The Automotive Parts Market
in South Korea
March 2007
Final Report
1
The Automotive Parts Market
in South Korea
March 2007
(Également disponible en français sous le titre,
Le marché des pièces d'automobile en Corée du Sud)
Prepared by the
Korea Associates Business Consultancy
and the
Canadian Trade Commissioner Service
© Department of Foreign Affairs and International Trade
(FaxLink no 1000005)
2
The Market Research Centre produces a wide range of market reports by region and sector for
Canadian exporters. These reports are available from:
— InfoExport Internet site (http://www.infoexport.gc.ca).
The Government of Canada has prepared this report based on primary and secondary sources of
information. Readers should take note that the Government of Canada does not guarantee the
accuracy of any of the information contained in this report, nor does it necessarily endorse the
information.
3
THE AUTOMOTIVE PARTS MARKET IN SOUTH KOREA
EXECUTIVE SUMMARY
The 1997 Asian economic crisis had a significant impact on South Korea’s
automotive industry. Up until the crisis, South Korea's vehicle makers had
flourished in an industry sheltered from imports and foreign competition while being
encouraged to expand aggressively into export markets. As a result of the crisis,
struggling vehicle makers such as Daewoo, Samsung and Kia became acquisition
targets for larger domestic and foreign firms. In the auto parts sector, many
domestic parts suppliers failed, merged or were acquired by foreign auto part
companies. A stronger Korean automotive sector has emerged, with fewer but
more efficient and larger automotive parts suppliers. With increased foreign control
over domestic vehicle and parts makers and a more liberal trade policy toward
vehicle imports, the South Korean automotive industry is more globally-oriented
than before but its companies will inevitably face greater competition both at home
and abroad in the future.
In 2006, including exports, South Korean automakers sold a record 3,465,861
vehicles (excluding knockdown kit sales), up 2.8% from 2005. Domestic sales of
passenger cars and SUVs in 2006 remained sluggish, however, posting a year-onyear increase of 2.4% to 935,681 vehicles. The stagnant trend in vehicle sales in
2006 is attributable to the increased cost of driving resulting from high oil prices
and contracted consumption caused by a stagnant economy. Exports of passenger
cars and SUVs slowed to a 3.0% increase over 2005 to 2,530,180 vehicles.
Despite a slight increase in sales of one-ton trucks, commercial vehicle sales saw
a contraction of -0.5%, registering 217,469 units, resulting from sluggish bus
demand from small and medium-sized business owners.
At the beginning of 2007, the industry is dominated by Hyundai and Kia (both
owned by Hyundai Motor) who claim a 70% share of the domestic market and have
begun to develop global manufacturing networks, shedding alliances with other
manufacturers. The rest of the market is made up of three major foreign
manufacturers possessing integrated global manufacturing systems. In the case of
GM Daewoo, however, the outstanding success of the company, and Korean preeminence in production engineering, has made Korea the centre of its Asian
production technology.
As of 2005, there were 154,000 people employed by 922 parts manufacturers that
dealt directly with auto manufacturers; small and medium-sized manufacturers
accounted for more than 90% of this total.
The South Korean market for Original Equipment Manufacturer (OEM) and
4
aftermarket parts is closely linked with the country's automotive market. As such,
the auto parts market is affected by the performance of the vehicle manufacturing
industry, tariff rates, government regulations on safety and environmental issues,
exchange rates and Free Trade Agreements (FTA), among other factors.
The South Korean auto market is slowly beginning to open up to foreign
automakers, with imports on the rise and major domestic automakers being
acquired by overseas investors.
2007 likely provides a unique moment for Canadian parts manufacturers to work
more closely with Korean auto and auto parts manufacturers. The Korean industry
is increasingly producing outside the peninsula and is being challenged more and
more on price, particularly with the expectation of future growth in the Chinese
industry. Korean parts manufacturers need to raise the quality of their products to
the level of the Japanese and Canadian parts companies have an opportunity to
play a role in this process.
Canada’s automotive parts exports to South Korea showed a 32% decrease in
2006 from the C$9.17 million exported in 2005. This is thought to be partly the
result of an increase in production in Korea by the major Canadian investors such
as Magna International Inc. and Tesma International Inc.
5
TABLE OF CONTENTS
EXECUTIVE SUMMARY ................................................................................................... 4
MARKET OVERVIEW ....................................................................................................... 7
Passenger Car and SUV Sales................................................................................................. 8
Passenger Car and SUV Production...................................................................................... 10
Outlook for Korean Automobile Industry.............................................................................. 11
Commercial Vehicle Sales ..................................................................................................... 11
Commercial Vehicle Production ............................................................................................ 12
Major Vehicle Manufacturers in South Korea ...................................................................... 13
Automotive Parts Market....................................................................................................... 17
Aspects of Korea’s Auto Parts Industry ............................................................................... 17
Current status of Korean auto parts manufacturers ............................................................ 19
Opportunities .......................................................................................................................... 21
COMPETITIVE ENVIRONMENT ..................................................................................... 25
Local Capabilities ................................................................................................................... 25
Major Automotive Parts Manufacturers in South Korea ...................................................... 26
International Competition....................................................................................................... 30
Canadian Position ................................................................................................................... 33
Competitive Advantage through Canadian Government Policies and Initiatives................ 33
PRIVATE-SECTOR CUSTOMERS .................................................................................. 36
MARKET LOGISTICS ..................................................................................................... 36
Distribution Channels ............................................................................................................. 36
Market-entry Considerations ................................................................................................ 38
PROMOTIONAL EVENTS AND EVENT ORGANIZERS ................................................. 41
KEY CONTACTS AND SUPPORT SERVICES................................................................ 42
Canadian Government Contacts ............................................................................................ 42
Canadian Industry Associations ............................................................................................ 42
Korean Government Contacts ............................................................................................... 43
Korean Industry Associations................................................................................................ 44
Major Korean Vehicle Manufacturers ................................................................................... 44
Foreign Vehicle Distributors in Korea .................................................................................. 45
Major Auto Parts Manufacturers in Korea............................................................................ 46
BIBLIOGRAPHY ............................................................................................................. 47
OTHER REFERENCE MATERIAL .................................................................................. 49
6
THE AUTOMOTIVE PARTS MARKET IN SOUTH KOREA
MARKET OVERVIEW
The South Korean automotive sector has undergone a dramatic transformation
since the Asian economic crisis in 1997. As a result of the crisis, Hyundai acquired
Kia, but the survival of the other Korean auto manufacturers was only ensured by
foreign investment. General Motors (GM) took a controlling share of Korea’s third
automaker, Daewoo Motors; France’s Renault saved Samsung Motors from
liquidation and rapidly discovered it had acquired a jewel; Shanghai Auto Works
took control of Ssangyong; and Tata bought Daewoo Bus. Since many domestic
auto parts suppliers were fully, jointly or financially tied the major motor vehicle
companies, they too failed, merged or were acquired by foreign auto parts
companies. Major international parts makers who have invested in South Korea
include Delphi (U.S.), Bosch (Germany), Valeo (France) and Magna International
(Canada).
Up until the Asian crisis, South Korea's vehicle makers had flourished in an
industry sheltered from imports and foreign competition while being encouraged to
expand aggressively into export markets. The devaluation of the won in December
1997 set off Korea’s greatest export boom, and forever changed its attitude
towards foreign investment. South Korea’s insular automotive sector changed due
to increasing levels of foreign investment and the effects of economic globalization.
And with a continued increase in foreign control over domestic vehicle and parts
makers and a more liberal trade policy toward vehicle imports, the South Korean
automotive industry will inevitably face greater competition both at home and
abroad.
At the beginning of 2007, the industry is dominated by Hyundai and Kia (both
owned by Hyundai Motor) who claim a 70% share of the domestic market and have
begun to develop global manufacturing networks, shedding alliances with other
manufacturers. The rest of the market is made up of three major foreign
manufacturers that possess integrated global manufacturing systems. In the case
of GM Daewoo, however, the outstanding success of the company, and Korean
pre-eminence in production engineering, has made Korea the centre of its Asian
production technology.
The rising value of the won against both US and Canadian dollars means that
Korean manufacturing is under pressure, and that manufacturers must find new
production methods, or move production off-shore, if they hope to continue to grow.
This is true of auto parts manufacturers as well who, while they may have more
opportunities to upgrade their production, also find it easier to move off-shore.
Canadian companies should find in this market a situation with opportunities for the
7
bold.
Passenger Car and SUV Sales
According to preliminary figures by the Korean Automobile Manufacturers
Association (KAMA), including exports, South Korean automakers sold a record
3,465,861 vehicles (excluding knockdown kit sales) in 2006, up 2.8% from 2005.
Domestic sales of passenger cars and SUVs in 2006, however, remained sluggish
posting a year-on-year increase of 2.4% to 935,681 vehicles. The stagnant trend in
vehicle sales in 2006 is attributable to the increased cost of driving resulting from
high oil prices and contracted consumption caused by a stagnant economy.
Increased vehicle prices are also a cause, a result of the consumption tax being
restored in January 2006, as well as tightened environmental regulations and a
hike in diesel prices coming out of the overhaul of energy tax system.
Compared with the previous year, sales of large and medium sedans rose by 7.2%
and 19.3% respectively in 2006. In contrast, sales of mini cars and SUVs
plummeted by 15.9% and 12.9% respectively. Mini cars did not appeal to
consumers – only a single model was introduced to the market – because of safety
concerns while sales of SUVs declined as their affordability decreased due to the
rise in diesel fuel prices, vehicle prices and the elimination of a tax structure
beneficial to them.
Exports of passenger cars and SUVs slowed, showing a 3.0% increase over 2005
to 2,530,180 vehicles.
