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

Home , Daewoo, Daewoo Motors, GM Korea, KR Motors, SsangYong Motor

THE CHANGING PATTERN OF THE RELATIONSHIP BETWEEN

GENERAL MOTORS AND DAEWOO MOTOR

: AN ANALYTICAL STUDY FOCUSING ON THE PROCESS OF

RELATIONSHIP SHIFTS

Sung Youn Lee

Major in International Trade

GRADUATE SCHOOL OF INTERNATIONAL STUDIES,

SOGANG UNIVERSITY

December 2003

THE CHANGING PATTERN OF THE RELATIONSHIP BETWEEN

GENERAL MOTORS AND DAEWOO MOTOR

: AN ANALYTICAL STUDY FOCUSING ON THE PROCESS OF

RELATIONSHIP SHIFTS

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

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

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

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

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

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.

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.

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? And how could a giant in South Korean industry be sold for such a low price?

When considering the GM-DM case, most examinations in Korea have so far maintained a biased focus from the perspective of the sale of national assets to “foreign invaders.” Little attention has been given to the study of cause and effect on the process of their changing relationship. The turbulent history of GM and DM and the contribution of internal and external factors surrounding both corporations in the final negotiation process have not yet been given enough consideration. A deeper analysis of these issues may yield the real lessons of this case – lessons that could someday be of use to other unfortunate Korean firms facing a similar situation.

Thus, the main concern of this study will be to provide a historical context for the GM-DM relationship and to discover what lessons can be learned from its changing pattern. This examination will utilize two analytical frameworks to assist in depicting an outline of the relationship

10 shifts between GM and DM in the context of both an overall and a specific view. These frameworks will be explained in the following section.

This study was conducted through the analysis of documentary sources including scholarly articles; official reports acquired on-line, public releases, books and articles in newspapers, which dealt with GM and DM. These sources, as well as the two theories for the analytical toolkit, are quoted, referenced and edited in this study. The Relationship-Outcome model of

Lewicki and Hiam and the Interdependency Cube model of Pratibha A.

Dabholkar will be applied to analyze the form of the GM-DM relationship within the context of their negotiation strategies and individual circumstances.

At the same time, specific events will be used to focus more on an understanding of each negotiation party’s position at certain stages.

Since there is obviously no way for writers to have direct knowledge of what occurred at the actual negotiation table, this analysis may suffer from limitations regarding certain issues. In order to avoid any self-serving rationales, the appropriate statistical data and materials from a variety of channels are adopted.

II. ANALYTICAL FRAMEWORKS

For this study, a pair of analytical frameworks was employed in order to analyze the changing pattern of the relationship between GM and DM.

First, ‘Lewicki-Hiam’s Relationship-Outcome Model’ will be introduced for a deeper examination of GM’s long-term stance. With the portion of relative importance influenced by two main factors - the perceived importance of relationship and of outcome, corporations can determine their own positions among five strategies. In this model, the form of the relationship between GM and DM is classified into three stages, which will be introduced in later chapters.

Second, the ‘Interdependency Cube Model’ will also be applied. In this model, based on three critical dimensions, the temporal grid, the balance of power grid and the orientation grid, ideas can be developed about the positioning of each relationship situation. This framework will emphasize the importance of companies maintaining “flexibility” in order to successfully address environmental and organizational changes according to the balance of power shift. A more detailed explanation of each framework follows.

3 1. Lewicki-Hiam’s R-O Model

According to the Relationship (R) - Outcome (O) Model4, the

relationship in a negotiation strategy is determined by two factors. One

is the perceived importance of relationship, which is shown on the Y-axis

in Figure 1, the other is the perceived importance of outcome, which is

shown on the X-axis. The player’s behavior can vary to some extent

from issue to issue. Based on this assumption, the negotiation strategies

are categorized according to the following 5 situations.

1) Accommodating strategy: lose to win

This is a relation-oriented strategy. In this type of strategy,

negotiators with common interests generally trust their negotiating

counterpart’s intentions and may lose little by deferring to the other’s

wishes. This situation is also called a ‘relationship situation’ or ‘lose to

win’.

3 For this chapter, I referred the following book; Se-young Ahn, 「Global Negotiation Strategy」(Seoul: Pakyoungsa, 2003) 97-101.

4 From this point on, the ‘Relationship – Outcome Model’ will be denoted as the R-O model.

[Figure 1] Lewicki-Hiam’s R-O Model

The perceived importance of relationship

Accommodation Collaboration

(Relationship Situation) (Win-Win Situation)

Compromise

(Compromise Situation)

Avoiding Competition

(Indifferent Situation) (Transactional Situation)

The perceived importance of outcome

Source: Se-young Ahn, 「Global Negotiation Strategy」(Seoul: Pakyoungsa, 2003) 98. 2) Competitive strategy: win to lose

Considerable conflict of interest is expected for this ‘competitive

strategy,’ especially for any parties who have a relatively minor

relationship. This is also called a ‘transactional’ or ‘pizza-cutting’

situation.

3) Collaborative strategy: win-win

This is also called the ‘win-win’ or ‘pizza-cooking’ situation. For this strategy, mutual trust among negotiation parties is essential. By sharing information and opening the bottom line of a goal, those players induce maximum outcome from the deal.

4) Avoiding strategy: lose-lose

This involves not participating in the progress of a negotiation.

This strategy can be adopted through several measures, such as taking no action, a notification of cessation of further negotiations or a retreat from the negotiation table.

5) Compromise strategy: split the difference

With intermediate gains, negotiators may be willing to give up some satisfaction, but not all. Compromise has elements of both cooperation and non-cooperation - yielding competition to a counterpart but also holding out something for oneself. This is the most frequently exercised strategy as it has several favorable points, such as a sense of reciprocity, its simplicity in understanding and time saved through quick settlements.

5 2. Interdependency Cube Model

The purpose of this analytical framework is to describe eight

alternative types of business-to-business interdependencies, or

relationships, and to provide a framework, the Interdependency Cube,

whereby businesses can identify where they are with a given partner at a

point in time and develop an understanding of how to move from one

type of interdependency to another (within the proposed framework) to

another, as their circumstances change. This cube will be used to

supplement the ‘R-O model’ since the R-O model is not able to cover the

role of ‘power balance’ affecting relationship determination. As with

the R-O model, this toolkit will be adopted to explain the three main

stages in the GM-DM relationship from 1972 to 2002. Thus, for the

purposes of the following examination, the eight interdependencies of the

cube will be narrowed down only to those that refer to long-term

conditions.

5 Prabibha A. Dabholkar and Sabrina M. Neeley, “Managing Interdependency: a Taxonomy for Business-to-business Relationships.” Journal of Business and Industrial Marketing. Vol. 13, NO. 6 (1998): 439-460.

1) Three critical dimensions of the Interdependency Cube

(1) The temporal grids

One critical dimension that determines the type of interaction

that businesses engage in is the temporal perspective associated

with that interaction. The long-term perspective is defined as

including repeated transactions between parties, either by choice

or because of market conditions, over an indefinite length of

time.

[Figure 2] Interdependency Cube

(1) (4)

(5) (8) Unbalanced Power (5) (8)

(6) (7) Balanced Balanced Power Short-term (6) (7)

Long-term

Individual Joint

Orientation Orientation

Source: Prabibha A. Dabholkar and Sabrina M. Neeley, “Managing Interdependency: a Taxonomy for Business-to-business Relationships.” Journal of Business and Industrial Marketing Vol. 13, NO. 6 (1998): 442.

(2) The orientation grids

Another dimension is goal orientation (individual vs. joint

gain). As the term suggests, ‘individual gain’ indicates a focus

on the business’s own benefit to the exclusion of it partners’,

whereas ‘joint gain’ implies an orientation toward mutual benefit.

(3) The balance of power grids

The two conditions related to this dimension are ‘balanced

power,’ where the businesses in the interaction are somewhat

equal in power, and ‘unbalanced power’ where one partner is

clearly more powerful.

2) The four cells in the long-term grid

For the purposes of this study, the use of the cube is limited to the examination of the relatively long-term picture. Thus, the following 4 cells are the only factors that should be considered.

(1) Command relationships

‘Command’ relationships result when one party has a

dominant position of strength in the negotiation process.

[Table 1] The Long-Term Cells of the Interdependency Cube

The Four cells

Relationship Temporal Grid Balance of Power Grid Orientation Grid

1) Command Unbalanced Power Individual gain

2) Divergent Balanced Power Individual gain

3) CoordinativeLong-term Balanced Power Joint gain

Joint 4) Keiretsu Unbalanced Power gain

(2) Divergent relationships; win-lose

Sometimes business-to-business partners engage in repeated

‘win-lose’ negotiation behaviors and thus often sacrifice the

benefits of increased communication and mutual trust. These

are called ‘divergent’ relationships because despite the existence

of a relationship, the partners appear to head along divergent

paths.

