Perceptions of Korean Big Business on the Emergence of China Joon-Shik Park 1 Hyun-Sun Lee Introduction During last two decades, China has emerged as the most important business partner with Korea. Various exchanges between Korea and China in commodity, business, and human mobility have almost surpassed the combined sum of Korea with U.S. and Japan. Now, it is evident, from the Korean standpoint, business relations at every levels with China have become essential elements for the sustainability of Korean economy. The remarkable growth of China has enabled it to be the biggest geo-political force in East Asia. The emergence of China in the later 20 th century has brought about great debates on its impacts on global as well as regional balance of power issues (Jacques, 2012; Shambaugh, 2013). Despite so much controversies and diverse opinions, in nowhere are its impacts apparent than East Asia. It is now very clear that the emergence of China is demanding significant dislocations in the existing status-quo among political arrangements of the East Asian countries. Those changes in geo-political and economic relations are causing more and more conflicts and uncomfortable events among East Asian nations. It is not only confined to economic spheres, but is affecting other areas like territorial boundary claims, rising nationalism, and environmental issues, which may be broadly termed as political spheres. However, the intensity and degree of political ripples among East Asian countries may be felt differently, depending on the perceptions of the nature of political risks and economic opportunities. Of course, there is a possibility that a widening potential gap between deepening economic ties and political relations between Korea and China may raise some significant issues in terms of perceptual dislocations between politics and economy among business people working in China. This paper tries to figure out how leading Korean business groups and their expatriate managers have been trying to adjust their business in steering through balance sheets of China risks. Classifying China risks at political-systemic, administrative-bureaucratic, and daily operational risks like guanxi politics, this paper tries to evaluate how Korean big business in China are trying to take advantage of their risks into business advantages. Most of the researches on China have been conducted from the perspectives of economic interests, management, and investment. Existing China studies in Korea are mainly interested in security and political issues. There are also serious calculations and long-term evaluations on the overall risks of too much economic dependency on China. Now, China specialists are actively debating on possible impacts on Korean economy when Chinese economy ceases to grow and falls into a hard landing. There are also serious researches on the possible economic threats of Chinese competitors in major industries. However, most of the debates on China threat in Korea are still confined to economic issues (KIET, 2010; KIEP, 2007; Park, 2011). 1 First Author 16 Vol. 60, No. 3, July 2014
Evaluations on the political risks of China in relation with economic matters are not yet included in serious consideration. Recently, sociological and cultural studies, fieldworks, and case studies on Korean Wave phenomena are very active. However, cross cultural and comparative studies on East Asia with specific subjects are still very limited. Especially, approaching China as a risk factor has not been addressed much in Korea. This research tries to figure out how leading Korean business groups and their expatriate managers who had accumulated thick experiences in China have been trying to adjust and frame their business strategies in steering through difficult balance sheets of China risks in terms of market opportunities and political risks. In trying to understand Korean understanding of the China risks, the author will focus mainly on large Korean global manufacturers like Samsung, LG, and Hyundai Motors because they are now leading Korean style globalization in China. We also try to approach the issue in comparison with other East Asian global manufacturing companies of Japan or Taiwan. Korean perceptions on China risks will be evaluated in comparative reference on Japanese or Taiwanese counterparts in mind. Research Design Conceptual discussion As Michael Hsiao discussed in his conceptual discussion, we may divide China risks roughly into three levels: the first one is political-systemic, the second is administrative-bureaucratic, and the third one is operational risks, which may be called guanxi politics (Hsiao, 2014). In addition to that, especially from Korean perspective, we may take another factor in mind: the scale and size of companies. In Korea, scale and size of business really matters because the ecology of Korean business is clearly divided between two sectors. In that sense, Korean business community is much more clearly demarcated by dual economy compared with other East Asian economies like Japan or Taiwan. The first group is large chaebol group companies and their major subsidiaries. They are clearly dominating Korean economy and a few among them have grown up as global companies. The second group of companies may be classified as small and medium sized companies. Most of them are struggling to just survive. They are concentrated at the fringes of bare existence and always very hungry for low cost. In order to take a whole picture on the nature of Korean business in China, we may need to take those very different companies together. However in this paper, we will focus mainly on large global manufacturers. Research methods This research is based on the interpretations of various kinds of researches combining fieldwork interviews on the Korean expatriates serving big corporations, literature reviews on existing researches, and individual in-depth interviews with former Korean senior managers who had long served for the Korean business groups in China. This research is mainly focusing on Korean global business groups. In order to take more comprehensive understanding on the whole picture of Korean business, we may have to compare big business sector with other business sectors. Interviews with expatriates Interviews with the international managers of Korean companies like Samsung, Hyundai, LG, Perceptions of Korean Big Business on the Emergence of China 17
