Will Korean Companies Increase Their Overseas
Direct Investment in the ALADI Countries?:
Implications of Investment Success Cases
Hong, Uk Heon, Uiduk University, May 12, 2004
Contents
I. Introduction: Small at Present but Great Potential
II. What Promoted Korean Companies to Invest in Latin America and the Caribbean?
1. Which Korean Companies Invested in What Industries and How?
2. Why the ALADI Countries?
III. How Did Korean Overseas Companies Operate in ALADI?
1. KOBRASCO Case
2. Samsung Tijuana Park Case
IV. Conclusion: More Active for the Manufacturing of El Dorado
I. Introduction
1. Small LAC (Latin America and the Caribbean) Share:
- - US$3.5 billion (Accumulated Until Jan. 2004)
- - 7.8% of Korean Total Overseas Direct Investment (ODI)
2. Small ODI, Compared to Korean Economy in the World:
- ODI Amount: 3.0 billion US$ (2002)
0.4% of World FDI
0.4% of World FDI in LAC
- Share in World GDP: 1.4%
- Share in World Trade: 2.3%
I. Introduction
Graph 1. Composition of Korean ODI , Jan. 2004
Africa: 1.7%
Oceania: 2.3%
Europe: 16.6%
Asia: 41.0%
Latin America &
the Caribbean:
7.8%
North America:
28.8%
Middle East:
1.8%
I. Introduction
3. Korean Overseas Direct Investment Will Grow in LAC.






Export-Oriented Economy. Trade Share in GDP: Over 80%
Korean Firms Have Other Worldly Competitive Technologies than IT.
Rising Domestic Labor Costs
Need to Diversify Overseas Investment Market from China
LAC Is Opening Its Market to Foreign Companies.
Regional Blocs, NAFTA, MERCOSUR
I. Introduction
Graph 2. Rapid Growth from 1986-90 and 1996-00
500.0
462.2
400.0
Growth (% )
Asia
Latin America & the Caribbean
Total
300.0
200.0
154.9
100.0
124.7
151.4
57.3
26.2
96.7
21.0
0.0
Jan. 1986-Dec. 90
Jan. 1991-Dec. 95
-3.7
-7.3
18.4
Jan. 1996-Dec. 00
Jan. 2001-Dec. 03
-66.4
-100.0
II. What Promoted Korean Companies to Invest in LAC?
1. Which Korean Companies?
 Large Companies Are Dominant.
 Small Companies Are Important.
- Business Services.
- Textile & Clothing
- Until 1990
II. What Promoted Korean Companies to Invest in LAC?
2. In Which Industries?
 Internet business holds the lion’s share.
 Manufacturing is following.
- Before the Late1980s: Textile & Clothing
- After then: ICT Equipments
 Mining and Wholesale & Retail Are Next.
