Internationalization Strategies of Korean Motor Vehicle Industries

Myeong-Kee CHUNG

The pattern of internationalization followed by the major carmakers can so far be split into three stages. The first stage is export. At this stage the goal is to create a car which fits into a world-wide car cartegory. After the expansion of exports comes the second stage. This is the setting up of transplant in major market regions. The automotive companies in the world is now confronting a third stage in the process of internationalization, namely globalization. It is mean complete localization of transplant one hand and the establishment of global business network another hand.

Exports are the engine of the contemporary Korean motor vehicle industry's success. Korea emerged in the 1995 as a significant world producer in which 5 leading countries produced 2.6 million units in 1995. They plan to produce a total of 3.2 million cars this year, including those to be assembled at their overseas plants. In the last year the Korean automakers exported about 1 million units. In the 1980s, Korean automakers began to explore strategies to increase access to the overseas market. The strategy of internationalization in the first stage was to develop joint ventures with US automotive producers such as GM and Ford that would allow them to the development of world car concept. The growth in production and exports is required closely linked to both the advanced product design and process technology that Korean carmakers has been able to technology import from advanced carmakers. The original equipment manufacture (OEM) as a short-term strategy of globalization under the joint ventures was satisfactory.

In the second phase, Korean automotive companies saw the need to diversification of overseas market. These efforts intensified after the loss of the U.S. market engendered by the end of 1980s and Korean producers saturated the domestic market. US remained the largest overseas markets for Korea in 1995 though its share of Korean auto exports declined. Korean auto exports to North America decreased 14 percent from 234,904 vehicles in 1994 to 203,785 in 1995. Shipments to North America accounted 20.7 percent of total, down from 31.8 percent. Western Europe is expected to become one of Korea's fastest growing auto markets next year. Korean auto exports to Western Europe were 267,058 vehicles in 1995, up almost 100 percent from 138,560 in 1994. This stage shows a clear pattern that direct investment by Korean firms in overseas market stated in sales, followed gradually in the manufacturing area by joint ventures with imported countries. That is, direct investment in maunufacturing started in the mid 1980s and then accelerated in the 1990s, whereas the number of newly established sales facilities increased rapidly since early 1990s

Investment in R&D facilities stated in early 1990s, but the number has so far remained negligible. However, Korean firm accelerated set-up the R&D facilities in order to the transfer of advanced technologies in advanced carmakers' countries. The improving ability of high technologies is one of the precondition of survive in the competition of the world market.

This sequence(sale-manufacturing-R&D) is essentially same as the one observed in internationalization of Japanese automobile industry, although the timing is somewhat different; The internationalization of Japanese apparently carries out in sequence. The stage of manufacturing and R&D in the internationalization by Korean firms move onward simultaneously.

This paper tries to describe and analyse patterns of internatlionization by Korean carmakers. In the following, I will first review the histrorical and on-going development of internationlization in the automobile industry. Next, based on this observation, I will briefly analyses of an individual firms mutlinational activities.

Strategy for Export; Strategic Allince of Korean Automobile Industry

The growth in the Korean motor vehicle industry has been remarkable. Korea emerged in the 1980s as a significant world producer. Automobile output increased almost thirty-fold between 1978 and 1995, from 85,693 units to 2,613,000. From an examination of present trend, there seem to be three strategies that Korean automakers could follow in terms of export oriented growth.

1. A Technological and financial link between a domestic corporation and multinational automakers.
2. A Joint venture between a domestic corporation and a multinational vehicle corporation whose production strategies were partially influenced by the concept of world car.
3. The export promotion policies by the government accelerated in substance the internationalization. That is, wages control, a protected home market, and government subsidies have helped in the creation of this dynamic new industry.

The successful private conglomerates from the Third world to organize and benefit from technological links with multinational automakers is undoubtedly Korean firms. Hyundai, which is the largest Korean automobile company, founded in 1967. Hyundai first assembled American Model on the CKD (Complete Knocked Down) with the technical assistance of Ford, but the number was extremely small. At this stage, Hyundai began to assemble Ford Models, Cortina and Taunus. After 7 years of CKD and Semi-Knocked Down (SKD) production, Hyundai succeeded in developing Korea's first independently designed and manufactured model, "Pony". After rupture of three years' negotiations for the joint ventures with Ford, Hyundai declared the development of an export-oriented market strategy through the development of their own model.