Hyundai Motor’s overall sales decreased by 6.5% to 1,382,666 units in 2006 (see
Table 1) although Hyundai maintained a 45.7% share of the domestic passenger
car market, similar to the previous year’s. Domestic sales in fact increased by 2.9%
from 415,337 vehicles to 427,488 vehicles in 2006, however Hyundai’s exports
dropped by 10.2% over the previous year.
Table 1. South Korea: Passenger Car and SUV Sales, by Manufacturer, 2006*
Manufacturer
Units Sold (1 000)
% Change over 2006
Hyundai
1 383
-6.5
Kia
1 057
6.4
GM Daewoo
750
17.7
Ssangyong
116
-17.7
Renault-Samsung
160
34.8
Total
3 466
2.8 (3 370)
*Table includes domestic and export sales but excludes knockdown kit sales.
Source: Korea Automobile Manufacturers Association (KAMA) (2006) and preliminary sales figures
from vehicle manufacturers.
Hyundai sold an estimated 1.38 million vehicles in 2006, failing to meet its sales
8
target. The company’s stagnant performance is attributable to labour protests, the
Korean won’s appreciation against the dollar, and sluggish domestic demand.
Hyundai saw its exports fall to 955,178 units in 2006, making for a 37.8% export
share. This is compared with the previous year’s share of 43.3%, when the
company’s Alabama plant became fully operational, rolling out Sonata sedans and
Santa Fe SUVs for the U.S. market. Hyundai’s Tucson, Click (Getz in North
America) and Verna (Accent in North America) and GM Daewoo’s Lacetti and
Kalos were the top five exported models in 2006.
Kia Motors Corporation’s sales reached a record 1.06 million units due to a boost
in its exports. Domestic sales accounted for 220,949 units and exports for 835,709
units. Domestic sales and exports increased 3.4% and 7.1% respectively over
2005 for a total sales increase of 6.3%.
Because of strong demand for Kia’s Sorento SUV and the Cerato (Spectra in North
America) and Morning (export name Picanto) sedans, overseas sales by Korea’s
No. 2 automaker rose approximately 7% to 835,709 in 2006. Sales of the new
Opirus (Amanti in North America) ranked first in the large automobile sector for
seven consecutive months, with a total of 18,835 units in 2006.
In the domestic market, the new Sportage posted sales of 35,867 units followed by
Lotze (Magentis in North America) with 34,702 units, old and new Carens (Rondo
in North America) with 25,347 units and Pride (Rio in North America) with 23,045
units.
GM Daewoo, Korea's third-largest automaker sold a record 750,026 passenger
cars and SUVs total in 2006, up 17.7% from 2005. Domestic sales grew 19.7% to
112,088 units mainly due to the active marketing of programs such as “instalment
payments with used car price guarantees” for the Tosca (Epica in North America)
and Winstorm (Captiva in North America) models. The carmaker’s exports
increased 17.4% over 2005 to 637,938 units thanks to brisk sales of its Lacetti and
Gentra (Chevrolet Aveo in North America) sedans in Europe, Korea’s secondbiggest car export destination.
Ssangyong Motor, controlled by China's Shanghai Automotive Industry Corporation,
said its passenger car and SUV sales fell by a total of 17.7% in 2006 from a year
earlier. Exports of passenger cars decreased by 8.4% and domestic sales fell
sharply by 25.8% to 56,068 units. As most of Ssangyong’s products are SUVs,
high diesel prices, the restoration of the special excise tax and the vehicle tax
increase caused a plunge in its sales.
Renault Samsung Motors, controlled by French automaker Renault SA, said its
vehicle sales jumped 34.8% in 2006 from a year previous. It sold 160,408 units in
9
2006; domestic sales inched up 3.2% to 119,088 units while exports soared, with
an 11-fold increase, to 41,320 units, as the No. 4 Korean automaker included
Russia and Ukraine in its export portfolio.
Despite slow domestic consumption, sales of imported cars have increased
continuously over the last few years. According to the Korea Automobile Importers
& Distributors Association, imported car sales increased by 31.2% in 2006 to reach
40,530 units and a 4.15% market share thanks to effective new model launches
and active marketing activities. Of the total of imported cars sold, models with an
engine displacement of between 2000cc and 3000cc accounted for 8.3%, while
those with an engine displacement over 3000cc took 31.3%. Among imported
brands, BMW and Lexus hold close to 31% of the market share.
Passenger Car and SUV Production
KAMA’s production figures for 2006 show an increase of 3.9% for a record of 3.49
million units produced (excluding knockdown kits).
In 2006, Renault Samsung and GM Daewoo posted significant production
increases of 36.4% and 19.6% respectively. In contrast, Hyundai decreased its
production by 5.6% in the same period to 1,386,904 units. As a result, its
production share for the domestic passenger car market decreased from 43.8% in
2005 to 39.7% in 2006. Kia saw production grow by 6.6% as a result of strong
exports. Ssangyong’s production decreased by 14.0% due to lowered demand in
both domestic and foreign markets.
Table 2. South Korea: Passenger Car and SUV Production by Manufacturer, 2006*
Manufacturer
Units Sold (1 000)
% Change over 2006
Hyundai
1 387
-5.6
Kia
1 066
6.6
GM Daewoo
757
19.6
Ssangyong
117
-14.0
Renault-Samsung
161
36.4
Total
3 489
2.9
*The production figures supplied by automakers in this table do not include knockdown kit sales.
Source: KAMA (2006) and preliminary sales figures from vehicle manufacturers.
Table 3. South Korea: Passenger Car and SUV Production, 1998-2006
Year
Units Produced
Year
1998
2003
1 625 125
1999
2004
2 361 735
2000
2005
2 602 008
2001
2006
2 471 444
2002
2 651 273
Source: KAMA, 2006.
10
Units Produced
2 767 716
3 122 600
3 357 094
3 489 136
Outlook for Korean Automobile Industry (Passenger Cars and Commercial
Vehicles) – from KAMA
•
With sluggish domestic demand due to the economic recession,
appreciation of the Korean won and slowdown in the exports derived from
surging overseas production, automobile production is forecast to increase
slightly by 4.7% to 4 million units in 2007.
•
Although it is difficult to improve the current negative market factors
including economic recession, unstable employment environment and oil
price hikes, domestic demand is expected to increase in 2007 owing to
strong replacement demand and new model releases. Thus, 2007 domestic
sales are forecast to rise 4.3% over the preceding year to 1.2 million units.
•
Exports are forecast to grow by 4.9% to 2.8 million units because of the
improved quality and brand image of Korean cars, the expansion of sales
networks and the effective use of other leading companies' sales networks.
Negative elements such as weakening price competitiveness due to a high
Korean won and low Japanese yen and increased overseas production
won't show much change.
※ Export Share: (2005) 69.9% ⇒ (200606) 69.9% ⇒ (200707) 70.0%
•
Imported cars are expected to continue their growth trend as importers
diversify their ranges to include moderately priced models, expand their
exhibition showrooms and A/S centres (service centres) and enhance their
marketing activities. This, along with strengthened price competitiveness
due to the Korean won’s appreciation, has led to a forecast of 4.9% growth
in sales to a mark of 60,000 units in 2007.
※ Imported car market share: ('05) 2.6% ⇒ ('06) 3.7% ⇒ ('07) 4.8%
Commercial Vehicle Sales
Despite a slight increase in sales of one-ton trucks, commercial vehicle sales
contracted by -0.5% overall, registering 217,469 units, a result of sluggish bus
demand from small and medium businesses.
The level of commercial vehicle sales usually corresponds with trends in the
broader economy, with demand increasing when times are prosperous and
declining when the economy is weak. Most commercial vehicles have a shorter
working life than cars since they are constantly in use and are therefore replaced
more frequently.
Hyundai and Kia dominate the commercial vehicle market, producing a wide range
11
of trucks, vans and buses. These two companies accounted for approximately 90%
of commercial vehicles sales in 2006. Total truck sales decreased by 3%,
contributing to Hyundai’s poor performance. Hyundai’s market share in Korea
dropped by 2.6% in 2006. Sales by other companies, however, rose the same year.
Bus sales fell due to Kia’s halting production of the Bongo bus, which was first
developed in 1981 and was a factor contributing to Kia’s growth.
Table 4. South Korea: Commercial Vehicle Sales, 1999-2006*
Year
Units Sold
Year
1999
2003
352 175
2000
2004
363 015
2001
2005
375 649
2002
2006
383 892
* Figures do not include export sales.
Source: KAMA, 2006.
Units Sold
303 063
226 652
219 045
217 469
Table 5. South Korea: Commercial Vehicle Sales by Manufacturer, 2005 and 2006*
2005
2006
Manufacturer
Units Sold
% Market Share
Units Sold
% Market Share
Trucks
Hyundai
100 091
69.5
97 134
66.9
Kia
36 554
25.4
37 874
26.1
GM Daewoo
3 474
2.4
4 145
2.9
Tata Daewoo
2 580
1.8
4 239
2.9
Imports
1 322
0.9
1 761
1.2
Subtotal
144 021
100.0
145 153
100.0
Buses
Hyundai
Kia
GM Daewoo
Daewoo Bus
Imports
Subtotal
54 436
7 794
10 451
3 665
188
76 534
71.1
10.2
13.7
4.8
0.2
100.0
Total
220 550
* Figures do not include export sales.
Source: KAMA, 2006.
55 493
1 984
12 099
4 501
202
74 279
74.7
2.7
16.3
6.1
0.3
100.0
219 432
Commercial Vehicle Production
Thanks to a 5.1% increase in truck production over the previous year, total
commercial vehicle production rose by 2.0% in 2006, reaching 338,434 units.