(3) Coordinative relationships

Companies, which, under conditions of balanced power, attempt to engage in mutually beneficial partnering arrangements, are considered to be in a “coordinative” relationship. This relationship begins with shared business goals, and is associated with a problem-solving approach and information sharing. The businesses in a coordinative relationship are flexible in resolving issues, engage in two-way communication, understand cultural differences, and display a willingness to explore alternative solutions.

(4) Keiretsu relationships

The idea of emphasizing joint goals is not exclusive to business-to-business partners that pursue joint goals under the conditions of balanced power. Japanese companies often engage in the type of relationships described by ‘keiretsu’ relationships. A keiretsu relationship can occur between companies desiring channel (production keiretsu) or financial

(financial keiretsu) partners. Production keiretsu is a distinctly

Japanese practice used to manage the ‘make or buy’ decision by

focusing on goals of production economies and distribution

channel synergies. The relationship between Toyota and its

parts suppliers are traditionally considered to be one of the best

examples of a production keiretsu.

In the following chapters, the overall relationship shift between GM and

DM will be categorized according to the preceding toolkits. In addition, several significant events that played major roles in the relationship shift will be studied in detail. Through this process, lessons for Korean companies that would like to develop further relationships with cross-border partners can be revealed.

III. THE CHANGING PATTERN OF THE

RELATIONSHIP BETWEEN GM-DM; FROM

PARTNERSHIP TO M&A NEGOTIATORS

1. Historical Overview

GM has been involved in the automotive business in Korea and with

DM for over 3 decades. (See table 2) The two companies had been

partners in joint ventures for a considerable amount of time prior to the

acquisition. In this study, the changing pattern of their relationship is

divided into the following three forms.

First, GM and DM started their relationship as ‘partnership.’ GM-

Korea was initially established on June 7, 1972 as a joint venture between

Shin-jin, DM’s original name, and GM. In 1976, the name ‘Shin-jin’

was changed to ‘Sae-Han’, and in 1978 the automaker’s Korean owners

took control of the company by purchasing shares held by the state-run

Korea Development Bank. GM had previously owned 50% of DM, but

the partnership was dissolved in 1992 when Daewoo decided to develop

its own automobile models rather than license GM’s old designs.6

6 “Investing South Korea: Bargains galore.” The Economist 7 Feb. 1998, 67.

[Table 2] History of DM and GM

Period Historical Events

1972 GM Korea established.

1976 11 Renamed Sae-han Motor.

1978 Daewoo group involved in the acquisition of Sae-han with GM.

1978 7 Partial managerial control acquired by DM.

1982 12 Renamed Daewoo Motor.

1992 10 Joint-business terminated.

1995 7 Production of Cielo started in India.

1995 11 Acquisition of Poland FSO by DM

1998 9 Acquisition of Ssangyong Motor

1999 8 Daewoo entered ‘workout program’.

1999 12 Public bidding for DM sales

2000 9 Ford's retreat

2001 9 Signing of MOU with GM

2002 4 Signing of final formal contract for GM’s DM acquisition Source: “Corporation Data,” 「The Korea Economic Daily」1998.

Second, GM and DM entered into a relationship of ‘Competitors’ after the split of the joint partnership in 1992. From this point until DM’s bankruptcy, the two companies faced each other in emerging markets as competitors.

Finally, their competing relationship shifted to that of ‘M&A negotiators’ in 1999 when DM was no longer able to run its business by

23 itself.

In the following chapters, the changing pattern of the relationship between GM and DM will be examined in detail. In addition, ‘Lewicki-

Hiam’s R-O Model’ will be applied to draw a picture of the overall changing pattern of the two companies’ relationship. GM’s stance regarding DM during all three periods was heavily influenced by a variety of factors – both within the company and without. These factors individually and collectively contributed to the evolution of GM’s ever- changing position regarding DM.

2. Partnership (1972 ~ 1992)

GM-Korea was initially established on June 7, 1972 as a joint venture between Shin-jin (DM’s original name) and General Motors. In the stage of their joint business, GM took charge of technology development, sales and distribution, while DM was forced to take the role of being purely a subcontractor production base. At that time, GM believed the separated arrangement would allow the company to exploit the lower wage costs in Korea in order to compete with Japanese car companies in the US compact car market, while DM saw the partnership as an

‘opportunity’ to gain recognition in the world automotive market. In other words, their joint partnership was started with the objective of a

‘synergy effect’ (win-win situation). Thus, the initial partnership period of GM-DM, from 1972 to 1992, can be explained as

‘collaboration’ according to Lewicki-Hiam’s R-O model. GM-DM initiated joint business for mutual gain, and it is considered that they had a high degree of perceived importance of both relationship and outcome.

In the 1980s, however, their partnership was tested by several difficulties, which later caused their split.

The first difficulty arose from internal conflicts in the production process. For example, GM blocked DM’s attempts at self-improvement

25 by refusing to transfer technology or to allow DM a research and development capacity. GM allowed DM to begin the development and production of its own models only after the failure in the Korean market of the ‘Le Man,’ the model name of the car produced by the GM-DM partnership. DM was contracted to produce 'Le Man' for GM on an

OEM (original enterprise mark) basis.

Second, sluggish domestic sales in Korea raised questions about the effectiveness of the GM-DM partnership. GM had predicted ‘Le Man’ would sell 100,000 units per year, but it turned out to be a dud, selling only 240,000 units over a seven-year period.

The third negative aspect of the GM-DM partnership was the inefficient production contract, which adversely affected sales. To obtain models and core components developed by GM and its subsidiaries, DM had to pay 8 million dollars in development and design costs to OPEL, a German-based subsidiary of GM. In addition, when the model went into mass production, DM had to pay a royalty of 120 dollars per unit for the use of the technology. Furthermore, DM had to import the core components, such as engines and transmissions from

OPEL and its partners, GM and Isuzu, making the payment in Deutsche marks and Japanese yen. This practice increased the production cost for

DM to its great disadvantage.7 Additionally, rising labor costs in Korea

during 1980s further increased the price of the final product.

Figure 3 shows the development of the relationship of the two

companies. It also indicates the three main reasons that led to the

change from collaboration to competition; 1) the divergent goals of GM

and DM; 2) sluggish sales in the Korean market and 3) inefficient

production systems. Thus, this particular relationship, or partnership,

was eventually considered unsuccessful because neither company

achieved its goals with those reasons. Finally, the companies chose to

part ways in 1992, with GM selling its half-ownership in DM.

[Figure 3] R-O Model Analysis: Step1

h ecie motneof Relationshi The Perceived Importance

I. Collaboration 7 “The Daewoo Motors Rescue IV” Korean Confederation of Trade Unions (2000): 1972 ~ 1992 • Divergent goals Online, Internet : http://www.kctu.org/arguments/daewoo-01.htm. between GM and DM 27 • Sluggish domestic sales in

Korean market

• Inefficient production systems

II. Competition p

3. Competitors (1993 ~ 1998)

1) Historical background

As pointed out in the earlier section, the partnership of GM-DM

faced a turning point due to 1) the divergent goals between GM and

DM, 2) sluggish domestic sales in Korea and 3) an inefficient

production contract. From 1992 to 1998, GM-DM entered a

relationship of ‘competitors.’ With the termination of joint business

in 1992, neither corporation needed to consider any further

relationship issues. DM directly clashed with GM in several

markets, mainly in the mid-1990s. During this period of conflict,

both GM and DM were competing on a ‘level playing field,’ or equal

terms on which to compete.8 The three critical confrontations in

both Korea and other overseas markets were observed in 1) the

competition for FSO acquisition in Poland, 2) the production race in

the Indian market, and 3) DM’s acquisition of Ssangyong Motor in

the Korean market. The only priority for GM and DM was to

increase their own market shares in their targeted countries. Thus,

the pattern of relationship for this period is defined as ‘competition,’

8 “Level Playing Field,” Chambers 21st Century Dictionary (2001): Online, Internet, 4 Dec. 2003: http://www.xreferplus.com/entry/1212307.

29 which has both a high degree of perceived importance of outcome and a low degree of perceived importance of relationship. (See figure

3) The following critical circumstances explain why the pattern of their relationship necessarily shifted from a form of ‘partnership’ to one of ‘competitors’.

First, in October 1992, DM took full control of itself by purchasing the remaining 50% of equity from GM. Its full ownership of itself allowed DM to become more competitive by providing it with the freedom to explore new markets and expansion strategies.

Second, both GM and DM saw new markets as the best way to ensure their survival. With the collapse of Communism following the end of the Cold war in the 1990s, the two companies found themselves competing against each other in Eastern Europe.

For DM, opening markets in former Soviet states was especially attractive as, by the terms of its separation from GM, it was prohibited from exporting its products to Western Europe and

America until the mid-1990s.9 DM was eager to enter new markets

since the size of the South Korean market was not sufficient for

growth and the low domestic labor cost, which had been the greatest

advantage to the Korean automotive industry, was no longer low

enough to guarantee international competitiveness.

