The Transfer of Korean Passenger Car Production to East Central Europe: the Case of Direct Foreign Investment by Daewoo Motor
Total Page：16
File Type：pdf, Size：1020Kb
The Transfer of Korean Passenger Car Production to East Central Europe: The Case of Direct Foreign Investment by Daewoo Motor This Thesis is submitted in fulfilment of the requirements of the Degree of Doctor of Philosophy by: Sun Hee Chae Development Planning Unit University College London 1999 1 ProQuest Number: 10797751 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a com plete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. uest ProQuest 10797751 Published by ProQuest LLC(2018). Copyright of the Dissertation is held by the Author. All rights reserved. This work is protected against unauthorized copying under Title 17, United States C ode Microform Edition © ProQuest LLC. ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106- 1346 Abstract of the Dissertation Passenger car1 companies in developed countries, such as Germany, France, Italy, the United States and Japan, have been investing in overseas plants for local production for a very long time. However, until recently there has been no significant indigenous car manufacturer to become a global player from newly industrialised countries (NICs) or developing countries. In contrast to major players in the world market, current car producers in the NICs and developing countries locate their manufacturing plants at home, seeking to export their products rather than investing in overseas production facilities. However, car manufacturers, particularly in the Czech Republic, Malaysia and South Korea, are currently preparing to go one step further with direct investments in car manufacturing abroad. Among them, South Korean car manufacturers have made the most significant progress in setting up production facilities in foreign countries. Daewoo Motor is one of the leading investors among car manufacturers in South Korea, with direct investments concentrated in developing and East Central European countries2. This research aims to understand the reasons for Daewoo Motor’s direct investment in car manufacturing in Poland and Romania, and investigates the company’s comparative advantages and global strategy by identifying the pattern of its global operations. Two sets of research hypotheses have been tested in this research study. The first is that Daewoo Motor was motivated by market access in Poland and Romania. The second proposes that the company aims to access Western European markets. That is, with the prospect of future integration of East Central Europe into the overall European car market, those countries offer attractive investment opportunities and a justification for Daewoo Motor to change its export strategies toward the whole European market. By setting up production facilities in East Central European countries, Daewoo Motor can not only obtain access to potential markets in the region, but can also avoid regional trade barriers in European Union member countries in the future. 1 Throughout this thesis, “car” refers to passenger cars only and “motor vehicles” means passenger cars, trucks, and buses. 2 In this dissertation, East Central European countries refer to Bulgaria, the Czech Republic, the Slovak Republic, Hungary, Poland and Romania. 2 Through the field survey, the dissertation finds that initially the main reason for Daewoo Motor’s investments in car manufacturing in Poland and Romania is a necessary strategy to secure a market for future increases in production. However, the responses collected from interviews during the field survey were different from the reality Daewoo Motor is facing. Governments’ support in Poland and Romania, particularly through investment incentives and import controls, seems to motivate the company’s investment in these countries, implying a typical crony capitalism. However, the global strategy of Daewoo Motor constitutes a new chapter in the history of the South Korean car industry and in the world motor industry, which has been dominated by car producers in developed countries for almost a century. 