Although Kia’s production declined as the company decided to halt production of its
Bongo Bus, Hyundai and GM Daewoo saw their bus and truck production increase
in 2006.
Table 6. South Korea: Commercial Vehicle Production, 1999-2006
12
Year
1999
2000
2001
2002
Units Produced
470 516
502 658
463 903
483 148
Year
2003
2004
2005
2006
Units Produced
396 795
336 088
331 671
338 434
Source: KAMA, 2006.
Table 7. South Korea: Commercial Vehicle Production by Manufacturer, 2005 and 2006
2005
2006
Manufacturer
Units Produced
% Market Share
Units Produced
% Market Share
Trucks
Hyundai
137 225
63.3
145 120
63.7
Kia
72 962
33.7
71 625
31.5
GM Daewoo
3 170
1.5
5 007
2.2
Tata Daewoo
3 299
1.5
5 922
2.6
Subtotal
216 656
100.0
227 674
100.0
Buses
Hyundai
Kia
GM Daewoo
Daewoo Bus
Subtotal
Total
Source: KAMA, 2006.
76 137
23 492
10 760
4 626
115 015
66.2
20.4
9.4
4.0
100.0
331 671
85 278
2 186
17 396
5 900
110 760
77.0
2.0
15.7
5.3
100.0
338 434
Major Vehicle Manufacturers in South Korea
Hyundai Motor
Once part of the Hyundai Group chaebol, Hyundai Motor became a separate
company in April 2001. Hyundai Motor controls South Korean automaker Kia
Motors. Combined, these two vehicle-makers were responsible for 72% of car
sales in South Korea in 2006 and rank as one of the top ten car manufacturers in
the world. Hyundai Motor Group, which includes Kia, was at one point 10.4%owned by DaimlerChrysler, but this association ended after four years of alliance
when Daimler sold its stake in 2004. Hyundai, which already controls almost one
half of the domestic market, has been aggressively developing both at home and in
foreign markets by introducing new models and investing heavily to improve their
brand image.
The company, along with its affiliate Kia Motors, is expanding aggressively
overseas as part of efforts to become the world's fifth-largest automaker by 2010.
Hyundai Motor has expanded its global production into Turkey, China and the
United States since 1997, when it first launched a foreign production plant in India.
13
When Hyundai Motor opened a manufacturing plant in Alabama, the United States,
in 2005, it became the first Korean auto firm to establish a production facility at the
centre of the world’s car industry. Hyundai spent US$1 billion to build the factory,
the largest investment ever made by a Korean firm in a single foreign location.
Hyundai Motor will launch construction of a manufacturing plant in the Czech
Republic in 2007. The company has invested 1 billion euros to build the plant,
which will have an annual production of 300,000 vehicles at full capacity. The plant
is almost the same size as its factory in Alabama. Hyundai Motor will also begin
producing trucks and buses in Indonesia in March 2007, making its first foray into
the commercial vehicle market in the Southeast Asian country. Hyundai Motor has
agreed to build an assembly plant with Indonesia-based Korindo Group with an
investment of US$23 million.
Despite lacking a prestige brand image, Hyundai-Kia’s increasing sales worldwide
and award-winning cars prove that the world’s sixth largest automotive group has
met global quality standards. Hyundai’s flagship Sonata sedan and Tucson SUV
have set records in US market research firm JD Power & Associates’ initial quality
study. The benchmark industry study showed that the Sonata came second among
entry midsize sedans and the Tucson third among entry SUVs in 2005.
The nation’s largest automaker, however, is now reeling with problems both with its
management and employees. In February 2007, Hyundai Motor Chairman Chung
Mong-koo was sentenced to a three-year jail term for embezzlement and breach of
trust. Hyundai’s union has staged strikes every year except one since its
establishment in 1987. Aside from its short-sighted demands for wage hikes and
other benefits, the union has been criticized for various moral lapses.
Kia Motors
Following its collapse in the midst of the 1997 economic crisis, Kia Motors was
taken over by Hyundai Motor in March 1999. Since this takeover, Kia’s fortunes
have improved dramatically and the company has become South Korea's secondlargest automaker.
In 2006, Kia Motors registered sales of 275,970 units domestically and 1.07 million
units for export for a total of 1.34 million units. Domestic sales and exports
increased 1.5% and 7.7% respectively over 2005, for a total increase of 6.4%. Kia
Motors hopes to sell 1.54 million vehicles worldwide in 2007 – 22.1% more than it
did in 2006.
Similar to the success achieved by Hyundai’s aggressive overseas strategy, Kia
has also done well in North America, Asia and other foreign markets. In 2006, Kia
Motors sold 366,226 units in North America, 338,039 units in Europe, 129,916
14
units in China and 243,708 units in other countries. Kia intends to focus
increasingly on its recreational vehicle line-up owing to strong demand in the US
market. The company is reported to have a 2007 goal of selling 360,000 cars in the
U.S. market, 22.3 % more than the previous year's 294,302 units, to be achieved
via the launch of its new Carens, a new Crossover Utility Vehicle (CUV), and its
new Opirus.
Kia has opted for a sporty "exciting and enabling" image under the slogan "The
Power to Surprise." Its aggressive sports event marketing is helping the carmaker
lift its brand image abroad. Kia sponsors major international sports events including
the Australian Open, one of four tennis grand slam tournaments, and golf’s Davis
Cup.
GM Daewoo Auto and Technology
After Daewoo Motors declared bankruptcy in November 2000 it signed a takeover
agreement in April 2002 with GM, whereby the US company would invest US$400
million for a 67% stake in what would be a new company: GM Daewoo Auto and
Technology.
As part of the agreement, GM purchased two of Daewoo's three domestic plants,
with the automaker's largest plant in Bupyong being used for a period of up to six
years to supply vehicles and components. Daewoo's commercial vehicle
operations were not included in the sales agreement. Daewoo Commercial Vehicle
began to operate independently at its 20,000-unit annual production capacity plant
in Kunsan in November 2002.
Vehicle sales suffered when Daewoo faced financial troubles. Its worldwide car
sales fell 18% in 2002 to reach 377,237 and the future of the company seemed in
doubt. With the help of GM’s investment, however, the company reversed its slide
and increased sales by 27% in 2003 and 2004. GM Daewoo’s first new model, the
1.5-litre midsized sedan Lacetti appeared on the market in November 2002
followed by the new Matiz in February 2005.
GM Daewoo sold 1,525,819 vehicles in both domestic and world markets in 2006.
This was a record for both GM Daewoo and the former Daewoo Motors. Buoyed by
strong demand for its products in Korea and around the world, the Incheon-based
automaker’s output climbed 31.8% in 2006 over its 2005 total when it sold
1,157,857 vehicles. GM Daewoo’s 2006 domestic sales rose 19.2% to 128,332
units from 107,664 units in 2005 representing the greatest sales increase among
Korean automakers that year. GM Daewoo received a boost from its aggressive
and innovative new product sales programs such as the Free Exchange Program
and Residual Value Guarantee Program.
15
In 2006, exports of complete vehicles and knockdown kits grew 33.1% to
1,397,487 units from 1,050,193 units in 2005. Exports of complete vehicles surged
17.4% to 638,829 units, while exports of knockdown products jumped 49.9% to
758,658 units. Vehicles manufactured by GM Daewoo are currently offered in more
than 150 countries on six continents under some of the world’s most popular car
brands including GM Daewoo, Chevrolet, Buick, Pontiac, Holden and Suzuki.
GM Daewoo has five manufacturing facilities in Korea as well as an assembly
facility in Vietnam. In addition, GM Daewoo provides market and brand-specific
vehicle kits for assembly at GM facilities in China, Thailand, India, Colombia and
Venezuela.
Renault Samsung Motors
Another major South Korean automobile maker that emerged under foreign
ownership after declaring bankruptcy was Samsung Motors. After Renault SA took
a 70.1% share in Samsung Motors, a new company, Renault Samsung, was
officially launched in September 2000 using acquired Samsung Motors operating
assets including its Pusan plant, Kiheung R&D Centre and its domestic sales
network.
An 11-fold jump in exports to 41,320 units helped Renault Samsung post record
sales of 160,408 cars in 2006. The carmaker passed Ssangyong Motor to become
the nation’s fourth biggest carmaker after selling 35% more of its SM sedans
models than in the previous year. According to KAMA, Renault Samsung’s sales
captured 10% of Korea’s auto market in 2006. Domestic sales in 2006 rose 3.2%
to 119,088 units.
Renault Samsung has no plans to change its brand name as it benefits from
association with the Korean industrial giant. Samsung’s credit card subsidiary
currently holds a 19.1% stake in the carmaker.
Renault Samsung played a key role in improving the Renault Group’s profitability
and in creating its 2006 operating margin of 2.56%.
Renault Samsung’s first SUV, temporarily named H45, is slated to hit showrooms
this year. The diesel-powered H45, Renault Group’s first four-wheel drive vehicle,
was designed jointly with Nissan and will be produced at the Korean carmaker’s
Busan plant.
Ssangyong Motor
Ssangyong Motor was a former subsidiary of bankrupt automaker Daewoo and
was spun off by the parent company in 1999. It was operating independently under
16
a debt-for-equity agreement with its bank creditors and had actively been seeking a
large domestic or foreign buyer for 2 years before October 2004 when the
company was acquired by Shanghai Automotive Industry of China. Ssangyong
specializes in SUVs and controls about 10% of the Korean auto market.
Ssangyong Motor sold 121,196 units in 2006. Its domestic sales fell 23.9% to
55,947 units and its exports dropped 3.7% to 65,249 units over the previous year.
Ssangyong Motor emphasizes that its domestic marketing goal is to secure the
automaker's position as Korea’s premium car brand.