Due to their large potential, former communist countries were

attractive or GM as well, although it already had Opel, a 100% of

subsidiary, as a strategic base for the European market. Thus, both

corporations competed over emerging markets in Eastern Europe and

the Asia-Pacific region, which had latent purchasing power and

offered redundant labor at low costs. If a closer look at GM’s

historical cross-border investment is taken, it is becomes clear that

GM was especially active in Eastern Europe and the Asia Pacific

region during the 1990s. As the Figure 4 shows, GM’s earlier

cross-border investment was mainly concentrated in Latin America

and Western Europe in order to take advantage of the geographic

location of the former and technology transfer with the latter. As

time went by, GM’s objectives in cross-border investment shifted to

9 Geong-ung Gal and Do-sung Choi, 「M&A Case Studies」(Seoul:Changhae, 1998) 141.

markets that were able to provide both production and sales.

Third, the two automakers adopted a similar approach to enter new

markets. DM’s strategic approach to emerging markets had been

focused more on a form of joint venture or M&A rather than ‘green

field’ investments.10

[Table 3] Overseas Car Plants of Daewoo Motor

Acquired plants by M&A Newly established plants

Uzbekistan, Iran, Egypt, Poland FSO, FSL, Ukraine, Country Vietnam, Indonesia, Romania, India, Czech Philippines, China

Capacity 1,320,000 299,000

Source: “Discover Daewoo,” 「Daewoo Development of Human Resources: Training Resource」(1998).

10 Geong-ung Gal and Do-sung Choi, op.cit., 140.

[Figure 4] Timeline for GM’s Global Investment

1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s

Western Europe

Germany 1929

U.K. 1925

Netherlands 1945

1924 Belgium 1923 Denmark 1935 Switzerland

Latin America

Argentina 1925

Uruguay 1925

Venezuela 1944

Colombia 1956

Chile 1969

Eastern Europe

Czech & Slovak 1991

Poland 1994

1996 Russian Fed.

Asia-Pacific

Australia 1931

South Korea 1972 1998 China 1995 India 1993 Indonesia 1994 Japan 1989 Malaysia

Note: Assembled with the data of GM’s web page; http://www.gm.com/company/corp_info/history/?section=Company&lay er=CorporateInfo&action=open&page=0

As table 3 indicates, the capacity difference between ‘acquired

plants by M&A’ and ‘newly established plants’ shows that it is

obvious that DM’s preferred method of expansion was M&A.11

GM, however, had also been known to expand its presence

through various forms of M&A. Thus, the overlapping strategies of

the two companies caused a series of conflicts. In addition, DM’s

sudden rise in emerging markets in just a half-decade quickly

threatened its competitors. Table 4 shows the increase of DM’s

presence in markets worldwide. It also shows a more than two-fold

growth from 65 markets in 1992 to 150 in 1997.

[Table 4] Countries Entered by Daewoo Motor

Year 1992 1993 1994 1995 1996 1997

Number of countries 65 94 115 130 167 150 entered

Source: Joo-yong Park, 「A Comparative Study on Theories of Direct Investment and Cases at Daewoo Group」88, quoted in “Discover Daewoo,” 「Daewoo Development of Human Resources」(1998).

11 The founder of Daewoo, Kim Woo-Joong, said in his best-selling autobiography; ‘M&A is an economic way to save time.’

Thus, 1) the takeover of DM ‘s full ownership in 1992, 2) the need

for new markets for both GM and DM, and 3) their overlapping

approaches into emerging markets played major roles for the

relationship change from ‘partnership’ to ‘competitors.’

Consequently, conflicts between DM and GM mounted and

examples of these conflicts can be observed in the following three

sections: Competition for FSO Acquisition, Production in the Indian

Market and DM’s Acquisition of Ssangyong Motor.

2) Confrontations in newly emerging markets and Korean market

(1) Eastern Europe: Competition for FSO Acquisition (1995)

① Background

The most remarkable example during the competing

period (1993-1998) might be DM’s acquisition of FSO in

Poland. DM was particularly active in former socialist

countries12, but not in developed markets such as Western

Europe and North America. At that time DM didn’t have

12 “Mr. Kim’s One-man Empire,” The Economist 27 Jan. 1996, 56.

advanced technology so it was impossible to be competitive in

those regions. In addition, DM’s contract with GM restricted

its exports to those markets.

In August 1995, Kim Woo-Joong, CEO of the Daewoo

group, signed a deal with the Polish government giving him

exclusive rights to negotiate for a 60% stake in FSO, a state-

owned car factory which made about 100,000 outdated Polonez

cars a year. FSO’s future had appeared to lie in a tie-up with

America’s GM, with which it had a joint venture assembling

Opel Astra from German kits. But the president of DM had

promised spend $1.1 billion to turn FSO’s archaic plant into a

modern factory capable of producing 220,000 new cars a year

by 2001.13

The deal was quite a coup, apart from pulling the local rug

out from under GM, the world’s biggest car company; it took

DM’s investments in Eastern Europe to more than $3.5 billion.

And it fit in with the president of DM’s belief that the best way

into the developed markets of Western Europe was via their less

13 “Mr. Kim’s Big Picture,” The Economist 16 Sep. 1995, 73.

developed neighbors.14 In this deal, DM defeated GM

suddenly and boldly. The differences in their approaches to

the FSO deal determined who would be successful.

② Competition in detail

GM’s position was that FSO was useful only for the Polish

market since its Opel subsidiary in Germany was adequate to

take charge of the European base. GM was only interested in

FSO as a sub-plant, but as it had an annual yearly production

capacity of 10,000 units with employees numbering around

22,000, GM felt it would only be worth getting involved with

FSO if there were major employment cuts.

For DM, however, the deal was much more significant, for

two reasons. First, FSO was important not only as an entrance

into the Polish market but also as a strategic base to further

enter the European market. DM planned to broaden its

production and sales in the European market, and FSO provided

a great opportunity toward that end. Thus, DM was perfectly

willing to comply with the Polish government’s wish to

safeguard the jobs of the plant’s workers. The following table

14 Ibid.

is for the terms of contract between FSO and DM. It shows

DM’s assurances of job security for three years. It was the

single most influential factor in the Polish government’s final

decision to go with DM. DM’s strategy in this deal was

superior to GM’s since it took into account the Polish

government’s priority of job security.

[Table 5] Terms of Contract between FSO and DM

Equity holding DM 68.4%, Polish government and labor 31.6%

Investment 1.1 billion dollars for six years

Employment Guarantee of same level of employment for three years

Note: This chart is information found in newspaper articles.

Second, DM needed access to technology transfer with

Europe and the elimination of trade barriers that a European

production base could provide. One of DM’s weakest points

was its lack of homegrown technology. It depended heavily

on imported designs for its automobile production. Because

many of the components of the cars produced at FSO would be

locally made, cars from the FSO factory would be sold almost

tariff-free in Western Europe, allowing DM to bypass any future

attempts to shut out car imports from South Korea. 15

Consequently, the different viewpoint and approach of the

two automakers determined the outcome of the deal, and DM

was the victor. Considering the name value of the two

automakers in world automotive industry, DM’s FSO

acquisition against GM was an unprecedented event and a

major boon to DM. Indeed, after DM’s acquisition of FSO,

the market share of DM-FSO increased while the share of GM-

OPEL decreased. The rankings in Table 6 indicate ‘why DM

desperately wanted FSO to gain a foothold in the European

market after its split with GM’. It also shows how GM’s

failure to acquire FSO resulted in a decrease in its market

position in the Polish market.

15 “Mr. Kim’s One-man Empire” The Economist 27 Jan. 1996.

[Table 6] Market Share in Poland

Ranking Company Passenger’s Vehicle (%)

95. 6-7 96. 6-7 97. 1-6

1 Fiat 42.7 34.8 29.9

2 Daewoo-FSO 21.2 24.8 29.39

3 GM-OPEL 7.5 9.1 8.1

4 Renault 6.9 5.2 5.2

5 Skoda 3.5 4.4 5.9

Source: Reuters 21 Aug. 1997.

(2) Asia-pacific: Production in Indian Market (1995)

① Background

In the mid-1990s, GM and DM competed not only for the

Eastern European market but also the Asian market.

Considering the two automakers’ rush to enter emerging

markets, it is clear that their subsequent competition in India

was no coincidence. For DM, the Indian market held a critical

position in DM’s global strategy for reasons similar to those

that caused it to pursue the Eastern European market; latent

40 purchasing power and redundant labor at low cost.

Table 7 shows a brief history of DM’s presence in the Indian market. The Indian government first allowed the production of upper-medium vehicles by foreign automakers in 1994.

② Competition in detail

GM was one of the front-runners to enter the Indian market and DM followed suit one year later. At that time, GM had a newly renovated plant built by Hindu Motors. It was purchased by GM India in 1995 and modernized for the production of the Opel Astra and other future products. DM managed to start production one year ahead of GM, however, turning out a remarkable 25,000 units of the Cielo model in the initial production. DM’s quick pace placed a burden on GM from the very start of their competition in the Indian market.