3 Acknowledgements Throughout the period of conducting this research, I have received a great deal of support and encouragement. At first, I am deeply indebted to the research supervisor, Professor Nigel Harris, for being able to accomplish this research. He was always sharp and precise in directing this research and commenting on my writings at every stage. His guidance was important in enhancing my capability to be a competent academic. His insight into the economic development of South Korea particularly helped me to sharpen my ideas and establish arguments through the Research Seminars at the Development Planning Unit. I owe an especially large debt of gratitude to the Director General, Mr. Young Sang Yoo at the Ministry of Trade and Industry of the Republic of Korea (the former Commercial Attache in the embassy of the Republic of Korea in the United Kingdom). With his support and assistance, I have been able to accomplish this research without serious difficulties. I wish to express my gratitude to chief executive officers (CEOs) at the Daewoo Corporation, Daewoo Motor, Daewoo - FSO, and Rodae Automobile, as well as the deployed Daewoo Group’s employees who provided necessary support to visit Daewoo Motor’s affiliates in East Central European countries. In particular, I wish to acknowledge the senior managing director, Mr. Sang Hoon Lee at the Daewoo Corporation, for helping me understand the Daewoo Group and the Group’s globalisation process, in addition to assisting in interviews with the Group’s CEOs, despite his busy schedule. I also received excellent support from the Korean Chamber of Commerce which was provided when I joined the Economic Delegation, accompanying the official visit of the Prime Minister of South Korea to East European countries. I am very grateful to the staff for their assistance in obtaining information. In addition, their valuable feedback from the joint meetings with the Economic Delegation of East European countries was particularly of great help. 4 Finally, particular thanks must go to my family and friends. Their endless encouragement have helped me to achieve this research. I wish to give special thanks to Dr. Chan Woo Lee for giving valuable comments and support, and also to Dr. S. Srinivas, Mr. J. Balis and Mrs. Y. Balis for helping me to finish tedious jobs at the last stage of the research. 5 Contents Abstract of the Dissertation 2 Acknowledgement 4 List of Tables 10 List of Figures 13 Chapter 1 Introduction 1.1 Motivation of the Research 14 1.2 Objective of the Research 19 1.3 Significance of the Research 19 1.4 Limitation of the Research 21 1.5 Structure of the Dissertation 21 PART A CONCEPTUALISATION Chapter 2 International Production and Research Design 2.1 Introduction 25 2.2 The Definitions of a Multinational Enterprise and FDI 26 2.3 The General Theories of FDI 29 2.3.1 Prior to the 1960s 29 2.3.2 The Production Cycle Theory 31 2.3.3 The Currency Area Theory 34 2.3.4 Cave’s Theory 36 2.3.5 The Oligopolistic Reaction Theory 38 2.3.6 The Internalisation Theory 41 2.3.7 The Eclectic Theory 44 2.3.8 The Kojima Theory 47 2.4 Income-Driven Product Cycle Model 49 2.5 Existing Studies on Less Developed Country (LDC) MNEs and NIC-Based MNEs 53 2.6 Strategy and Theory of the Firm 57 2.7 Research Design 63 2.7.1 Research Questions and Hypotheses 63 2.7.2 Research Methodology 67 PART B UNDERSTANDING OF THE WORLD CAR INDUSTRY Chapter 3 History of International Trade and FDI in Cars 3.1 Introduction 71 3.2 The First Generation: The Dominance of American Car Manufacturers 72 3.3 The Second Generation: Competitive Balance and Integration of Car Industry between Europe and the United States 77 3.4 The Third Generation: The Breakthrough of Japanese Car Industry and FDI 83 3.5 The Fourth Generation: Emerging Car Manufacturers 88 3.5.1 The Entry Barriers of LDC Car Manufacturers 88 3.5.2 LDC Entrants 98 3.6 Conclusion 113 Chapter 4 South Korean Export-Oriented Industrialisation and Car Industry 4.1 Introduction 116 4.2 Changes in the Structure of South Korean Industry 117 4.2.1 Export of Labour-Intensive Products, 1962-72 117 4.2.2 Foundation of Capital-Intensive Industry, 1973-85 120 7 4.2.3 The Transformation of South Korean Industry after 1986 127 4.3 South Korean Car Industry 132 4.3.1 History 132 4.3.2 Production 137 4.3.3 Export Performance 143 4.3.4 FDI 149 4.4 Conclusion 151 Chapter 5. The Chaebol and Daewoo Group 5.1 Introduction 154 5.2 Definition 155 5.3 Formation and Growth of the Chaebol 158 (A) Origin 158 (B) Consolidation 160 (C) Expansion 162 (D) Global Enlargement 165 5.4 Organisational and Managerial Structure of the Chaebol 170 5.5 Critique of the Chaebol’s Organisation 180 5.6 Daewoo Group 184 5.6.1 History 184 5.6.2 Organisation 191 5.7 Conclusion 195 PART C MOTIVATIONS FOR DAEWOO MOTOR’S DIRECT INVESTMENT IN EAST CENTRAL EUROPE Chapter 6 The Transition of East Central European Countries and Its Significance to Motor Vehicle Industry 6.1 Introduction 199 6.2 Economic Liberalisation, Stabilisation and Growth 200 6.3 The Viability of Car Industry 208 6.4 Implications for Policy 225 6.5 Conclusion 231 Chapter 7 The Motivations of Daewoo Motor’s Direct Investment in East Central Europe: Empirical Analysis 7.1 Introduction 234 7.2 The First Part: An Understanding of the Daewoo Motor 236 7.2.1 History and Development 236 7.2.2 Domestic Position 239