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THE CHANGING PATTERN OF THE RELATIONSHIP BETWEEN GENERAL MOTORS AND DAEWOO MOTOR : AN ANALYTICAL STUDY FOCUSING ON THE PROCESS OF RELATIONSHIP SHIFTS By Sung Youn Lee Major in International Trade GRADUATE SCHOOL OF INTERNATIONAL STUDIES, SOGANG UNIVERSITY December 2003 1 THE CHANGING PATTERN OF THE RELATIONSHIP BETWEEN GENERAL MOTORS AND DAEWOO MOTOR : AN ANALYTICAL STUDY FOCUSING ON THE PROCESS OF RELATIONSHIP SHIFTS By Sung Youn Lee Advisor: Prof. Dr. Se-Young Ahn A thesis submitted to the faculty of Sogang University in fulfillment of the requirements for the degree of Master of International Studies Major in International Trade GRADUATE SCHOOL OF INTERNATIONAL STUDIES, SOGANG UNIVERSITY, SEOUL, KOREA December 2003 2 GRADUATE SCHOOL OF INTERNATIONAL STUDIES SOGANG UNIVERSITY COMMITTEE APPROVAL of a master’s thesis submitted by Sung Youn Lee This thesis has been read by each member of the supervisory committee and by majority vote has been found to be satisfactory. December, , 2003 Referee Prof. Dr. Jae-Chun Kim (Chairman) Referee Prof. Dr. Se-Young Ahn Referee Prof. Dr. Chol Lee 3 TABLE OF CONTENTS I. Introduction ··············································································································· 1 II. Analytical Frameworks ···························································································· 4 1. Lewicki-Hiam’s R-O Model ········································································· 5 2. Interdependency Cube Model ······································································· 8 III. The Changing Pattern of the Relationship between GM-DM; from Partnership to M&A Negotiators ······································································································· 14 1. Historical Overview ···················································································· 14 2. Partnership (1972 ~ 1992) ··········································································· 17 3. Competitors (1993 ~ 1998) ········································································· 21 4. M&A Negotiators (1999~2002) ·································································· 38 IV. Aspects of Consideration from the Historical Relationship of GM and DM ········56 1. Shifts in the Balance of Power ···································································· 57 2. The Superior Negotiation Know-how of GM from 1999 to 2002 ·············· 61 3. The Typical Obstacles Blocking Korean Firms in International Business Working with Cross-border Partners ··························································· 69 V. Conclusions ············································································································ 73 References ·················································································································· 78 Appendices ················································································································· 84 4 LIST OF TABLES [Table 1] The Long-term Cells of the Interdependency Cube ···································· 11 [Table 2] History of DM and GM ·············································································· 15 [Table 3] Overseas Car Plants of Daewoo Motor ······················································ 24 [Table 4] Countries Entered by Daewoo Motor ························································· 26 [Table 5] Terms of Contract between FSO and DM ·················································· 30 [Table 6] Market Share in Poland ·············································································· 32 [Table 7] Overview of DM’s Presence in India ························································· 34 [Table 8] The Chronology Negotiations for GM’s Acquisition of DM ····················· 40 [Table 9] MOU and Final Formal Contract Terms ····················································· 49 [Table 10] Overview with Analytical Frameworks ···················································· 60 [Table 11] Global Vehicle Production and Sales by Manufacturer ···························· 84 [Table 12] General Motors’ Global Brand Positioning ·············································· 86 [Table 13] Overseas Affiliates of Daewoo Motor ······················································ 86 [Table 14] Overseas Production Plants of Daewoo Motor and Capacity ··················· 87 5 LIST OF FIGURES [Figure 1] Lewicki-Hiam’s R-O Model ······································································· 6 [Figure 2] Interdependency Cube ················································································· 9 [Figure 3] R-O Model Analysis: Step 1 ····································································· 