International -- Asian Business: SOUTH KOREA
DAEWOO, SAMSUNG, KIA--HOUSEHOLD NAMES IN RUSSIA? (int'l edition)
The chaebol are ready for a major investment drive
In Moscow's central Pushkin Square, the golden arches of the busiest McDonald's Corp. outlet in the world are being upstaged. Atop the fast-food restaurant, a 10-foot-high billboard advertising South Korea's Samsung Group dominates the scene. Nearby, the logo of another Korean company, Daewoo Corp., also towers over the square with a neon-blue sign larger than a basketball court.
While Daewoo, Samsung, and other big Korean conglomerates have signaled growing interest in the former Soviet Union over the past few years, they now seem ready for a major investment drive. The Japanese are staying away due to political risk and strained relations between Russia and Japan, but South Koreans are moving in. Since Boris Yeltsin's win over the Communists in July's presidential elections, they have inked a string of high-profile deals totaling more than $2 billion (table). Exports to Russia from South Korea have doubled every year for the past three years to a projected $2.5 billion in 1996, turning Russia into Korea's third-biggest market after the U.S. and European Union.
The Korean chaebol, facing rising costs at home and increased competition from other Asian tigers, are seeking a cheaper workforce and lower overhead for their manufacturing operations. Russia and the former East bloc offer those advantages, plus large markets where low-cost consumer electronics and automobiles are in demand. Russia also is seen as a jumping-off point for the EU's consumer markets.
Korean electronics companies are targeting a growing Russian middle class that wants to replace its low-quality, Soviet-era appliances. Booths at Moscow's All-Russian Exhibition Center, which once highlighted the achievements of the Soviet Union, are abuzz with frenzied shoppers snapping up foreign electronic goods. "This is not the Soviet Union anymore, where we had to pretend that everything Russian was the best," says film student Olga Goncharienko. A 21-inch Korean color TV costs about $300, compared with $450 for a Japanese model. Samsung claims the largest market share, although it won't give sales figures. Daewoo says its sales of electronic goods in Russia reached $200 million last year, followed by LG, with $150 million.
The Koreans also are moving into industries such as oil, metals, and telecom. Daewoo invested $15 million to make telephone switches with the Russian government. Hanbo Group has a 27.5% stake in Russia-Petroleum, which it owns with Siberian oil giant Sidanko. Daewoo and LG are particularly interested in aluminum for making cars. "We need access to Russia's plentiful natural resources," says Seo Seok Song, commercial attache at the Korean embassy in Moscow. Seo is helping supervise construction of a $45 million trade center in downtown Moscow, with residential complexes and department stores to showcase Korea's presence in Russia.
BYZANTINE. Korean auto makers also are competing to dominate Russia's growing car market. In the Kaliningrad region near the Polish border, Kia Motors Corp. plans to invest up to $1 billion over five years in a former warship plant and retool it for passenger-car assembly. Daewoo has invested $600 million in a car assembly plant in Uzbekistan, and is negotiating with the Ukraine's AvtoZAZ for a joint venture plant. By 2000, Daewoo hopes to build as many as 745,000 vehicles throughout the former Soviet Union, displacing Russia's AvtoVAZ as the region's largest auto maker. "Russia is the biggest car market in the former Eastern bloc, and it's getting bigger," says Wan Jae Cho, Daewoo's general director for Russia and Ukraine.
Still, South Korean companies have their headaches, too. Like all investors in Russia, they complain about the country's byzantine bureaucracy, high taxes, and continuing political uncertainty.
But they have one potential advantage for the long term. If North and South Korea eventually reunify, the chaebol could find their country directly on Russia's border. "We have to start preparing for that," says Seo. If trade between Russia and South Korea continues to soar, Russia could one day be the largest trading partner of a unified Korea.By Vijai Maheshwari in MoscowReturn to top