I recently had the opportunity to act as a representative on a trade advisory delegation to the Republic of Korea. At the invitation of the Korean Trade-Investment Promotion Agency (KOTRA), I spoke to over 250 supplier executives in South Korea concerning North American automotive market entry strategies and regional business practices.
KOTRA, a government agency of the Republic of Korea, assists Korean companies with overseas expansion, corporate planning and economic development. KOTRA has over 110 offices around the world.
This trade mission included supplier conferences and workshops in the South Korean cities of Seoul, Inchon and Pusan. These day-long conferences and workshops focused on strategies for entering the North American automotive market and how to do business with General Motors, Ford Motor, and DaimlerChrysler AG.
After traveling throughout the country and meeting with various Korean automotive industry participants, I was able to make several observations on the evolving Korean automotive market and the country’s political climate:
Aggressive Expansion Plans: With the recent stagnation of their domestic market, Korean vehicle manufacturers and their Tier 1-2-3 suppliers are looking at North America as a prime market for expansion. With the newly announced Hyundai/Kia plant slated for the southeastern U.S., many Korean suppliers are investigating greenfield sites in Georgia, Alabama, Mississippi, South Carolina, Kentucky, and Tennessee.
Closed Market: The recent controversy concerning the lack of U.S.-built vehicles in the Korean market is well founded. During my travels throughout South Korea, I only saw five foreign (non-Korean built) vehicles, three of which were Mercedes-Benz limousines. Despite a 1995 U.S.-Korean accord to improve sales of U.S. vehicles in the Korean market, little progress has been made.
Daewoo Crumbles: Despite overtures by a GM/Fiat alliance to take over the ailing vehicle manufacturer, the damage may be irreparable. Die-hard Daewoo suppliers are refusing to ship parts until past invoices are settled, some dating back a year. The extremely strong labor unions and dedicated line workers have allowed the company to remain afloat this long, but time is running out. Daewoo’s creditors will only be able to realize a fraction of the company’s real worth when it is broken up and sold piece-by-piece.
Foreign Influence: After the takeover of Samsung by Renault and the possible takeover of Daewoo by a GM/Fiat alliance, foreign interests have overtaken the Korean automotive landscape. Hyundai/Kia remains the lone domestic representative on the Korean peninsula. A proud and strongly independent people, this recent trend does not sit well with many Korean automotive executives.
With an aggressive and opportunistic work ethic, Korean companies have made significant impacts in several global markets including electronics, shipbuilding, and the automobile industry. With an insulated and protected home market, Korean vehicle manufacturers are free to utilize their production bases in Korea as a platform for export sales to Asia, South America, Europe, and North America.
Historically, Korea has had periods of independence and prosperity interspersed with periods of occupation by the Chinese and Japanese. Their natural “protectionist” tendencies are ingrained very deeply. Opening their home markets to foreign competitors is extremely difficult both politically and socially. Over the long term, significant pressure from the European Union and the U.S. could open Korea’s protected home markets and lead to a more open market economy.
Reunification: The Eventual Reality
In December 2000, South Korea’s President, Kim Dae Jung, accepted the Nobel Peace Prize and pledged to continue his efforts to forge a partnership with North Korea. The South Korean leader proclaimed that he would give the rest of his life “to human rights and peace in my country and the world, and to the reconciliation and cooperation of my people.”
In June 2000, the two Koreas took a historic step toward reconciliation when Kim Dae Jung met the North Korean leader Kim Jong Il. According to Kim Dae Jung, the reunification process remains the “ultimate dream,” which would take “10 years, 20 years, perhaps even longer” to achieve.
The eventual reunification between North and South Korea, encouraged strongly by the U.S., may lead to a significant drain of resources on South Korea. Mammoth industrial development projects to build the North’s tattered infrastructure might lead to a neutralization of the South’s aggressive global expansion spree and turn its attention inward.
The South Koreans, who have spent the last 50 years building one of Asia’s strongest economies, would have a difficult time dealing with a flood of North Korean refugees clogging the streets of Seoul, one of most cosmopolitan cities in the world.
What does the future hold for one of Asia’s brightest jewels? Ask the Germans. Reunification is a slow, painful but necessary process to bring families back together and rejoin a 1,000 year old culture. Several facts you can count on, Korea will be aggressive, determined and strive to succeed in the global marketplace and in its home markets.