[Table 7] Overview of DM’s Presence in India

1990 India opens its market after the collapse of Communism.

Indian government permits production of upper-medium vehicles. 1994 Opel, Honda and Peugeot SA planned production in India.

DCM Toyota, a joint venture between India DCM and Toyota that

1994 produced commercial vehicles, is renamed DCM Daewoo Motor after DM

purchases Toyota’s shares in the company.

1995 Production by DCM Daewoo Motor starts.

1995.7 Cielo produced by DCM Daewoo Motor.

Assembly plant with annual capacity of 100,000 opened.

DCM Daewoo Motor renamed ‘Daewoo Motor India’ after DM acquires 1997 DCM's shares, giving 91.6% share to DM.

Plant for core-parts opened.

Source: Joo-yong Park, “A Comparative Study on Theories of Direct Investment and Cases at Daewoo Group; Focusing on Auto Industry,” Diss., Hankuk Univ., 1999, 67-68.

(3) South Korea: DM’s Acquisition of Ssangyong Motor (1998)

① Background

While the previous two conflicts happened outside of the

domestic market, the takeover deal for Ssangyong Motors

represents a confrontation in the domestic market between DM

and GM. After its withdrawal from the South Korean market

in 1992, GM had been looking for any possibility to return.

② Competition in detail

As Jack Smith, CEO of GM, mentioned in an interview

with a Korean newspaper16,

“The Korean market is still attractive to GM. However, the

Korean market has been blocked to foreign automakers, unlike the

aggressive outward strategy of Korean automakers. We are

considering any form of investment like joint ventures with other

Korean automakers or R&D co-operative strategies like technological

licensing or marketing agreements.”

Proving his point, GM entered the negotiation process for

the acquisition of troubled Ssangyong Motor in 1996. At the

16 “GM Wants to Enter South Korean Market in Any Form of Business,” 「Hankuk Daily Newpaper」11 Apr. 1997.

time, Ssangyong suffered from heavy debts and its situation

offered GM a timely opportunity to return to the Korean market.

As part of GM’s initial approach to Ssangyong Motor, it teamed

up with a Chinese merchant group in May 1997 to raise around

300 million dollars in funds to be used to increase capital stock

of Ssangyong Motor17. With the announcement of the

investment plan, GM seemed to be on the right track to the

acquisition of Ssangyong. However, the American

automaker’s plan to return to the Korean market was once again

blocked by the DM. On December 8, 1997, DM announced its

plan to acquire Ssangyong Motor and successfully merged with

the ailing company in January of the following year. Through

the acquisition, DM effectively blocked GM’s entry into the

Korean market.

As a consequence of, the sudden death of its deal with

Ssangyong Motor, GM’s entrance into the Korean market was

indefinitely postponed. The South Korean government’s

involvement in the choice of DM over GM left the American

17 “Ssangyong Motor’s Fund Raising by Foreign Capital,” 「Segye Daily Newspaper」22 May 1997.

automaker with the impression that the Korean government was

not to be trusted. Through this experience, GM likely came to

believe that there was a ‘conspiracy’ to block foreign

automakers from entering the Korean market. This

diminished credibility of the Korean government in the eyes of

GM would later have an impact on the negotiations for GM’s

acquisition of DM.

4. M&A Negotiators (1999~2002)

1) Causes affecting transition from ‘Competitors’ to ‘M&A

Negotiators.’

In 1999, the relationship of GM and DM as ‘Competitors’

came to an end when DM’s parent company became weakened

in the aftermath of the South Korean financial crisis. If there

was competition within a certain degree of balanced power

between GM and DM after 1992, the power-balance was

permanently destroyed by DM’s troubles in 1999. Thus, their

relationship once more entered a new phase. The following

figure (Figure 5) shows the two main factors that influenced the

subsequent shift in the GM–DM relationship.

The first factor was the financial crisis in South Korea,

which led to the collapse of DM and brought pressure for reform

to meet foreign investors’ demands.

[Figure 5] R-O Model Analysis: from Step2 to Step 3 The Perceived Importa

46 • Financial Crisis of South Korea III. Accommodation • Increasing importance of Asia-Pacific 1999 ~ 2002 market in automotive industry (as well

as GM’s global goal) n

The second was the increasing importance of the Asia-Pacific market in the automotive industry as a growing market, which was important for GM to gain sustainable growth in its global market share. Thus, these two factors led GM and DM to the M&A negotiation table. The shift in the two companies’ relationship can be clearly observed in the negotiations for GM’s acquisition of DM.

On April 30th, 2002, GM signed a contract to buy the bankrupt DM.

GM’s deal with DM marked the end of even longer and more painful process.

2) Negotiation process and critical events

[Table 8] The Chronology Negotiations for GM’s Acquisition of DM

Ongoing discussion for strategic alliance between GM and DM including transfer of 1 managerial control.

8 26 Daewoo group goes into 'workout' program. 1999 GM Submits LOI on the terms of “private contract" to Financial Supervisory 12 13 Commission.

12 M Announcement of Ford’s intention to participate in bid.

2000 Invitation for bid is sent to potential applicants and letters of intent are collected. 2 14 (5 corporations: GM, FORD, European Daimler Chrysler, Fiat, Hyundai Motor)

3 6 First Due diligence from March 6 to June 9

6 26 Deadline for 1st proposal submission

6 29 Ford wins Exclusive right at $7billion.

7 10 Third due diligence from July 10 to Aug 19 by Ford.

9 15 Ford withdraws from acquisition negotiation.

10 7 GM-Fiat Consortium – Submits LOI (Letter of Intent).

New managers are inaugurated. 10 17 (Chairman: Lee Chog-dae, President: Lee Young-kug)

10 31 Announcement of 'self-rescue program' with layoffs of 3,500.

First meeting of labor union and managers.

11 6 DM goes into 1st bankruptcy.

11 7 Third joint labor-management conference fails.

11 8 Daewoo Motor declares bankruptcy.

DM files for court receivership. 11 30 Court appointed manager: Chairman Lee Chong-dae.

12 15 Fundraising by state-run Korea Development bank (46.6billion Won) as financial aid.

12 16 Restructuring plan with job-reductions of 5,347 announced to labor union.

First board meeting by managerial reform commission – Plan to reduce 6,884 jobs 12 29 decided upon.

2001 1 15 Letter proposing layoffs of DM operating workers submitted to Ministry of Labor.

1 E Korea Development Bank (KDB) agrees to inject new financing.

11th board meeting held by managerial reform commission. 2 12 Announcement of 1,785 job cuts and suspension of Pupyong I passenger vehicle plant.

12th board meeting is held by managerial reform commission. 2 16 1,750 employees laid off, Labor union goes on General strike.

2 18 Physical conflict between labor union and police.

4 Operating profit 6.7 billion won realized.

5 29 Negotiations between GM and Creditors back on track.

30 GM submits proposal for acquisition to DM and KDB.

Meeting between GM and DM's creditors begins in H.K. (Lee Sung-keun chief 6 4 negotiator).

4 consecutive months of operating profits realized. 7 5.1 billion won in operating profits realized. It is the first time in three years.

8 16 DM submits corporate reorganization proposal to Incheon District Court.

Joint-proclamation of "No dispute and No strike" announced by labor and 8 30 management.

9 21 MOU (non binding agreement) signed with GM.

9 22 Due diligence.

11 12 Negotiation starts for collective labor agreement of DM.

11 27 Nick Reilly named manager of acquisition team which starts work on Jan. 1, 2002.

12 Annual operating profit 10.7 billion won realized.

12 M GM issues the possibility of contingent liabilities and asks for indemnity.

4 9 DM labor and management reach agreement to revise collective agreement.

2002 4 15 DM submits revised "corporate reorganization form.

4 30 Agreement reached for final formal contract for GM's acquisition of DM.

Note: Summary of online resources and newspaper articles.

(1) Ongoing discussion for strategic alliance (Jan. 1999)

Prior to entering real negotiations for GM’s acquisition of DM, an

MOU agreement for a strategic alliance was signed on Feb.2, 1998.

After a few years of competition, GM and DM were once again

attempting a strategic alliance, only this time the power situation had

changed due to the economic crisis in Asia. DM, like other South

Korean companies, was desperate to find a foreign partner with deep

pockets, whereas GM was gearing up to be in a ‘leading’ position in

the hope of finally playing a significant role in the Asian market.18

At that time, DM was seeking a rescuer. However, the alliance did

not last long for a variety of reasons19. If the strategic alliance had

18 Prabibha A. Dabholkar and Sabrina M. Neeley, op. cit., 453.

19 First of all, GM did not have complete faith in DM. Jack Smith, C.E.O of GM, said in an interview in May 2000; ‘The negotiation for strategic alliance remained deadlocked due to the lack of reliable financial documentation from DM.’ (「Weekly Donga」Vol. 252, Sep. 2000.) DM argued that its net worth was ‘KRW5.1 trillion’ while GM estimated that it was ‘negative KRW6.1 trillion’ on its due diligence after it signed off on the MOU for the strategic alliance agreement. Second, GM faced internal problems. On June 5, 1998, UAW workers at two key plants in Flint, Michigan, went on strike. GM’s North American vehicle production was shut down until the strikes were resolved on July 28. (“General Motors home page 2003: GM Corporate History,” http://www.gm.com/company/corp_info/history/gmhis1990.html ) In the meantime, GM needed to deal with other internal and external issues, such as its participation in the public bidding for Kia Motor. These combined factors all affected the pace of negotiations.

