Korean Foreign Direct Investment Research Articles

Exploring the Differences in Innovative Work Behavior and Workforce Agility Between Korean and Indonesian Employees: A Cross-cultural Study in a South Korea FDI Company

The expansion of South Korean foreign direct investment companies in Indonesia has led to the possibility of cultural challenges arising among workers in multinational corporations. Additionally, there are notable differences in the innovation and agility indexes of Indonesia and South Korea in 2022. These disparities in performance may perpetuate stereotypes that suggest that innovation and agility are unique qualities exhibited by employees from each respective country. The objective of this study is to investigate whether there exist variations in the innovative work behavior and workforce agility of Indonesian and South Korean employees who work in the same organization as part of cross-cultural research. The theoretical framework for this research is Hofstede’s cultural dimensions theory, specifically the dimensions of long-term orientation and Stereotype Threat Theory, which are used to explain the phenomenon. This study used a quantitative approach and had 30 participants who worked at a South Korean FDI company. The participants were chosen through convenience sampling. The research tools included the innovative work behavior scale and the workforce agility scale. Data were analyzed using the Mann–Whitney U-Test and descriptive analysis. Based on the research findings, it appears that employees from different cultural backgrounds working in the same organization do not exhibit significant differences in terms of their innovative work behavior and workforce agility. This was observed in a case study conducted at a South Korean FDI company located in East Java.
 Keywords: Indonesia, innovative work behavior, South Korea, workforce agility

Trends and Patterns of Korean Foreign Direct Investment in Africa

Trends and Patterns of Korean Foreign Direct Investment in Africa

Hallyu and FDI: the growth of South Korea’s investment in Indonesia’s cultural content industry

This article was published open access under a CC BY licence: https://creativecommons.org/licences/by/4.0/ The popularity of Korean dramas and pop music, known as Hallyu or the Korean Wave, has positively impacted South Korea’s tourism and cultural exports. Nevertheless, studies about Korean foreign direct investment (FDI) associated with the Hallyu phenomenon are still scarce. Thus, this study attempts to investigate Korean FDI that flows to Indonesia under such a phenomenon. Data was collected through documents and relevant video reviews which was then followed by a key informant interview. The findings showed that the rising trend of Korean pop music in Indonesia has gradually stimulated Korean investors to invest in industries promoting the transmitted Hallyu culture, such as broadcasting, TV and video production, sound recording and music publishing. Despite the amount of investment remaining lower than in the heavy and manufacturing industries, the study indicates an increase in Korean FDI in Indonesia’s content industries due to the high demand for Korean cultural content and the country’s ongoing bilateral commitment to South Korea. This study adds to our understanding of how global familiarity with a cultural phenomenon may affect FDI inflows to the country from which that phenomenon originates.

STRENGTHENING ECONOMIC TIES: THE IMPACT AND POTENTIAL OF SOUTH KOREAN FOREIGN DIRECT INVESTMENT IN VIETNAM

Economic cooperation has been a key pillar of the relationship between South Korea and Vietnam, with the two nations joining numerous bilateral and multilateral cooperation agreements. Theeconomic ties between the two contries have been strengthened significantly through the Korea-Vietnam Free Trade Agreement (KVFTA), which hasprovided a framework for promoting economic cooperation, trade, and investment, fostering stronger and more effective mutual relations between the two nations. As of 2022, Korea's investment scale in Vietnam has reached approximately 80 billion USD, fueling Vietnam's economic growth, employment opportunities, and technology transfers. The paper examines the legal basic for promotingforeign direct investment in Vietnam and delves into the patterns of Korea's FDI in Vietnam,highlighting the expected expansion of Korean firms' investments. The research assesses the potential opportunities and challenges associated with South Korean foreign direct investment in Vietnam. Finally, the study offers several recommendations aimed at mitigating negative outcomes while maximizing the positive impacts of this bilateral relationship within the current context.

