Global Players from Emerging Markets: Strengthening ... - Unctad

CHAPTER VIII
CHAPTER VIII 93
OUTWARD FOREIGN DIRECT INVESTMENT BY
ENTERPRISES FROM THE REPUBLIC OF KOREA*
A. Introduction
Export has been the growth engine for
the Korean economy. It has contributed to the
country’s economic success. However, export was
a development strategy appropriate at the initial
stage of the country’s economic development. As the
economy enters into a more developed stage, while
continue exporting, it has to actively promote OFDI
to maintain and enhance the competitiveness of its
indigenous firms. Korean firms have to go abroad to
compensate for labour cost disadvantage, to support
trade channels, to access to natural resources and to
acquire strategic assets such as technology.
This paper explains the key drivers and
motivations of Korean OFDI and their impact on
firms’ competitiveness. It highlights the government
policies relating to OFDI as they evolved over time
and it proposes policy options for strengthening the
internationalization of Korean enterprises through
outward investment.
B. OFDI from the Republic of
Korea: Trends and
development
The Republic of Korea is an established outward
investor among the Asian Newly Industrialized
Economies. Its first OFDI took place as early as 1959
when a Korean company acquired real estate in New
York, United States. 66 Up until the mid-1980s, Korean
OFDI has been negligible and limited to mining,
* * This This paper paper was was prepared prepared by by Hwy-Chang Hwy-Chang Moon, Professor of
International International Business, Business, Graduate Graduate School School of of International International Studies,
Studies,
Seoul Seoul National National University, University, Republic Republ Republic ic of of Korea.
Korea.
66 Korean OFDI in non-real estate activities began in 1968 when
the Korea Southern Area Development Company invested in a
project on development of Indonesia’s forestry.
93
forestry and trading businesses primarily in natural
resources. Strict foreign exchange controls that
existed at that time were a key deterrent. Since the
mid-1980s, the Government liberalized regulations
relating to OFDI, pushed by high domestic wages and
land prices. The appreciation of the Korean currency,
following the 1985 Plaza Accord, encouraged Korean
companies to invest abroad to regain competitiveness.
Most Korean OFDI during this period went to
Southeast Asia, which offered market expansion
opportunities and lower labour costs. Korean OFDI
in the region since then has continuously increased
except during the 1997-1998 Asian financial crisis.
The Republic of Korea is among the top 10
emerging market investors. Its OFDI stock rose from
$2.3 billion in 1990 to $34.5 billion in 2003 (figure
1). Korean OFDI, in terms of number of projects,
increased dramatically from 614 in 1998 to 3,772 in
2004. 67 OFDI flows increased from $3,634 million
in 2002 to $5,884 million in 2004, contributing to an
increased total OFDI stock.
Geographical distribution. The geographical
distribution of Korean OFDI has changed over time.
The North America region was the most preferred
destination in the early 1990s. The attention was
later refocused on Asia (figure 2). Investment in
Asia, particularly to China, peaked to $3,324 million
in 2004. Most of the labour intensive OFDI were in
textile, clothing, shoes and toys. These industries
relocated to China and the Southeast Asian countries
because of the availability of low cost labour - the
key pull factor. Most of the capital intensive OFDI
such as in steel, automobile and electronics industries
concentrated in Europe and North America.
Sectoral distribution. Korean OFDI concentrated
in manufacturing activities, which accounted
for 56 per cent of total flows in 2004. About 64 per
67 See Korean Overseas Information Service (www.korea.net) .