Korea’s Foreign M&A: 6% of Japan, 9% of China

Many people are arguing that Korean companies are slow in going international and thus not growing as fast as their foreign counterparts because they are not aggressively pursuing M&As with foreign companies. However, companies in China and Japan are increasingly adopting a growth strategy of leveraging foreign M&As.

For example, China’s TLC, after forging a partnership in 2003 with Thompson, a French home appliance company, has been manufacturing television sets. TLC practically possesses the company’s management rights as it holds 67% of its shares. The Chinese National Oil Company (CNOC) took over Repsol, an Indonesian petroleum company, at a cost of 580 million USD in 2004.

Tata Steel, the world’s 50th biggest steel company in India, bought the English Chorus Group to become the world’s 5th biggest steel company.

Even Japan, once considered to be lacking in foreign M&A strategies like Korea, is seeing a sea change: M&As conducted in Japan in 2004 and 2005 increased to 64.1% out of the country’s total foreign direct investment (FDI), while the country’s “Green Field” investment--building manufacturing bases on foreign soil--decreased to 8.5%.

Lee Hui-beom, president of the Korea Trade Investment Promotion Agency, in a seminar organized by the Korea Chamber of Commerce and Industry held at the Lotte Hotel, in Seoguipo, Jeju Province, and given at “CEO college,” talked about the aforementioned M&A percentages and said, “Korean companies should be proactive in concluding M&As in order to secure more foreign markets.

Korea Flunks Foreign M&A Market-

M&As conducted in the world since 2003 have gone up dramatically, and in the first half of this year the M&A volume increased by 50% compared to last year to 1.665 trillion USD. According to the Korea Institute for International Economic Policy (KIEP) and the Korea Institute for Industrial Economics and Trade (KIET), Korean companies’ M&As accounted for 9.9% on average of their FDI between 2001 and 2001, which is much less than the world average of 27.0% in 2004. In 2004, Korean companies’ investment in foreign M&A reached 359 million USD only on average.

One of the countries actively concluding foreign M&As is China. China, which does not believe pursuing foreign M&As is a strategy that belongs to advanced countries, has completed foreign M&As amounting to 6.5 billion USD in 2005. With the largest foreign reserve in the world with 1.3 trillion USD, China has been pursuing “Cheoochchi” or “Foreign Companies M&A” policy officially since the early 2000s, encouraging domestic companies to seek M&As with their foreign counterparts. Chinese look at M&As as a shortcut to acquiring advanced technologies and securing foreign resources.

Korea Lost Confidence after Failing Once -

Jin Dae-je, former Minister of Information and Technology, recently said, “Samsung Electronics should have acquired a non-memory semiconductor company.” Jin believes that Samsung is a leader in the memory sector but should have concluded an M&A in the non-memory sector in order to complement its weakness as it is struggling in the non-memory sector.

Korean companies tried to merge or acquire foreign companies before the Asian financial crisis hit the nation.

Samsung Electronics took over American PC manufacturer AST Research in 1994, and LG took over American TV maker Zenith in 1995. Later, Hyundai Electronics (Hynix) acquired American drive maker Maxtor. However, all these attempts are considered failures.

Zenith is considered to be a cash cow right now because it holds digital broadcasting base technology; however in 1999, LG had to file Chapter 11.

After the financial crisis, domestic companies have managed their companies, focusing on their performance and shunned growth through M&As. Korean companies also do not have much experience in foreign management activities, and have little experience in working together with law firms, accounting firms, investment banks, and consulting companies. Most M&As concluded in the past two years are domestic M&As, and these companies were offerings that came out as a result of restructuring measures after the Asian financial crisis.