20 [Figure 4] Timeline for GM’s Global Investment ······················································ 25 [Figure 5] R-O Model Analysis: from Step 2 to Step3 ·············································· 39 [Figure 6] R-O Model Analysis from 1972 to 2002 ··················································· 55 [Figure 7] Interdependency Cube Analysis ································································ 59 [Figure 8] Cherry-picking Acquisition by GM ·························································· 66 [Figure 9] Price Change for DM’s Acquisition ·························································· 68 [Figure 10] Conflicts among Interest Groups ···························································· 72 6 ACKNOWLEDGEMENTS This thesis could never have been possible without the backing of numerous individuals. I wish to express my sincere gratitude to my advisor, Prof. Se-Young Ahn. His leadership, patience and trust enabled me to reach my goal. I am grateful for his superb guidance and for the extraordinary generosity with which he gave his time. I am also grateful to the other members of my thesis committee, Prof. Jae- Chun Kim and Prof. Chol Lee. I was truly privileged to have such a remarkable team. Special recognition belongs to Young-seok Chae of Global Auto News, who gave me practical advice, and Curt Hutchison of the Foreign Language Center at Dongguk University, who read the full manuscript and helped me improve the final product. I am also indebted to Prof. Chong-ha Yoo, who provided me with valuable opportunities, and my friends, Yoon-sun Kim, Sang-su Lee, and Byung-kun Kim, who created a loving and supportive environment during my time at Sogang GSIS. Finally, I dedicate this work to my parents, whose good thoughts, wishes, help and love were constant reminders of what I can accomplish. 7 ABSTRACT This dissertation examines the changing pattern of the relationship between General Motors and Daewoo Motor, with an analytical study of the process of the relationship shift from 1972 to 2002. Lewicki-Hiam’s Relationship-Outcome Model and Dabholkar-Neeley’s Interdependency Cube Model are applied as analytical frameworks. The path of the relationship between General Motors and Daewoo Motor is divided into three forms within the analytical framework of the Relationship-Outcome Model: Partnership (collaboration: 1972~1992), Competitors (competition: 1993~1998) and M&A Negotiators (accommodation: 1999~2002). The analysis is then extended with an investigation into the shifts in the power balance between the two companies as seen through the Interdependency Cube Model. Additionally, there are examinations of the superior negotiation know-how displayed by General Motors from 1999 to 2002 and the obstacles that hinder Korean firms with cross-border partners or competitors. As long-term relationships are often inconstant, the study concludes that taking a gradual approach to targeted investment partners, building credibility with them and developing improved negotiation strategies are preferable to maximize outcome and minimize risks in cross-border partnerships. 8 I. INTRODUCTION On April 30th, 2002, General Motors signed a contract to purchase Daewoo Motor. The South Korean automaker had gone bankrupt and the South Korean government was under pressure to attract foreign investment for the restructuring of its corporate sector following the 1997-98 Asian financial crisis. The sale of Daewoo Motor to a foreign buyer signaled the disappointing end of a company of major economic and symbolic importance to South Korea and its people. Both Daewoo Motor (DM1) and General Motors (GM2) were leaders and symbols in their respective sectors of the automotive industry - DM for South Korea and GM for the world market. The two companies had a relatively long relationship prior to DM’s fall. From the beginning of their relationship in the 1970s, they had been both partners and adversaries. As the years passed, the balance of power between them shifted greatly. DM’s relationship with GM grew from that of a minor partner to a major competitor in emerging markets, and together, they saw ups and downs in the volatile automotive market throughout the 1980s and 1990s. Yet in the end, their 1 From this point on, Daewoo Motor will be denoted as DM. 2 From this point on, General Motors will be denoted as GM. 9 relationship was terminated with GM’s acquisition of DM for far below its fair value in 2002. Their thirty-year relationship concluded with GM as the winner and DM the loser. How could a giant in the Korean automotive industry have come to such an end? What factors affected the final result of their relationship? Was the mismanagement of DM the only reason for the result?

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