51 been successfully settled, DM might be in a different situation today.

Although the signing of the MOU for a strategic alliance did not have any direct influence on further negotiations, it is clear, at least, that GM was able to get ‘an idea of DM’s internal financial status’, which may have turned out to be critical in future price negotiations.

(2) ‘Workout Program’ of Daewoo group (26 Aug. 1999)

Daewoo group went into a 'workout program.’

(3) GM’s submission of LOI (13 Dec. 1999)

GM submitted an LOI with the proposal of an "optional contract" to the Financial Supervisory Commission.

(4) International public tender (Feb. 2000)

GM, Ford, European Daimler Chrysler, Fiat and Hyundai Motor all applied to bid on DM.

(5) Ford’s retreat (15 Sep. 2000)

Due to a series of internal and external misfortunes, Ford pulled

out of the Daewoo deal.20 There were a number of reasons for

Ford’s decision.

First, the automaker had several internal problems at home.

There was a massive recall of Firestone tires21, whose shares were

plummeting, and the decision to spend billions in ‘dividends’ to its

shareholders. These internal issues alone were enough to make

Ford cautious about considering a deal with DM. Second, the most

likely reason Ford unexpectedly shrank back from Daewoo, was that

its due diligence was unearthing one problem after another at DM.

Insiders admitted that Ford was willing to spend well over the actual

value of the South Korean company because of the position of

strength it would thereby acquire in Asia. But the closer the Ford

team looked, the worse were the liabilities. In addition, the Korean

government rejected attempts to exempt DM’s factories from its

debts and other liabilities.

20 The following article is reorganized for this section; “Ford Misses Out Again,” The Economist 23 Sep. 2000.

21 ‘On Wednesday, August 9, 2000, Bridgestone/Firestone (Firestone) and Ford announced jointly that Firestone recall approximately 14.4 million tires that contain a safety-related defect: Most of the tires in question were original equipment on Ford vehicles, primarily the Ford Explorer, although a small number were used as original equipment on other manufacturers' vehicles, and they have been used as replacement tires on a wide variety of models.’ http://www.nhtsa.dot.gov/hot/Firestone/Index.html.

Thus, Ford pulled out of the Daewoo deal due to 1) its Firestone scandal, and 2) DM’s troubled financial status. This later turned out to be the main variance that directly affected the shift in negotiation power from DM to GM. This event became the turning point that determined the form of the final stage of the GM-DM relationship.

From that point on, the balance of power between GM and DM was broken and GM led the negotiation for acquisition with no competitors.

(6) Court receivership after Daewoo Motor’s bankruptcy (30 Nov.

2000)

DM went into the court receivership, and the court appointed Lee

Chong-dae as its manager.

(7) General strike in Pupyong plant (16 Feb. 2001)

The managerial reform commission held its 12th board meeting and made the decision to layoff 1,750 workers. The labor union opposed the decision and went on a general strike.

(8) Operating profit realization (Apr. 2001)

DM’s Pupyong plant realized an operating profit of 6.7 billion

Korean Won.

(9) Signing of MOU (Sep. 2001)

GM signed a non-binding agreement, or MOU, with DM.

(10) Agreement for final formal contract (30 Apr. 2002)

An agreement was reached for the final formal contract for GM’s acquisition of DM.

3) Final formal contract between GM and DM and its terms

The final formal contract was signed on Apr.30, 2000 and GM struck a good deal. Together with various partners, it got a 67% stake in a new company, tentatively named GM-Daewoo. The acquisition was a key part of GM’s global expansion. The company had been trying to strengthen its foothold in Asia for some time.

Buying a presence in South Korea was seen as particularly urgent, since imports accounted for only 3% of the 1.5 million cars sold in the

country each year. GM would use DM’s production lines to make

budget cars that could be sold under the ‘Daewoo brand’ in most

markets.22 The following table shows the contract terms in detail.

The term differences between the MOU and the final formal contract

are also shown.

(1) Capitalization and equity holding

The newly established company was capitalized through cash

contributions of $40 million from GM and its participating business

partners, and $197 million from DM creditors for ownership stakes

equaling 67 percent and 33 percent respectively. In return for the

creditors’ contribution of selected Daewoo automotive assets, it was

agreed that the new company would issue to creditors a long-term

redeemable preferred equity with a face value of $1.2 billion and an

average annual coupon rate of 3.5 percent.

[Table 9] MOU and Final Formal Contract Terms

MOU A final contract Remark

22 “One Step Forward, One Step Back," The Economist 4 May 2002.

Term Preferred stocks Preferred stocks

US$1.2billion

Amount acquisition deal for US$ 1.2 billion Reduction of debt and

Price bankruptcy corresponding reduction

Acquisition of of affiliate acquisitions

Debt US$573 million in

debt

Acquisition list Sales 22 9 Reduced

(Overseas Number of acquired

corporations) units Production 2 1

Duty to be owed for

early acquisition

when required Required to decide on conditions are met. A Duty to be owed for early takeover within 6 years long-term supply acquisition and no-change Conditions - Impossible to contract to be for rental and the calculate depreciation maintained with an depreciation cost cost annual average

Pupyong plant depreciation cost of

US$ 19.7 million

Maintenance of recent

model cars,

development of Job security Consideration of job - substitute cars, guarantee security of employees strategies to decrease

employment

prohibited

To be regulated in a US$297 million Establishment of a limit Indemnity for 'Contingent debts' formal contract deposit and easing of burdens

Deadline grace period Deadline grace period Tax break (Suspension of special of 9 months for 5 years of 6 months for Reduction of grace period excise tax) payment 3years payment Note: Assembled and summarized with the online resources and newspaper articles.

(2) Acquired assets by GM

The assets contributed to the new company included a total of nine

overseas subsidiaries and three manufacturing plants. The sales

subsidiaries included those in Austria, the Benelux countries, France,

Germany, Italy, Puerto Rico, Spain and Switzerland plus Daewoo's

European parts operations in the Netherlands. The manufacturing

plants were the Changwon and Gunsan plants in South Korea, and

the automobile operations plant in Hanoi, Vietnam.

The manufacturing facility in Pupyong, South Korea, remained

open and continued to supply the new company with vehicles,

engines, transmissions and components for at least six years. The

agreements gave the new company the option to acquire the plant

any time within the subsequent six years.

(3) Brand positioning

It was agreed that the new company would continue to use the

Daewoo brand in Korea, in countries where overseas subsidiaries were acquired such as those in Western Europe, and in certain countries with independent distributors. In addition, the new company’s products would be exported to new markets, such as

Mexico and use established GM or GM-affiliated brands. Final branding and distribution plans were announced after the transaction closed.

(4) Liabilities

The new company also assumed US$573 million of primarily operating liabilities. It also acquired inventories associated with the acquired assets with a value of US $385 million. Long-term committed working capital facilities of US$2 billion were provided to the new company by the South Korean creditors. Provisions were made to ensure that Daewoo’s existing customer warranty obligations were satisfied following completion of the transaction.

(5) Other overseas facilities

For those overseas DM manufacturing facilities that were not acquired by the new company, several continued to supply parts, components and technical assistance to the new company for a period of time. Many of the existing sales subsidiaries in Western

Europe were acquired by the new company. In the United

Kingdom, the sales subsidiaries were acquired, however, and a new sales operation needed to be created. The distribution set-up in other European markets, which had been handled by independent importers, came under review with the intention to establish a

European Operations Center to direct and coordinate business in

Europe.

(6) Management

Nick Reilly was chosen to serve as president and chief executive officer of the new company. In the interim, a transition team consisting of Daewoo management, and management personnel from

GM and its business partners was appointed to ensure a successful startup after closing. Employment levels in Korea were set to remain at the same levels.

(7) Remarks

Other facilities, subsidiaries, ventures, debts and liabilities not

included as part of the definitive agreement remained the

responsibility of the existing Daewoo Motor Company.

The new company would have annual revenues of about US$5

billion and would own and operate selected domestic and foreign

assets of Daewoo Motor Company. This transaction resulted in the

establishment of a well-capitalized company with strong financial

flexibility. Both partners were committed to ensuring that DM

would be transformed into a viable and competitive automotive

enterprise. The transaction allowed the creditors to participate in the

success of the company while also enabling GM to achieve its

strategic objectives of gaining access to the Korean market and

acquiring a strong portfolio of highly cost competitive vehicle

platforms, in support of global strategic initiatives. 23

3) Analytical approach

23 “Uri Gorbatov, GM, Daewoo Motor Company and Creditors: Reach Preliminary” http://www.carseverything.com/content/news/manufacturers/Daewoo.

