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[Column] Foreign sale of Daewoo is best option

Posted October. 17, 2000 12:09,   


For the upcoming Asia-Europe Meeting in Seoul, it has been revealed that both Korean and European auto manufacturers were locked in a fierce competition to become the providers of ground transportation for the attending leaders.

Germany's DaimlerChrysler and BMW as well as Korea's Hyundai offered their latest top models and even offered bullet-proof vehicles for each of the leaders. Such facts have come to light as consumerism of automobiles is public, and as it carries a deeper symbolism, it attracts the focus and attention of the public.

The interest in automobiles not only attracts a high degree of public interest, it also represents an important industry that influences a nation's economy. The Korean automotive industry and its related businesses account for 7% of the total labor force that has served as a great boost to the post-war development of Korea, and with the annual export of up to 10 billion won, the auto industry along with the semiconductor industry represent a major driving force of the Korean economy.

In the case of other developed nations such as the United States, Japan and Germany, the total labor force in the automotive and related industry account for 12%, much higher than that of Korea. In such countries where the high-tech and service areas have skyrocketed as the United States, Japan and Germany, the reason for them not being able to quickly abandon its smokestack factories for auto manufacturing is that there aren't any replacement industries that could provide such a labor market.

The French government in the 1980s turned the troubled Renault auto manufacturer into a public company, which now has reached a degree of normalized operation. It has even taken over Nissan of Japan.

Germany's Volkswagen at one time needed government financing to keep the workers on payroll and even regulated a four-day work per week to keep the company afloat.

If we also considered the only importance of providing work for the workers, it would be wise to make Daewoo a public company, and the laborers would prefer such measure.

However, today, we also must consider competitiveness. Today the world automobile market faces about 20 million units of oversupply and is locked in fierce price competition. Surviving in the price war entails mergers, which could promote the competitive edge through increases in cooperative scale. As such, the world has been witnessing the births of mega-manufacturers. As means to survive, one manufacturer has increased its production from 2 million to 4 million units as a "competitive production level." During such phase of mega-mergers, the world-class Japanese automakers in the 1980s such as Nissan, Mitsubishi, and Mazda have lost their competitive edges and have fallen under the ownership and control of foreign automakers.

In today's fierce competition, Daewoo Motor, which lacks the elements to place it toward the top of the competition, might not be normalized soon, even should the company become public. From the viewpoint of placing importance on competitiveness, it would be better to under-sell Daewoo Motor and have it fall under the control of a foreign company.

Until now, the Korean policy in businesses centered around the importance of keeping workers on payroll. As a result, many companies became non-viable with human resources taking the center stage even as the market competition drove many toward unrecoverable states of ill health.

In the 1990s Korean automakers ignored their market share and the size of the Korean market, but focused on a fierce competition to increase production levels with each company shooting for production capability of 2 million units annually. As a result, they have brought a dent to our economy through enormous borrowing and government injection of public funds.

Currently, the situation might be that striking two targets, the jobs and the competitive edge, could be quite impossible. If Korea needed to choose one for the other, it should place greater weight on promotion of competitiveness. While selling off Daewoo Motor, it would be advisable to obtain a guaranteed employment for the work force for a certain time period. Perhaps then, the opposition to the sales might be alleviated.

In the past few years, three of the five major automakers have been sold off to foreign companies. The Japanese, who had been a quite non-cooperative partner when it came to foreign investments into Japan, did a turnaround and actively sought mergers and acquisitions of its automakers.

Such facts point to the seriousness of the competition today in the automobile market and also point to the great importance of becoming a part of the new world order in the auto industry.

Professor Ju Woo-Jin, Business Administration of Seoul National University