and their subsidiaries were conducted aiming for understanding the viewpoints and practices of Korean big business on the following issues. The interviews were also conducted in comparative perspectives with Japanese and Taiwanese corporate understanding of similar issues. Strategic evaluation on the opportunities and risks of China Short-term as well as long-term Chinese strategy Human resources policies in China Understanding of political as well as systemic risks related with China Administrative-bureaucratic relations with the Chinese government Daily operation and guanxi management Emergence of China and Its Appeal The growth of China and new challenges During last three decades, China has emerged as the most important political and economic force in East Asia. The sheer size, speed, and magnitude of China made it the most important consideration for business people. Integration of China in global economy has been a vital factor for Korean globalization (Ito and Hahn, 2010; SERI, 2004). Ever deepening economic relations of Korea and China has now become the most important variable affecting the future of Korean economy. Especially the trade volume of two countries almost matches with the combination of other two major economic partners with Korea (U.S. and Japan). China has provided decisive momentum for Korean globalization conducting massive overseas investment in China and human exchange. The embracement of China among Korean business community has not only facilitated economic exchanges and investment, but also made far reaching consequences on human mobility, networks, and culture. It is also challenging the existing perceptions on China. East Asian countries and their business communities had to readjust their existing perceptual frames about China. However, the perceptual frames on China among East Asian countries may be structured in different ways. As external influences of China overflows, various kinds of possible outside concerns are actually transforming into open conflicts. However, compared with other countries, Korean business communities and their major actors are relatively more inclined to partnership rather than estrangement with China. The rise of China as a global power may cause new challenges and tensions among East Asian countries. Especially, there are possibilities the perceptual frames of Korean business may drift further from those of the Japanese. Business interests among major East Asian countries may diversify depending on the risk calculations and their business consequences. However, Korean business communities may perceive political risks accompanying those changes as business opportunities to enlarge their market. They are likely to welcome those risks and many of them have already taken deep steps into new economic territories. Now, the economic relations between Korea and China became so complex enough to embrace almost all exchange activities to have evolved into a complex interdependence stage. The relationship between Korea and China has already emerged as the essential element of Korean society. We may define it as complex interdependency stage. We need to think about the nature and management of risks in the context of complex interdependency. The changing political-economic positions among East Asian countries may fuel new energies of creative tensions and geo-political changes for the Korean business communities. Basic consensus among Korean business communities The opening and fast growth of China have provided Korean economy the greatest benefits for 18 Vol. 60, No. 3, July 2014
more than a decade. Splendid increase of exchanges between Korea and China in the beginning of the 21st century has made China to be an indispensable partner in every aspects of Korean globalization. Korean economy was able to ride on the rising Dragon. Increased human networks among Korean, ethnic Korean Chinese, and Chinese business community have played a key role in the expansion of Korean business in China. Major Korean manufacturers were able to present as global players by riding on the Dragon. Most of the Korean manufacturers as well as new group of service and retail business people have been engaging in China business. Many of them were able to grow up as global companies due to the explosion of China market. Riding out from the Dragon is an unthinkable option for the Korean companies. The nature of economic and political system of China and its behavior does not count much in so far as it does not touch the business interests. Therefore, there is a strong consensus among elite groups in Korea that China has become a necessary condition for the future of Korea. Reasons for China appeal General perception of China among Korean people has already experienced profound transformation: from an enemy to friendly relations. Korea has enough reasons to maintain a good relationship with China. Economic situations, geo-political factors, and behaviors of Chinese government and people all contributed for the improved perceptions on China among Korean people. Now, at present, majority of Korean people believe China has provided new economic opportunities for the Korean economy. People s opinion about economic relations with Korea and China has been converging on the point that the economic interdependency between the two economies has been deepening so much and Korea was the biggest beneficiary. It is also true that during last two decades, economic exchanges, partnerships, and human mobility between two countries have been widening enough to cover most of the globalization spheres. There is also additional geo-political reason Korea has to live well with China. It may be broadly related with unclear and unification issues. Policy makers and professionals on security community in Korea have long believed that China has the largest leverage on international security issues around North Korea. They tried to convince China to assume a constructive role on unification and nuclear issues on North Korea. This means Korea has enough reasons to maintain good relations with China