From 1999 to 2002, the relationship of GM-DM evolved into one of

‘accommodation,’ considering a high degree of perceived relationship and a low degree of perceived outcome. While there were ups and downs on the way to the final agreement, GM conceded at least a portion of its pie in order to reach the final agreement. If GM had used too much pressure to gain more in the final step of the process, the result could have been a negative influence on its future dealings in the Korean market. Instead,

GM sacrificed a portion of its outcome to maintain a certain degree of relationship. Thus, the final pattern of their relationship can be defined as ‘accommodation.’ In sum, the changing relationship between GM and DM can be depicted from ‘Collaboration’ through ‘Competition’ to

‘Accommodation.’ (See Figure6)

[Figure 6] R-O Model Analysis from 1972 to 2002

The Perceived of Relations Importance

III. Accommodation I. Collaboration 1999 ~ 2002 1972 ~ 1992

Negotiation Process

For Acquisition II. Competition h 1993 1998

IV. ASPECTS OF CONSIDERATION FROM

THE HISTORICAL RELATIONSHIP OF GM

AND DM

In the previous chapters, the overall pattern of the GM–DM relationship

63 was divided into three parts: 1) partnership, 2) competitors and 3) M&A negotiators. The GM - DM relationship initially started as a form of joint venture for mutual gain so it can be considered a ‘partnership.’ After the partnership fell apart, the two companies became ‘competitors’ in emerging markets. During this period, GM faced a series of challenges from DM.

Finally, they faced each other at the M&A negotiation table as ‘Negotiators.’

As negotiators, DM was weakened by a series of internal and external factors, so GM was able to gain a relatively favorable position. This chapter will point out some issues for consideration that may provide clues to understand the shifting relationship of GM and DM from 1972 to 2002. In addition, it may be possible to draw some lessons from these issues.

1. Shifts in the Balance of Power

In the same sense as the R-O model, the ‘Interdependency Cube’ can

be applied for the three stages of the relationship between GM and DM.

As mentioned in the earlier introduction of this model, the

‘Interdependency Cube analysis’ is limited to the long-term view of the

GM–DM relationship for this study. Thus, the variables to determine positioning changes in their relationship can be seen according to two factors; 1) the ‘balance of power grid’ depicting balanced or unbalanced power, and 2) the ‘orientation grid’ showing individual or joint orientation. This tool is especially useful in depicting the power shift between GM and DM over the whole period of their relationship.

The three periods can be named ‘Keiretsu,’ ‘Divergent,’ and

‘Command’ using the terminology of the ‘Independency Cube model’.

The first period, from 1972 to 1992, can be seen as a ‘Keiretsu’ relationship. GM formed its initial relationship with DM according to its own preferences, with DM serving as a sub-plant. However, both companies emphasized joint goals under the condition of balanced power.

The second period, from 1993 to 1998, can be characterized as

‘Divergent.’ In this period, after their partnership came to an end, GM was no longer able to lead a favorable position. Despite the existence of an indirect relationship, GM and DM appeared to head along divergent goals and seek gains through competition in emerging markets.

In the final period, from 1999 to 2002, GM was able to gain the

‘Command’ position. Although there were some concessions in the

65 final stage of the negotiation, GM generally led the negotiation of acquisition and successfully maximized its gain. Thus, the analysis of the changing pattern of the GM-DM relationship according to the

Interdependency Cube framework can be seen in the following figure 7.

These three types of relationships represent the character of power relationships between business partners and competitors. If there is a shift in a power relationship, the type of relationship shifts as well, along with the strategies used in dealing with a counterpart. When DM broke out of the ‘Keiretsu’ relationship by acquiring full ownership of itself, the

GM-DM relationship changed to ‘Divergent.’ The strategies employed by the two companies were then focused on competition. After the

Asian financial crisis and the bankruptcy of DM in 1999, their relationship again changed, this time to ‘Command,’ and once more their individual strategies changed accordingly.

[Figure 7] Interdependency Cube Analysis

Unbalanced Power III. I. Keiretsu

Command (1972~1992) 66 (1999~2002) Balanced Power II.

Divergent Coordinative

While GM was prepared to adopt the appropriate strategies for the shift in

its relationship with DM, however, DM failed to do likewise. As relationships

and power balances are in a continuous state of flux, it can thus clear

businesses should be prepared ahead of time for a variety of future power

shifts.

[Table 10] Overview with Analytical Frameworks

R-O Analysis I/C Analysis Period Historical Events

1972 GM Korea established.

1976 11 Renamed Sae-han Motor.

Daewoo group involved in the acquisition of Sae-han Collaboration Keiretsu 1978 with GM.

1978 7 Partial managerial control acquired by DM.

1982 12 Renamed Daewoo Motor.

1992 10 Joint-business terminated.

1995 7 India: Production of Cielo started. Competition Divergent 1995 11 Acquisition of Poland FSO by DM.

1998 9 Acquisition of Ssangyong Motor by DM.

1999 8 Daewoo entered ‘workout program’.

1999 12 Public bidding for DM sales.

Accommodation Command 2000 9 Ford's retreat.

2001 9 Signing of MOU.

2002 4 Signing of final formal contract.

Table 10 is included to help draw a clear understanding of the overall

relationship shift between GM and DM within the frameworks of the R-O

model and the Interdependency Cube model. For each stage of the GM-DM

relationship, the corresponding categories depicted in the two models are

shown.

2. The Superior Negotiation Know-how of GM from

1999 to 2002

In the third, or ‘Command’ stage of the GM and DM’s dealings, the

most noteworthy aspect their relationship can be found in GM’s

remarkable negotiating style. GM’s strength was in its well-

organized negotiating strategy, while DM’s greatest weakness came

from the Korean negotiators themselves. South Korea’s negotiators

are often inexperienced in the merger process in cross-border

negotiations, and the GM-DM negotiations were no exception.

Instead of looking for ‘win-win’ propositions, say their western

counterparts, they often approach all talks as a ‘zero-sum game’. In

addition, during the negotiation process with GM the Korean team

frequently changed its negotiation team managers. This made it

difficult for the team to adopt a steady negotiation strategy.

1) Skillful negotiator24

Compared to DM’s negotiation team, GM’s was well

organized and highly efficient in the process of M&A

negotiations. GM showed its wisdom and experience in

dealing with other cultures in its choice of one member of the

24 Special reporting team of the Korea Economic Daily, 「The Secret of Collapse of Daewoo」(Seoul: The Korea Economic Daily, 2002) 224-225.

69 team in particular, Alan G. Perriton, who was uniquely suited for the job. Perriton was not only a skilled negotiator, but through many years of working and living in Korea, he was also an expert on Korean society. As a manager of GM, he was deeply involved GM's Northern East Asia market. He was an original member of the GM-Korea joint venture established in 1972.

His relationship with Korea began when he was just nineteen years old, serving as a missionary in Seoul. Alan G. Perriton,

GM’s ‘prepared expert,’ entered an important role in readying

GM for its dealings with DM. For example, GM had already gathered accurate surveys and data regarding the internal processes of DM before entering into dealings with the South

Korean carmaker. The takeover prices offered by GM reflected careful analysis of issues such as DM’s internal management situation, its expected productivity after acquisition, its market value and its financial accounting status, among others. Ford, on the other hand, had to withdraw its bid due to a lack of internal research into DM's real status.

Additionally, GM didn’t withdraw its negotiation team from

Seoul when it appeared that the chance to acquire DM had been

lost. It believed there was a good possibility that GM would

have another chance to return to the negotiation table25 even

though Ford had won exclusive rights to DM in international

bidding. This belief proved prescient when Ford announced its

withdrawal three months later.

GM’s use of a negotiator with a broad knowledge of Korean

society, business methods and structures was a key element in its

success in the negotiation process.

2) Adoption of appropriate tactics

GM adopted appropriate tactics at each stage, while the

members of the Korean negotiating team (and the interest

groups they represented) struggled among themselves.

(1) Delay

GM's most significant negotiation tactic was to constantly

25 Ibid. 221.

71 delay the final deal. It never hurried. After Ford’s withdrawal, GM fully recognized that it was the only suitable negotiator for the deal. As time went by, GM was able to take over DM at a cheaper price under better conditions.

The first delay occurred during the period from September

2000, when GM first submitted its LOI, to the end of May 2001, when DM realized its first operating profit for the previous three years. While GM communicated its intention to takeover DM to the Korean negotiation team after Ford’s retreat, it took no actual steps in that direction. It waited until the company’s self-rescue program had made significant progress through pay cuts, job reduction, cleansing of bad assets, disposal of assets and cost cutting. It is highly probable that GM waited until a deal could be made in which burdens from loss-making operations, non-performing assets and liabilities had already been taken care of.

GM continued employing delay tactics right up until the deal was finally sealed. In the time between the signing of the

MOU and the signing of the final formal contract, ‘labor management friction’ was a major issue. GM dragged its heals

until the labor conflict was resolved by the joint labor-

management conference on the early April, after which it

committed to the final agreement.