II. What Promoted Korean Companies to Invest in LAC?
Table 1 . Korean ODI Value by Large Firms, until Jan. 2004
Asia
Agriculture,
Forestry & Fishing
Mining
Manufacturing
Construction
Wholesale & Retail
Transportation &
Storage
Communication
Banking &
Insurance
Restaurants &
Hotels
Real Estates &
Business Services
Others
Total
Middle
East
North
America
LAC
Europe
Africa Oceania
Total
34.2
93.6
59.8
79.6
100.0
100.0
83.3
77.6
52.6
71.0
86.8
68.7
57.7
97.0
73.1
90.7
40.3
84.8
95.2
100.0
2.1
98.9
90.1
87.3
85.4
63.6
49.8
55.9
58.6
89.8
73.4
75.3
84.7
90.2
86.8
93.4
98.3
97.4
89.7
89.7
71.3
91.6
95.1
-
41.5
61.5
74.8
8.7
94.2
100.0
0
99.9
5.8
79.4
65.4
75.9
0
-
18.0
0.3
0.0
0
65.8
97.5
96.9
99.9
30.5
79.3
46.9
0
80.4
1.7
0
45.1
74.5
95.3
36.3
95.5
77.0
69.9
40.6
0
74.9
86.1
69.3
0.0
66.7
87.4
97.2
-
-
12.4
II. What Promoted Korean Companies to Invest in LAC?
Table 2. Korean ODI in Manufacturing in LAC by Firm Size, until
Jan. 2004
Food & Beverage
Textile & Clothing
Shoes & Leather
Timber & Furniture
Paper & Printing
Petroleum & Petrochemical
Nonmetallic Mineral
Iron & Steel
Assembled Metal
Machine
Electronic Communication
Equipments
Transportation Machines
Others
Total
Small and Medium Large Companies All Companies
(%)
(%)
Companies (%)
4.5
4.6
4.3
34.2
19.7
74.3
2.2
1.9
2.9
0.7
0.4
1.3
0.0
0.0
0.1
7.3
8.6
3.7
0.2
0.1
0.3
9.7
13.2
0.0
0.9
0.0
3.5
0.8
0.4
1.7
5.5
1.1
1.3
100.0
49.5
1.2
0.4
100.0
37.8
1.2
0.7
100.0
II. What Promoted Korean Companies to Invest in LAC?
Table 3. Korean ODI by Industry, until Jan 2004
Asia
Middle
North
East
America
Agriculture, Forestry
0.6
0.0
0.4
& Fishing
3.3
84.1
2.7
Mining
67.7
7.5
47.7
Manufacturing
2.5
4.3
1.4
Construction
13.4
1.1
31.6
Wholesale & Retail
Transportation &
0.8
0.2
0.5
Storage
3.0
0.0
3.2
Communication
0.0
0.0
0.1
Banking &
Restaurants &
1.9
0.1
2.9
Hotels
Real Estates &
6.8
2.6
9.5
Business Services
0.0
0.0
0.0
Others
100.0
100.0
100.0
Total (%)
18,307,625 811,309 12,881,444
Amount
Latin
America &
the
Caribbean
Europe
Africa
3.4
14.2
26.8
0.8
7.6
0.1
2.6
53.8
0.1
34.5
0.9
25.2
23.4
0.2
16.6
14.1
26.3
9.5
7.6
25.7
1.0
6.2
53.2
1.8
21.8
1.1
4.1
0.0
0.3
3.5
0.0
0.1
2.6
0.0
0.4
0.1
0.0
0.6
3.1
0.0
0.1
1.4
30.3
7.7
2.5
41.9
3.7
0.0
0.0
100.0
100.0
3,479,505 7,404,797
Oceania Total Areas
0.8
8.7
9.7
0.0
0.0
0.0
100.0
100.0
100.0
751,808 1,022,332 44,658,820
II. What Promoted Korean Companies to Invest in LAC?
Table 4. Korean ODI in LAC by Project Size, 1985 (U$1,000)
ALADI
Chile
Argentina
Brazil
Mexico
Uruguay
Venezuela
Ecuador
Central America
Panama
Honduras
El Salvador
Costa Rica
The Caribbean
Bermuda
Dominican Rep.
Cayman Irslands
Puerto Rico
Others
Surinam
Total
Projects
Projects' Projects of
Projects'
of Less
Value of Less than
Value of
than I
5 Million Less than 5
Million Less than I
US$ Million US$
US$ Million US$
11
714
2
4,558
0
0
1
2,500
2
107
1
2,058
2
269
0
0
4
153
0
0
1
66
0
0
1
60
0
0
1
59
0
0
23
4,691
0
0
20
3,531
0
0
1
450
0
0
1
410
0
0
1
300
0
0
2
844
0
0
1
500
0
0
1
344
0
0
0
0
0
0
0
0
0
0
1
20
0
0
1
20
0
0
37
6,269
2
4,558
Total
Total
Projects'