Automotive Parts Market
Korea’s automotive parts industry, since suffering a downturn in the wake of the
1997 currency crisis, has managed to sustain an average annual growth rate of
10% and is forecast to grow at 9.6% per year until 2015.
Table 8. Sales in Korea’s Automotive Parts Industry
OEM
Aftermarket
Export
1990
5,023
402
355
1995
11,843
829
698
2000
19,921
1,295
1,686
2001
20,533
1,335
2,035
2002
23,762
1,545
2,089
2003
26,060
1,824
4,235
2004
29,236
2,047
5,281
2005
32,683
2,288
6,761
Source: Korea Auto Industries Cooperative Association (KAICA).
Total
5,780
13,369
22,902
23,903
27,396
32,120
36,564
41,732
(Unit: KRW billion)
% Growth rate
18.3
11.4
4.4
14.6
17.2
14.1
14.1
Aspects of Korea’s Auto Parts Industry
SME-Centred Industrial Structure
As of 2005, there were 154,000 people employed by 922 parts manufacturers
dealing directly with auto manufacturers. Of this total, large manufacturers (capital
over KRW 8 billion and more than 300 employees) accounted for only 9.3% or 86
companies. The number of companies with more than 1,000 employees totalled 28.
17
Table 9. Structure of the Automotive Parts Industry
2001
# of companies
819
SME
% (# of companies)
93.0
% (Amount of supply)
56.4
2002
787
92.8
52.1
2003
809
92.1
50.1
2004
837
91.7
48.5
2005
836
90.7
45.2
# of companies
% (# of companies)
% (Amount of supply)
62
7.0
43.6
61
7.2
47.9
69
7.9
49.9
76
8.3
51.5
86
9.3
54.8
# of companies
Amount of supply (KRW trillion)
Source: KAICA.
881
23.3
848
28.0
878
29.7
913
32.0
922
32.7
Large
Co.
Total
The total output from parts manufacturers dealing directly with auto manufacturers
in 2005 amounted to KRW32.7 trillion. Average output per manufacturer was
KRW35.5 billion. When broken down by manufacturer size, small companies
accounted for 1.9% of total output (KRW1.8 billion average value), medium
companies 48.2% (KRW23.5 billion average value) and large companies 49.9%
(KRW188.5 billion average value).
Heavy Dependence on a Single Buyer
Whereas Toyota, capable of manufacturing 7 million cars a year, had only 200
parts suppliers in 2003, Hyundai, with a fourth of Toyotas output, had as many as
377, indicating that it uses many small-scale suppliers. Conversely, 50% of parts
manufacturers, supplied parts to a single buyer. Thus, despite a Korean-market
myth that a company can only supply to a single manufacturer, 50% of parts
manufacturers supply more than one company. As price and quality-centred
procurement practices have taken root, this hierarchical trend has lost its power.
Table 10. Number of Buyers Dealt With
Year
1
2001
2002
2003
2004
2005
(%)
Source: KAICA.
488
427
450
459
461
50.0%
(Unit: # of suppliers)
Number of Buyers Dealt With (1 – 6)
2
3
4
5
6
215
210
217
222
228
24.7%
102
102
94
111
109
11.8%
76
62
61
63
62
6.7%
30
34
36
41
4.4%
22
21
2.3%
Hyundai and Kia used the largest numbers of subcontractors in Korea, 377 and
391 respectively, followed by GM Daewoo, SsangYong and Renault Samsung.
18
Table 11. Number of Subcontractors by Auto Manufacturer
Hyundai
Kia
373
377
396
391
2004
2005
GM
Daewoo
281
307
Ssangyong
240
237
Renault
Samsung
152
146
Daewoo
Bus
174
178
Tata
Daewoo
188
192
Source: KAICA.
Low Reliance on Exports
Whereas exports account for 70% of sales in Korea’s electronic parts industry,
exports comprised a mere 16.2% of the auto parts industry’s production. The
industry depends heavily on domestic consumption, especially compared with
Japan’s industry which exported 47.9% of its production. This trend can be
attributed to the lack of parts manufacturers who have large-scale global networks
as can be found in the United States or Japan. This fact makes Korean
manufacturers a potential target for Canadian parts manufacturers once Korean
companies shift to overseas production and assembly.
Current status of Korean auto parts manufacturers
Key Factors Shaping Market Growth
The South Korean markets for OEM and aftermarket parts are closely linked with
the country's automotive market. As such they are affected by a number of factors
related to the automotive market including:
•
•
•
•
the performance of the vehicle manufacturing industry, which determines
the OEM and aftermarket parts supply needed;
tariff rates, which affect the number of components imported;
government regulations on safety and environmental issues; and
exchange rates, which determine the relative price level of Korean OEM and
aftermarket products compared with other countries.
A number of other factors also influence the South Korean auto parts market.
Technological changes are having a major impact on sales. Both OEM and
aftermarket components are becoming more durable due to better engineering and
production and thus need to be replaced less frequently. As automobile
manufacturers produce more technologically advanced cars and trucks, however,
the demand for jointly-engineered OEM products and increasingly advanced
aftermarket components will also rise.
South Korean industry sources believe that GM’s purchase of Daewoo Motors and
Hyundai’s investment in its Alabama manufacturing plant has accelerated the
global procurement trend emerging in South Korea’s automobile industry.
19
One of the biggest impediments to vehicle and parts imports in the South Korean
market has been the government’s reluctance to remove protectionist measures
applied to the industry. South Korea has long imposed restrictions on foreign
vehicles allowed into the domestic market. This issue has led to disputes between
US auto manufacturers, who during the 2006-7 US-Korea FTA negotiations argued
that taxation by engine displacement size, along with other taxes, price US cars out
of the market, and European manufacturers, who are busy selling vehicles despite
any tax advantage. Buying foreign cars in Korea is still regarded as unpatriotic and
unsupportive of the domestic industry. This cultural attitude has changed fairly
rapidly in the past three years as Korea’s wealthy classes now regard foreign cars
as part of normal life and the South Korean government has liberalized its auto
trade policies.
The South Korean government has stated that it is committed to reducing market
barriers and liberalizing the domestic motor vehicle market. The vehicle trade
imbalance has been a long-standing source of friction between South Korea and
vehicle exporting countries, particularly the United States. The South Korean
market, Asia’s second largest after Japan, is potentially one of the most lucrative in
the region.
Some domestic critics maintain, however, that an open motor vehicle market will
harm the domestic industry and hurt the economy as a whole. They argue that
opening the doors wide will lead to a large increase in imports, such that the
domestic market will be destroyed. Despite opposition to liberalization and
continued restrictions, the South Korean auto market is slowly beginning to open
up to foreign automakers, with imports on the rise and major domestic automakers
being acquired by overseas investors. .
The Korea-Japan FTA negotiations have been suspended since the 6th FTA talks
November 2004. Current imports of auto parts from Japan account for
approximately 35% of all parts imports. Exports of parts to Japan, however, remain
at about 6% of total parts exports. When the FTA comes into effect, Korea will
experience an influx of Japanese automobiles and auto parts, which will widen the
trade deficit that already exists in the auto parts sector. In order to stay competitive,
the Korean government and parts manufacturers will invest in R&D and in the
development of new export markets. Canada is also in the process of negotiating
an FTA with Korea, the outcome of which could create export and investment
opportunities for Canadian auto parts companies in coming years.
The impact of the US-Korea FTA on the Korean auto industry will be relatively
small given the volume of its existing exports. According to a report by the Korea
Institute for Industrial Economics and Trade (KIET), Korean automobile exports to
the United States could rise by US$900 million a year if the FTA lifts all duties. If
20
tariffs are eliminated immediately, Korean exports to the US are likely to expand by
US$860 million in the first year, up 10.7% from the projected level of shipments
without the FTA. An US-Korea FTA would likely increase South Korean auto
exports to the world's largest economy by an additional US$1.5 billion and auto
parts exports by US$1.2 billion respectively in 2015 (8 years after the agreement).
US sources believe that the removal of barriers would increase US exports to
Korea by a similar value, proportionally a huge increase.
Opportunities
2007 likely provides a unique opportunity for Canadian parts manufacturers to work
more closely with Korean auto and auto parts manufacturers. The Korean industry
is increasingly producing outside the peninsula and is being challenged more and
more on price, particularly with expectations of future growth in the Chinese
industry. Its main opportunity is to further erode Japanese-based manufacturing, as
in the case of Renault Samsung, which has proved that Japanese cars can be
produced more cheaply in Korea.
Korean parts manufacturers need to raise the quality of their products to the level
of the Japanese as seen in the following table. Canadian parts companies have the
opportunity to play a role in that process.
Table 12. Automotive Parts Industry Comparison: Korea, Japan and China
Japan
Korea
Technology
100
85.3
Quality
100
89.6
Design
100
88.9
Brand awareness
100
82.8
After sales service & punctuality
100
93.8
Source: Korea Institute for Industrial Economics and Trade, Korea Development Bank
21
China
65.6
69.7
70.9
64.5
70.5
Table 13 shows how Koreans view their own industry and also indicates where
Canadian parts manufacturers might find opportunities.
Table 13. Korea Automotive Parts SWOT Analysis (From Korea’s perspective)
Strengths
Weaknesses
- Relatively low labour costs
- Lack of core technologies
- Quality of skilled labour
- Dependence on imports for core parts
- Production infrastructure and
- Low R&D expenditure
technology
- SME-centred structure
- Electronics & IT technology
Opportunities
-
Threats
Better evaluation of and more exports
to overseas markets
Regional advantage, close to Chinese
market
Global sourcing through increasing FDI
-
Possibility of being simply an assembly
base
Strengthened control by leading
companies such as Bosch, Denso
China’s rapidly growing
competitiveness
Source: Korea Development Bank
Alongside the opportunities for investment and strategic partnerships, there are
also opportunities with regard to trade. The list of Korea’s most-imported parts
(Table 14) indicates the products in which Korean manufacturers are weakest. It is
difficult, however, to disaggregate after market parts from OEM parts for new
Korean manufacturing as the stock of imported vehicles grows. Korea Associates
Business Consultancy (KABC) estimates that more than 50% of the parts
numbered 10 to 30 are aftermarket items.
