Strategies for Korean SMEs to Break into Latin American Markets: Based on the OLI Paradigm

Seungil Kim, Hwaseok Oh, and Hyun Seo Kee

Central and South America is approaching to Korea companies as a land of opportunities continuing a stable growth. This research covered the three countries around northwest-pacific, Colombia, Peru and Chile (“Andean three countries”), where our SMEs can access or enter into its market in the most effective way.

Among Central and South American countries, Andean three countries not only signed the Free Trade Agreement with Korea but also have a great condition in order that our SMEs can make inroad to its market in view of both geographical position and potentiality of growth. In particular, Andean three countries and Mexico established the economy community, the Pacific Alliance (Alianza del Pacifico), and its economic community is strongly emerging as a representative of Pacific coast of Central and South America.

The main purpose of this research is: (a) to analyze the present condition of economy, infrastructure, industrial composition, government policy, etc, (b) to evaluate the competitiveness of Korean SMEs in each industry field of local market after choosing the promising field and area to make inroad for their business, and (c) to seek the plans for expansion of Korean SMEs' business in the local market and the related policies.

To achieve this, this research analyzes the statics of export and import, the trend of investment, the competitive environment in local countries in depth, meanwhile, explain the condition of export and investment in central and South America through overseas direct investment theory such as OLI paradigm (Ecletic Paradigm), Phased entry theory, etc. Following this research results, the conclusion was reached as below,

Firstly, as regards OLI analysis, Korean SMEs are focusing on export based on O (Ownership-specific advantage) and I (Internalization-incentive advantage) in the Andean market. Except direct investment aiming for acquisition for local resources, however, it is very slightly to choose local direct production with all O, L(Labour-specific Advantage) and I.

Substituting the OLI paradigm, Korean SMEs have considerable Ownership-specific advantages in related industries of steel, petrochemistry, electron, auto, machine, IT, Korean wave, ete. On the other hands, There are not many elements to gain an advantage in the location-specific advantages by the infrastructure of industrial production and lack of skilled labours.

Secondly, based on the discussion in the chapter 3, we selected SMEs' 10 promising items for export in Andean three countries such as synthetic resins, steel plat, auto-component, computer, plastic product, raw material fine.

Furthermore, we select some promising products collecting opinions of Korean companies doing a business in Andean countries. As a result, daily supplies, auto-component, machine and machine-component and business related to mineral energy are selected as promising products for entering into local market for Korean SMEs.

Thirdly, as an expansion plan for entering into local market, we suggest the promotion of direct export, the business to business connection, the strategies for joint-venture entering, etc. As an example of the business to business connection and the strategies for joint-venture entering, we present two strategies as the joint overseas expansion with major company or between SMEs. the other strategy for the joint-venture overseas expansion is the connection and joint-advancement between SMEs. Thereby, SMEs with a paucity in resources can make a connection with their capability, reduce the risk and make inroads into overseas markets.

Fourthly, as policy strategies for the promotion of entering into local markets by SMEs, we present the present condition of various policies for the promotion of SMEs' entering into overseas market (export), and call on the government to strengthen foundation for the overseas expansion and come up with an effective plan for supporting the joint overseas expansion between enterprises.

In addition, as regards preparation plan for support for the joint overseas expansion, we suggest the government not only gives positive supports for the joint overseas expansion between large companies and SMEs or between SMEs but also examines and operates some policies such as support centers for joint overseas expansion with major company and SMEs to promote SMEs' overseas expansion, appointment system of outstanding company doing a business jointly.