Will Korean Companies Increase Their Overseas Direct Investment in the ALADI Countries?: Implications of Investment Success Cases

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Will Korean Companies Increase Their Overseas
Direct Investment in the ALADI Countries?
Implications of Investment Success Cases
Hong, Uk Heon, Uiduk University, May 12, 2004
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Contents
I. Introduction Small at Present but Great
Potential
II. What Promoted Korean Companies to Invest in
Latin America and the Caribbean?
1. Which Korean Companies Invested in What
Industries and How?
2. Why the ALADI Countries?
III. How Did Korean Overseas Companies Operate in
ALADI?
1. KOBRASCO Case
2. Samsung Tijuana Park Case
IV. Conclusion More Active for the Manufacturing
of El Dorado
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I. Introduction

• 1. Small LAC (Latin America and the Caribbean)
  Share
• - US3.5 billion (Accumulated Until Jan. 2004)
• - 7.8 of Korean Total Overseas Direct Investment
  (ODI)
• 2. Small ODI, Compared to Korean Economy in the
  World
• - ODI Amount 3.0 billion US (2002)
• 0.4 of World FDI
• 0.4 of World FDI in LAC
• - Share in World GDP 1.4
• - Share in World Trade 2.3

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I. Introduction
Graph 1. Composition of Korean ODI , Jan. 2004
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I. Introduction

• 3. Korean Overseas Direct Investment Will Grow in
  LAC.

• Export-Oriented Economy. Trade Share in GDP Over
  80
• Korean Firms Have Other Worldly Competitive
  Technologies than IT.
• Rising Domestic Labor Costs
• Need to Diversify Overseas Investment Market from
  China
• LAC Is Opening Its Market to Foreign Companies.
• Regional Blocs, NAFTA, MERCOSUR

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I. Introduction
Graph 2. Rapid Growth from 1986-90 and 1996-00
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II. What Promoted Korean Companies to Invest in
LAC?
1. Which Korean Companies?

• Large Companies Are Dominant.
• Small Companies Are Important.
• - Business Services.
• - Textile Clothing
• - Until 1990

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II. What Promoted Korean Companies to Invest in
LAC?
2. In Which Industries?

• Internet business holds the lions share.
• Manufacturing is following.
• - Before the Late1980s Textile Clothing
• - After then ICT Equipments
• Mining and Wholesale Retail Are Next.

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II. What Promoted Korean Companies to Invest in
LAC?
Table 1 . Korean ODI Value by Large Firms, until
Jan. 2004
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II. What Promoted Korean Companies to Invest in
LAC?
Table 2. Korean ODI in Manufacturing in LAC by
Firm Size, until Jan. 2004
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II. What Promoted Korean Companies to Invest in
LAC?
Table 3. Korean ODI by Industry, until Jan 2004
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II. What Promoted Korean Companies to Invest in
LAC?
Table 4. Korean ODI in LAC by Project Size, 1985
(U1,000)
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II. What Promoted Korean Companies to Invest in
LAC?
Table 5. Korean ODI in LAC by Project Size, until
Jan 2004
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II. What Promoted Korean Companies to Invest in
LAC?
Table 6. Korean ODI by Project Size, until Jan.
2004
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II. What Promoted Korean Companies to Invest in
LAC?
Graph 3. Composition of Korean ODI in
Manufacturing in LAC, until Jan, 2004
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II. What Promoted Korean Companies to Invest in
LAC?
3. In Which Countries Invested?

• ALADI Held the Lions Share of Manufacturing.
• - For Production and Market
• - For Development of Natural Resources
• Central America in the 1980s.
• - For Production and Export Bases
• - Textile and Clothing
• The Caribbean as Production Bases and
• Headquarters

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II. What Promoted Korean Companies to Invest in
LAC?
Table 7. Korean ODI in LAC by Country, until Jan.
2004
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III. How Did Korean Overseas Firms Operate in
ALADI?

• Quite Successful in General.
• 100 Ownership Was Dominant.
• - Few Joint Venture or Partly Stock Holding

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III. How Did Korean Overseas Firms Operate in
ALADI?
Table 8. Accomplishment of Korean ODI, until Jan.
2004
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III. How Did Korean Overseas Firms Operate in
ALADI?
Table 9. Completion of Korean ODI in LAC, until
Jan. 2004
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III. How Did Korean Overseas Firms Operate in
ALADI?
Table 10. Type of Korean ODI in LAC, until Jan.
2004
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III. How Did Korean Overseas Firms Operate in
ALADI?
1. KOBRASCO Case

• A. Brief Introduction
• - Companhia Coreano-Brasileira De Pelotizacao
  (KOBRASCO). Located in Vitoria, Espirito Santo,
  Brazil. Connected to Tubarao port.
• - Major Business Production and sale of 4
  million tons of pellet a year.
• - Foundation March 6, 1996.
• - Total Investment Amount U220 million
• - Investment Type Joint venture. POSCO 50,
• CVRD 50.
• - Employees 80 persons.