economically as well as politically (Jung, 2011; Lim, Hyun-Jin and Hae-Ran Lim, 2013). The political position of Korea on very recent development of international contentions is also significantly different from Japan. In so far as territorial issues are concerned, Korea and China has to maintain closer stance due to territorial and historical contentions with Japan. Traditionally Korea has to survive by maintaining brinkmanship between its bigger neighbors. Subtle changes in the balance of power among its surrounding countries may anytime threaten the security and survival chances of Korea and they are always enforced to be very sensitive on changing power balances. Now, the conundrum of power politics may be pushing Korea significantly closer towards China, which means further away from Japan. Cultural phenomena called Korean Waves has also contributed much in increasing the soft appeal of Korea to China. Korean pop music, entertainment, dramas and all the accompanying cultural activities has enjoyed the biggest success in China, which also contributed much on soaring popularity on Korean consumer products in mainland. The positive economic effects of two countries are now extending towards so called soft power spheres. Even though Korean people still holds on their strong military and political alliances with the West, China has been very successful in placing firm position on the mindset of Korean people. Considering those circumstances, China is much perceived as opportunities rather than risks among Korean people. Perceptions of Korean Big Business on the Emergence of China 19
Awakening of new reality There are lots of debates about the future of China. Many of them emphasized the internal risks of China. Now, people are eyeing on the external risks of China which seem to be accompanying the emergence, effects, and presence of China on the global scale. However, despite various arguments on the threats of China, Korean big businesses are largely ignoring warning sirens. The ever increasing economic exchange and partnership has been enormous since Korea and China made an official diplomatic relationship in 1992. During last two decades, spanning from 1992 to 2012, the trade volume between two countries has increased 34.6 times. China is now the number one trading partner outpassing the combined total trade volume of U.S. and Japan. China has become the most important investment destination of Korean companies, especially for manufacturers. International division of labor in manufacturing industries has enabled Korean manufacturers to enhance cost competitiveness and to secure huge global market. The deepening exchanges between two economies have recently induced increasing number of Chinese investment in Korea too (Korea Chamber of Commerce, 2012). The overall macro trend between two countries clearly shows that the opportunity and optimism for China is still overshadowing the risk side of China business. As a consequence, most of the major Korean companies try to be important players in China market regardless of economic and political risks. The economic exchange and partnership between two countries has so deepened as to make Korea more and more dependent on the state of Chinese economy. The other indicators of China appeal among Korean people are various kinds of cultural activities and human movements at every stage of human exchanges. In 2012, about 4.2 million Korean people visited China and 2.2 million Chinese came to Korea. Number of Korean students in China is over 62,000 outnumbering U.S. (23,000) and Japan (17,000) in 2011. In 2003, the number of Korean overseas students in China was only about 6 thousands. Within ten years, it has reached 62 thousands (2011). Of course, the number of Chinese students in Korea has also increased from 29 thousands in 2006 to 63 thousands in 2011. Chinese young people are now the single biggest foreign student group in Korea. As of 2012, over 1 million Korean people are temporarily staying in China. International marriages between two people are increasing very fast, touching more than 0.5 million cases during last decade. One of the most impressive phenomena of China appeal in two countries may be happening in the area of cultural industries. Korean pop culture and their celebrities have occupied the highest rankings among Chinese people. In 2012 along, Korean popular musicians have made a big sweep from number one to seven in Baidu music chart (Korea Chamber of Commerce, 2012). Now, it is evident, the relationship between two countries has already evolved into inseparable integration. Spread of Korean multiculturalism About 1 million ethnic Koreans in China has provided Korean companies unique human assets especially during initial investment phase. Korean companies and people have made fundamental changes on the ethnic Korean communities. The investment and massive presence of Korean companies and their people provided ethnic Koreans new dreams for their future destinies. During last two decades, about 1 million ethnic Koreans left their rural communities in order to find new jobs in Korean firms or in Korea. The huge human migration has completely shuffled their communities. A new diaspora of ethnic Koreans has spread into Korean firms and peninsula. Now, about 0.7 million Chinese are staying in Korea, among them over 0.4 million are ethnic Korean. Ethnic Koreans are regarded as human brokers to bridge Korea and China in creating 20 Vol. 60, No. 3, July 2014
