Korean Multinationals in Europe (review)

This is a book that can be read fruitfully by those who are interested in learning something about the Korean economy, its consumer electronics industry, and its overseas investment with specific reference to Europe in a single volume.

The book begins with a review of various theories of foreign direct investment, including those proposed by Dunning in the United Kingdom, Kojima in Japan, and several researchers in Korea. The author does a fair job of evaluating "Korean theories" of foreign direct investment although she concludes that their theories add nothing new or innovative to the literature developed in the West and Japan. The core of the book, the discussion of Korean direct investment in Europe if we are to take the title of the book seriously, begins only in chapter 6 (out of eight chapters in total). That is, the reader is first treated to a standard academic discussion of the literature before being presented with the facts and reasons why they are worth investigating.

As this reviewer sees it, the main purpose of the book is to investigate Korean investment in the consumer electronics industry in Europe and explain why Korea, a country with no apparent advantage or strength in research and development in that industry, has invested in Europe. This phenomenon goes against the standard theories of foreign direct investment, which say that a firm needs to have some firm-specific advantage to invest overseas. Since firms in the developing countries in general are assumed not to possess such an advantage, what the author calls "reverse foreign direct investment" (direct investment from a developing to a developed country) is a phenomenon worth investigating.

The author's basic premise is that the Korean firms that have invested in Europe do not have a "clear firm-specific monopolistic advantage" that can provide them with a rent to cover the "cost of foreignness." If this premise is correct, one must ask how the firms could have survived competition with European or other multinational firms with no rent to offset the cost of foreignness. The reviewer finds two possible answers to this question, which the author does not explore. The first is that the Korean firms in Europe are provided with subsidies by either the Korean government or their main offices at home to cover their losses. The second is that the firms have some firm-specific advantage, contrary to the author's premise, although they are not monopolies in the conventional sense.

Having argued that various existing theories of foreign direct investment are inadequate in accounting for reverse direct investment, the author proposes a "theoretical/macroeconomic perspective" to explain Korean direct investment in Europe. According to this perspective, Korean investment in Europe has taken place in response to "changes in the domestic and global business environment that have occurred since the late 1980s." A key change in the global business environment was the creation of a single European market that attracted Korean investment to Europe while rising labor and land costs in Korea were the domestic factors that pushed Korean firms to investment overseas. These are highly plausible explanations and are, in fact, widely acknowledged in the literature. But it should be pointed out that they do not explain how the firms could overcome the "cost of foreignness" in Europe. In other words, the "theo-retical/ macroeconomic" perspective the author proposes is itself inadequate in explaining Korean investment in Europe. It needs to be complemented by a micro or firm-level theory of foreign direct investment!

The author concludes the book with the hope that it will add to the pool of knowledge relating to the "Korean economy, Korean foreign direct investment, the consumer electronics industry, and Korea's relations with Europe." This is quite an ambition given that each of these topics will require a whole volume if it is to be covered adequately in depth. The author's contribution is more for those who are interested in learning about these issues in a single volume. Finally, the book...