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Cost reduction
However, LG invested more than Samsung in
recent years. A reason for LG OFDI behaviour
can be explained by LG's attempt to catch up
with Samsung.
4-3. Strategic location
Korean firms may invest in a strategic location
because of the need to be well positioned in key
markets, especially in the automotive industry. For
example:
• Hyundai Motor invested in key locations in
North America, Europe and Asia. The company
invested abroad to bypass trade barriers and
aspires to become a top five global automakers
by 2010. 82 To do so, the company has to survive
and grow in the most competitive markets in
the America, Europe and Asia regions, and
operate close to local customers. The company
has established R&D centres and production
facilities in major strategic foreign locations.
• Samsung Electronics established its first
overseas semiconductor plant in Austin, Texas
in 1998. In the following year, it generated $700
million in sales and $160 million in income
which was acknowledged as a very successful
OFDI case.
D. OFDI and implications for
enterprise competitiveness
Despite the lack of information, impact on
competitiveness can be seen in a number of areas.
• Exploiting ownership advantage. OFDI
has provided Korean construction firms the
opportunities to exploit their ownership
82 Hyundai Motor Company (www.hyundai-motor.com).
Table 2. Cost reduction effects of OFDI
(Percentage)
CHAPTER VIII 101
Large TNCs Small TNCs
Below 20% 25.0 24.2
20~40% 37.5 42.0
40~60% 34.4 30.6
60~80% 3.1 3.2
Total 100.0 100.0
Source: KCCI (2002).
advantages, expand their scope of business,
thereby increase their overall competitiveness.
With their advanced technology and skilled
labour, Korean construction firms were very
successful in the Middle East market in the
1970s. In 1976, Hyundai Engineering and
Construction Company constructed a harbour
in Al Jubayl (Saudi Arabia). 83
• Employment effect. While OFDI can have
negative impacts on domestic production and
employment, there are evidences supporting
that OFDI could also lead to an increase
in domestic production and employment
through interactions between foreign and
domestic operations. A study by the Ministry
of Commerce, Industry and Energy in 2003
indicated that OFDI and intra-firm trade
generated $6.8 billion of trade surplus. Such
intra-firm trade promoted export and production
by domestic firms which led to a chain effect
in increasing employment and production in
related industries (MOCIE 2004b). According
to the study, production increased by $19 billion
and generated 88,000 additional employments.
Among these new jobs created, 71,000 were in
manufacturing industries.
• Cost competitiveness. In a study by KCCI,
it was revealed that of the 166 Korean TNCs
surveyed, 75 per cent of them managed to
reduce their production costs by more than 20
per cent through OFDI (table 2). In a survey
of 2,026 Korean manufacturing companies
with more than 50 employees and overseas
activities, 85.5 per cent of the companies
indicated that they continued their domestic
operations and only 12.3 per cent had closed
down their factories at home (MOCIE 2003).
Another study indicated that OFDI promotes
export and improves the balance of trade
83 Hyundai Engineering & Construction Company (www.hdec.
co.kr).