Table 14. Korea’s Top 30 Imported Automotive Parts (Based on HS Code)
(Unit: US$1,000)
HS NO.
1
8708 99 9000
2
3
4
5
6
7
8
9
10
8708 40 0000
8409 99 2000
8708 29 9000
8413 30 4000
8708 39 9000
8708 39 2000
8708 21 0000
8708 29 1000
8708 93 0000
11
8431 20 0000
12
13
14
15
8708 70 0000
8708 94 0000
8511 90 9000
8512 90 0000
PARTS NAME
OTHER PARTS & ACCESSORIES OF THE MOTOR
VEHICLES
GEAR BOXES
PARTS FOR DIESEL ENGINES
OTHER ACCESSORIES OF BODIES
FUEL PUMPS
OTHER BRAKE PARTS
ELECTRONIC CONTROL BRAKES
SAFETY SEAT BELTS
AIR BAGS
CLUTCH & PARTS
PARTS FOR LIFT TRUCKS & OTHERS WORKS
(TRUCKS)
ROAD WHEELS & PARTS
STEERING WHEELS, COLUMN, BOXES
PARTS FOR OR STARTING EQUIPMENT
PARTS FOR LIGHTING & SIGNALLING
22
2004
2005
2006
519,618
623,489
792,717
728,330
372,932
227,756
252,987
53,416
58,867
93,876
126,403
39,109
714,512
359,494
300,437
228,951
89,894
92,503
87,128
108,848
48,224
778,889
378,569
330,834
213,678
144,361
100,835
84,317
72,194
59,626
37,167
45,121
50,447
31,469
23,243
33,768
8,757
32,810
29,111
30,606
18,347
47,207
44,813
36,021
27,245
16
17
18
19
8708 50 0000
8708 91 0000
8421 23 1000
8479 89 9091
20
8716 90 9000
21
22
23
24
25
26
27
28
8484 10 1000
8512 40 0000
8708 92 0000
8511 10 9000
8512 30 0000
8708 10 0000
8485 90 1000
8708 80 0000
29
8708 99 1030
30
8511 40 9000
EQUIPMENT
DRIVE AXLE
RADIATORS
FUEL FILTERS
OTHER MACHINES FOR MOTOR VEHICLES
PARTS OF OTHER VEHICLES, NOT
MECHANICALLY PROPELLED
GASKETS
WIPERS
SILENCERS & EXHAUST PIPES
SPARK PLUGS
HORNS
BUMPER & PARTS
OIL SEALS
SHOCK ABSORBER
CHASSIS FOR CARS & OTHER MOTOR
VEHICLES
STARTER MOTORS
14,184
3,892
14,544
12,833
7,437
12,152
16,830
8,386
24,717
19,251
14,181
13,096
8,501
9,258
12,103
9,058
12,540
4,132
5,879
5,524
12,721
9,911
13,102
9,550
7,815
5,718
6,383
8,668
9,611
12,063
9,192
10,754
10,420
10,004
9,917
9,875
9,478
9,285
9,203
4,567
5,784
7,790
3,780
6,767
7,087
Source: Korea Customs Service
The supply of auto parts to South Korean OEMs is only possible for advanced
parts where local suppliers cannot meet minimum quality standards. Applicable
products include transmissions, advanced braking systems, engine control units,
engine management systems, safety belts, air bags and fuel injection systems.
In terms of aftermarket parts, South Korean consumers are receptive to road
wheels for commercial vehicles; replacement parts including spark plugs, ignition
cables, timing belts and wiper blades; high-end car audio systems and
components; and high-performance automotive chemicals such as wax and rustproofing solutions. Although the average vehicle age is relatively low in South
Korea, the sheer size of the market represents attractive opportunities for
aftermarket parts. As South Korean drivers now tend to use their cars longer than
before, the aftermarket segment is forecasted to grow at a faster rate than that of
the OEM market segment over the next three to five years.
One particular growth area is in pollution-control technologies. Korea is a signatory
to the Kyoto agreement and from 2012 will be classed as a developed country and
forced to set carbon-emission reduction targets. An older report by the automotive
research firm Freedonia Group states that the fuel-cell market in the South Korean
automotive sector is forecast to reach US$50 million by 2010. South Korea's urban
air pollution has worsened over the past five years as concentrations of ozone,
nitrogen oxides, sulphur oxides and particulate matter have increased. Heavy-duty
diesel buses and trucks alone, which represent only 4% of all registered vehicles,
contribute 47% of the total vehicular emissions. The government has tightened
standards on the emissions of carbon monoxide and nitrogen oxide and
23
encouraged the introduction of low-emission vehicles. The revision of the Clean Air
Act in October 1999 imposed stricter standards on all types of vehicles but the
problem continues to grow worse as the number of vehicles on the road increases.
Korean carmakers are actively joining the alternative fuel car market. Hyundai has
delivered their newly developed hybrid car to the government for testing with an
ambitious plan to introduce the model in 2007. Fifty Hyundai hybrid Click models
have been donated to the Ministry of Environment for testing and for use as
government vehicles. GM Daewoo is also following the trend this year by
introducing a new hybrid SUV and a fuel-cell car. Although latecomers to this
market, they are backed by their parent company’s technical resources. While
Hyundai plans to introduce hybrid versions of a minicar and a compact, GM
Daewoo will concentrate mainly on SUVs and bigger sedans. Hyundai is also
working to develop hydrogen fuel-cell vehicles and in April 2004, Hyundai joined
the US government’s project to test hydrogen-fuelled SUVs. Hyundai officials
expect fuel-cell cars to be commercialized by about 2010.
Both buses and taxis run almost exclusively on Liquid Petroleum Gas (LPG) or
natural gas in Korea.
Aside from auto parts, the market for Advanced Manufacturing Technologies
(AMT) related to the auto industry has strong export growth potential. Hyundai-Kia
want to continue their aggressive export expansion and are searching for new
ways to control costs and stay competitive in the global economy such as efficient
manufacturing processes and automation, global sourcing and risk sharing with
suppliers. This outlook creates opportunities for Canadian AMT suppliers.
Furthermore, in their eagerness to remain suppliers to Hyundai-Kia and GM
Daewoo, parts manufacturers are trying to improve their production quality by
acquiring new manufacturing technologies that will give them the edge over other
firms.
24
COMPETITIVE ENVIRONMENT
Local Capabilities
As a result of the Asian economic crisis and consolidation among OEMs, many of
the largest auto parts suppliers in Korea collapsed. Mando Machinery, a major
supplier formerly owned by Hyundai, went bankrupt in 1997 when its parent, Halla
Group, collapsed. Sunsage, a Hong Kong-based partner of JP Morgan Chase,
acquired the company in 1999. The remaining suppliers have become larger and
much more competitive. In addition to price and quality, two factors will determine
which these will survive:
•
•
The ability to provide modules rather than simple parts; and
The ability to undertake research and development rather than simply
producing from blueprints provided by the OEM.
Historically, South Korean auto parts suppliers have been highly dependent on
foreign companies (especially Japanese) for marketing, technology, research and
development and financing. This is quickly changing, however, as larger foreign
parts manufacturers enter into joint-ventures or purchase South Korean auto parts
producers.
It is expected that the South Korean automobile industry will continue to depend on
foreign suppliers for several core components and parts such as automatic
transmissions, electronic engine parts and air bags, particularly for large passenger
cars, SUVs and commercial vehicles.
Continued foreign investment and foreign technology alliances will help the South
Korean industry produce more advanced parts. In the past, innovation within the
auto parts sector has suffered because parts producers supplied only one vehicle
manufacturer and were awarded long-term contracts. Many suppliers lacked the
motivation to develop better components and commit extensive resources to
research and development. The quality of their products suffered as the quality of
parts improved in the United States, Europe and Japan, and as a result, South
Korean vehicles have suffered from an image of being of lesser quality.
A comprehensive list of South Korean auto parts suppliers can be found at the
Korea Auto Industries Cooperative Association (KAICA) Web site
http://www.kaica.or.kr.
25
Major Automotive Parts Manufacturers in South Korea
Halla Climate Control
Halla Climate Control (HCC) is the largest automobile climate-control supplier in
South Korea. Its products include automotive air conditioning systems, heaters,
radiators, compressors and other related components. US-based parts supplier
Visteon (a spin-off of Ford), has a 70% majority share in Halla. With three domestic
plants and four overseas subsidiaries, including operations in Canada, the
company supplies several global automakers including Ford, GM, DaimlerChrysler,
Mazda, Volkswagen, Volvo, Hyundai and Kia. The company exported 74.6% of its
production in 2005.
Securing closer ties with North American automakers, Halla announced in August
2002 an order to supply automotive compressors to the Chrysler Group in the
United States. Similar recent export orders have made Halla a significant supplier
to all of the Big Three automakers in North America. In 2003, Halla also announced
an agreement to supply radiators to Mazda and expects that its annual shipments
to Japan will amount to US$70 million over the next five years. Halla Climate
Control received the Ford Q1 Award (Preferred Supplier), which recognizes
suppliers who maintain the highest quality standards, in March 2006. The award
attests to the effectiveness of HCC’s quality management system, as well as
positioning the company to acquire QS-9000 and ISO/TS16949 certifications.
