In most cases, it was aimed at making inroads into the Korean market, and establishing a bridgehead to the Chinese or Japanese markets, and securing low-cost labor. Foreign investors' strategy for marketing was thus focused on localization. Those securing a market share of more than 31% accounted for 31% of the firms surveyed.
When it comes to General Motors, the largest foreign investor operating in Korea, the priorities they considered before determining their investment were, first, the scale of the market (one of Asia's three largest markets and one of the world's four fastest-growing markets), and secondly, Korea's excellent technologies; and thirdly, Koreans' productivity. Other reasons include Korea's strategic geographical location and globalization. GM appeared to have made a decision on investment in Korea based on its market-oriented strategy, taking into account the benefits offered by Korea such as high technologies and productivity, domestic consumption and a huge potential neighboring market.
In view of the aforementioned reasons for advancing into Korean market by foreign auto manufacturers, decisive factors appear to be advancing into the Korean market as well as the Chinese and Japanese markets, and low-labor costs, availability of highly-skilled workforce, and the incentives for specialized technologies, government support, raw material supply and exemption from import restriction regulations.
Foreign-invested businesses marketing trends. Eighty percent of locally manufactured products were sold in the domestic market, and very few of them were shipped to their home countries. Thus their investments were mainly aimed at the Korean market (71.2%)
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Benefits compared with investment in China, Japan and other countries in the Asian region. The global auto market is tending to move to Northeast Asia after Europe and the USA, and the attraction of the auto parts market environment in Korea has been increasingly improved for potential investors.
More importantly, in the ever-improving Korean auto parts market environment, the hierarchical transaction practice of auto manufacturers in Korea has been gradually eased and rationalized to establish fair transaction relationships. Furthermore, the big manufacturers' sales have continued their upward trend, thus sustaining the stable growth of the auto parts industry, while sales of foreign manufacturers operating or planning to operate in Korea have been on the rise. Since Korea is situated in the hub of Northeast Asia, which has the greatest growth potential in the world, it provides better benefits for making inroads into the Chinese market or the Southeast region. Besides, it effectively provides qualified engineering manpower, and a good environment for developing electronic devices within a short time, compared with most other countries, thanks to the availability of Korea's highly advanced IT technology.
Comparing Korea's auto parts investment environment with China, the advantages and disadvantages can be described as follows:
Advantages:
Infrastructure for parts and materials, manufacturing and quality control, export marketing capability, IT and related industries, competitiveness in technologies and quality.
Highly-qualified workforce
High productivity and quick adaptability to changes
Abundant demand for components and material
Perfect test-bed for new products and services for other Asian markets
Well-developed infrastructure
World-class ICT infrastructure
Better protection of intellectual property
Disadvantages: Relatively high labor cost-structure
Relatively smaller domestic market
Relatively confrontational labor-management relations
Forecasted competitiveness in auto parts vis-a-vis Japan. Korea's auto parts-related technologies, which have been steadily improved, are expected to reach a similar level with Japan, except for specific parts, by the year 2005. However a significant gap still exists in the area of core technologies necessary for developing future intelligent cars, described as follows:
Korea, an optimal destination for investment in auto parts.
In line with Northeast Asia emerging as the hub of the world auto industry, the geographical benefits of this region are increasingly being highlighted. Japan, as a global economic power, has secured world-class auto manufacturing technology on the back of the world's second-largest auto market, while China continues to shatter records for growth rate of both production and demand. With its explosive potential in demand, China has surfaced as the contest stage of the global auto market and industry. Korea has grown to become the world's sixth-largest automaker within a short time thanks to significant growth of its export-driven industry, and it is still growing. Asia's Big-3 has become the center of the world's auto industry with their benefits and greatest market potential. Of the three, Japan is relatively vulnerable because of high manufacturing costs. In contrast, China has yet to secure the sophisticated technologies and infrastructure, despite its rapid growth and high potential, to become an eligible investment destination. Korea, with its well-developed infrastructure necessary for auto manufacture and high quality level, has been equipped with high technical competitiveness and reasonable manufacturing costs, and has geographical benefits that could serve as a bridgehead to the Chinese market to become the optimal destination among the three countries, which global investors have been seeking.