For this project Hyundai began technical cooperation with Mitsubishi. They obtained chassis components and other parts that were difficult to manufacture, such as gears and engines, directly from Mitsubishi, but fabricated the cylinder head and blocks, housing, and transmission case in house. Because of the small size of the domestic market, Hyundai has had to export in order to achieve economies of scale. In the early 1980s the company constructed the new plant for the first front-wheel drive car in Korea that required to Japanese technology and capital. Hyundai and Mitsubishi set up the strategic alliance since 1982. Mitsubishi owns 12% of Hyundai. Hyundai created the "Excel Phenomena" in 1985 and successfully entered the market in the United States in 1986.

The penetrations into the world market of Daewoo and Kia follow difference way as compared with Hyundai. At least two corporations have forged technological and financial links with the two major proponents of the world car concept, GM and Ford. Daewoo was in a 50/50 joint venture with GM until 1994. Daewoo produced world car by the low production cost in order to selling in North America as a Pontiac Le Mans. The design is derived from the Opel kadett produced by GM's German subsidiary with technological improvements provided by GM's Japanese affiliate, Isuzu.

In 1983, Mazda paid a 10% shareholding in Kia in order to avoid to financial crisis that caused second oil crisis. Three years lately, Ford invested $30 million and owns 10 % of Kia due to global strategy. With Ford's new capital input and technological assistance from Mazda, Kia produced export model since 1987. VRA and overvaluation of Yen in 1980s stimulated strategic alliance of Ford and Mazda with Kia.

Although Daewoo and Kia have major capital participation from GM and Ford, both car assemblers have incorporated Japanese partner to adopt process technology and organizational methods. The world car by Daewoo and Kia has been distributed through the extensive GM and Ford dealer network. However, Daewoo and Kia have had considerably less marketing success in the all important US market than Hyundai during 1980s. Although the foregin capital participation in Kia and Hyundai, both car manufactures have keep their own managament right. Just Daewoo has relatively little playground of new model development and access to export markets due to concept of world car by GM. Therefore, Daewoo could not drive to aggressive export oriented marketing and then lost their domestic market share. As a consequence, Daewoo liquidate a joint venture with GM in 1992.

In 1980s, Korean automobile industry learn how to produce a car which fits into a world-wide car cartegory through the export. That is, the OEM very often provided technology-related product design, production processes, quality control, and other management know-how to help businesses deliver quality products with appropriate specifications and design in a timely manner. In contrast, Hyundai promotes export based on the self-reliance strategy that explain the risk-taking entrepreneurship to develop its own models. The risk-taking management style has required huge investment of rationalization, production technology improvement and new plant building. As a consequence, Hyundai has been very active in technical manpower training.

Overview of Internationalization Trend by Korean Automobile Industry in 1990s

Until lately 1980s, the Korean automobile industry benefited from a well-educated, disciplined work force which cooperated closely with management and accepted low wages. In spite of the tremendous success obtained by the Korean automobile industry, the recent features related to the Korean automobile industry are: (1) maturity of the domestic market, (2) diversification of international market due to the gradual loss of the market in North America and the effect on strengthening internationalization, (3) the sharp increased competition in domestic market with foreign-made cars.

Because of the problem of product quality, worker productivity, overseas delivery & marketing, and overvaluation of the Korean Won (the Korean currency), the Korean automakers lost the important overseas export markets, particularly in the United States.[1]  In view of the recession in US market, the obvious strategy for the industry was to seek overseas export markets. That is, diversification of export market to developing countries in Asia and South America. In this context, Korean car manufacturers are that saw the need to expand into European market. These efforts intensified after the loss of the U.S. market engendered by the end of 1980s and Korean producers saturated the domestic market. To promote exports Korean automakers are improving quality and strengthening marketing in the US and West European countries in particular. The 1990s will see the Korean increasingly set their high-quality inexpensive cars against the more expensive Western Europe competition. Now, European countries are second large market by Korean car assemblers.

The other trend is expansion of knock-down kits and/or joint venture's investment in the less developed counties of the automobile industry to avoid intensifying trade friction. Two parallel patterns of Korean activities are likely to contine. On the one hand, there will continue to be heterogeneous forms of enterprise; project-based collaborations, licensed manufacturing or joint ventures. On the other hand, Korean automakers founded transplant through the acquisitions of local exiting car assembler. Korean automobile manufactures started mostly in South Asia and East Europe operations.

Product development activities for choosing the right products, prioritizing market and styling research play a particularly important role in order to penetration into the advanced countries. Korean automobile manufacturers have built their R&D centers in the advanced countries that focused on the transfer of technologies from the advanced counties to Korean.

Behind the new developments decribed above seem to be the following larger trends of each company.