Projects
13
1
3
2
4
1
1
1
23
20
1
1
1
2
1
1
0
0
1
1
39
Value
5,272
2,500
2,165
269
153
66
60
59
4,691
3,531
450
410
300
844
500
344
0
0
20
20
10,827
II. What Promoted Korean Companies to Invest in LAC?
Table 5. Korean ODI in LAC by Project Size, until Jan 2004
Projects of
Less than 1
Million US$
AlADI
Mexico
Peru
Brazil
Argentina
Venezuela
Chile
Bolivia
Colombia
Ecuador
Paraguay
Uruguay
Central America
The Caribbean
Others
Total (%)
(1,000 US$)
Projects of
Projects of
Projects of
Less than 5 Less than 10 Less than 50
Million US$
Million US$ Million US$
Projects of
Over 50
Million US$
Total
Projects'
Value
3.5
4.3
1.1
2.6
4.3
2.4
7.7
1.9
19.8
22.6
14.4
100.0
10.0
15.2
1.5
6.0
16.4
3.0
22.6
7.7
28.2
77.4
85.6
0.0
4.7
2.0
5.9
3.1
13.5
10.1
0.0
0.0
0.0
0.0
0.0
0.0
46.5
78.5
16.3
52.1
65.8
0.0
69.6
0.0
52.0
0.0
0.0
0.0
35.3
0.0
75.3
36.2
0.0
84.5
0.0
90.3
0.0
0.0
0.0
0.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
10.5
37.4
15.0
20.9
16.2
100.0
0.9
100.0
2.9
100,464
2.5
0.0
9.1
317,623
2.8
0.0
4.8
168,674
9.3
84.5
100.0
0.0
0.0
100.0
23.4
59.8
100.0
813,734 2,079,010 3,479,505
II. What Promoted Korean Companies to Invest in LAC?
Table 6. Korean ODI by Project Size, until Jan. 2004
Asia
Middle East
North America
Latin America &
the Caribbean
Europe
Africa
Oceania
Total
(1,000 US$)
Less than Less than
1 million
5 million
US$
US$
13.3
17.6
2.7
5.0
7.1
8.6
2.9
9.1
1.8
4.0
2.5
5.5
11.5
13.6
8.4
11.6
3,729,480 5,170,774
Less than Less than 50
Over 50
10 million
US$ million US$ million US$
9.6
28.2
31.3
1.5
14.1
76.7
6.3
18.3
59.7
4.8
4.5
3.3
8.8
7.2
3,195,858
Total
100.0
100.0
100.0
23.4
59.8
100.0
28.0
61.8
100.0
58.0
30.7
100.0
36.3
29.8
100.0
25.4
47.6
100.0
11,325,707 21,237,001 44,658,820
II. What Promoted Korean Companies to Invest in LAC?
Graph 3. Composition of Korean ODI in Manufacturing in LAC,
until Jan, 2004
Shoes & Leather:
2.2%
Food & Beverage:
4.7%
Petroleum &
Petrochemical: 7.2%
Metals: 9.7%
Textile & Clothing:
33.8%
Others: 4.5%
Electronic &
Communication
Equipments: 37.9%
II. What Promoted Korean Companies to Invest in LAC?
3. In Which Countries Invested?
 ALADI Held the Lion’s Share of Manufacturing.
- For Production and Market
- For Development of Natural Resources
 Central America in the 1980s.
- For Production and Export Bases
- Textile and Clothing
 The Caribbean as Production Bases and
Headquarters
II. What Promoted Korean Companies to Invest in LAC?
Table 7. Korean ODI in LAC by Country, until Jan. 2004
Projects
AlADI
Mexico
Peru
Brazil
Argentina
Venezuela
Chile
Bolivia
Colombia
Ecuador
Paraguay
Uruguay
Central America
The Caribbean
Others
Total
250
83
19
42
41
7
24
7
11
6
5
5
205
77
3
535
Amount
%
46.7
15.5
3.6
7.9
7.7
1.3
4.5
1.3
2.1
1.1
0.9
0.9
38.3
14.4
0.6
100
(1,000 US$)
1,196,759
283,741
282,689
277,836
136,417
66,491
61,761
59,316
19,309
5,336
3,260
603
394,689
1,883,792
4,265
3,479,505
%
34.4
8.2
8.1
8.0
3.9
1.9
1.8
1.7
0.6
0.2
0.1
0.0
11.3
54.1
0.1
100
III. How Did Korean Overseas Firms Operate in ALADI?

Quite Successful in General.