Участие Вьетнама в глобальных цепочках добавленной стоимости в условиях их регионализации

The COVID-19 pandemic and US-China confrontation caused a reconfiguration of global value chains. Since multinational companies choose the China Plus One strategy and seek to diversify their production, Southeast Asian economies and particularly Vietnam have been gaining importance. The present paper aims to analyse the participation of Vietnam in global value chains in terms of its relations with the Republic of Korea. It is hypothesised that as a major trade and investment partner, Korea provides significant value added of Vietnamese exports, contributing to the integration of Vietnam into value chains. Using formulas for assessing a country’s participation in global value chains, the study examined statistics from the international Trade in Value Added (TiVA) database, UNCTAD trade data, and national investment statistics of Korea. Regression analysis was performed to confirm the influence of Korea on Vietnamese exports. The conducted research revealed the growing importance of Vietnam in global value chains. Since 2016, Korean foreign direct investment has been affecting the diversification of Vietnam’s participation in industry value chains, demonstrating the importance of Korea in the development of national manufacturing capabilities. The emerging relationship between these two economies indicates a redistribution of industrial capital in East Asia that contributes to the regionalisation of value chains. The obtained findings can be used for further analysis of global value chains, as well as for studying economic development and transformations, shifts in the balance of economic power due to increasing competition between East Asian countries.

공적개발원조(ODA)와 해외직접투자(FDI)가 개도국 경제성장에 미치는 영향에 대한 실증연구

Purpose: Through a precise empirical analysis with consideration of endogeneity and omitted variable problems, this study examines the impact of official development assistance (ODA) and foreign direct investment (FDI) of South Korea and the world on economic growth in developing countries.
 Originality: This study contributes the literature on ODA and FDI both by solving the problems of endogeneity and omitted institutional variables to which previous regression models might be vulnerable and by analyzing ODA’s promotion effect on FDI which great importance has recently been put on.
 Methodology: This research uses a 3SLS methodology to solve endogeneity problem caused by simultaneity among ODA, FDI and economic growth. In addition, this research compares the results of simultaneous equation 3SLS regression with those of single equation system GMM regression.
 Result: ODA of both South Korea and the world has a positive and significant impact on growth. However, neither FDI’s impact of growth nor ODA’s promotion effect on FDI is significant in both Korean model and world model. Regarding institutions, corruption perception index affects economic growth positively and significantly in the both models but investment risk index has a positive and significant impact on growth only in Korean model.
 Conclusion and Implication: Through supplementing the limitations to which previous regression models might be vulnerable and comparing the regression results of South Korea with those of the world, this study provides useful information for establishment of national policies on Korean ODA and FDI.

The Role of Outward FDI in Creating Korean Global Factories

This study examines Korean foreign direct investment (FDI) in the context of the organization and development of local firms into global factories. Specifically, we explore the relationship between FDI decisions and the nature of Korea’s imported and exported goods. We argue that the global factory approach explains the mechanisms by which FDI can lead to technological upgrading. We employ a unique dataset that incorporates information on FDI motive from South Korea, as well as the unit value of traded goods within sectors. Our findings indicate that FDI location and motive vary by trade destinations and trade unit prices; something that has not received attention in existing literature.

Foreign direct investment, enclaves and liveability: a case study of Korean activities in Hanoi, Vietnam

Foreign Direct Investment (FDI) is a core element for global capital flows and a key driver for urban transformation. However, the ways in which FDI flows have been associated with the production of new urban spaces have attracted little academic attention. This research investigates how FDI activities have led to the migration of expatriate workers and their family members who have established ethnic enclaves in search of liveable environments. The paper focuses on the case of Korean activities in the Hanoi Capital Region (HCR) where the growing volume of FDI has facilitated two bipartite activities in geographically separate locations: one in production space for industrial activities in regional areas and the other in the social space for residential and commercial activities in new urban cores. The case study of Korean FDI, the largest investors in Vietnam, and in particular the HCR, depicts wider perspectives beyond a single industrial sector. This research sheds light on new aspects of recent changes in Hanoi, borne of cross-border capital and human mobilities. The ethnic residential enclaves are largely self-contained for intense social interactions, used as a tool to enhance liveability and bounded within commuting distance from the industrial sites.

