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Korea's Big Leap Into Europe


International Business: EUROPE

KOREA'S BIG LEAP INTO EUROPE

The chaebol are poised to pour in billions

His friends call him "King Kong." And O.S. Kong, a 46-year-old South Korean executive, is certainly living up to that chest-thumping nickname. As president of Western European operations for Korea's LG Electronics, Kong hopes to spend upwards of $1.5 billion to build a semiconductor and consumer-electronics factory in Britain.

That's a big leap from LG's modest array of European assembly plants for TVs, VCRs, and refrigerators. But LG, like Korea's other chaebol, has decided this is the moment for dramatic expansion in Europe, especially in sophisticated products such as cars and custom chips. For many reasons--rising wages back home, saturated markets in the U.S., and a desire to go global--Korean giants are spending billions in Europe. Fierce protests are certain from such companies as Peugeot that have already suffered from a Japanese incursion. Yet the hugely ambitious Koreans won't stop until they have grabbed big chunks of Europe's markets.

HEAVY SHOPPING. These plans call for spending far more than the $2 billion the Koreans have plowed into Europe over the last decade or so. Last fall, Queen Elizabeth II and Samsung Chairman Lee Kun-Hee inaugurated a $700 million plant for microwave ovens and personal-computer monitors. Now, Samsung may bid for troubled Dutch aerospace group Fokker. Daewoo Corp. has bought several Eastern European car plants and plans to spend $3 billion upgrading them. It's also trying to buy Britain's Lotus Cars Ltd. from luxury carmaker Bugatti International. Hyundai Corp. is considering a $1.3 billion chip plant in Europe and is scouting Romania for a car-assembly site.

European governments welcome the Koreans. They know that Japanese auto makers helped revive British manufacturing by placing big orders with the country's motor suppliers. Prodded by last year's Asia-Pacific Economic Cooperation agreement on free trade, European and Asian leaders gathered for a Mar. 1-2 summit in Bangkok to boost economic and political connections.

Until recently, Koreans poured most of their money into faster-growing Asia and the U.S. But while Korea's investment in Europe was just 3.4% of its world total five years ago, it's now 19.4%. "Suddenly, Korea realized that the only other market that could absorb its expensive products was Western Europe," explains Chong Ju Choi, a professor at London's City University Business School, who advised Hyundai on its European strategy. The chaebol also sometimes find it cheaper to produce in Europe than to ship goods from home. "In certain parts of northern England, labor costs are lower than they are in Korea," says LG's Kong.

HIGHER RUNG. But Koreans are also looking to Europe for a step up the technology ladder. Samsung might use Fokker's planemaking technology to support its global plans in aerospace. Daewoo's interest in Lotus may lie more in the company's engineering consultancy than in its sports-car division. Korean companies are also looking to Europe for technology that will help them offer more sophisticated products globally. On Mar. 5, Samsung announced it would license technology from SGS-Thomson Microelectronics Inc. to develop 32-bit microprocessors for use in such products as multimedia personal computers and cellular phones. By putting the microprocessors in its products, Samsung could help the Franco-Italian chipmaker establish its 32-bit technology as the industry standard.

Most European carmakers, however, fear the Koreans. Last spring, Daewoo began selling cars in Europe, rolling out its $14,000 Nexia, which competes with Volkswagen's Polo and Opel's Corsa, and its $18,000 Espero, which competes with VW's Golf. In nine months, Daewoo sold nearly 60,000. By 2000, it's aiming for 300,000 a year. As Daewoo lacks a strong dealer network and offers outmoded technology, rivals doubt it will succeed. But even a flawed Korean effort could force prices lower. That's why European carmakers, who sell few cars in Korea, are calling for quotas on Korean imports. "The Koreans have locked everyone out," insists Louis R. Hughes, president of General Motors Europe.

Whether the newly inked accord between the EU and Korea will change this imbalance is uncertain. But as the chaebol continues its drive to internationalize operations, Europeans will have to learn to compete and cooperate with these dynamic Asians.By Julia Flynn with Heidi Dawley in London, David Woodruff in Geneva, Gail Edmondson in Paris, and bureau reports


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