socials networks. Many Korean firms were very successful in taking advantage of ethnic Koreans. Large companies could take advantage of ethnic Korean human capital during initial period of China business. In case of small and medium size and individual business sectors, they are still playing crucial roles as structural holes of human networks. Now, most of the higher tier of ethnic Koreans integrated into the mainstream Chinese society, and their functions are being replaced by Chinese employees. China emerged as a true driving force for acceleration of multiculturalism in Korea. It is very plausible that the centripetal gravities of China are so strong that Korean society will be more and more close to China in the future. Emergence of new human nexus Korean global companies have been investing much on accumulating their China expert groups. They are trying to localize some core groups of China expatriates. In order to develop their career as the managerial group of China manager, they have to be equipped with language, social, managerial skills in addition to their own technical abilities. Companies are investing much on their army of China experts in long term perspective, which means they eagerly want to be treated as an important player in China. China became a must career for international managers of big companies. Now, for much of the Korean multinational managers, their field experience and career in China may provide them a new edge in their career path. Huge human mobility between China and Korea has already created a new human nexus which is clustering around China. New business interests, human resource and the growth of China connections will be one of the key interest groups which are expected to be strongly tied to leading sectors of Korean elite society. Significant number of Korean elite groups is now really considering their next generation to be educated in China, or at least expect to develop meaningful human network. It is now evident that China has almost taken up the place of Japan from Korean business viewpoint. It is still very early to predict that China connections will grow up as one of the dominant social powers commeasurable with the American or Japanese networks. However, given that the present trends will continue for more than a decade, it would be natural to suppose that a meaningful new mass of Korean leadership group will be added into Korean society, which may be called China connections. Perceptions on the Emergence of China A clear choice Majority of Korean business community regard China as a survival kit for them. Awareness of China as a risk factor is very limited. Korean political and business elites are working hard in deepening relations with China: a wide consensus within elite community. They are eager to develop social networks with Chinese political and economic elites. New generation of Korean people regard China as their indisputable future. Grand shifts of human mobility may also happen in Korean elite society. A significant number of Korean companies as well as middle class families are now educating their next generation in China. In the foreseeable time, the people with strong China connections may add new diversity in the characters of Korean globalization. Their cultural traits may be different from those of U.S. or Japan connections. The mirror side of growing Korean connections in China is reflected in the fast growing attractiveness of Korean popular culture in China, which may be called Korean Waves. Perceptions of Korean Big Business on the Emergence of China 21
Various elements of Korean culture, especially its popular elements became very popular among Chinese young generation, which may enhance soft appeal of Korea in China. Considering those together we may reach following predictions. Even though a possibility of political and economic drift of Korea from U.S. and Japan could eventually create a new cleavage among them may be too far, people began to feel ever stronger gravitational forces from China. It is too early and uncertain predicting an emergence of pro-china caucus in Korean society. However, given the fact that existing trends will be able to be sustained for some enough time like one generation, which has happened during Japanese colonialism, or corresponding time with U.S. during cold war time, it is quite reasonable to predict that a meaningful pro-china political force may take firm place in Korean society. China risk or China opportunity For the Korean business community, uncertainty, frictions, conflicts and accompanying political risks with China have been mostly unwelcoming news. In order to maintain and secure business interests, they mostly favor stable political environments. Most of them do not want to lose their economic opportunities due to political risks. They have already placed too much interest on China. In some aspects, business interests may emerge as one of the major factors preventing geo-political discomforts among East Asian countries from escalating into full-scale conflicts, because they have too much to lose. Regional economic forces surrounding China may have to find mutual gain zones for coprosperity, where politics, history, and economy may compromise. Korean companies may perceive some of the following economic risks with the growth of China. Government corruptions and the lack of transparency at central as well as local level Rising wage, industrial disputes Intensifying competition with Chinese companies Economic risks related with heavy investment in China Rising nationalism, political unrests, and accompanying internal security issues Perceptions on the risks of China may be different among different economic actors: individuals, entrepreneurs, small business, big corporations. However, the emergence of China as economic power has been a blessing for Korea, while the rise of China as political power has not been a big issue for Korean business. The success of Korean big business groups in China Big business groups of Korea began to make big push for China investment around the beginning of the 2000s. Their investment into mainland was more than a decade late compared with other major Asian countries. However, once they began to decide to be a major player in China, Korean companies became extremely aggressive. Especially, major Korean manufacturers regarded China as the most important strategic location for their production and sales. Because they were late, they tried to catch up with other rivals as fast as possible. Korean business giants like Samsung, LG, Hyundai, and SK relocated their major manufacturing clusters in China. Hyundai also tried to expand their production capacities as fast as possible. Korean big business groups broke up all the records of Chinese investment in their speed and scale in their business history. Now, Samsung and Hyundai, the two best known conglomerates of Korea, have created their biggest business edifices in China. The biggest overseas investment of fixed assets of Samsung Electronics is now located in China, outnumbering that of U.S. and Japan. In 2013, Hyundai-Kia Auto Group has taken the second biggest market share in China among multinational producers. Now, most of the major Korean chaebol companies are placing their decisive betting in China 22 Vol. 60, No. 3, July 2014
