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

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. Contents. I. Introduction: Small at Present but Great Potential.

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

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  1. 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

  2. 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

  3. I. Introduction 1. Small LAC (Latin America and the Caribbean) Share: • - US$3.5 billion (Accumulated Until Jan. 2004) • - 7.8% of Korean Total Overseas Direct Investment (ODI) 2. Small ODI, Compared to Korean Economy in the World: - ODI Amount: 3.0 billion US$ (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%

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

  5. 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

  6. I. Introduction Graph 2. Rapid Growth from 1986-90 and 1996-00

  7. 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

  8. II. What Promoted Korean Companies to Invest in LAC? 2. In Which Industries? • Internet business holds the lion’s share. • Manufacturing is following. - Before the Late1980s: Textile & Clothing - After then: ICT Equipments • Mining and Wholesale & Retail Are Next.

  9. II. What Promoted Korean Companies to Invest in LAC? Table 1 . Korean ODI Value by Large Firms, until Jan. 2004

  10. II. What Promoted Korean Companies to Invest in LAC? Table 2. Korean ODI in Manufacturing in LAC by Firm Size, until Jan. 2004

  11. II. What Promoted Korean Companies to Invest in LAC? Table 3. Korean ODI by Industry, until Jan 2004

  12. II. What Promoted Korean Companies to Invest in LAC? Table 4. Korean ODI in LAC by Project Size, 1985 (U$1,000)

  13. II. What Promoted Korean Companies to Invest in LAC? Table 5. Korean ODI in LAC by Project Size, until Jan 2004

  14. II. What Promoted Korean Companies to Invest in LAC? Table 6. Korean ODI by Project Size, until Jan. 2004

  15. II. What Promoted Korean Companies to Invest in LAC? Graph 3. Composition of Korean ODI in Manufacturing in LAC, until Jan, 2004

  16. II. What Promoted Korean Companies to Invest in LAC? 3. In Which Countries Invested? • ALADI Held the Lion’s 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

  17. II. What Promoted Korean Companies to Invest in LAC? Table 7. Korean ODI in LAC by Country, until Jan. 2004

  18. III. How Did Korean Overseas Firms Operate in ALADI? • Quite Successful in General. • 100% Ownership Was Dominant. - Few Joint Venture or Partly Stock Holding

  19. III. How Did Korean Overseas Firms Operate in ALADI? Table 8. Accomplishment of Korean ODI, until Jan. 2004

  20. III. How Did Korean Overseas Firms Operate in ALADI? Table 9. Completion of Korean ODI in LAC, until Jan. 2004

  21. III. How Did Korean Overseas Firms Operate in ALADI? Table 10. Type of Korean ODI in LAC, until Jan. 2004

  22. 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: U$220 million - Investment Type: Joint venture. POSCO: 50%, CVRD: 50%. - Employees: 80 persons.

  23. 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 CVRD’s 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.

  24. III. How Did Korean Overseas Firms Operate in ALADI? C. Kobrasco’s 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

  25. 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.

  26. 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.

  27. 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: U$3,700 million 2) After NAFTA, its target market from North America to Mexico. 3) In 1994, Samsung Group inaugurated Samsung Tijuana Park 4) Integrate components and finished goods vertically. 5) Over 200 million US$ 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.

  28. 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.

  29. 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.

  30. 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

  31. Acknowledgments • Thank you for taking time with me!

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