After initial successes of entering into the world market by Export, Hyundai's move from the old strategy to the new internationalization model to be well under way. It had the plant in the Canada with 100,000 annual capacity, in Canada worth over $300 million, and began production in 1989. Hyundai is nearly entering the first divisition of world car producers. This project is the first investment by an automaker from an NIEs to an advanced country in order to become a ture vehicle, mutinational with a productive base in North America. Total productions of this plant in 1990 and 1991 were 27,409 and 28,201 respectively, which were far below the capacity and expectation. At that time, this plant had a workforce of 1,200. It's Canadian and USA auto sales failed to pick up, leading Hyundai to scale back its production goal at it's Bromont plant. The labor dispute in main plant of Korea did not supplied parts to assemble in the Bromont plant. That is obstacle of increased productivity and capacity utilization. The Bromont plant failed in 1991 and is now closed.

In the second place, Hyundai opted for an indirect approach after withdrew from manufacturing in North America. Hyundai could simply not afforts to build up a viable presence in the heart of the develped country. The new aspect of his globalization strategy was the build-up of manufacturing capacities on the periphery of the world regions; Egypt (20,000 unit per year), Botswana (20,000 unit per year), Zimbabwe (10,000 unit per year), Thailand (10,000 unit per year), Philippines (12,000 unit per year), Malaysia (12,000 unit per year).

Parallel with CKD export, Hyundai will extend the network of overseas dealers from 2,968 to 3,200. They also will extend the 3,700 after-service chain in the world. Hyundai will generally have to diversify and direct its marketing toward European countries and Asian and Africa markets. Nevertherless, Hyundai needs to maintain its access to the US market in order to capitalize on recent investments in advanced consumer and intermediate products. For the long-term improvement of sales in US market, Hyundai established Hyundai Motor Finance Company in 1990. They also established their own distribution company in Germany in order to promotion of marketing activities in Western Europe. Export vehicles in Western European countries by Hyundai increased from 96,251 in 1994 to 130,576 in 1995.

The internationalization strategy of Hyundai is characterized by the division of market. That is, the market in developed countries are brought in from home base against the competition of expensive cars, because they have any production site in Western Europe & North America. After initial export successes in North America, the Bromont plant was incurring tremendous losses with few prospects for internationalization. Therefore, Hyundai emphasizes on the joint ventures and/or license manufacturing in periphery regions.


Kia motors has been aggressively pushing ahead with the following projects: to expand export markets, carry out knock-down projects and set up overseas corporation on the spot. Under this globalization policy, the autonaker has mapped out five major strategic objectives:

1. to build an expanded production base with international competitiveness as well as to make its Asan bay plant an overseas production base;
2. to bring about technical self-reliance through expansion in investment and technical manpower; establish a global managerial system through a worldwide sales and after service network; beef up international competitiveness through specialization of vendors;
5. to seek a harmonious relationship between labor and management through expansion in welfare and education programs for employees.

Kia puts top priority on consolidating its production systems with international competitiveness and strengthening its marketing activities. It also places an equal emphasis on continuing its efforts for globalization and localization through joint venture projects with foreign partners. Kia embarked upon its overseas assembly in Taiwan in 1989 for the first time. Kia set up the CKD Plants in 9 countries as following; The Philippines, Taiwan, Germany, Indonesia, Iran, Vietnam, Venezuela, Pakistan and Namibia. By 1997, Kia plans to expand its overseas production bases into 12 nations, in its continuous pursuit to increase its overseas production capacity up to 300,000 units in 25 countries by 2000. In particular, under a contract with Wilhelm Karmann GmbH, the firm embarked upon its production in Germany in early 1995 for 30,000 units of Sportage on an OEM (original equipment manufacturing) basis. It will be conducive to increasing Kia's exports to Europe. To this end, it established a subsidiary named Kia Motors Europe GmbH. In 1995, The export in Western Europe grew 32.8 percent from 24,615 units to 32,681.

In addition, it is building a network of more than 1,200 dealers throughout a total of 22 countries with a view to exporting its own model car Sephia. Kia has also built an independent marketing or after services network with 50 dealers in the United States to export Sephia and Sportage developed by its own technical team through its subsidiary of Kia Motors America Inc. in Los Angeles, which has solid links to the Toronto branch office in Canada.

Kia is also spending huge amount of funds on the creation of a global network in the field of R&D such as Kia engineering California and Kia R&D Tokyo, while trying to enhance the status of Korean carmakers in world market. Kia also established the joint venture firm - motor systems & technology co., ltd - in cooperation with Bosch of Germany. It has helped the firm beef up is international competiveness in the world automarket.

The internationalization of Kia started based on the OEM export for Ford. Then, carmaker set up manufacturing facilities with joint venture in periphery area of the world auto market. Finally, they export their own model into the US market. Kia provide to set up the intentional network of R&D activities in the context of internationalization strategy.