despite growing liabilities. Their strategic choices are very clear in the direction of commitment to China. Individual companies may try to invent their own China strategies in order to stabilize long-term sustainability. However, they all share strong motivation to localize, have strong willingness to invest long term, and have determination to succeed at all costs (Choi, 2003). So far, the overall results and consequences of such aggressive presence in China seem to be very successful. It remains to be seen whether such massive expansion of their activities in China could be sustained in long term. However, it is undeniable that Korean big business groups were able to be truly global by riding with the big dragon. Evaluation of China Risks Political systemic risks From large business perspectives of Korea, the general trust on the political system of China has been improving until very recently. Especially, large Korean business groups competing in the global markets have been very eager to build up solid political connections with China. In a larger historical perspective, Korean business groups in China can be identified as the most successful foreign investment cases. They were able to take advantage of new political system and business environments laid out during Deng Xiaoping s era (Vogel, 2011). Ever since China decided to maintain peaceful relationship with its neighbors in order to achieve economic growth, Korean business groups were able to evolve and grow up with Chinese political-economic system. They became more and more comfortable with the Chinese system, which invited Korean big business into emerging China. In most of the cases, Korean business groups were faithful and vigorous followers of Chinese government s industrial and regional strategies. When the Chinese wanted export led development at coastal cities, Korean conglomerates initiated huge investment around strategic cities. They also respected the government s invitation to take high-tech manufacturing towards western development (Kim, 2012). During last two decades, Korean manufacturers have never seriously questioned China s future and they were always taking common risks with Chinese economy and state. Of course, increasing number of SME sector companies are no more enjoying their cost edge in China and significant proportion of labor intensive sector companies are seriously considering to divert their activities to other countries or attempting to make an U turn (Lim, Min-Kyung and Yeo Jina, 2013). However, for the global manufacturers, they already embedded heavy sunk costs in China, and possibility of drawback is extremely limited. They may consider diversification, or some relocation of business resources in consideration of global risks. However, such movements are not made due to China risks, but based on rational business recalculations. Korean business efforts to establish stable business integration with China has enabled them to adapt to the changing political and policy environments of China. The accumulation of trust with Chinese political system and their behavior has enabled the fastest growth of China connection in a remarkable short time. The deepening integration of Korean business with China can be divided into several important stages. The first major step of Korean business into China began just around 1992, when official diplomatic relationship between two countries has opened wide the gates of international trade. At first, Korean big business groups tried to knock on Chinese market by opening small business test beds in mainland. However, the time of careful approach quickly ended with the worsening economic situation of Korea. Around that time, most of the Korean business groups were really struggling to survive from Perceptions of Korean Big Business on the Emergence of China 23
weakening international competiveness and Asian financial crisis. They began to take a very serious consideration of entering into China in order to complement their weakening cost competitiveness. They regarded China as the only place they have to move in order to regain vitality. Since then, Korean big business groups made clear strategic choices which initiated a massive rush for large scale direct investment. One of the very important events they began to have major gain on the trust on the politicaleconomic system of China, was that China helped Asian neighbors by supporting Asian financial system. By restraining depreciation of Chinese Yuan, China was able to make a very impressive appeal for the Korean business groups. Around the end of Asian financial crisis, China s trustworthiness as a responsible trading nation has made a deep impression for Korean business groups. The second turning point when Korean big business groups decided to take a large investment in China was when China joined the WTO in 2001. Korean business groups decided to make massive investment in China with the integration of Chinese economy with global trading system. The joining of China with international trade system provided Korean big business groups decisive opportunities for them to be more global. They were very active in using ethnic Koreans as well as Japanese experts who already accumulated enough information and experiences on China business. The third moment when China offered attractive business opportunities for the Korean business groups was the recent 2008 global financial system crisis (Shambaugh, 2013). Around that time, China already became an indispensable economic partner in every sector of international businesses. Business partnership between Korea and China has already grown up as the most important one not only in quantity but also in quality. Korean business groups now build up a firm confidence on the continuing growth of China and they eagerly wanted to participate in taking the fruits of Chinese economy. China finally became the indispensable element of the globalization of Korean