[Editorial] Shanghai Automotive Presents the Future of Korean and Chinese Companies

It is a natural outcome of a merger and acquisition that China’s Shanghai Automotive Industry Corporation took over Ssangyong Motor’s major divisions and the board of directors. It seems futile to either say that Shanghai Automotive broke its promise to keep the existing management or that technology leak is a concern. What we see as important is the future of Korean and Chinese companies.

In its regular general shareholders’ meeting on March 25, Ssangyong Motor appointed Shanghai Automotive President Chen Hong and Vice President Zhang Hai Tao as new board members, naming Chen the chairman of the board. An executive director from Shanghai Automotive was also appointed the advisor to director of the company’s technology research center. These are all legitimate rights of Shanghai Automotive after it acquired Ssangyong, which was under a workout program, for 500 million dollars. If management control and technology leakage were concerns, Ssangyong should not have been sold to Shanghai Automotive in the first place.

China has embarked on acquisitions of foreign businesses as part of its national strategy for condensed technology growth in the automotive, electronic, and chemical sectors. These industries are all where Korean exports are concentrated. Although the technological power of the Korean automotive industry is eight years ahead of its Chinese counterpart, the gap may be narrowed overnight if Shanghai Automotive’s strategy for technology growth succeeds. If China equips itself with technological competitiveness as well as low-wages, major industries of Korea may be threatened.

Meanwhile, the government’s corporate policy dampens domestic investment by placing restrictions on the total amount of shareholding of other companies and reverse-discriminates against domestic companies in cases of hostile merger attempts by foreign companies by limiting the voting rights of large business groups’ financial units in other affiliates. This contrasts with the policies of the U.S., Japan, and the EU to protect major domestic corporations. Besides, Korean labor unions intervene in companies’ investment decision-making according to their interests. This environment raises questions over Korean companies’ capability to respond to attacks from Chinese businesses.

Albeit belatedly, the corporate sector, labor unions, and the government must work together to secure global competitiveness, management control, and technology protection for our businesses. This is a win-win strategy for companies, labor unions, and the economy.