Motivations and locational factors of FDI in CIS countries: Empirical evidence from South Korean FDI in Kazakhstan, Russia, and Uzbekistan

Considering the growing significance of Eurasian economic ties because of South Korea s New Northern Policy and Russia s New Eastern Policy, this study investigates the motivations and locational factors of South Korean foreign direct investment (FDI) in three countries in the Commonwealth of Independent States (CIS: Kazakhstan, Russia, and Uzbekistan) by employing panel analysis (pooled ordinary least squares (OLS), fixed effects, random effects) using data from 1993 to 2017. The results show the positive and significant coefficients of GDP, resource endowments, and inflation. Unlike conventional South Korean outward FDI, labour-seeking is not defined as a primary purpose. Exchange rates, political rights, and civil liberties are identified as insignificant. The authors conclude that South Korean FDI in Kazakhstan, Russia, and Uzbekistan is associated with market-seeking (particularly in Kazakhstan and Russia) and natural resource-seeking, especially the former. From a policy perspective, our empirical evidence suggests that these countries host governments could implement mechanisms to facilitate the movement of goods across regions and countries to increase the attractiveness of small local markets. The South Korean government could develop financial support and risk sharing programmes to enhance natural resource-seeking investments and mutual exchange programmes to overcome the red syndrome complex in South Korean society.

The Relationships between Orientation, Collaboration and Performance for Supply Chain Management of Korean FDI Firms for Sustainable Growth

The objective of this study is to verify the relationships between orientation, collaboration and performance for supply chain management (SCM) of Korean foreign direct investment (FDI) firms for sustainable growth. To achieve the objective, this study created the research model, and the research hypotheses came from prior research. The questionnaire was sent to Korean FDI firms, and the collected data were analyzed by various analytical methods such as a factor analysis, a Cronbach’s alpha coefficient, structural equation modeling (SEM) and a moderated regression analysis. The results are as follows. First, orientation for SCM has a positive effect on collaboration for SCM. Global SCM is regarded as an essential part in the era in which a value chain is globalized, and as a result, it is globally performed in the procurement of raw materials, production of goods and sales of final goods. To perform global SCM, staff of manufacturers should have recognition of SCM from the internal viewpoint of a firm, they should create strategy and structure for SCM from the whole viewpoint of a firm, and they should disseminate it to suppliers and customers. Second, collaboration for SCM has a positive effect on supply chain performance. The key factors are collaboration with international logistics service providers as well as inter-departmental collaboration. The collaboration is based on attaining efficiency and effectiveness, and as a result, firms achieve superior supply chain performance.

An Empirical Study on the Effect of Oversea Investment Insurance of Korea

Purpose : The purpose of this study is to empirically examine the effect of Oversea Investment Insurance on Korean foreign direct investment in the 2000s. Research design, data, methodology : For this purpose, the study establishes an econometric model in the framework of theoretical equation for determinants of direct investment. Next, panel data estimations with pooled, fixed effects and random effects models have been conducted by using a panel data set for Korean Foreign Direct Investment to 17 partner countries from 1995 to 2018. Results : The estimation results demonstrate the evidence for the influence of GDP, per capita GDP, trade, and patent in its partner countries on flows of Korea’s foreign direct investment including green field and MA in particular for the green field investment of Korea. These results imply that the effect of the insurance is notable but it differs across the types of investment such as green filed and M&A. Conclusions : The results in the analysis suggest that the policy authority consider the possibility of the difference in the effect across the types of foreign direct investment, and implement more sophisticated management strategies according to the different types for oversea investment insurance in Korea.

