Magazine article Teaching Business & Economics

Outward Foreign Direct Investment (FDI) Strategies of Korean and Chinese Multinationals: Will Chinese Firms Be the Eventual Winners?

Magazine article Teaching Business & Economics

Outward Foreign Direct Investment (FDI) Strategies of Korean and Chinese Multinationals: Will Chinese Firms Be the Eventual Winners?

Article excerpt

Much has been made of the important success of Chinese and Korean multinationals in their attempt to take on multinationals from Japan, the USA and Europe in the global market place. This article sets out to examine the strategies being adopted by such firms in order to achieve their main aim. The article draws on theories of FDI and management and applies firm and country data in order to provide evidence for the types of strategy being adopted.

Prior to the last 20 years, Korean and Chinese multinational enterprises (MNEs) have had a rather limited presence on the global arena. Korea has made greater progress than China historically when, for example according to Yoo (1987) the car company Hyundai became the largest exporter to Canada in less than 18 months from the introduction of its Pony model in 1985. Korean manufacturers have also gained market share in Europe despite a declining number of cars being sold of late. China on the other hand has had less Western influence in the early stages as it did not join the World Trade Organisation (WTO) until 2001 according to Floyd (2012). Korea's relationship with the USA may help explain Korea's more favourable position though Japan was less close to the USA but still managed to focus more on an exported orientated strategy (see Kojima 1990), in earlier years. China was always more inwardly focused adopting multi-domestic rather than global strategies according to Porter (1990)

As well as the historical and political development evident in the strategic focus of MNEs, there are also a number of theories that help explain the current global strategies of Chinese and Korean MNEs. Hymer (1970), for example, shows how some new entrant countries tend to need to have additional assets to local firms in order to successfully penetrate new markets. In many cases Korea, Japan and China have entered the market from a position of low cost and a favourable exchange rate (see Dunnings 1993).

There are also a number of management characteristics that may explain the developing strategies of Korean and Chinese MNEs.

The Korean government has invested heavily in education and has been able to gradually move up the value chain similar to the experiences of Japan. Dunnings' 1993 ownership advantages show the importance of management skill in determining the success level of multinationals. This has been more difficult for China due to its population size and more recently there has been more focus on investing in infrastructure.

There are some similarities in internationalisation strategies of Chinese and Korean Multinationals. They have both tried to purchase foreign companies to gain access to technology, for example, Samsung has purchased CSR UK and the Chinese firm Shanghai automotive has purchased the MG UK brand, in the same way Lenovo and Haier have expanded by purchasing foreign brands. According to Debaere's research, Korea focuses more on the USA for its outward FDI strategies which may also influence its success rate in gaining technology to move up the value chain. Debaere (2010) further shows how Korea is focusing on specific technologies including cars and electronics. China is also targeting these sectors but at a lower level of the value chain. Both Chinese and Korean multinationals have much support from their governments and are offered favourable loans. Furthermore both countries have a hierarchical topdown decision making process. In addition both countries have a Confucian work ethic including hard work and long hours (see Hofstede 1980).

Specific Attributes of Chinese Brands

China is making progress with establishing additional brands as well as further supporting the established brand, Lenovo. Market share is improving despite intense competition and Lenovo has done well by diversifying into a wide range of products at competitive prices. Lenovo is also a strong contender for the purchase of BlackBerry according to the Financial Times (August 2013). …

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