International Production Networks in Asia: Rivalry or Riches

By Michael Borrus; Dieter Ernst et al. | Go to book overview

6

Technological capabilities and the Samsung Electronics network1

Youngsoo Kim

Korean electronics firms have been aggressively involved in learning and knowledge accumulation since the 1980s. Their consumer products, including color television sets (CTVs), video cassette recorders (VCRs), and microwave ovens (MWOs), were able to remain competitive in the low-end segment of world markets until the late 1980s, generating the cash flow needed to support development of more advanced technologies. In recent years, however, Korean products are meeting increased competition, particularly from Japanese producers, who have recovered their competitiveness by investing in low-cost offshore production.

Increased overseas production has been a major component of Korea's strategic response. Korean production networks in Asia now extend beyond the ASEAN region to China and India. The ratio of overseas production to total production has increased sharply in recent years, from 19 to 27 percent for CTVs and from 16 to 17 percent for VCRs during the period 1992-4. However, those of their Japanese electronics counterparts increased even faster, from 67 percent to 86 percent for CTVs and from 36 to 71 percent for VCRs during the same period (see Table 6.1), keeping competition intense in the cost-driven struggle for low-end markets.

Perhaps a better comparison would be with another of Asia's newly industrialized countries. The internationalization of Korean electronics production also appears to have lagged behind that of Taiwan. Outward foreign direct investment (FDI) by Korean electronics firms lagged behind their Taiwanese rivals. The cumulative FDI by the former amounted to US$0.85 billion (Electronic Industry Association of Korea 1993), whereas for the latter it was US$1.05 billion. 2

In 1993, the three major Korean producers, Samsung, Goldstar, and Daewoo, announced their intention to increase their overseas production ratio (OPR) from an average of 20 percent in 1993 to 60 percent by 2000 (KED, 21 July 1993). This chapter will focus on the experience of Samsung, which has the highest OPR of the three. 3

The chapter is arranged chronologically, focusing both on the forces driving Samsung to develop offshore networks and on the struggle to adapt the nature of its networks to its capabilities. Particular attention will be placed on the networks connecting its offshore affiliates in East Asia.

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