Capítulo 3. La Metodología del Estudio
3.5 Descripción de los Contextos Específicos
Since South Korean car exports commenced in 1976, exports did not exceed more than 120,000 units until 1985. The following year, however, car exports increased sharply to 298,879 units, doubling previous export figures, and this upward trend continued until 1988. Despite increasing demand in international markets, exports dropped from 564,511 units in 1988 to 347,273 units in 1989, and then to 339,672 units in 1990 (KAMA, 1995, p. 24). This fall was mainly attributed to the poor quality of products and the shortage of after service spare auto parts in the export markets.
Recent years have seen car exports rise again, with increases from 23.3 per cent in 1993 to 41.7 per cent in 1995 (see Table 4.12). In total, between 1990 and 1996 exports grew rapidly, by around 311 per cent. In terms of units, exports increased by
144,889 units in 1993, by 252,053 units in 1995, and finally exceeded 1 million units in 1996. This trend looks set to continue for some time.
Table 4.12 South Korean Passenger Car Exports, 1985-96 (unit: vehicles)
Year Total Exports
1985
119,210
1986298,878
1987535,231
1988564,511
1989347,273
1990339,672
1991378,600
1992427,513
1993527,402
1994604,315
1995856,368
19961,056,400
Note: Figures include sports-utility vehicles.
Sources: KAMA 1995-96 and M otor Business International 2nd quarter 1996.
Among the three main car producers, Hyundai M otor has shown the best export performance. Since the first export of the model Pony in 1976, exports grew by more than 70 per cent of total production in 1986 and 1987. Since 1989, however, exports have declined to around 40 per cent of total production, and this figure has changed little since then (although since 1994 the export share of total production has gradually increased) (KAMA, 1995, p. 49). Nevertheless, Hyundai M otor’s share of total exports has still averaged 73 per cent over the last 13 years (see Table 4.13).
Table 4.13 Passenger Car Exports o f Hyundai Motor, 1985-96 (unit: vehicles)
Hyundai Motor
Year Export Production % E/P
1985
118,853
225,970
52.6
1986
297,964
408,177
72.9
1987
403,419
544,648
74.1
1988
404,881
584,339
69.2
1989
213,639
525,857
40.6
1990
225,263
557,683
40.3
1991
254,108
644,356
39.4
1992
281,966
725,918
38.8
1993
337,363
811,032
41.6
1994
354,643
936,022
37.9
1995
415,398
1,007,423
41.2
1996
478,611
1,072,722
44.6
Note: Figures include sports-utility vehicles. Source: KAMA 1995-96.
Beginning in 1987, Ford imported Kia M otors’s cars by means of OEM, and since then Kia Motors has increased its car exports gradually. In 1989, the company began its first KD exports to Asian countries, shipping 14,791 unit (Kia M otors, 1996). In 1996, exports reached more than 40 per cent of total production (see Table 4.14).
However, despite the increase in the number of its export units, its share of total exports has decreased since 1994, achieving just 19.7 per cent in 1996 due to Daewoo M otor’s good export performance. Now, apart from the declines in its share of total exports, Kia motor has an even more uncertain future for its contribution to the South Korean car exports due to the bankruptcy in 1997.
Table 4.14 Passenger Car Exports o f Kia Motors, 1985-96 (unit: vehicles)
Kia Motors
Year Export Production % E/P
1985
- - -1986
26
26
100
1987
60,336
95,532
63.1
1988
73,813
133,602
55.2
1989
89,981
182,332
48.4
1990
79,758
222,125
35.9
1991
71,838
259,794
27.7
1992
84,138
315,459
26.6
1993
120,532
405,081
29.8
1994
169,337
437,936
38,7
1995
164,149
451,769
36.3
1996
208,175
512,514
40.6
Note: Figures include sports-utility vehicles. Source: KAMA 1995-96.
Daewoo M otor also increased its exports to GM using OEM methods beginning in 1987. Its exports, however, dropped sharply in 1989 and 1992. It is said that the decline of exports was a reflection of the products’ poor quality due to a lack of technical know-how and production methods. Daewoo M otor had the poorest export performance compared with the other two car manufacturers, but in 1993 its exports almost doubled 1992 the levels following its separation from GM. In 1996, Daewoo M otor shipped 57.7 per cent of its production, and its share was equal to 33.0 per cent of total exports (see Table 4.15). This achievement has made Daewoo M otor the second largest exporter after Hyundai Motor since 1995.