By adopting delay tactics, GM was able to acquire DM under

much more favorable terms and without any major sacrifices.

(2) Cherry picking: reduction of takeover objects

In its MOU, GM originally agreed to take over two overseas

manufacturing plants and twenty-two sales distribution units.

In the final deal, however, GM took over just nine sales

distribution units and 1 manufacturing plant with higher market

values. (See figure 8) By cutting unstable facilities out of the

deal, GM was able to reduce its risk.

[Figure 8] Cherry-picking Acquisition by GM

1999 MOU (9.2001) Final Contract (4.2002) Overseas assets Overseas assets Overseas assets ▪ Sales distribution ▪ Sales distribution ▪ Sales distribution center : 33 units center : 22 units center : 9 units ▪ Plants : 3 units ▪ Plants : 2 units ▪ Plants : 1 units Domestic asets Domestic asets

▪ Plants : 2 units ▪ Plants : 2 units

Source: Se-young Ahn, op. cit., 607.

GM provisionally took over the Pupyong manufacturing plant

under specific conditions. DM’s Pupyong plant would

continue operations and supply the new company with vehicles,

engines and components for at least six years. GM agreed to

buy the plant within that period if it met certain terms, such as

two-shift production, at least 4 percent annual capacity

improvement and the ability to meet product quality standards.26

With that option, GM was able to diversify its production line

without bearing potential risks.

(3) Good bargaining with big discounts

According to the deal, GM and its partner companies invested

US$400 million to hold a combined 67 percent of a newly

established company to which DM would sell three key

manufacturing plants (two in South Korea and one in Vietnam)

and nine sales subsidiaries in Puerto Rico and European

26 Yonhap 30 Apr. 2000.

Countries, including Austria, France, Germany, Italy, Spain,

Switzerland and the Netherlands27. The completed takeover

price came to $1.77 billion, including the acquisition of $573

million in debt.

After DM’s bankruptcy on August 26, 1999, the Korean

government estimated the automaker’s value between US$3

billion and $ 4 billion. Initially GM bid $5.5 billion and Ford’s

price followed at $7 billion. Through several adjustments, the

final takeover price was settled at $1.2 billion. (See Figure 9)

Over the course of the negotiations, the price of DM had fallen

by $4 billion from GM’s initial offer. The price gap was even

larger if the highest price, the $7 billion offered by Ford in

international bidding, is considered. As a whole, GM took

over DM for less than one fourth of its initial asking price.

[Figure 9] Price Change for DM’s Acquisition

27 Hindu Newspaper 1 May 2002.

80 70 70 60 55 50 40 40 30

20 12 Price(US$100million) 8.5 10 4 0

)

Dec.1999(GM) Jun.2000(Ford) Jun.2000(GM) Jun.2000(GM) Dec.2001(GM) Apr.2002(GM Date(Month/Year)

Note: The raw data for graph is from Se-young Ahn, 「Global Negotiation Strategy」(Seoul: Pakyoungsa, 2003) 606.

3. The Typical Obstacles Blocking Korean Firms in International Business Working with Cross-border Partners

1) Conflicts among interest groups

The following points generally appear as obstacles whenever

Korean firms deal with cross-border partners. Although the details of this section are drawn from GM and DM’s dealings, they are relevant applicable to many Korean firms.

(1) Government

When considering whether to sell off DM at a rock-bottom price, the Korean government faced a thorny dilemma. On the one hand, selling the embattled carmaker to GM at a bargain price would send a clear message to other chaebol that they might wind up selling their assets cheaply unless they immediately implemented serious reforms. On the other hand, the government would have to spend billions more in taxpayer money to rescue the banking sector. Thus, inside the Korean government, there was conflict between the

Ministry of Commerce and Ministry of Commerce, Industry and

Energy.

(2) Media

Since the GM-DM deal would have a significant impact on the

South Korea economy, the media closely followed every step of the

negotiation, and its reportage of rumors and speculations did nothing

at all to help the progress of talks. The already hostile public mood

was often further agitated by sensational news reports and leaks.28

(3) Labor unions

Labor unions also didn't help the negotiation progress by holding

violent protests against the GM takeover, which they feared would

lead to mass layoffs. Moreover there were conflicts among three

separate labor unions after the MOU agreement, in which GM agreed

only to takeover DM’s Gunsan and Changwon factories. (See earlier

figure 8)

(3) Creditors

The State-run Korea Development Bank - Daewoo's main creditor

bank - also differed with the labor unions. All of the conflicts

among different interest groups hindered the negotiations and made a

successful outcome more difficult. Figure 10 depicts the conflicts

among relevant interest groups.

28 “Dead Deals Walking,” The Economist 9 Feb. 2002.

2) Korean Culture: Xenophobia

The nature of Korean culture was also a kind of hindrance in the sale

of DM. Based on concepts such as “face” and “shame,” it offers no

rewards for risky decisions that turn out well, but punishes – with jail, in

some instances – those that turn out badly. Negotiators therefore have

little incentive to fight for the best deal. One who experienced this

personally is Hogeun Oh, who chaired DM’s restructuring committee.

Seen by foreign investors as one of South Korea’s bravest and best

negotiators, Oh was mauled in the local press for being easy in foreigners.

He said in his interview with ‘the Economist,’ “Afterwards, they can

always say that you could have done better, and there is no defense”. 29

29 “Dead Deals Walking,” The Economist 9 Feb. 2002.

[Figure 10] Conflicts among Interest Groups

Inside Outside

Pros • Labor Union in Chanwon •Creditors: KDB etc and Gunsan • Financial Supervisory Service • Ministry of Finance and Internal Dispute Economy Cons • Labor Union in Pupyong • Ministry of Commerce, Industry and Energy • Politicians •Regional Society •Media

DM’s Negotiation Team

Official Dispute

GM’s Negotiation Team Pros •CEO: Rick Wagoner • GM’s Asia-Pacific Segment

Internal Dispute Cons

• Financial Department of GM •FIAT • GM’s Plants in U.S.A. • MARUTI •OPEL

Inside Outside

Note: Depicts data collected online and from newspapers and journals

V. CONCLUSIONS

The history of GM is often called ‘the history of a century of M&As .’

Before being acquired by GM, the current sub-divisions of GM, such as

Cadillac, Buick, Oldsmobile, Pontiac, and Chevrolet, were all once its competitors. Suzuki and Saab were recently added to the list and DM has followed the same path. Although DM started its business through a form of joint venture with GM, it aggressively expanded its economy of scale through

M&As in the mid 1990s, just as GM did. For a while, DM achieved remarkable success, but in the end it came to the same fate as so many of

GM’s other competitors.

In this study, the changing patterns of the relationship between GM and

DM are defined as three stages that are considered according to the perceived importance of outcome and relationship; 1) partnership (1972-1992): collaboration, 2) competitors (1993~1998): competition, and 3) M&A negotiators (1999~2002): accommodation.

Although there were ups and downs for both GM and DM since their initial

81 joint business in 1972, GM achieved its original goal – to produce sub- compact cars in Korea with a target of further business in the Asia-Pacific market - by acquiring DM. The path of the relationship between GM and

DM can offer valuable lessons to Korean companies that are willing to promote their businesses through cross-border partnerships.

First, ‘building credibility’ should be the number one consideration if long- term relationships with its cross-border partners are to be maintained. This need for credibility extends to the partners’ government. Like organic bodies, corporations have life cycles, as do their partnerships and relationships. It is difficult to maintain a static or specific type of relationship for very long. Over a three-decade period, the relationship between GM and

DM took several forms. Starting from a position of partnership and relative trust, the two companies became fierce competitors in emerging markets, but when GM was abruptly cut out of the running for the acquisition of

Ssangyong Motor in 1998, both DM and the Korean government lost their credibility with GM. Later this loss of credibility returned as an obstacle to a final agreement in the GM-DM takeover negotiations from 1999 to 2002.

For example, GM asked for a far lower price than the fair market value for the acquisition of DM and required indemnity since it had doubts about accuracy of the DM’s financial statement and inconsistent stance of the Korean

82 government. A partner of today can be a competitor of tomorrow.

Building credibility is a minimum safeguard to prepare for future relationship shifts.

Second, Korean companies need negotiators who are skilled at seeing the big picture, anticipating the strategies of their counterparts and developing countermeasures and alternative strategies. The fact is that a ‘lack of negotiation skills’ has been repeatedly pointed out whenever the dealings of

Korean firms or the government enter international negotiation stages. A similar criticism was also observed in the GM-DM case. While GM utilized experts on Korea and employed appropriate tactics in each round of negotiations, DM and the Korean government failed to apply a single consistent strategy and expended too much of their energy struggling with internal interest groups. In addition, there was not even a serious discussion about BATNA (Best Alternative To a Negotiated Agreement) among the interest groups. As R. Fisher and W. Ury, professors of Harvard University, mentioned, better alternatives can create stronger negotiation power to reach a better outcome. If there had been more active discussions about BATNA, the final negotiations between GM and DM might have yielded better results for DM.