business. The 2010 Beijing Olympic Games was one of the most significant events signaling China as economic as well as political partner with Korean business. As the significance of China market grows and a general trust on Chinese political as well as economic system deepens, Korean business community s dependence on China became more and more apparent. Even the recent territorial conflict between China and Japan was mainly regarded as one of the rare economic opportunities rather than political risks from Korean business communities. Korean business groups could take out some of the market shares of the Japanese competitors when political tensions between China and Japan brought about nationalistic fanaticism among Chinese people. For the Korean business groups, political system and behaviors of the Chinese bureaucracy is not regarded as serious constraints compared with the Japanese competitors. Most of the Korean business expatriates of the big business groups did not openly complain their difficulties due to political systems, government intervention, or political events like nationalistic sentiments of the Chinese people. In that regard, Korean business groups does not feel so sensitive on the political risks of China, which is very different compared with the Japanese counterparts. Korean big businesses were also politically lucky, because they were able to be exempt from national conflicts. Many of the Japanese big business groups were seriously hurt by some attacks by anti-japanese propaganda or real attacks on their factories, facilities and shops. The historical trauma between Japan and China has surfaced repeatedly whenever some political conflicts between the two countries became apparent. Japanese business in China had to take those risks related with political issues. In contrast, Korean businesses were sidelined when the angry nationalistic sentiments against the Japanese or U.S. targeted foreign businesses. Korean business groups were relatively free from policy risks related with political issues, which may come from several political sources like territorial disputes (Japan), unification problems (Taiwan), or global strategic conflicts 24 Vol. 60, No. 3, July 2014
(U.S). Even though there is no concrete evidence that Korean business groups did intentionally or actively exploited their favorable political circumstances, it is possible that Korean business was at least able to get some fortunes as the relationship between China and Japan aggravates. It may be very plausible that Korean big business groups were major beneficiaries of rapidly changing geo-political and strategic circumstances. Even though Korean big business groups were somewhat late in starting China business compared with Japan or Taiwan, they were found to be much faster in catching up with their rivals. They were eventually very successful in occupying market niches. In that sense, we may say that for Korean business groups recent political tensions rather became economic opportunities. There may be some possibility of Korea bashing in China considering the negative experiences of the recent Japanese business in China. Fortunately, Korean companies were able to find new opportunities while Japanese companies were haunted by Chinese nationalistic fanaticism. Korean companies, like the Japanese counterpart may suffer dire time due to political conflicts. However, it would be safer to say that Korean big businesses are still enjoying high tide in China without fearing much about political risks. Administrative-bureaucratic risks Most of the large Korean business groups were relatively free from tight control or intimidation by Chinese bureaucracy. One of the explanations for more favorable treatment by the Chinese bureaucracy may be related with the fact that, Korean big business groups may offer the Chinese lots of positive effects on Chinese economy. Korean big businesses are regarded to have much better managerial knowhow, technology, capital, and synergy effects. Especially, during initial period of their investment, or in the cases of high technology companies, Korean companies are treated as if they were special guests of the Chinese government. In most of the cases, expatriates of big business groups were introduced into best investment opportunities. In the cases of Samsung or Hyundai Group, they were regarded as important companies to be taken care by the Chinese government. This means that they were able to be exempt from small inconveniences or conflicts, which are always haunting small businesses. Patronage of central government paved their ways into huge investment in localities. According to the interviews with former Samsung expatriate manager, they basically felt no barriers in conducting their business in China because Chinese government almost always wanted more investment, especially in high tech industries. Hyundai was also able to grow up as the fastest growing global auto maker by expanding their production capacities in China. Now, Hyundai-Kia Auto Group became the second biggest foreign producer in China. Local governments were much eager to attract big foreign investments. According to the author s interviews with former employees of Samsung Group in China, they did not feel much difficulties in making connections with central government people as well as local authorities, because in most of the cases they were very eager to invite more investment from Korean conglomerates. Korean business groups found it relatively easier to advance in China, and that was one of the reasons why they were very aggressive in expanding their activities in China. For the South Korean large business, China provided them invaluable opportunities to be truly global. Globalization efforts of Korean business groups had long history even before they found Chinese market. However, in most of the cases their foreign direct investment did not make any impressive achievements. With the success of massive investment in China, Korean business groups began to have real confidence that they can do it in other countries like Eastern Europe and South East Asian countries. For Korean big business, China has another strategic meaning, because China enabled Perceptions of Korean Big Business on the Emergence of China 25
