Backward linkages of Korean multinationals to local small and medium-sized enterprises in the automobile and textile sectors in Brazil and Guatemala

Abstract

This chapter discusses two cases of the Republic of Korea’s foreign direct investment in Latin America and their sourcing structures. These are Hyundai Motor Company’s investment in Brazil and three Korean investments in the Guatemalan textiles and apparel sector. The cases do not support the hypothesis of the possibility of the creation of local SMEs value chains through foreign direct investment (FDI) in sectors where the Republic of Korea has a comparative advantage over the host countries. Instead, they seem to confirm the enclave economy thesis. Although the host countries were initially successful in attracting multinational corporations, FDI created an enclave economy in which the benefits are confined to an international sector that is not connected to the wider local economy. The research emphasizes the need for the host government to organically plug local industry into major foreign investors like Hyundai Motor Company. More precisely, the role of the government should focus on building the capacity of start-ups to establish effective business relationships with Korean investors.