 100% Ownership Was Dominant.
- Few Joint Venture or Partly Stock Holding
III. How Did Korean Overseas Firms Operate in ALADI?
Table 8. Accomplishment of Korean ODI, until Jan. 2004
Asia
Middle East
North America
Latin America &
the Caribbean
Europe
Africa
Oceania
Average
Number of Project
Investment Amount
Realized/Pl Invested/P Liquidated/ Realized/P Invested/Pl Liquidated/
anned
lanned
Realized
lanned
anned
Realized
Projects
Projects
Projects
(%)
(%)
(%) Dollars (%) Dollars (%) Dollars (%)
83.6
79.5
4.8
58.1
79.6
24.3
78.3
49.6
36.6
82.0
34.7
63.7
90.4
79.5
12.1
73.6
78.2
25.7
81.7
84.6
74.2
84.2
84.8
67.3
71.4
55.6
73.5
78.3
17.6
15.6
25.2
12.7
7.7
68.8
71.1
62.4
30.4
63.7
88.6
81.6
74.6
85.5
79.8
9.5
18.7
30.7
25.7
23.5
III. How Did Korean Overseas Firms Operate in ALADI?
Table 9. Completion of Korean ODI in LAC, until Jan. 2004
ALADI
Peru
Mexico
Brazil
Argentina
Chile
Venezuela
Bolivia
Colombia
Ecuador
Paraguay
Uruguay
Central America
The Caribbean
Others
Total
Total Realized Total Liquidated Total Realized Total Liquidated
Cases/Total
Cases/Total Amounts/Total Amounts/Total
Planned (%)
Realized (%)
Planned (%)
Realized (%)
80.8
13.0
52.4
10.0
86.4
5.3
54.3
8.1
80.8
7.1
67.1
12.8
79.2
16.7
44.3
1.3
85.4
14.6
42.6
12.3
78.1
8.0
87.9
43.7
87.5
28.6
67.3
10.2
77.8
14.3
34.8
1.1
73.3
9.1
56.0
8.3
75.0
33.3
30.7
1.9
85.7
16.7
41.7
3.6
71.4
80.0
61.2
85.9
82.4
23.3
68.1
27.4
82.1
16.7
86.3
5.4
100.0
33.3
79.2
0.5
81.7
17.6
68.8
9.5
III. How Did Korean Overseas Firms Operate in ALADI?
Table 10. Type of Korean ODI in LAC, until Jan. 2004
Joint Venture
Loan
Private Financing
Stock Investment
Total
Investment
Cases (%)
1.1
1.1
1.5
96.3
100.0
Investment Dollars
(%)
5.1
9.0
0.0
85.9
100.0
III. How Did Korean Overseas Firms Operate in ALADI?
1. KOBRASCO Case
A. Brief Introduction
- Companhia Coreano-Brasileira De Pelotizacao (KOBRASCO). Located in
Vitoria, Espirito Santo, Brazil. Connected to Tubarao port.
- Major Business: Production and sale of 4 million tons of pellet a year.
- Foundation: March 6, 1996.
- Total Investment Amount: U$220 million
- Investment Type: Joint venture. POSCO: 50%,
CVRD: 50%.
- Employees: 80 persons.
III. How Did Korean Overseas Firms Operate in ALADI?
B. Short History
- July 29, 1995: Agreement signing of joint venture and stock-holding type
- Sept. 28, 1995: Firm site began to be constructed at CVRD’s yard.
- March 6, 1996: A joint venture corporation was established.
- Sept. 9, 1996: Main facility began to be constructed.
- Oct. 9, 1998: Production began.
- Nov. 16, 1998: Completion Ceremony of construction.