Table 4.15 Passenger Car Exports o f Daewoo Motor, 1985-96 (unit: vehicles)
Daewoo M otor
Year Export Production % E/P
1985
516
36,805
1.4
1986
712
47,082
1.5
1987
71,082
149,639
47.5
1988
85,284
147,744
57.7
1989
43,215
147,944
29.2
1990
33,947
184,795
18.4
1991
50,700
227,639
22.2
1992
57,098
238,800
23.9
1993
108,086
347,390
31.1
1994
105,798
385,206
27.5
1995
260,352
497,761
52.3
1996
348,809
604,230
57.7
Source: KAMA 1995-96.One interesting feature of South Korean car exports is the concentration placed on the small car segment10 (1000-1500 cc), a segment that also has represented the largest share in domestic sales. Since car exports began, this market segment has presented a larger share of total exports, growing to 80.6 per cent by 1987. Since then, this segment has presented an average 75.1 per cent of total exports, with other segments of exports increasing, but still amounting to less than 29 per cent of the total by 1994 (see Table 4.16).
Table 4.16 Car Exports by Segment, 1987-94 (unit: vehicles)
Year Segm ents
small segm ent (1000-1500 cc)
medium segment (1500-2000 cc)
large segm ent (over 2000 cc) sport-utility (4W D) 1987 431,234 103,603 - 394 1988 455,310 108,668 - 533 1989 260,207 46,323 40,305 438 1990 268,001 41,627 29,340 704 1991 243,253 101,071 32,322 1,954 1992 287,323 104,583 28,098 4,306 1993 411,906 136,595 11,014 6,389 1994 458,889 164,195 65 18,607 Source: K A M A 1995.
In recent years, the destination o f exports has changed. S outh K orean car producers had exported their products mainly to the N orth American m arket, with 90.9 per cent o f total exports going to this market in 1988. The following year, exports to N orth American countries dropped and have continued to decrease steadily. By 1992, exports to this m arket accounted for only 32.6 per cent o f total exports.
This decline in m arket concentration has com e about as a result o f exports to new destinations, and an increase in the num ber o f cars exported. Recently, exports to developing and E uropean countries have increased rapidly, and in 1994 o v e r 2 72,000 units were exported to Asia, the M iddle East, Oceania and South Am erica, equalling approxim ately 44 per cent of total exports, c o m pared with around 7.4 per cent in 1988. E xports to the E uropean m arket increased from 3.7 per cent o f total e xports in 1988 to 23.4 per cent in 1994 (see Figure 4.5). The diversification of export m arkets has shown that there is the dem and for South Korean cars in the world, implying an opportunity to increase the volum e o f sales in the future.
Figure 4.5 South Korean Car Exports by Region, 1985-94 (unit: vehicles) □ Others □ Asia ■ Europe M N. America Unit 1985 1987 1989 1991 1993 Y e a r
Note: E u ro p e includes W estern and Eastern E uropean countries as a whole. Others include M iddle East, Latin America, Africa and Oceania.
Source: International Motor Business 2nd quarter 1993 and K A M A 1995.
Since 1994. Hyundai M otor, Kia M oto rs, and D a e w o o M o to r have actively set up joint ventures with com panies in East Central E u r o p e 11, U zbekistan, South E a s t Asia, China, and India for local car production through direct investments. A preference has developed for establishing production facilities in less advanced countries, while c o operating with car producers such as M ercedes-B enz and Fiat for deve lo p m en t o f new models.
H ow ever, there was an exception from the current trend o f FD I in car manufacturing in developing and transitional countries. Hyundai M o to r was the first c om pany to invest in building up overseas car plants. It set up car p ro duction facilities in C anada in 1986 and com m enced operations in 1989, but despite a capacity to produce 4.3.4 FDI
100,000 units annually, only 14,000 cars were made in Canadian plants due to lack of demand. In 1993, production was suspended (although the plant is scheduled to reopen in the near future).
Given this experience in establishing manufacturing operations overseas, Hyundai M otor may, in the future, be more cautious in setting up further overseas ventures in advanced countries. In 1995, the company established car production facilities in developing countries such as Pakistan and Turkey through joint ventures.