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III. How Did Korean Overseas Firms Operate in
ALADI?
B. Short History
- July 29, 1995 Agreement signing of joint
venture and stock-holding type - Sept. 28, 1995
Firm site began to be constructed at CVRDs
yard. - March 6, 1996 A joint venture
corporation was established. - Sept. 9, 1996
Main facility began to be constructed. - Oct.
9, 1998 Production began. - Nov. 16, 1998
Completion Ceremony of construction.
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III. How Did Korean Overseas Firms Operate in
ALADI?
C. Kobrascos Success

• Stable Production and Import of Pellet
• Short Periods Consumed in Construction, Full
  Operation
• D. How Did It Achieve?
• Joint Venture
• CVRD in Charge of Operation Few POSCO
  Representatives
• Right Place near Resources and Good
  Transportation Infrastructure

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III. How Did Korean Overseas Firms Operate in
ALADI?
2. Samsung Tijuana Park Case

• A. Brief Introduction
• - Samsung Tijuana Park Three Plants
• 1) Samsung Mexicana (Samex) Television sets,
  computer monitors, cellular phones and computers.
• 2) Samsung Display Interface Mexicana (SDIM)
  Cathode-ray tube (CRT) monitors. In 1997, the
  plant began to produce Liquid Crystal Display
  (LCD) monitors.
• 3) Samsung Electro-Mecánicos Mexicana (SEMSA)
  Electronic
• Components for televisions, monitors.

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III. How Did Korean Overseas Firms Operate in
ALADI?
2. Samsung Tijuana Park Case
B. Major Features - Investment amount Over US
200 million. Samsung Group owns 100 of stocks. -
Employment 6,000 full-time employees. -
Operation rate 96.2. - Sales 2,059 million
US - Production Monitor, 4 million sets (CDT
models 5, LCD models 9) TV production, 3
million sets (TV models 90) Assembled PCs, 100
thousand HHP production, 900 thousand.
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III. How Did Korean Overseas Firms Operate in
ALADI?
2. Samsung Tijuana Park Case
C. How Did It Run? 1) Samsung Electronics
initiated its SAMEX as a Maquiladora to assemble
television sets in 1988. Aimed entirely at the
North American Market. First Investment Capital
U3,700 million 2) After NAFTA, its target
market from North America to Mexico. 3) In 1994,
Samsung Group inaugurated Samsung Tijuana
Park 4) Integrate components and finished goods
vertically. 5) Over 200 million US was
invested. Until 2001, five new plants and
renovation continued. D. How Successful? 1) 30
to Mexico Market in 2003. 2) Turnover rates
only 3 in 2003 3) No labor union yet.
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III. How Did Korean Overseas Firms Operate in
ALADI?
2. Samsung Tijuana Park Case

• E. How Did They Succeed?
• 1) Active Risk-Taking by Samsung Group Go
  Anywhere Market Is.
• 2) Emphasis on employee welfare and community
  services.
• various cultural, sports events, community
  service teams,
• Daycare Center and clinic, Scholarship to
  Mexican students.
• 3) Emphasis on employee training and education
  Supported 16
• to MBA program.
• 4) Localization and decentralization of
  management
• 5) Localize components production Over 900
  materials
• 6) Mexico Provided Favorable Environments after
  NAFTA
• 7) Tijuana is the television capital of the
  world.

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IV. Conclusion More Active for the Manufacturing
of El Dorado
1. Between Korea and LAC, economic environments
for vital interactive investment
- Korean export-orientation, need to diversify
investment market, and competitive
technologies - LAC Market opening, regional
economic blocs, And 1.5 times larger population
than North America - Cultural, distance gaps get
closer.
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IV. Conclusion More Active for the Manufacturing
of El Dorado
2. For Further Interactive Investment
- More Industrial parks with favorable business
environments. - Localization of business
operation. Kobrasco, Samsung Electronics at
Querétaro. - Promote public relations with
business information each other. - Foods and
construction industries as alternative
investment market for Korea and LAC. - Need
better residence Safety and more flexible labor
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Acknowledgments

• Thank you for taking time with me!