A Comparative Analysis of Transplants and Industrial Location of Japanese and Korean Automotive Industries in Europe

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ABSTRACT

This study examines the experience of the Japanese automotive industry in Europe in the 1980s and attempts to compare the Korean automotive industry since the 1990s in search of strategic implications. The underlying assumption is that local production and transplants of Japanese automotive industry in the 1980s are critically related to the protective posture of the EU in the political economic context of the internal market. Based on this, this study argues that repetitive patterns of transition from trade to transplants is related to the contextual circumstance in Europe and this will provide a conforming case for the theory of off-shore manufacturing and important strategic implications for the Korean firms at their emerging status in European markets.

JEL Classification: F18, F21, M16

Keywords: Foreign direct investment; Transplant; Industrial location; Korean automotive industry; Japanese automotive industry; European internal market; Localization

I. INTRODUCTION

The rapid transplant and successful market entry of Japanese automotive industry in Europe during the 1980s clearly affected the global restructuring of the world car industry. An unequal distribution of production and consumption in three major centers-North America, Western Europe, and Japan-was mainly responsible for the massive trade surplus of the Japanese automotive industry and prompted these firms to establish overseas production plants. The changing mode of market entry by transplant instead of export was allegedly to circumvent existing or expected tariff walls and reduce financial imbalances as the high exchange value of the yen enhanced cost competitiveness of overseas production (Jones and North, 1991).

Compared to the establishment of plants in the USA and Canada, which has been generally welcomed, experience in Western Europe face a controversial dimension. Increased imports of Japanese motorcars and relatively closed market conditions are suggested as factors behind the transplants (Rawlinson and Wells, 1992). Export-led growth of the Japanese automotive industry consequently has caused increasing political unrest among nations in Western Europe who have large but less competitive indigenous automotive industries to protect. Considering this situation, it is considered a sensitive agenda to allow Japanese motorcar manufacturers to increase production capacity within their domestic markets. In particular, political and economic integration in Europe have posed environmental uncertainties for Japanese motorcar manufacturers as well as member states of the EU.

The purpose of this study is to identify the motivations and spatial decisions of the Japanese automotive industry's experience in Europe in the 1980s. Existing literature relating to Japanese transplant of production by means of FDI mainly focus on the transplantation and localization of Japanese management style and practices. Despite the expectation, theoretical and empirical assessments of the motivations and spatial decisions of Japanese transplants in Europe, in particular, are surprisingly limited.

This study also compares the transplant and industrial location of the Korean automotive industry since the 1990s in search of strategic implications. Recent years witnessed the rapid development of the Korean automotive industry in Europe showing similar patterns of trade and transitions to transplant with that of the experience of Japanese motorcar manufacturers in their formative years. Western Europe became the second largest motorcar trading partner after the U.S. Since the mid 1990s, Korean motorcar manufacturers manifested market presence in Europe via transplant by means of joint ventures with local companies and green-field investments. Recently commenced transplants of the Korean automotive manufacturers and their experience from the 1990s are considered comparable to the Japanese automotive industry's experience from the 1980s. …