In 2004, Halla Climate Control set up a joint-venture with Visteon called HCC
Dalian in China in an effort to expand its export markets. In May 2006, HCC Dalian
dedicated its compressor plant which will produce the key components for auto airconditioners, compressors and clutches. HCC Dalian will supply a range of
compressors to Beijing Hyundai Motor Co. and ChangAn Ford in China.
Hankook Tire
Korea’s largest tire manufacturer, Hankook Tire, has grown to become the world’s
seventh-largest based on 2006 sales. Its sales reached to US$3 billion in 2006, up
from US$2.5 billion in 2005, a 20% growth-rate that propelled the company up from
eighth in 2005 and eleventh in 2001. Hankook Tire is targeting US$3.6 billion in
sales (tire sales only) and a 9.4% operating margin in 2007. The company supplies
tires to leading automakers including Ford, Volkswagen, Volvo, Renault and
Mitsubishi.
Hankook Tire initiated the construction of its factory in Dunaujvaros, Hungary in
July 2006. The Hungary plant, representing a total investment of 500 million Euros,
will begin production in the latter half of 2007. All stages of construction are
planned to be completed in 2010 creating a production capacity of 10 million high-
26
performance tires a year for cars and light trucks, mainly to satisfy European
demand.
The company plans to spend KRW 235 billion (US$250 million) to build a new plant
in Geumsan where it already has an existing plant. The new plant, if completed,
will have a production capacity of 5 million car tires a year.
Hyundai Mobis
Hyundai Mobis is South Korea's largest auto parts supplier, producing modules
(chassis and cockpits), brake systems, steering systems, safety devices,
suspension systems, electronics, power trains and various filters. Mobis is the de
facto holding firm of Korea’s biggest automotive conglomerate, the Hyundai Group.
In 2002, Mobis sealed its first deal with DaimlerChrysler. Mobis agreed to supply
some KRW 35 billion worth of steering wheels to DaimlerChrysler from 2004-2007.
In August 2006 Hyundai Mobis set up its module assembly in Chrysler’s Toledo
Supplier Park, in Ohio, as part of Chrysler’s efforts to cut production and
distribution costs. Mobis also supplies Chrysler with complete chassis modules that
contain over 300 parts for the 2007 Jeep Wrangler, a contract worth KRW 200
billion.
The auto parts maker is hoping to attain KRW 13 trillion in sales by 2010. Hyundai
Mobis plans to invest KRW 1 trillion in research and development in a bid to
become a global top 10 automobile parts manufacturer. It is considering spending
KRW 140 billion annually on R&D and expanding its R&D staff from 600 to 1,700
over the next seven years.
The auto parts maker has established module factories in Beijing, Shanghai and
Montgomery, Alabama, and also plans to build plants in Slovakia and India.
Hyundai Mobis announced that it will merge with a smaller industry player, Korea
Automotive Systems Co. (KASCO), as part of efforts to strengthen its business.
Under the deal, Hyundai Mobis will exchange 32.4 of its shares for every 100
KASCO shares. The amalgamation will take effect on June 1, 2007. Spun-off from
the Hyundai Group in 1999, KASCO produces a wide range of parts, including
calipers, brake products, shock absorbers, struts and gas springs, drive shafts,
pumps for power steering and automatic transmissions, alternators and starter
motors, air bags, turbo-chargers and instrument panels.
Mando
A former subsidiary of the South Korean Halla Group chaebol, Mando is South
Korea’s largest components supplier. Sunsage, an investment firm jointly
27
controlled by JP Morgan Partners and Affinity Capital, bought a 73% stake in
Mando for KRW 600 billion in 1999, when the company was in financial trouble
following the collapse of its parent Halla Group.
The company manufactures brake systems, steering systems, suspensions,
chassis management systems, air bags and iron-casting products. While Mando is
heavily involved in supplying the country’s domestic automakers, the company has
extensive overseas operations, including joint-ventures in China, India, Malaysia
and Turkey.
In December 2005, Mando signed a US$125 million deal to supply electric power
steering systems to Russian carmaker AutoVAZ for five years starting in 2007. The
order is the first a Korean parts manufacturer has received from a Russian
automaker and has added to Mando’s other overseas deals won in 2005: US$215
million from Chinese carmakers including SGM, US$386 million from General
Motors. and US$68 million from Ford Motor Company. The company also secured
a US$1 billion contract to supply steering systems (US$720 million) and brake
systems (US$270 million) to GM in 2006.
Like other South Korean parts suppliers, Mando is interested in the burgeoning
Chinese market. It established a brake system production plant, Mando-Harbin
Automotive Chassis System Co., jointly with Harbin Hafei Motor Co., controlling
80% of its stock, in January 2004. Mando has four local plants in China producing
braking systems, suspension parts and steering systems. Mando’s Alabama
factory started its mass production operations in May 2005.
Mando invested US$70 million to complete the factory which can produces brakes,
suspensions, steering systems, and modules to supply about 600,000 cars.
World Industries Ace (WIA)
Hyundai Motor took over WIA Corporation from Korea Flange for KRW 700 million
in 2001. The takeover of WIA at a cheap price triggered controversy; in 1999,
Hyundai had sold WIA to Korea Flange for KRW 3 million to reduce its debt ratio to
181% in response to the government's prodding. At the time, WIA, formerly known
as Kia Heavy Industries, was on the verge of collapse after its parent firm Kia
Motors went bankrupt.
The company produces transmissions, driving gears, power steering systems,
engines, chassis modules, tire modules and shell moulds. The company supplied
close to KRW 1.7trillion worth of parts in 2005, second only in Korea to Hyundai
Mobis.
28
Table 15. Major Korean Automotive Parts Manufacturers Based on Supply (2005)
(Unit: KRW billion)
Supply
Total
Company
Major products
Group/Major shareholder*
amount
sales
1
Hyundai Mobis
Module & System
4 254
7 548
Hyundai Motor Group
2
World Industries Ace Corp.
Transmission, Axle
1 672
2 587
Hyundai Motor Group
3
Dymos Inc
T/M, Axle
1 077
1 267
Hyundai Motor Group
4
Mando Corporation
Brake System, Module
1 024
1 627
Sun Sage B.V
Korea Delphi Automotive
5
Parts
762
963
Delphi (50%)
Systems Corporation
Halla Climate Control
Visteon int'l Holding Inc
6
Air Conditioner
719
1 208
Corporation
(69.99%)
7
Hyundai PowerTech Co., Ltd.
Auto T/M
704
914
Hyundai Motor Group
8
Sejong Industrial Co., Ltd.
Muffler & Pipe
437
356
Daewoo Precision Industries
Korea Asset Management
9
Suspension Module
418
532
Co., Ltd.
Corporation
Robert Bosch Korea Mechanics
Robert Bosch GmbH
10
Common Rail, EMS, TCU
375
477
& Electronics Ltd.
(100%)
Doo Won Climate Control Co.,
11
Air Conditioner
357
411
Denso (33.4%)
Ltd.
12 Hankuk-Engelhard Corporation
Catalyst Converter
338
477
Engelhard (49%)
Sumitomo Electric
13 Kyung Shin Ind. Co., Ltd.
Wire Harness
323
422
Industries (30%), Sumitomo
Wiring Systems (20%)
14 Kefico Corporation
ECU, TCU
322
491
Hyundai Motor Group
15 LG Chem
Steering Wheel, Door Trim
316
7 425
16 Dae Won San-up Co., Ltd.
Seat
314
343
17 Han Il E Wha Co., Ltd.
Door Trim
303
420
18 Korea Flange Co., Ltd.
C.V Joint
295
507
19 Dae Won Kang Up Co., Ltd.
Spring, Seat
287
466
Hyundai Motor Group,
20 Hyundai Autonet Co., Ltd.
Audio, Navigation
276
474
Siemens VDO (21.62%)
21 SeoJin Industrial Co., Ltd.
Frame
265
392
Tower Automotive (100%)
Johnson Controls Automotive
22
Seat
249
146
Korea Co., Ltd
Denso (43.67%) + Asmo
23 Denso PS Corporation
Motor, Starter
246
359
(29.1%)
24 SeWon ECS Co., Ltd.
Wire Harness
243
307
Delphi Automotive Inc
25 Delphi Korea Co., Ltd.
Seat Belt, Air Bag Module
239
325
(100%)
26 Sung Woo Hitech Co., Ltd.
Bumper
234
247
Valeo Mando Electrical Systems
27
Alternator, Starter
225
320
Valeo Bayen (100%)
Korea Ltd.
28 Korea Autoglass Corporation
Safety Glass
222
249
29 Hankook Tire Co., Ltd.
Tire
221
2 018
30 Motonic Corporation
LPG Kit
209
250
*As of July 2006
Source: KOICA, Korea Institute of Industrial Technology
29
International Competition
The presence of leading US, Japanese, German, French, Swedish and Canadian
auto parts manufacturers in South Korea reflects the size and importance of the
country’s motor industry in the world. Since the 1997 financial crisis and the
subsequent consolidation and restructuring that took place in the South Korean
auto industry, US and European auto parts makers have aggressively expanded
their manufacturing bases in South Korea and their equity interests in South
Korean vehicle and parts manufacturers. Foreign auto pars manufactures merged
with or acquired insolvent local auto parts companies just after the 1997 crisis but
also invested in Korea to expand global sourcing and establish a bridgehead in the
Northeast Asian market, including China.
