How and to what extent have Korean multinationals established competitive leadership in international markets?

TABLE OF CONTENT

I) Motivations and strategies to move towards FDI 3

a) The circumvention of barriers to trade 4

b) Oligopolistic rivalry and pressure for globalization 4

II) Multinationals capabilities/ Ownership advantages 5

a) The dynamics of technology transfer and absorption 5

b) Access to the technological frontier 6

c) Ownership Advantage (O advantage) 6

III) Management Structure and Organization 7

IV) Role of Government 8 Conclusion 9

Bibliography 10

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The 21st century confirms a paradigm shift from the previous century. Investments, both inflows and outflows, no longer concern only rich countries. Multinational companies are increasingly interested in the countries of the South, and in particular in Asia. These capital inflows, accompanied by new skills and capacities (human capital, governance rules, etc.), are increasingly strengthening the region's infrastructure (Chang & Choi, 1988).

Being present for a long time on Western or Japanese markets through exports of everyday consumer products (clothing), major Korean industrial groups are now bursting onto the American and European markets in high-tech sectors where they market their products under their own brand names: Excel cars sold by Hyundai in the United States and Europe, Goldstar televisions, Samsung video recorders, IBM compatible microcomputers from Hyundai... (Ahn, et al., 2005).

Korea's development has been a long-term growth based on both agricultural and industrial development and based as much on internal growth, that of the domestic market, as on extrovert growth, driven by competitive exports (Amsden & Alice, 1989).

In order to show to what extent have Korean multinationals established competitive leadership in international markets, this essay is based on existing FDI theories and approaches. First, it analyses Korea's internationalization process through FDI, making comparisons with other countries such as Japan. Then, the report focuses on how Korean multinationals have been successful after deciding to internationalize.

I) Motivations and strategies to move towards FDI

Devastated by successive wars, Korean industry developed in the early 1950s around the textile and agri-food industries, enabling the population to meet its basic needs and the national industry to conquer the domestic market (Amsden & Alice, 1989).

The second phase in industrialization, beginning with the introduction of the first five-year plan, was the "export promotion" phase.

The trade policies of industrial countries and Korea's oligopolistic market structure have favoured FDI, encouraging Korean firms to bypass export barriers and follow each other in foreign markets to maintain their market share. This dual influence characterizes defensive globalization behaviour, with FDI being a response to the restrictive trade policy of a foreign country and/or the action of a rival firm (Perrin, 2001).

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(a) The circumvention of barriers to trade

According to the theoretical and empirical literature on FDI, protectionism provides a strong incentive to invest in a foreign market rather than serve it through exports (Azrak & Wynne, 1995). In fact, the LOF literature suggests that multinationals should invest in learning about foreign markets. Thereby it is consistent with the empirical finding that the great majority of international business is conducted by MNEs in their home region. (Rugman & Oh, 2008). Trade barriers, such as voluntary export restrictions in the automotive sector or anti-dumping measures in electronics, helped to explain the rise of Japanese investment in Europe and the United States in the 1980s (Barrell & Pain, 1999; Sachwald, 1995). Korean firms also faced a significant rise in trade tensions with industrialized countries during the 1980s (Bark, 1991; Nam, 1993), coinciding with the emergence of Korea as a new international competitor, then assimilated to a "second Japan". Surveys of Korean investors confirm the importance of circumventing trade barriers as a key motivation for FDI, particularly in Europe (Min, 1991; Kim, 1996; Bank of Korea, 1997). According to Shin's (1999) study on Korean electronic firms in Europe, this reason comes second only to the pursuit of a strategy of globalization of production. The role of protectionism is less clear in the case of the United States, where, according to Kim's (1997) results, it is outpaced by market access motivations and technology acquisition. The econometric tests carried out by Jeong (1992) and Park (1998) give quite different results depending on the nature of the barriers to trade. The first confirms that non-tariff barriers have had an incentive effect on Korean FDI in developed countries. On the other hand, the second finds that the host country's tariff barriers have a dissuasive effect on FDI, but its variable is not significant.

(b) Oligopolistic rivalry and pressure for globalization.

According to Knickerbocker's analysis (1973), a leading firm that decides to enter a foreign market will quickly be followed by its rival firms by oligopolistic reaction in order to avoid the risk of letting it monopolize the foreign market alone. This leader-follower scheme would be all the more clear-cut as the domestic industrial concentration is high. Some studies of the establishment of Japanese firms in the United States have also suggested the existence of oligopolistic reactions (Kogut & Chang 1991; Hennart & Park, 1994). Jun (1988) and Han (1992) highlight the importance of oligopolistic structure in consumer electronics in explaining the mimetic behaviour of Korean firms in the US and European markets.

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II) Multinationals capabilities/ Ownership advantages

From the 1960s onwards, Korean groups gradually built their industrial capacities through imitation and learning. They have made significant efforts to absorb new knowledge and increase their technological capacities. In the 1990s, they moved from "imitation to innovation" (Kim, 1997) and felt the need to establish themselves in the most innovative regions of the world. Thus, Nelson and Pack (1999) find that the successful

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