While Kia Motors is the least involved in overseas direct investment, with only one joint venture assembly operation in Indonesia by 1993, Daewoo M otor is the most aggressive in FDI. In 1994, it established a joint venture with DCM in India to produce car components and cars. In the same year, assembly plants were set up in the Philippines, Vietnam and Iran, while three joint ventures were launched in Europe, specifically in East Central Europe. Rodae-Automobile, a joint-venture company, was established in Romania in 1994. In 1995, two joint-venture companies were set up by Daewoo M otor in Poland. Daewoo M otor also decided to invest in manufacturing cars in the former Soviet Union, in Uzbekistan in 1994 and in Ukraine in 1997 (see Table 4.17).
The particular difference of the investment in the Ukraine car industry from the other FDI by Daewoo M otor is that GM and Daewoo may link again to build cars jointly in the country, as GM plans to sign a separate deal with the Daewoo-AvtoZaz joint venture to build 25,000 units a year despite the difficult relations resulting from the separation in 1992 (Financial Times, May 6, 1997 and Financial Times, September 18,
Table 4 .1 7 Overseas Production of South Korean Car Producers
Location Company Planned
Investment ($M)
Production capacity by 2000
Start-up date
Canada
a
Hyundai Motor184.028 b
100,000
1986
India Daewoo Motor
1,000
100,000
1995
Indonesia Kia Motors
30 c
30,000
1995
Iran Daewoo Motor
600
50,000
1995
Pakistan Hyundai Motor
5.853 c
10,000
1995
Philippines Daewoo Motor
20
20,000
1995
Poland
(FSL)
Daewoo Motor350
90,000
1996
Poland
(FSO)
Daewoo Motor1,100
220,000
1996
Romania Daewoo Motor
360
200,000
1996
Turkey Hyundai Motor
22.3 c
100,000
1995
Uzbekistan Daewoo Motor
630
200,000
1996
Ukraine Daewoo Motor
300
255,000d
e
Vietnam Daewoo Motor
32
20,000
1995
Notes:
a:
Hyundai M otor’s plant in Canada is closed at present,b:
Actual investment,c:
Approval investment,
d:
Production capacity by 2014.e:
Not available. Sources: Bank of Korea, 1995 and Financial Times, September 18, 1997.4.4 Conclusion
In the early stage of the South Korean industry’s development, the key driving force was to meet the demand of the United States and Japanese markets. Concentration on those two markets is certainly not the answer to the future economic growth of South Korea. Since the mid-1980s, capital - and technology - intensive products have been major exports in South Korea, and export markets have been diversified.
In this chapter, it is shown that all industry in South Korea has undergone a structural transformation. South Korean companies in manufacturing industry increased exports, while searching for production locations overseas. Car manufacturers are no exception to this phenomena. Since 1994, the three major car manufacturers have engaged in joint ventures with foreign partners for local production through direct
investment, with increases in car exports to diversified markets. They have prepared ambitious production expansion plans at home and in overseas countries, aiming to increase exports. However, reflecting the case of Kia M otor’s insolvency, these plans may temporarily slow down the South Korean car industry as well as the whole economy in the future as the car industry is linked to most manufacturing industries.
Lall (1983) argues in Chapter 2 that LDC firms can obtain firm-specific advantages with some conditions. This chapter suggested that the South Korean firms and Daewoo M otor could possess firm-specific advantages which enable them to make an FDI. According to his conditions to obtain these advantages, first, a firm should localise technologies. The South Korean companies, including Daewoo M otor, were able to localise technologies, resulting in the development of its own car models in the 1990s. Second, with these localised technologies, a firm should manufacture a specific product to a specific sector of the market and be efficient. Like other South Korean car manufacturers, Daewoo M otor has a competitive advantage in the small car segment with lower prices, compared to producers in developed countries. Third, a firm should have experience of serving a large market. The South Korean producers diversified their export markets. This gave them various experiences and know-how of serving different markets. Finally, a firm should be supported by favourable government policies. All producers in the car industry were protected and promoted by the government.
Among Hyundai Motor, Kia Motors, and Daewoo M otor, attention is drawn to Daewoo Motor. Despite the fact that it has registered the poorest performance both in domestic sales and exports (its exports have been in second position only from 1995), it has made the largest FDI in manufacturing cars and its major FDIs were made in East Central Europe, with significant production expansion plans. Daewoo M otor demonstrated that it has a different diversification strategy by choosing FDI in the
region, compared with other South Korean producers. For a deeper understanding of their economic activities, particularly those of Daewoo M otor, it is important to investigate how South Korean groups have evolved, and how their corporate structures became organised over the previous three decades.