Foreign direct investment in Korea's auto industry
The number of auto parts subcontractors directly supplying parts and components
in Korea totalled 922 as of the end of 2005. Among them, large companies
numbered 86, while there were 836 small and medium-sized companies. Out of the
total, the 173 firms with foreign investment accounted for 18.8%. This ratio
increased from 17.8%, or 163 firms, in 2004. Foreign investment has prompted the
domestic auto parts industry to streamline its organization and sharpen their
competitiveness. Direct investment by foreign auto manufacturers in the domestic
industry as of the end of 2005 amounted to 257 cases worth US$2.9 billion. The
largest investor was Japan, followed by the United States, Germany, the UK, the
Netherlands and France.
Table 16. FDI in Korea’s Automotive Parts Industry by Country
Nation
Japan
U.S.A.
Germany
U.K.
France
Source: KAICA
# of Cases
104
62
38
10
9
Amount
652 126
971 479
700 709
643 69
237 054
Nation
Netherlands
Australia
Canada
Sweden
Spain
# of Cases
5
4
4
3
3
(Unit: US$1,000)
Amount
129 463
6 998
24 514
6 517
13 699
The bulk of OEM and aftermarket demand in South Korea is met locally by
domestic and joint-venture parts manufacturers. Imports represent only about six
or seven percent of the total automotive parts supply. The OEM market segment
currently accounts for about 90% of total market demand, and the aftermarket
accounts for the remaining 10%. After Japan, the United States is South Korea’s
largest supplier of automotive parts and accessories used in both the OEM and
aftermarket segments. According to 2006 import data from the South Korea
Customs Service, imports of automotive parts and accessories (HS 8708) from all
countries were valued at US$2.5 billion. Of this amount, Japan accounted for
30
36.6%; Germany 17.5% and the United States 15.5%.
Major international parts makers operating in South Korea include Delphi (US),
Bosch (Germany), Valeo (France) and Visteon (US). The South Korean automotive
industry depends heavily on foreign suppliers for several core components and
parts including automatic transmissions, engine control units, electronic engine
parts, anti-lock brake systems and air bags, particularly for large passenger cars,
SUVs and commercial vehicles. Japan’s strong position, at 36.6% import market
share, is attributable to the relative ease with which it can establish technological
tie-ups and execute logistics, in addition to geographic and cultural proximity. Since
the early stages of the South Korean automobile industry, Hyundai and Kia have
relied largely on Japanese technologies and parts, while Daewoo has maintained a
close relationship with GM in terms of equity interest and parts supply. Historically,
Japanese parts suppliers have been considered to be more competitive in price,
technical services, delivery and shipping price than their US and European
competitors.
Among foreign parts manufacturers, Bosch and Delphi are the most active players
in South Korea. Bosch first opened its Seoul office in 1985 and has since
established or invested in seven parts manufacturing companies in the country. As
a result, Bosch has become an important supplier to South Korea’s automobile
manufacturers. Its subsidiaries and joint-venture companies now locally produce
various OEM parts, including chassis systems, diesel and gasoline engines,
electronic control systems, body electronics and automotive multimedia systems.
Bosch also makes replacement parts and accessories in South Korea, including
spark plugs, wiper blades, silver batteries, cabin filters, diagnostics and brake pads.
Bosch companies in Korea include Korea Automotive Motor Corporation (KAMCO),
Bosch Rexroth, ETAS Korea, Doowon Precision Industry Co. Ltd. (DPICO), and
KEFICO. Around 2,000 employees are currently working for Bosch in Korea and its
domestic sales volume, excluding KEFICO and DPICO, was KRW 1.54 trillion
(US$1.52 billon) in 2005.
Delphi, a GM spin-off, is also expanding its joint-venture manufacturing operations
in South Korea. It now holds equity shares in six parts manufacturing companies in
South Korea including Korea Delphi Automotive Systems Corporation, Delphi
Diesel System, Packard Korea, KDS, Delkor and Daesung Electric. Delphi’s jointventure sales volume was approximately KRW 2 trillion (US$1.97 billion) in 2005.
Other foreign players include the following:
•
France’s Valeo, which entered the South Korean market in 1988 by forming
a joint-venture, Valeo-Pyunghwa. The venture produces clutches, air
conditioning systems, lighting and starter motors. Valeo also took over
31
Mando Corporation’s Kyungju factory and named it Valeo Mando Systems
Korea. It also set up Valeo Samsung Thermal Systems with Samsung
Climate Control in 2005.
•
Visteon, a unit of Ford Motors, which operates two joint-ventures, Halla
Climate Control and Dukyang Ind. in South Korea. Halla Climate Control
produces air conditioning systems, and Dukyang Ind. makes modules and
crash pads. Visteon and the Busan-Jinhae Free Economic Zone Authority
signed a Memorandum of Understanding (MOU) regarding investment worth
US$16 million on October 13, 2006. Visteon will establish a new 19,800m2
facility where it will produce instrument panels, door trims and other parts.
•
Japanese parts manufacturer Denso which has set up joint-ventures Denso
Poongsung and Denso PS Electronics. Denso and Korea’s Kyonggi
province have concluded a MOU, which allows the Japanese company to
build a factory in an industrial complex in Kyonggi, in February 2007. The
company, headquartered in Japan's Aichi prefecture, will invest about
US$25 million to build the plant which will produce fuel injection systems for
automobiles.
•
Tesma International of Canada which acquired HAC Corporation, a South
Korean manufacturer of automotive oil and water pumps, in January 1999
creating its first manufacturing presence in the Pacific Rim. Currently,
Tesma has two assembly plants and has opened a sales office in Korea.
•
Canadian automotive parts supplier Magna International Inc., the world’s
third-largest in sales, which has announced that it plans to expand its
production plants in Korea to tap into the growing Northeast Asian market.
Magna International supplies instrument panels for GM Daewoo’s new SUV.
The company opened a local sales and engineering office in 1999 and
operates plants in Cheonan and Asan, in South Chungcheong province, that
manufacture oil pumps for transmissions and engine front modules. Magna
supplies to all five Korean carmakers and its sales in Korea were US$68.5
million in 2005. The company expects its Korean sales to quadruple by 2010.
•
Autoliv-Mando, which was founded in 2000 with Swedish-US component
supplier Autoliv holding 65% of its shares. Autoliv-Mando produces airbags
and seatbelts and currently supplies leading local automakers Hyundai, GM
Daewoo, Kia and Renault Samsung. It holds 59% of the Korean airbag
market and 26% of the seatbelt market. Autoliv agreed to buy the remaining
35% of Autoliv-Mando’s shares in January 2007. The acquisition will enable
Autoliv to fully integrate the Korean company into its global business
operations.
32
Canadian Position
Canada exported over C$6.23 million worth of automotive parts and accessories
(HS Code 8708) to South Korea in 2006. This represents a 32% decrease from the
C$9.17 million exported in 2005, thought to be in part the result of an increase in
production in Korea by the major Canadian investors.
South Korea ranked 17th in terms of Canada's market destinations for automotive
parts and accessories in 2006. And while Canada plays a minor role in exporting
automotive products to South Korea, Canadian companies such as Magna
International and Tesma International have been successful in supplying OEM
products to some of South Korea’s leading automotive manufacturers.
Table 17 provides a breakdown of Canadian automotive parts exports to South
Korea occurring between 2005 and 2006. While Canadian exports of automotive
parts have fluctuated in recent years, there are still numerous niche opportunities
to be exploited in South Korea’s multifaceted automotive sector. Canadian
automotive parts and accessories have been recognized in South Korea for their
high level of quality and innovation.
Table 17. Canadian Automotive Parts Exports to South Korea, 2005, 2006 (C$)
HS Code
Product
2005
2006
8708
Parts and Accessories*
9 170 000
6232 000
8708.29
Motor Vehicle Parts/Accessories
3 407 602
2 151 892
8708.39
Brake System Parts
1 821 393
470 679
8708.4
Gear Boxes
34 506
8708.7
Road Wheels
35 138
15 640
8708.8
Shock Absorbers
583 072
922 395
8708.93
Clutches and parts
1 336 712
547 588
8708.99
Other 8708
1 897 359
1 999 096
* Includes both OEM and aftermarket automotive parts
Source: Statistics Canada, 2007
Competitive Advantage through Canadian Government Policies and
Initiatives
Canadian Commercial Corporation
The Canadian Commercial Corporation (CCC) gives Canadian companies access
to financing and better payment terms under the Progress Payment Program
(PPP). The PPP concept was developed as a partnership between major Canadian
financial institutions and the CCC. It enables the exporter's bank to open a project
line of credit for the exporter's use, based on CCC approval of the project and the
exporter's ability to perform. The CCC will also act as a prime contractor on behalf
33
of Canadian small and medium-sized enterprises, giving those businesses
increased credibility and competitive advantage.
Export Development Canada
Export Development Canada (EDC) offers export financing and insurance to
Canadian exporters. Additionally, insurance can be provided for larger transactions
that are subject to the terms and conditions established by the buyer. EDC prefers
to work through letters of credit, bank credits or bank guarantees. Approval for
financing is considered on a case-by-case basis.
Virtual Trade Commissioner
The Virtual Trade Commissioner (VTC) is an on-line service offered by Canada's
Trade Commissioner Service of the Department of Foreign Affairs and International
Trade. The VTC (formerly WIN Exports) is International Trade Canada's (ITCan)
computerized database of Canadian exporters and their capabilities. Through a
personalized and password-protected Web page, VTC-registered Canadian
exporters will receive timely and relevant information on contacts and business
opportunities in targeted foreign markets. The VTC offers registered users direct
on-line access to market information, including market reports, business news,
events and business leads related to their industry sectors and markets of interest.
Users can request services online from a trade commissioner responsible for their
industry sector in their target markets. They will also automatically receive new
information as it becomes available. Canadian exporters can register for Virtual
Trade Commissioner at http://www.infoexport.gc.ca.