Third, a successful cross border deal is impossible if there is not sufficient understanding or knowledge of the partner being dealt with. They are never built in a day. In GM’s case, it took a ‘gradual approach.’ As it did with other companies that later became its subsidiaries, GM started its initial relationship with DM from partial equity participation. Then, it moved forward to acquire DM after years of experience with it. This method is a cautious way of gaining immediate benefits while uncovering the risks and benefits associated with an investment partner. If close attention is paid to

DM’s aggressive investment in emerging markets during the mid-1990s, it becomes clear that DM did not hesitate to invest in new markets and proceeded with a boldness that sometimes came close to recklessness. For example, DM built sales distribution centers through direct investment in 40 countries in just 5 years. At that time, those assets in new markets were obtained by exchanging unknown potential risks. In hindsight, it is plain that

DM overestimated the growth rate of emerging markets. As a result, the operating rates of its plants in emerging markets marked low degree in 1997;

60% in Poland, 22% in Uzbekistan, 24% in Romania, and 11% in India. It is obvious that its sudden expansion contributed to the collapse of DM. Thus,

GM’s cautious investment strategy, its step-by-step approach over the long-

84 term, is the more appropriate way to effectively eliminate obstacles that can result from gaps between different companies and cultures.

Although systematic risks cannot be totally controlled by Korean corporate managers, the pattern of the changing relationship between GM-DM shows that they can minimize these risks by 1) building credibility with business partners, 2) developing negotiation strategies with BATNAs and 3) investing gradually in target markets. In this way, they can increase the outcome of international business with their cross-border partners.

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APPENDICES

[Table 11] Global Vehicle Production and Sales by Manufacturer30

Global Vehicle Production Global Vehicle Sales

2002 2001 2000 2002 2001 2000

General Motors 8,276,000 7,786,000 8,494,000 General Motors 8,504,434 8,564,480 8,596,347

Ford Motor Co. 6,973,000 7,008,000 7,424,000 Ford Motor Co. 6,819,594* 6,906,548* 7,150,711*

Toyota Motor Corp. 6,309,616 5,848,094 5,888,260 Toyota Motor Corp. 6,167,703 5,927,568 5,703,446

Volkswagen AG 5,023,264 5,107,945 5,156,455 Volkswagen AG 4,989,030 5,080,087 5,165,000

DaimlerChrysler AG 4,471,900 4,424,200 4,677,894 DaimlerChrysler AG 4,540,900 4,498,800 4,749,000

PSA/ Peugeot-Citroen SA 3,262,100 3,136,300 2,877,400 PSA/ Peugeot-Citroen SA 3,267,474 3,132,800 2,815,700

Hyundai Motor Co. 2,913,726 2,517,719 2,545,958 Hyundai Motor Co. 2,939,499 2,652,509 2,533,243

Honda Motor Co. 2,900,787 2,651,661 2,485,213 Honda Motor Co. 2,820,000 2,670,000 2,540,000

Nissan Motor Co. 2,690,295 2,466,995 2,605,155 Nissan Motor Co. 2,735,530 2,580,328 2,629,044

Renault SA 2,343,954 2,375,084 2,444,370 Renault SA 2,403,975 2,413,038 2,438,256

Fiat S.p.A. 2,159,936 2,391,719 2,733,015 Fiat S.p.A. 2,079,336 2,292,858 2,646,500

Mitsubishi Motors Corp. 1,822,644 1,668,286 1,813,586 Mitsubishi Motors Corp. 1,847,800* 1,698,371 1,665,617*

Suzuki Motor Corp. 1,798,089 1,619,304 1,771,113 Suzuki Motor Corp. 1,707,392 1,587,780 855,695

BMW Group 1,090,258 946,730 834,519 BMW Group 1,057,344 905,657 822,181

30 Notes: *Automotive News estimates **Global production and sales shown are through Sept.2002 Production includes minivehicles, passenger cars, light, medium and heavy commercial vehicles and buses; includes vehicles produced for sale by other manufacturers. Sales includes minivehicles, passenger cars, light, medium and heavy commercial vehicles, and buses

AutoVaz 803,498 768,030 705,561 Mazda Motor Corp. 964,800* 968,324 1,009,912

Mazda Motor Corp. 773,798 868,757 932,160 AutoVaz 640,000 775,612 698,832

Fuji Heavy Industries Ltd. 541,018 568,870 581,368 Fuji Heavy Industries Ltd. 554,911 570,816 582,199

Isuzu Motors Ltd. 455,615 454,553 566,874 Isuzu Motors Ltd. 456,119 461,116 582,651

Daewoo Motor Co. 316,639** 522,375 997,444 Daewoo Motor Co. 317,251** 502,701 972,247

First Automotive Works(FAW) 309,625 216,549 340,131 First Automotive Works(FAW) 356,018 250,623 351,791

Proton 231,775 233,297 188,603 Proton 214,985 209,514 182,300

TELCO 207,508 179,021 181,093 TELCO 204,868 172,667 181,179

AutoGaz 198,135 191,492 227,673 AutoGaz 194,000* 198,654 222,400

SsangYong Motor Co. Ltd. 161,016 125,026 - SsangYong Motor Co. Ltd. 161,042 125,440 -

Volvo Truck Corp. 160,800* 158,000* 93,000* Volvo Truck Corp. 157,133 155,311 81,826

Paccar 92,300 78,700 102,400 Paccar 92,300 78,700 102,400

Navistar International Corp. 86,000* 85,794 118,520* Navistar International Corp. 88,400* 94,064 119,705*

Mahindra & Mahindra 72,320 62,020 67,006 Mahindra & Mahindra 70,166 63,612 67,052

Porsche AG 57,004 56,154 50,848 Porsche AG 55,124 54,787 50,096

MAN Nutzfahrzeuge Group 53,800 66,250 65,100 MAN Nutzfahrzeuge Group 53,900 68,850 64,550

Scania 45,145 48,129 55,581 Scania 43,669 48,331 56,492

Ashok Leyland 32,643 32,174 34,524 Ashok Leyland 33,444 30,706 34,543

Nissan Diesel Motor Co. 26,761 24,142 25,661 Nissan Diesel Motor Co. 28,669 26,205 27,905

Hindustan Motors Ltd. 23,750 24,063 29,568 Hindustan Motors Ltd. 23,366 24,300 29,231

Eicher Motors 12,442 9,197 8,036 Eicher Motors 12,261 9,046 8,050

Bajaj Tempo Ltd. 8,737 6,860 9,359 Bajaj Tempo Ltd. 8,662 7,648 8,714

Source: “Automotive News Data Center and Marketing Systems GmbH” 「Market Data Book」2003.

[Table 12] General Motors’ Global Brand Positioning

Fiat Pontiac Buick Cadillac Saturn GMC Opel Saab Isuzu Suzuki Subaru

U.S.A ● ● ● ● ● ○ ○ ○

Mexico ● ○ ○

Brazil, Argentina ● ○ ○ ○

Western Europe ● ○ ● ● ○ ○ ○

Eastern Europe ● ● ● ○ ○

Japan ○ ● 2000 ● ● ● ○ ● ● ●

ASEAN ○ ○ ○ ○ ○

Australia ○Alfa ● ○

China ● ○ ○ ○

Taiwan ○ ○ ○ ○

India ○ (●Marui)

Remark ● This denotes major markets including home market and strategic base or brand.

Source: A&D Consultants, “Special Report for GM,” 「Monthly Report on the Global Automotive & Its Corporation Industry」Vol. 21. Sep. (2001): 83.

[Table 13] Overseas Affiliates of Daewoo Motor

Subsidiaries Branches R&D Center Total Automotive industry 60 1 2 63 Source: Joo-yong Park, 「A Comparative Study on Theories of Direct Investment and Cases at Daewoo Group」quoted in “Daewoo Managing Department for Overseas Business”, 1997.

[Table 14]

Overseas Production Plants of Daewoo Motor and Capacity

Commercial Opened Month for Passengers’ Vehicle Total Vehicles operation

Poland 500,000 170,000 96 Mar 670,000

Ukraine 255,000 - 98 May 255,000

Uzbekistan 150,000 50,000 96 Mar 200,000

Czech - 25,000 95 Nov 25,000

Iran 25,000 - 96 Oct 25,000

Egypt 24,000 - 98 Sep 24,000

Romania 200,000 - 96 Mar 200,000

India 160,000 10,000 95 Jul 170,000

Vietnam 28,000 2,000 95 Mar 30,000

Indonesia 5,000 - 95 Jul 5,000

Philippines 10,000 - 97 Sep 10,000

China (Bus) - 5,000 94 Aug 5,000

Total 1,357,000 262,000 - 1,619,000 Source: Joo-yong Park, 「A Comparative Study on Theories of Direct Investment and Cases at Daewoo Group」51, quoted in “Discover Daewoo,” 「Daewoo Development of Human Resources」1998.