Production (1,000
ton)
Sale (1,000 ton)
Sale to Posco
Ratio of Sale to
Posco (%)
Total Sale (1,000
US$)
Profit
Profit after Tax
Asset (1,000US$)
Capital
Debt
1998
1999
2000
2001
2002
2003
404
354
293
3,792
3,793
1,704
4,366
4,343
2,632
4,188
4,184
2,135
4,087
4,034
2,544
4,405
4,344
2,642
82.8
44.9
60.6
51
63.1
60.8
11,755
299
-1,633
220,562
43,887
176,674
117,238
25,943
-21,813
207,708
25,499
182,209
123,029
25,941
2,859
170,195
26,188
144,009
132,301
28,905
115
166,211
22,183
144,028
100,955
12,617
-28,692
99,999
-30,382
130,381
145,888
15,212
39,259
122,049
2,103
119,945
III. How Did Korean Overseas Firms Operate in ALADI?
C. Kobrasco’s Success
•
•
Stable Production and Import of Pellet
Short Periods Consumed in Construction, Full Operation
D. How Did It Achieve?
•
•
•
Joint Venture
CVRD in Charge of Operation: Few POSCO Representatives
Right Place near Resources and Good Transportation Infrastructure
III. How Did Korean Overseas Firms Operate in ALADI?
2. Samsung Tijuana Park Case
A. Brief Introduction
- Samsung Tijuana Park: Three Plants
1) Samsung Mexicana (Samex): Television sets, computer monitors,
cellular phones and computers.
2) Samsung Display Interface Mexicana (SDIM): Cathode-ray tube (CRT)
monitors. In 1997, the plant began to produce Liquid Crystal Display
(LCD) monitors.
3) Samsung Electro-Mecánicos Mexicana (SEMSA) Electronic
Components for televisions, monitors.
III. How Did Korean Overseas Firms Operate in ALADI?
2. Samsung Tijuana Park Case
B. Major Features
- Investment amount: Over US$ 200 million. Samsung Group owns 100%
of stocks.
- Employment: 6,000 full-time employees.
- Operation rate: 96.2%.
- Sales: 2,059 million US$
- Production: Monitor, 4 million sets (CDT models: 5, LCD models: 9); TV
production, 3 million sets (TV models: 90); Assembled PCs, 100
thousand; HHP production, 900 thousand.
III. How Did Korean Overseas Firms Operate in ALADI?
2. Samsung Tijuana Park Case
C. How Did It Run?
1) Samsung Electronics initiated its SAMEX as a Maquiladora to
assemble television sets in 1988. Aimed entirely at the North American
Market. First Investment Capital: U$3,700 million
2) After NAFTA, its target market from North America to Mexico.
3) In 1994, Samsung Group inaugurated Samsung Tijuana Park
4) Integrate components and finished goods vertically.
5) Over 200 million US$ was invested. Until 2001, five new plants and
renovation continued.
D. How Successful?
1) 30 % to Mexico Market in 2003.
2) Turnover rates only 3% in 2003
3) No labor union yet.
III. How Did Korean Overseas Firms Operate in ALADI?
2. Samsung Tijuana Park Case
E. How Did They Succeed?
1) Active Risk-Taking by Samsung Group: Go Anywhere Market Is.
2) Emphasis on employee welfare and community services.
various cultural, sports events, community service teams,
Daycare Center and clinic, Scholarship to Mexican students.
3) Emphasis on employee training and education: Supported 16
to MBA program.
4) Localization and decentralization of management
5) Localize components production: Over 900 materials
6) Mexico Provided Favorable Environments after NAFTA
7) Tijuana is the television capital of the world.
IV. Conclusion: More Active for the
Manufacturing of El Dorado
1. Between Korea and LAC, economic environments for vital
interactive investment:
- Korean: export-orientation, need to diversify
investment market, and competitive technologies
- LAC: Market opening, regional economic blocs,
And 1.5 times larger population than North America
- Cultural, distance gaps get closer.
IV. Conclusion: More Active for the
Manufacturing of El Dorado
2. For Further Interactive Investment:
- More Industrial parks with favorable business
environments.
- Localization of business operation. Kobrasco,
Samsung Electronics at Querétaro.
- Promote public relations with business information
each other.
- Foods and construction industries as alternative
investment market for Korea and LAC.
- Need better residence Safety and more flexible labor
Acknowledgments
 Thank you for taking time with me!