Do environmental regulations affect FDI decisions? The pollution haven hypothesis revisited

Abstract This study attempts to verify the pollution haven hypothesis by investigating the impact of environmental regulations on foreign direct investment (FDI). It uses Korean outward FDI data covering the manufacturing sector for the period 2009–15. This study not only considers the stringency when measuring the degree of the host country’s environmental regulations but also the enforcement of these environmental regulations. Since the pollution haven’s effects indicate moving the polluting production stages from the home country to other (host) countries, we differentiate between investments in the ‘production’ part from those in the non-production part using location information about the host country. The main results of a FDI’s model estimation show that the stricter the regulations in host countries in Asia, the lower the FDI both intensively and extensively in these countries. This supports the prevalence of the effects of a pollution haven. However, before we separate FDI into the production and non-production parts, the effects of environmental regulations on FDI are hindered by FDI in the non-production part. The results indicate that while environmental regulations are determinants of FDI in the production part, they do not have a significant effect on FDI decisions when the entire FDI is considered.

The Local Labor Market Effects of Korean Automotive Investments in the United States

This study investigates the local labor market effects of automotive foreign direct investment (FDI) in Alabama in the wake of the North American Free Trade Agreement (NAFTA). Of particular interest is the effect of FDI originating from a nontraditional source country in comparison to investments by European and Japanese firms. Using 2005–2011 American Community Survey (ACS) data, we compare changes in employment rates and median weekly wages in three area types: areas with Korean FDI, areas with German and Japanese FDI and areas without FDI. Results show that Korean FDI leads to increased employment rates but decreased median weekly wages. We attribute these findings to price competitive strategies of Korean firms.

The Effects of Barriers in Globalization on the Profitability of Foreign Direct Investment Firms

Purpose - We investigate the effects of barriers in globalization on the financial performance of foreign direct investment (FDI) firms with 164,354 firm-year data for the period from 2006 to 2017 using data abstracted from Microdata Integrated Service (MDIS) of the Korean Bureau of Statistics, UNCTAD and other sources. Design/Methodology/Approach - We particularly in this study adopt the theory of the gravity model to try to analyze how economic and non-economic factors affects financial performance. Fixed effects panel regressions are selected as the best fit models over others like random effects regressions and ordinary linear squares regressions, after implementing a model selection process. Findings - First, FDI negatively affects the profitability of firm while exports positively affect the firm’s performance. Second, gravity factors like geographical proximity such as distance show negative effects on the profitability of firms while population does not show any statistically clear effects for both global and non-global firms. Third, non-gravity factors such as tariff rates, exchange rates, per capita GDP have negative effects on the profitability of FDI firms. Fourth, similarity in cultural or language factors shows distinctly consistent effects, with positive effects of Chinese as one of the global languages for firms, and USA and EU member countries as the host of FDIs. Research Implications - Korean FDI firms do not achieve higher financial performance, while firms enhance their profitability through exports. Firms have to decide whether they desire to improve their profitability through exports or take risks through FDIs to overcome other barriers in trade.

THE SUB-NATIONAL DISTRIBUTION OF SOUTH KOREAN FOREIGN DIRECT INVESTMENT IN RUSSIA: A FOCUS ON THE RUSSIAN FAR EAST

This paper investigates the Korean foreign direct investment (FDI) in the Russian Far East, a significant area to develop South Korea’s new northern policy and Russia’s pivot to the East policy. Unlike the insignificant influence of the Korean FDI on Russia’s economy as a whole, South Korea is one of the key economic partners in the Russian Far East. For the period 2015–2019, South Korea is the 4th largest investor in the Russian Far East. In 2019, 69.7% of the Korean investments in the Russian Far East concentrated on Primorsky Krai, which contradicts the general trend that the world investments in the Russian Far East are highly skewed in Sakhalin Oblast to participate in the gas and oil projects. The Korean FDI in the Russian Far East aims market seeking rather than resource seeking. Besides, due to the high entry barrier of “nine bridges”, there are limited numbers of companies in nine bridges-industries.