them to realize economy of scale towards global market. Increasing demands for their products in China provided them to revive again by gaining cost edge as well as vent for new markets. Large manufacturers of Korea were able to make full use of their opportunities. The favorable treatment of Chinese government both at central and local level also facilitated their business activities. The honeymoon between Korean big business and Chinese bureaucracy is still sustained despite the fast growth of Chinese competitors in Chinese market. Sometimes sensitive political issues like North Korean nuclear tests surfaced around them. However it did not make any visible effects on Korean business in China. Until very recently, politics and economy were clearly separated between Korean business groups and China, which provided them better business environments. Chinese central and provincial governments have in most of the cases treated Korean big business as very important guests for their industrialization. Such special treatment has been especially peculiar in so far as Korean big business is following Chinese development strategies faithfully. The alliance of big business, central government, and provincial government has been very effective for all the participants in achieving their goals. When China started a big industrial push around the coastal cities, Korean big business has been very vigorous in accepting Chinese invitation. Recently, China is trying to duplicate their success in the western cities like Xi an and Chongqing. Korean conglomerates like Samsung and Hyundai is trying to operate most advanced production clusters shaking hands with Chinese government. Their strategies have been very lucrative until so far. It is evident that China provided Korean business groups invaluable opportunities to enlarge their business scale in the globalized markets. Human management and guanxi politics Korean business groups initial approach in their business activities depended significantly on the ethnic Korean human resources especially, when they are trying to build up or penetrate into valuable Chinese guanxi networks. Ethnic Koreans in China have also provided Korean business very important human assets which are essential when those companies try to build human networks with Chinese government, or develop business networks (Lee, 2007). The synergic effect of Korean business and ethnic Korean people has been highly effective especially during their initial stages of China business. Some of the ethnic Koreans working for Korean big business have been very successful and a few of them could take the highest company positions in China. They also provided Korean companies significant human capital advantages compared with the Japanese companies. As bridges for human networks, communicators with the local people, and explorers of expanding markets in China, they provided essential ingredients for successful localization. As time goes on, Korean business groups began to build up their own China expert pools. The overseas expert training program of Samsung group was regarded as one of the distinguished human development projects of the Korean companies. Samsung group sent their chosen people to overseas for about 5 years and ask them to be the best expert in their dispatched region. Other Korean big business groups also provided their chosen people very intensive education for localization including language capabilities. Most of the Korean companies requires their China experts to be highly fluent in Chinese language and expects them to take charge of the overall management of China business. The Korean way of educating Chinese experts can be defined as a generalist model, which means China experts must be equipped with their specialties as well as general abilities to manage most of the key managerial affairs. Their emphasis on language and human skills in addition to technical expertise may be the natural consequences of their human resources strategies. With regard to guanxi politics, Korean companies are very aggressive and regard good human networks as highly important in their business success. This means the key missions of China experts are the creation and maintenance of best human networks with Chinese govern- 26 Vol. 60, No. 3, July 2014
ment people. The management style, which emphasizes much weight on human networks, is one of the factors which may be significantly different from that of the Japanese companies. The guanxi politics of large Korean business have their own risks too. Too much dependence on human networks may expose Korean business to higher human risks. Perhaps those risks explain why Korean business groups are also very sensitive on daily power competitions and movements of important political figures in China. However, those human risks did not surface to make any apparent problems of the Korean companies, which may indirectly indicate their business habits are also working in China. One of the other reasons Korean business groups has been relatively successful in China is due to their bargaining power in China. Many of the Korean companies still maintain some valuable knowledge and technologies for the Chinese. For many of the Chinese competitors, the cutting edge technologies of the Western or Japanese companies are too expensive and remote to get access for them. Korean companies can provide them a lot of medium level know-hows, which Chinese companies urgently need. The unique market and competitive positions of the Korean companies could be very attractive features, which explain why the Chinese government needs Korean companies. Korean companies also take some slice of leverages in a situation Western and Japanese companies are suspicious and hesitant of deep cooperation with China due to political risks. Korean companies may be able to fill in those conflict gaps between China and advanced Western countries. In sum, Korean big business has been relatively successful in building up their own unique human regimes in China by taking advantage of ethnic Koreans, training programs, and market positions. Even though we may not be able to conceptualize the characteristics of guanxi politics of the Korean firms, it is quite evident