Currency Crisis and the Difficulties for Korean Overseas Affiliates: A Case Study on the Restructuring of Korean Affiliates in ChinaJong-Keun Kim

For the nearly ten years that preceded the recent financial crisis, and especially so following the establishment of formal diplomatic relations between the two countries in 1992, Korean foreign direct investment (FDI) in China had been rapidly increasing. However, the respective number of cases and amount of Korean FDI in China during the initial three quarters of 1998 fell 64.4% and 21.2% from the same period of 1997 to 160 cases and USD 423.54 million (Figure 1).
Figure 1. Korean Overseas Direct Investment in China(Units: US$ Thousand)

Note: Based on actual investmentSource: Ministry of Finance and Economy, 'Trend in International Investment and Technology Inducement'

Korean overseas affiliates in China are faced with the urgent need to restructure to adapt to the deteriorating economic situation in Southeast and East Asia. Top of the list of difficulties are over production, the difficulties of targeted Asian markets and slower growth of domestic consumption in China. Also necessitating restructuring and a reassessment of strategy is that the Chinese maintenance of the yuan's dollar peg despite the depreciation of most of the other regional currencies has slashed the amount of exports of Korean affiliates in the country. The United States has also hurt exports from China as it has tightened its textile quotas. The last hurdle that needs to be overcome is the regional credit crunch caused by the financial crisis.

Based on case studies, we discerned various patterns of restructuring by Korean companies in China to overcome and adapt to the deteriorating situation in China. One such strategy is the altering of employment structure, largely through implementing cost-cutting layoffs. Another strategy is to increase production efficiency and boost investment in high value-added production. This is part of an overall focus on efficiency and profits rather than market share and revenue. Finally, Korean companies in China are restructuring manufacturing and marketing divisions under one management structuring in order to increase responsiveness to the customer.

At the same time, Korean affiliates in China are diversifying export markets. Electronic components manufactures are turning to developed countries as new export targets, avoiding the past concentration on the markets of Southeast Asia and Russia. In addition, the toy manufacturing industry is moving its production facilities inland, away from the relatively affluent Chinese east coast in order to reduce labor costs. At the same time, such companies are attempting to find new export markets. Labor intensive industries, such as toy manufacturing, are successfully moving production sites as labor intensive production requires little infrastructure while sales are often implemented through long and dependable relationships with buyers.

Meanwhile, Korean affiliates in China relying largely on exports back to their home country are striving to enlarge domestic market share. Since the process cannot be done quickly, these affiliates are also trying to cut additional expenses by reducing local firm size while searching for new export markets.

As for financing, due to the deteriorating Korean economy, local Chinese banks are increasingly reluctant to lend money to Korean affiliates. Therefore overseas affiliates are pleading with the Korean government to intervene to improve lending conditions in China.

The difficulties of most affiliates aside, a few affiliates of the largest Korean conglomerates and a number of other Korean affiliates, mostly toy and textile manufacturers that have been able to maintain a stable sales networks, are actually increasing investment in China. Increased chaebol investment is based on the enormous potential demand of continued Chinese economic development. Meanwhile, the successful small- and medium-sized firms are mostly those riding the tides of economic boom in the United States and Europe, through which they continue to source their investment needs.
A number of overseas Korean affiliates in China are facing potential bankruptcy and are attempting to sell assets to stay afloat. Such measures begin with attempts to attract fresh capital investment, but often resort to the selling of often valuable assets, the proceeds of which go towards revitalization and restructuring measures. Finding and negotiating with potential buyers of such assets has been difficult, and even when sales have been agreed to, one or both parties have often found it difficult to live up to the terms of the hastily prepared sales contracts.

At the same time, FDI to China from developed countries is expected to increase while Asian investment appears poised to stagnate over the next few years. If Korea follows this trend, then much of its investment, which has not yet reached the stage where the full benefits can be realized, will wither and eventually be lost. Furthermore, Korean affiliates in China will have a hard time maintaining competitiveness with the increased presence of multinationals from developed countries. Therefore, in order to see the fruition of widespread investment in China and also maintain competitiveness vis-a-vis multinationals in China, the government needs to provide some form of financial and technical assistance to Korean affiliates operating in China.

Ⅰ. 서론

Ⅱ. 한국기업의 對中 투자 현황 및 특징
1. 한국기업의 해외직접투자 현황과 특징
2. 한국기업의 對中 투자 현황과 특징

Ⅲ. 한국 현지법인의 구조조정 현황과 사례 분석
1. 외환위기 이후 한국 현지법인의 경영환경 변화
2. 한국 현지법인의 구조조정 사례
3. 사례분석을 통한 현지법인의 구조조정 방향

Ⅳ. 결론 및 시사점

參考文獻