The moderating role of ASEAN-Korea FTA on the relationship between trade and South Korean outward FDI

This study examines the determinants of outward Korean foreign direct investment (FDI) in ASEAN countries and the moderating role of the ASEAN-Korea FTA. We utilised the generalised least squares (GLS) with 170 country-year panel data obtained from 10 ASEAN countries and South Korea from 2000 to 2016. The trade volume between ASEAN countries and South Korea had a positive impact on outward FDI of South Korea, supporting the complementary relationship between trade volume and FDI. Also, the moderating effect of ASEAN-Korea FTA on the relationship between trade and FDI was found. It implies that the implementation of ASEAN-Korea FTA stimulates not only outward FDI of South Korea but also the effective economic integration among countries. Thus, we suggest that ASEAN-Korea FTA would be a good way to establish a cooperative framework among countries and improve these countries' economic welfare.

The moderating role of ASEAN-Korea FTA on the relationship between trade and South Korean outward FDI

This study examines the determinants of outward Korean foreign direct investment (FDI) in ASEAN countries and the moderating role of the ASEAN-Korea FTA. We utilised the generalised least squares (GLS) with 170 country-year panel data obtained from 10 ASEAN countries and South Korea from 2000 to 2016. The trade volume between ASEAN countries and South Korea had a positive impact on outward FDI of South Korea, supporting the complementary relationship between trade volume and FDI. Also, the moderating effect of ASEAN-Korea FTA on the relationship between trade and FDI was found. It implies that the implementation of ASEAN-Korea FTA stimulates not only outward FDI of South Korea but also the effective economic integration among countries. Thus, we suggest that ASEAN-Korea FTA would be a good way to establish a cooperative framework among countries and improve these countries' economic welfare.

The Relationship on Risk Type, Risk Management and Business Performance – Evidence from Korean FDIs in China

Purpose – As the well-known Structure-Conduct-Performance paradigm implies, risk structure of a corporation may affect its risk management activity and the activity may in turn determine its performance. Depending on its goal, Foreign Direct Investment (FDI) can shape its risk structure, risk management and its performance. Under this assumption, we investigate the relationship between the goals of FDI and risk management for the first time in academics. Design/methodology – This empirical research uses a survey of 279 current Korean enterprises’ FDIs in China with the recently developed business risk quadrant model. Companies are classified into either a market- or an efficiency-seeking group, to identify how each group perceives and manages risks, and values the performance of risk management. Also, we apply integrated risk management method that multinational corporations have introduced in China, then verify the mediating effect between risk factors and performance. Findings – Our research shows the FDIs can expose themselves to differing risk structure although risk management activities simply represent the level of empowerment given to local management by headquarter due to limit of sample size despite diversity of risk and risk management tools. To sum, market seekers are found to have more strategic risk (revenue related risk) than efficiency seekers with financial risk (cost related risk). The market seekers can manage their risk by empowering their local organisation while the efficiency does the opposite ways. The risk management appears to be successful in general. Originality/value – Previous studies on small and medium enterprises’ FDIs to China have concentrated on the analysis of entry determinants, withdrawal factors and individual risk management. Meanwhile, this research establishes enterprise-wide risk factors faced by the companies that advance into China, according to the method of the classification by ERM and verifies if they could synthetically improve performance through risk corresponding measures.

(International Investment Location Decisions: The Case of Korean Firms into China)

