japanese investors that have entered previously such as Line Gari and Nokisaki. These modes of entry are intended to minimize the risk in the initial stage, and share the infrastructure and know-how with accompanying firms or companies that entered previously. Japanese companies also tend to take advantage of large scale ODA projects and the supporting policies of government or related agencies. Meanwhile, US companies started to enter the Vietnam market since the US lifted its trade sanction on Vietnam in 1994. Then the large scale investment projects began to be carried out following Vietnam’s accession to the WTO in 2007. However, US-Vietnam bilateral economic exchange is still focused on the improvement of trade relations rather than investment issues. US companies have a tendency to establish their own investment strategies rather than take advantage of the support from government or related agencies. There are several supporting policies by government or related agencies for US companies, but AmCham usually acts as the interest group for US companies in Vietnam.
   Based on case studies on investment strategies of US and Japanese companies in the Vietnam market, a series of implications for Korean government and companies can be suggested as follows. First, the Korean government should pay attention to establishment of industrial parks to encourage investments by Korean companies to create clusters. In order to do this, Korean government also needs to prepare financial support as well as elicit cooperation from the Vietnamese government. Second, Korean companies need to arrange a compensation system which promotes sharing of experience accumulated by already-established Korean companies in Vietnam with the new-comers, while providing incentives to established companies in return. Third, a capacity building program should be prepared for Korean SMEs, especially for the analysis of local regulations and business environment. Fourth, Korean companies need to build cooperative relations to share production facilities, as Japanese companies have done. This could be a good solution for reducing the burden of fixed capital investment and lack of information at the initial stage. Fifth, Korean government and investors should establish a consultative group with the Vietnamese government to facilitate the improvement of the business environment. Sixth, the Korean government need to make efforts to minimize external risk by considering the entire Southeast Asia region as a single production base for Korea, and should build linkages between Vietnam and neighboring countries as part of a ‘Vietnam plus one’ strategy.