SOUTH KOREA’S OUTWARD FOREIGN DIRECT INVESTMENTS IN SOUTHEAST ASIA TRENDS, MOTIVATION AND CASE STUDIES
Soo Kee Tan
Introduction
1
2
3
4
1
2
3 Review of Business
History
4 The Journal of
the Korean Economy
Vol. 2, No. 1, 2012/2013, pp. 111-128
:
Motivation of Foreign Direct Investment
Review of Business History
Journal of International Business Studies
11
12
13
14
11
12
Multinational Business Review
13
14 Bernama
Current status and trend of Korea’s OFDI in South East Asia
0 500000 1000000 1500000 2000000 2500000 3000000 3500000 4000000 4500000 5000000
Investment Value in USD(1000)
Figure 1: Trend of Korean OFDI in South East Asia
ASEAN Economic Bulletin
0 200000 400000 600000 800000 1000000 1200000 1400000 1600000 1800000
Invested Amount in USD(Thousand)
Figure 2. Korea OFDI's Trend in South East Asia, by Country from 1980-2010
Vietnam Indonesia Singapore Malaysia
Vietnam Business Asia from
Manufacturing 46%
Mining 14%
Real Estate 9%
Wholesales &
Retails 6%
Finance &
Insurance 5%
Construction 5%
Others 15%
Korea's OFDI in South East Asia, by Industry(1968-2010)
Indonesia 81%
Malaysia 9%
Thailand 6%
Singapore
2% Philippine
2% Vietnam 0.01%
Indonesia 35%
Vietnam Singapore 18%
13%
Thailand 12%
Philippine 11%
Malaysia 9%
Myanmar 1%
Others 1%
Motivation of Korean MNCs investments in South East Asia and case studies
0 500000 1000000 1500000 2000000 2500000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Invested amount in dollar(1000)
Local Market Seeking Resource Seeking Export Promotion Cheap Labor Access to Third Country Tech & Skill Trade Barrier Bypassing Raw Material
World Investment Report 2006
Vietnam 32%
Singapore Indonesia 16%
15%
Malaysia 14%
Cambodia 9%
Philippine 6%
Thailand
4% Myanmar 3%
Others 1%
Vietnam 28%
Indonesia Singapore 21%
15%
Malaysia 13%
Cambodia 7%
Philippine 7%
Thailand 5%
Myanmar 3% Laos
1% Brunei 0.32%
The rapid growth of the economy in Vietnam, Indonesia, Singapore, Malaysia data of the Export-Import Bank as indicated in Figure 7, Southeast Asian countries that have attracted a great deal of market-seeking FDI include Singapore and Malaysia. Most of the resource seeking and cheap labor seeking FDI are channeled into Vietnam and Indonesia. Compared to Singapore and Malaysia, Vietnam and Indonesia are able to provide lower-cost labor as well as cheaper raw material. In fact, many Korean SMEs have invested in labor-intensive manufacturing industries in these two countries. Apart from being more competitive in terms of industrial production cost, Vietnam and Indonesia are also richer in natural resources and have bigger domestic markets. Thus, it is not surprising to see almost half of FDI
Export Promotion
37%
Other 23%
Resource Seeking
20%
Cheap Labor 12%
Local Market Seeking
4%
Raw Material
2%
Trade Barrier Bypassing 1%
Access to 3rd Country
1%
Local Market Seeking 41%
Resource Seeking
22%
Export Promotion 15%
Cheap Labor 10%
Access to 3rd Country
3% Other
8%
Tech &
Skill 1%
By Passing
Trade Barrier
0.3% Raw
Material 0.24%
in Vietnam and Indonesia are motivated by resource and cheap labor seeking in the past two decades (see Figure 7). However, the shortage of labor in some provinces of Vietnam, (e.g., Binh Duong) in recent years has made it a less attractive location for labor-intensive projects such as textiles, garment and footwear. Sharp rise of problem has led to shortage of labor.
Based on a survey of Vietnam General Confederation of Labour, done in late November 2010 among 2,100 laborers in seven cities and provinces, only a
19 To solve the labor issues, the Vietnamese government encouraged investors to venture into high tech, electronics, and engineering industries as well as service projects such as hotels, entertainment parks, golf, housing, banking, education and health care. The gradual change in investment environment is causing a shift in the motivation trend of Korea’s FDI in the region. Choong-Shik Kang, Chairman of the Korean Chamber of Commerce and Industry (Kocham) in HCMC, said that, ‘Korean companies had previously invested in light industries, such as producing footwear and garments, to make use of Vietnam’s advantage of cheap labor. They are now moving out of that comfort zone as conditions change’.20
Vietnam Business Asia
Vietnam Business and Economy News Local
Market Seeking 25%
Resource Seeking 24%
Export Promotion
22%
Cheap Labor 21%
Other 8%
Access to Third Country
0.43%
Trade Barrier Bypassing 0.23%
Raw Material
0.06%
Tech &
skill 0.02%
Resource Seeking
44%
Export Promotion
21%
Local Market Seeking
18%
Cheap Labor 8%
Other 5%
Trade Barrier Bypassing
2%
Raw Material
1%
Tech &
Skill
1% Access to Third Country
0.25%
The changes in investment pattern explain the difference between the current motivations of Korean FDI in the region and those from the past. Previously, currently the market-seeking investments are gradually taking over as the leading FDI in countries of the region, including for Indonesia and Vietnam.
Market seeking
Case 1- Investment of Samsung Electronics in Southeast Asian Countries Local
Market Seeking
33%
Export Promotion
27%
Other 24%
Resource Seeking
8%
Access to Third Country
7%
Cheap labor
1%
Raw Material
0.36%
Tech &
skill 0.33%
Local Market Seeking 61%
Resource Seeking
16%
Export Promotion
8%
Access to Third Country
8%
Other 4%
Cheap labor
3%
Raw Material
0.41%
Trade Barrier Bypassing
0.15%
Tech &
Skill 0.01%
21
22
23
24
21
22
23
24 Asia Pulse
from
UNIBROS
Korea Times
Case 2- SK Telecom investment in Malaysia
31
32
33
P1 WiMax Press Report
31 The Star
from
Yonhap News
32 The Star
33
P1 WiMax Press Report
34
34
Vietnam Business Asia China Daily
Vietnam Business and Economy News
Korea Times
Case 1- Korean HanSoll Textiles Co. LTD in South East Asia
41
42
43
44
Case 2- Investment of South Korean garment makers- Sae-A in Indonesia
41
42
43 44
Resources seeking
Case 1-KEPCO and Inni-Korea Resource in Indonesia
Jakarta Post
Bloomberg Business Week
World Investment Report 2006
Korea Times
Case 2: Energy Investment by Korea National Oil Corp. and SK Corp. in Vietnam
Reuters
Reuters
Yonhap News
AP Indonesia
Korea Times
Conclusion
Asia Pulse
from
Maritime Reporter
MENAFN