Foreigners in Korea blame business climate as their profits sag

When the Dow Chemical Company - the largest foreign investor in South Korea - described its Korean investment as ''an absolute disaster,'' there was considerable sympathy among the foreign business community here.

Foreign investors came here to make the most of this country's highly educated, hardworking labor force.

But the bright glow of profits has given way to considerable frustration and tension in the past two years. Government officials blame the current severe recession for the discontent among foreign investors.

But many foreign investors say more endemic problems are also to blame, including frequent bureaucratic changes, confused economic policy, and failure to resolve a number of longstanding problems.

Export-oriented companies, able to take advantage of Korea's labor force, have few problems. Most complaints come from domestic-market, joint-venture companies with the 50-50 or nearly equal control arrangements the Korean government has preferred in the past.

Dow Chemical estimates it has lost $60 million in the country in the past two years. And Robert W. Lundeen, Dow's chairman, says, ''we're not interested in investing five more cents in Korea until the present problems are straightened out.''

The difficulties of such joint ventures as the Korea Pacific Chemical Corporation fall roughly into two areas - purely bureaucratic problems and the working relationships between foreign and Korean partners.

Many foreigners say that the clearly defined economic superstructure built up by former President Park has gone and that nothing concrete has replaced it. ''We are wallowing in a quagmire,'' a foreign businessman complains. ''During Park's time we didn't always like the answer, but at least we could get one.''

''Many of the problems and frustrations existed in the '60s and '70s, but foreigners were then making a reasonable amount of money,'' says John Hagaman, vice-president of Dow's Pacific Chemical, a 50-50 joint venture. ''Now many are losing a lot of money, and that brings a whole different set of tensions into play.''

Among the most common criticisms: Regulations are open to differing interpretations and change too frequently, the government doesn't always abide by its own guidelines, and approval from one ministry can be blocked by another.

A multiplicity of approvals makes even simple procedures complicated. One example cited was the requirement of 64 separate seals of approval before a joint-venture company could buy a house. Businessmen say 30 to 40 percent of staff work is spent solely on procedures required by the government.

Lack of trust is also a major problem. Foreign businessmen say detailed technological specifications submitted for license approval find their way into the hands of rival companies. Korea allows only processes to be patented - not products - making it easy to copy and market similar products. The result, according to a foreign businessman, is that ''no one wants to bring their most up-to-date technology into Korea.''

Government officials deny that technology, process patents, and trademarks are insufficiently protected. Korea is not developed enough for product patents, they say. They point out that even Japan waited until 1976 before allowing them, and that the situation is the same in most Far Eastern countries.

A spokesman says the government is moving to simplify documentation, remove unnecessary regulations, and increase the number of industries open to foreign investment from 427 to 500. ''But foreigners must realize that changes are inevitable in a still-developing economy,'' he says.

Foreigners say their Korean partners do not have a long-term view, but look only for quick profits - that they want foreign money and technology but resent foreigners running the business, that many Koreans go into joint ventures primarily to gain access to foreign technology and often abuse technology agreements.

Another problem: Top positions are often not filled according to relevant experience and qualifications. A foreign businessman says, ''A job requiring an experienced biochemist may be given to a retired general.''

Koreans counter that few foreign businessmen make a serious effort to understand and adapt to Korean thought. ''They expect business here to be just like business in New York,'' says a Korean businessman. A common mistake is the appointment of a young man who, though technically competent, will not command respect from Korean colleagues because of his youth.

In 1981 new foreign investments approved by the government and those investments actually in place increased slightly - reaching $146 million and $ 105 million, respectively (compared with $141 million and $96 million in 1980). The first six months of 1982 have also shown gains, reaching $93 million in approvals and $51 million in arrivals.

But these totals fall well below the 1981 goal of $200 million. A March 1982 report issued by the US embassy says that the ''government must make some major changes soon, both in entry conditions and in the way it treats investors already established in Korea, if it is to meet its ambitious targets for foreign-equity investments during the current five-year-plan period.''