Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

South Korea Sees Gold on Russian Soil

South Korean companies are bucking the trend toward caution taken by other foreign investors and committing themselves to Russia in an array of deals.

Trolley buses bearing the name of electricals-to-opticals maker Samsung parade down Moscow streets, while a newly announced Korean car plant joint venture is worth roughly the same as Coca-Cola and PepsiCo's combined future CIS investments.

Kia Motors Corp., which signed a preliminary agreement on a $1 billion, five-year auto plant joint venture in late July, is the most visible.

But Korean officials say commercial investment will double or triple annually through the turn of the century, despite a fine appreciation among Korean businessmen of the frustrations of working in Russia's developing economy.

"Other countries are better. In Russia it is very difficult to do good business because of taxes and social structure and manpower," said Myung Chur Hyun, general director of Jinro International, a Moscow subsidiary of Jinro Ltd.

Jinro last year began a $5 million renovation of a Moscow food factory, which Hyun says has been a headache, drawing minor Russian officials citing petty offenses like a magnet.

But in September, the company will begin construction of a $40 million real estate development.

"We need practice in this market. We are building for future generations," Hyun said.

Korean government officials, who counsel companies on investment in Russia, say their commercial colleagues are inclined toward long term, manufacturing ventures world-wide.

"Korean companies think long-term. You cannot just trade -- you have to invest to hold a market," said Kee Won Park, a trade expert at the governmental Korean Trade Investment Promotion Agency.

Park said Korean investment could easily double or triple annually for the next few years, and Korean embassy Economic Counsellor Yeon Sung Shin said bilateral trade, at $3.3 billion in 1995, could increase by 50 percent annually for three years.

"Korean companies are very actively in consultation for deals, compared with last year. This may be a critical point for them to invest in Russia," said Shin.

Park said Russian President Boris Yeltsin's re-election victory was a key turning point for future deals, but that companies had already begun to invest.

The Republic of Korea (South Korea) did not establish diplomatic relations with the Soviet Union, traditionally an ally of North Korea, until September 1990.

Direct trade and investment were negligible when relations were established, so many Korean companies feel they are behind in a race to get into Russia. Korean companies had invested less than $100 million in Russia by the end of 1995, but that figure was close to $200 million by August 1996, embassy officials say.

The Russian Economics Ministry predicts total foreign investment in Russia will be $3 billion to $3.5 billion in 1996, slightly above 1995 levels.

Many Korean companies appear to be willing to make long-term investments and work closely with local governments despite bureaucratic problems and are also perceived as the Asians of choice by many Russians.

Maxim Litvin, an automotive specialist at LG International Corp, which represents Kia Motors in Moscow, said Kia beat six other car manufacturers to take part in the auto project by offering long-term commitment to build a full factory.

"The other firms were prepared to give credits for kit construction [of cars from imported parts], no more," he said.

Kia will turn out automobiles at a converted defense plant in Russia's Baltic enclave of Kaliningrad.

When the deal was unveiled last month in Moscow, Kia's board chairman, Kim Sun, said the company "is eager to support Russian industry since

the country keeps going the way shown by perestroika."

A consortium led by LG International broke ground on a $350 million Moscow office complex which will not be finished until the turn of the century.

Korean companies in the Russian Far East are competing strongly with the Japanese by establishing company offices.

"The Koreans are here on the ground. The Japanese are lying low until things clear up politically. They are trading, but they don't even have their own representatives here. The Americans are very late," said U.S. businessman Erik Azulay.

Azulay's Links Ltd. bonded warehouse in Vladivostok has tripled in size in a year and a half, chiefly on the 80 percent of business from Korean clients.

While the Koreans are ready to lose money in the short term, they are not inclined to be taken advantage of. Vladivostok businessmen laud Hyundai Engineering and Construction Ltd., which is building a $100 million high-rise complex in the port city, for taking a tough stand when misunderstanding arose over tax issues.

"They reached a compromise, and we don't know the details," said a local Western businessman. "Neither side caved in."