Afer liquidation of equal ownership of GM, Daewoo, as part of its globalization strategy, is pushing ahead with a set up transplants. Related to this, Daewoo has established or is seeking joint venture plants in such countries as Poland, Uzbekistan, Iran, Libya, China, Vietnam, Taiwan and Philippines, most of which will begin producing automobiles in the second half of this decade. Daewoo has a fourth overseas moto vehicle plant to go into full production such as Romanian, India, China, Indonesia, Poland, Tatarstan, Uzbekistan, Iran, Libya, China, Vietnam, Taiwan and Philippines,

Specially, Daewoo had decided that Eastern Europe will take places as a strategic point for the internationalization. They should be concentrate on the West Europe market, because Daewoo could not export into the US market due to the contracting with GM. To the achiving the expansion of market share, Daewoo adopted two differnence strategies. One hand is marketing strategy. the other hand is a takeover of the East European carmakers in order to increasing production capacity.

Daewoo has been bolstering its overseas sales promotion activities in Western European countries, including Germany and Britain. For instance, Daewoo has been aggresisvely advertising its cars on TV and newspapers since 1995. Daewoo aims at increasing the sale of its cars in West Europe to 103,000 units or 1 percent of the total market share in 1995, 150,000 units in 1996 and further to 200,000 units 1997.

The direct investment of Daewoo to setup of overseas car prodution plants obiviously concentrate on the East Europe. The first European facilities in Rodae Automobile S.A. in Romanian now have an annual production capacity of 100,000 units, including Daewoo's Cielo models, plants to churn out 50,000 units in this year - half for the Romanian market and the other half for exports to west European countries. It will invest a total of $750 million in the Romanian facilities and provide technical and financial support to a total of 13 Korean auto component makers to form joint ventures in the Romanian project. They also started up joint venture with FSO Co., a state-owned automaker in Poland. This company plan to churn out 125,000 cars including 80,000 units of pick-up trucks and 20,000 units of Tico, Daewoo's subcompact car. Daewoo will invest a total of $1.1 billion in the joint company by the year 2000 in order to expand its annual production capacity of 340,000 units.

As an initial step to survive the fierce competition in the world's automobile marker, Daewoo took over the research center of the International Automobile Design (IAD) in Worthing, Britain, a world-renowned auto design and engineering company in 1994. Daewoo also set up new technical center in Munich in 1995 where has been conducing development of new engine system.

The globalization strategy of Daewoo looked at simply, consists of two parts. One is to R&D in the advanced countries such as Britain or Germany. The other is to build up a CKD Plant in the low-wage countries and closeness market such as Easten Europe.

Daewoo is trying to link more strategically the three areas at the globalization levels, i.e. R&D, production and marketing. Evidence suggests that Daewoo's activities in Europe are emerging in the direction which is consistent with globalization models, although whether they will be a full-scale development remains to be seen.

This strategy of internationalization of Korean car manufacturers is characterized by niche-market strategy. It is mean that the overseas production site of Korean automakers is limited to the periphery area, which have not the hard competitions of advanced automakers. Otherweise, KD export by Korean maufacturer as a internationalization strategy has been lifted from the import qutota system of auto imported contries. They have been able to increase its overall market penetrations despite increased import barrier or raise dumping charges against foreign-made cars in Western Europe and Latin America and a rising value of the won (Korean currency).

The logical target for transplant by the KD knit is throughout Asia, but that mean hard competition between Korean automakers in periphery area and stimulate to develop local automotive industries. Otherwise, the market of many Asia Pacific countries is already dominated by Japanese automakers. It may be that Korean access for this regions may need to be important strategic challengers. Under the pressure's globalization, the Korean automakers, in my judgment, can not avoid serious overcapacity problem in the overseas plant. In spite of the pressures' globalization create, the strategy of global sourcing and localization is infancy. It means that Korean automaker will stimulated set up the international suppliers network. The Korean automakers face in European market that is second largest market by Korean manufactures. However, it simply is not expected that European counties are no comparable upsurge in demand for cheap Korean cars, because several European companies already made similar car so that market too has been more difficult to penetrate.

To survive the fierce sales competitions in world car market, Korean automakers should exert their best efforts to improve technology and develop next-generation vehicles, including electric cars. Quality and high technology are necessary for survival. They also must be improve their own image that is the reputation for poor quality and inexpensive in their export market. This conditions might stimulate to international network system of R&D that will permit increased internationalization of production in Korean automakers.

The nation's three major automakers are moving to shift the focus of their management strategies from past domestic sale to this year's exports because they can't continue to depend on the domestic market for sustained growth. Nevertheless, it is still unclear that Korean manufacturers are effective in responding to its challenges.

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