Korean Abstract: 본 연구의 목적은 한국의 對중국 직접투자에 대한 결정요인을 분석하기 위한 것이다. 본 연구에서는 1988~2002년까지 중국의 각 省別 자료를 패널자료로 구축하여 중국에 직접투자를 실행한 한국기업의 FDI 결정요인을 분석하였다. 한국기업의 대중국 직접투자가 생산요소의 가격차이를 이용하기 위한 생산효율추구형 투자(factor proportions FDI)인지 아니면 투자지역의 시장진출을 목적으로 하는 시장추구형 투자(market access FDI)인지 분석하였다. 특히 對중국 FDI 투자시기를 투자 초기(1988~1997)와 최근(1999~2002)의 두 기간으로 구분하여 분석함으로써 對중국 FDI 투자의 결정요인이 어떻게 변화되어 왔는지 살펴보았다. 아울러 전 세계의 對중국 직접투자 결정요인과 비교 분석도 함께 시도하였다. 분석 결과 한국의 對중국 FDI는 시장추구형과 생산효율추구형의 혼합형으로 나타났다. 이를 좀더 세분화하여 분석했을 경우 투자 초기의 對중국 FDI는 생산효율추구형 투자가 지배적이었으나 최근의 對중국 FDI는 생산요소 가격차이를 활용하기 위한 투자보다 시장추구형투자가 더 일반적인 경향으로 나타났다. 이러한 분석결과는 최근의 전 세계 투자패턴과도 일치하는 것이다. 또한 본 연구의 분석결과에 의하면 한국의 對중국 FDI에 있어서 인프라(infra) 수준은 상대적으로 입지결정에 영향을 미치지 못하며, 각 省別 개혁정도가 직접투자에 상당한 영향을 미치고 있음을 발견할 수 있었다. 이는 중국의 개혁과 개방속도가 가속화될수록 한국의 對중국 FDI는 증가할 것이라는 추론을 가능케 한다. 이상의 분석결과를 종합하면, 현재 한국의 對중국 FDI는 중국의 저렴한 노동력을 이용하는 초보단계의 직접투자에서 벗어나 중국의 방대한 시장을 공략하고자 하는, 보다 적극적인 투자로 변화되어가고 있는 단계로 볼 수 있다. 다시 말해서 對중국 직접투자 초기에는 노동집약적인 산업 중심의 소규모 단위 투자에서 점차 자본집약적인 산업 중심의 대기업 위주 투자로 변모해가고 있는 것으로 분석되었다 English Abstract: Recent literature maintains there are at least two explanations for the motivations of FDI, one involving trade barriers (horizontal-FDI) and the other factor proportions hypothesis (vertical-FDI). The first view is that multinationals act in order to overcome trade barrier, and the second view is that multinationals arise to take advantage of international factor price differences. The purpose of this paper is to study the motivations of Korean foreign direct investment in China. Using the panel data on Korean FDI in China for the years 1988-2002, we examined the geographic determinants of direct investment in China from Korean firms. In doing so, we investigated, on the one hand, to what extent multinational activity is consistent with the factor proportions theory, i.e., to what extent multinational activity is related to cheap factor supplies. On the other hand, we study the market access motivation for multinational activity. Our econometric results suggest that factor proportions hypothesis is indeed the dominant influence on investor calculations for the early period of Korean FDI in China. Since end of 1990s, however, market-seeking FDI pattern is more common than FDI motivated by factor price differentials. We also find that the hypothesis that good-quality infrastructure is conducive to attracting FDI is not supported for Korean firms. Evidence supports the claim that regions with high degree of reform, which implement preferential treatments to foreign investors, still have advantage over other regions in attracting FDI. In sum, the findings in this paper indicate that Korean FDI for the early period of Korean FDI in China is consistent with motives related to the factor proportions hypothesis, which explains that one of the determinants of FDI is to exploit the cheap labor of this country. On the other hand, recently motives related to horizontal FDI are more common.

Development of Outward FDI from South Korea

The Investment Development Cycle (Dunning, 1981) assigns investment positions to countries based on their inward and outward investment portfolios, and their stages of economic development. This paper uses Dunning's cycle to conceptualises the model of South Korean outward foreign direct investment (FDI). In our South Korean outward FDI model, we differentiate between two paths of Korean outward FDI. The two paths are to developed and developing countries, with then the change from technology seeking FDI to market seeking FDI in one case, and efficiency seeking FDI to market seeking FDI in the other, while taking into account South Korea's own investment position according to the investment cycle (Dunning, 1981). We have collected South Korean FDI data from 1980 to 2014. The data includes the total FDI amount and number of new overseas firms by country. industrial area and motivation. Our analysis of the feature of economic development correspond to Korean firms' FDI location choices in terms of motivations. The findings suggest that the economic development affect the motives for undertaking FDI by industries from South Korea.