that their habits and routines of human business are enough to distinguish them from those of other foreign competitors in China. Coping strategies to political risks In coping with political uncertainties, big business groups of Korea seems to be acquiring global strategies very quickly. As with other multinational corporations, they are now learning the increasing country risks when they overly depend on a few foreign locations. Samsung is a typical example of a global company which is trying to reduce country risks by diversifying their production locations and international sourcing places. However, despite their understanding of country risks, the huge market size of China itself is also a strategic factor. For global Korean companies, China is the biggest market for consumption as well as origins of global sourcing. The Chinese government wants to fully exploit its leverages. Demand for relocation of more valuable and high technology investment from central and local Chinese government is intensifying as time goes on. Chinese government is becoming more and more selective and strategic in inducing Korean big businesses. In order to cope with those investment demands from China, big business manufacturers of Korea are constantly considering relocation of their production bucket lists. Samsung, LG, and Hyundai have already built up their own global production systems. They are always trying to weigh costs and benefits based on a globalized production level, which may signify that they prefer more flexibility in terms of production locations. However, despite their strategic wishes to maintain maximum mobility, Chinese market has already grown up as the most important chunk of their production and sales. One of the other options for them is becoming more and more local. Most of the big business groups always emphasize the necessity of localization. Even Samsung wants to be understood as a Chinese Samsung, not as a Korean company. In that sense, Korean big business groups are in some risky games maintaining subtle balance of forces at the fringes of globalization and localization. Considering all things, Korean big business must always think over their limited strategic Perceptions of Korean Big Business on the Emergence of China 27
leverages. They have already placed too much on China as to make it impossible to think about a big retreat from Chinese market due to political risks. The only option they may have is always trying to weigh balance their business risks occurring from too much dependency on China. Knowing their limited strategic freedom and flexibility, the other options for them would be hedging their risks by adapting to China, which means more localization. The strategic choices for Korean business seem to be much more conductive towards deeper Chinization. In taking advantage of political risks, Korean business groups seem to be much more comfortable with informal rather than formal strategies, which is very different from the behaviors of Western or Japanese counterparts. Compared with the bigger competitors of major economies, they still regard themselves as minor players. In most of the cases, they still do not have much to influence on grand international negotiations or trade agreements. Rather than asking the Chinese to be an equal partner with them, they are trying to adapt to Chinese institutional, legal, and routinized ways to getting things done. They may think it more efficient and comfortable because they are late starters. Korean business groups have been long trained to be more habitable in social circumstances where transparency, legalism, formal contracts are not well established and Chinese market environments are not much different from their home towns in Korea. The strategic position located around the demarcation edges of East and West in the complex mixtures of doing business may explain the faster growth of Korean style business in China. Summary and Implications During last two decades Korea has been able to ride on China. China has provided greater economic frontier for Korean business and several big business groups could become global companies by taking advantage of China appeal. It is undeniable that China has provided remarkable economic benefits for Korea (Moon, 2010; Lee, Kwang-Jae, 2012; Lim, Hyun- Jin and Hae-Ran Lim, 2013; Jung, Jae-Ho, 2011). Compared with other East Asian countries, Koreans were much less exposed to the risk sides of the emergence of China. They were able to take maximum advantage of China opportunity, and until so far, the engine of globalization in China is still steaming. In this regard, expansion of human and economic exchanges with China is widely regarded as the most important corner stone for the sustainable growth of the Korean leading companies. Of course, it is undeniable that political concerns with the rapid emergence of China as a geopolitical force are rising and some global companies are recently trying to rebalance their global investment in consideration for geo-political risks of China. However, in overall, their preference for China and its new attractiveness are regarded as more important than risk considerations. Classifying China risks at political-systemic, administrative-bureaucratic, and daily operational risks like guanxi politics, this paper tries to evaluate how Korean big business in China are trying to take advantage of their risks into business advantages. At political-systemic level, accumulation of trust with Chinese political system and their policies has enabled the massive growth of China investment of Korean firms in a short period. They were relatively successful in turning political risks of their neighbors into their economic opportunities. Compared with their Asian competitors like the Japanese and Taiwanese companies, Korean big companies were not necessarily exposed to risks coming from territorial or systemic tensions. Korean companies have been concentrating on market activities without concerning much on the reverse political effects, which many Taiwanese companies had to face when they depend too much on mainland (Wu Jieh-min, 2014). Korean companies were also able to emerge as very strong competitors with Japan, because 28 Vol. 60, No. 3, July 2014