Clean Development Mechanism and Joint Implementation Office
Canada's Clean Development Mechanism and Joint Implementation (CDM & JI)
Office was established within the Climate Change and Energy Division,
Department of Foreign Affairs and International Trade in 1998. The Office is the
federal government's focal point for CDM & JI activities and was created to
enhance Canada's capacity to take advantage of the opportunities offered by the
CDM & JI. The CDM & JI Office provides technical and financial assistance to
Canadian companies to help them obtain greenhouse gas emission reduction
credits through projects in other countries, which in turn will help Canada meet its
Kyoto target. The benefits of participating in CDM & JI projects for Canadian
industry include the generation of emission reduction credits as well as access to
new markets, investment opportunities and demonstration of environmental
leadership. Substantial opportunities exist for private- and public-sector
involvement in projects related to energy efficiency, renewable energy, electricity
production and distribution, oil and gas production, switching to alternative fuels,
waste management and afforestation and reforestation. Further information is
34
available from the CDM & JI Office or its Web site at http://www.dfait-maeci.gc.ca/
trade/cdm-ji.
35
PRIVATE-SECTOR CUSTOMERS
Canadian exporters will want to consider contacting various automotive
manufacturers, retail chains such as Samsung-Tesco and Emart, and wholesale
distributors to establish potential buyers of their automotive (OEM and aftermarket)
products.
In the aftermarket sector, customers consist primarily of private vehicle owners,
including transportation service providers and companies operating their own
commercial fleets. Private ownership represents almost 95% of the total number of
registered vehicles in South Korea, while business and government ownership
accounts for the remaining 5%. In the passenger car segment, private ownership
makes up about 97% of all registered automobiles.
MARKET LOGISTICS
Distribution Channels
Original Equipment
For OEM parts, Korean vehicle manufacturers deal directly with their principal
OEM component suppliers for all the parts and subassemblies they require. Small
and medium-sized auto parts manufacturing companies have little direct contact
with vehicle manufacturers. These companies are more likely to supply the larger
OEM manufacturers with components. Some small-volume foreign suppliers use
local importer-distributors or commission agents in South Korea to sell their OEM
products. Canadian suppliers should also consider approaching Hyundai and Kia
or their tier-one suppliers in order to access supply opportunities for their offshore
assembly plants. Hyundai Motor’s Alabama plant started production of cars in May
2005. Hyundai Mobis (Hyundai Motor’s largest shareholder) specializes in
automobile module production at its plant located in Montgomery, Alabama. The
plant has a capacity to produce 300,000 module units annually (driver seat and
chassis) to be supplied to the nearby automobile production plant owned by
Hyundai Motor.
Larger foreign OEM manufacturers have typically entered the South Korean market
through joint-venture operations, licensing agreements or direct investment. Since
the 1997 crisis, the South Korean government has made a strong effort to attract
foreign investment in order to restructure the economy and bring in much needed
capital. Companies that survived the financial crisis are larger and more able to
compete internationally. These firms have become suitable access points to the
Korean market, either through acquisition or the formation of joint-ventures. Many
foreign companies have used this strategy to produce simpler parts locally then
make use of marketing outlets to sell high-margin parts produced abroad.
36
Some of the major foreign parts companies that hold at least a 50% interest in a
South Korean part company are (as of March 2007):
•
•
•
•
•
•
•
•
•
•
Johnson Controls (Austria) - Delco Corporation;
FAG (Germany) - FAG Bearing Korea;
Gates Corporation (United States) - Gates Korea;
Visteon (United States) - Halla Climate Control, Dukyang Industry;
GKN (Britain) - GKN Driveshafts Korea;
Schefenacker (Germany) - Schefenacker Poong Jeong;
Umicore Finance (Germany) - Ordeg;
Tower Automotive (United States) - Seojin Industrial;
Nittan Valve (Japan) - Shin Hwa Precision; and
GMB (Japan) - GMB Korea.
One of the largest foreign investments ever made in the Korean auto sector was
GM’s agreement to purchase Daewoo Motor in 2002. GM paid US$400 million for
a 67% stake in Daewoo.
Regulations governing foreign investment in South Korea can be obtained on the
Korea Investment Service Centre’s Web site, http://www.investkorea.org, or the
Korean Trade-Investment Promotion Agency’s Web site, http://www.kotra.or.kr. It
should be noted that the Korean government has a tendency to change regulations
without warning and that to succeed, investments in Korea require an on-theground presence.
Aftermarket
The main distribution channels for automobile aftermarket parts and accessories in
South Korea include:
•
•
•
•
•
Automobile manufacturers' post-sale service network;
Automotive service franchises operated by major South Korean tire
manufacturers, parts makers and petroleum refiners and retailers;
Traditional parts and accessories distributors/wholesalers;
Mass merchandisers including discount and department stores; and
Importer-distributors’ post-sale service outlets.
In terms of aftermarket distribution, South Korea’s carmakers, their partsmanufacturer subsidiaries and franchised service shops play the leading roles.
There are over 27,000 registered service shops, both franchised and independent,
including approximately 2,000 general service shops and more than 24,000
specialized or partial service shops. In 1999, SK, one of the major South Korean
37
petroleum refining and retailing companies, aggressively expanded into the
automotive aftermarket business with its Speed Mate automobile maintenanceservice franchise. Speed Mate had approximately 300 franchise outlets at the end
of 2006 including a branch opened in China in 2005. South Korean industry
experts predict that emerging and rapidly-growing franchises such as this will be a
key factor driving competition in the auto retail aftermarket.
Canadian aftermarket parts and accessories suppliers can build their local
distribution channels by partnering with qualified and capable South Korean
importer-distributors that maintain an existing sales network serving major
wholesalers, retailers and service shops nationwide. An active distributor with good
contacts in the OEM market and aftermarket is a key factor in generating market
share. A distributor will also be able to sell directly to maintenance service
franchises and mass merchandisers. According to South Korean trade sources,
franchised service shops, discount stores and large car-accessory outlets are
rapidly gaining market share in the car accessories and fast-moving replacement
parts markets, while traditional wholesalers and retailers are declining in popularity.
Market-entry Considerations
Suggested Business Practices
South Korea is an aggressively competitive market. Exporters should note that any
failure to give buyers excellent service will result in their quickly turning to other
suppliers. Contract negotiations are viewed as a process of extensive dialogue
focused on reaching a common understanding of each party’s responsibilities.
Although Canadian suppliers believe that a written agreement is legally binding,
South Koreans often regard it as a “gentlemen’s agreement” that is subject to
further negotiation should conditions change. If a contract is violated, the country’s
legal procedures can be lengthy, cumbersome and expensive. Dispute settlement
mechanisms such as the International Commercial Arbitration Association are
generally written into contracts. South Korea is also a member of the Korean
Commercial Arbitration Board, the International Centre for Settlement of
Investment Disputes, the New York Convention and the World Bank Multilateral
Investment Guarantee Agency.
Import Regulations
The tariff rate for automotive parts and accessories is 8%. Most import duties are
calculated on an ad-valorem basis, expressed as the value of the imported goods.
This dutiable value is the "transaction value" plus freight, insurance, commissions
and all other charges and expenses incidental to the sale and delivery of the goods
to the point of entry into South Korean customs' territory. In addition to the 8% tariff
rate, South Korea has a flat 10% value-added tax on all imports and domestically
38
manufactured goods. A special excise tax of 5 to 10% is also levied on the import
of certain luxury items and durable consumer goods.
Although car imports are applied an 8% tariff rate, imported vehicles also have to
pay excise taxes ranging from 5% to 10%, depending on engine capacity size.
Excise taxes on vehicles with engine capacity of 2000cc or below are currently 5%,
and for those over 2000cc engine capacity they are 10%, as of March 2007. Under
pressure from the United States, the Korean government announced in August
2002 that it would simplify its excise tax system to two tiers from three by 2004.
The top level of excise tax for large cars was also to be reduced from 14% to 10%.
Although the United States and South Korea signed a Memorandum of
Understanding in 1998 to improve market access for foreign vehicle imports in
South Korea, meaningful market access still remains elusive and has been a major
point of debate in the recent US-Korea FTA negotiations.
Import duties are not levied on capital goods and raw materials imported in
connection with foreign investment projects. Authorization to import, on a duty-free
basis, those items and supplies designated for a foreign investment application
usually accompanies the Ministry of Finance and Economy's approval of a foreign
investment project. Certain machinery, materials and parts used in designated
industries may enter South Korea either duty free or at reduced rates.
Local Standards, Certificates or Registrations
Most high-tech parts (except standard parts, consumable and aftermarket
components) have to go through a technical qualification process with the relevant
research and development centres at the OEMs. Canadian suppliers can expect to
undergo rigorous compliance testing. It is unusual for South Korean OEMs to
accept Canadian components without some minor modification to the product.
Export Credit Risks, Restrictions on Letters of Credit, Currency Controls
There are three common practices for settling import accounts:
• Letters of credit (confirmed letters of credit are recommended with new
clients);
• Documents against acceptance (goods can be cleared before due-date
payment) and documents against payment; and
• Open account transactions.
Many South Korean companies insist on extended credit terms such as an open
account for international trade, even for the first transaction.
39
Testing the Market
Participating in trade fairs is a good way for Canadian companies to gauge the
level of interest in their products. This should be seen as the first stage in testing
the market, however, as fairs are often attended by Koreans eager to start a new
business rather than the established players. It is recommended that a screening
survey of existing manufacturers be conducted by consultants recommended by
the Canadian Embassy in Seoul.
Korea is never an easy market to deal with. Whether the goal is to sell to Koreans
or to invest in Korea, there are often conflicting indicators regarding critical factors
so that careful study and cross-checking is essential. The following are
suggestions based on twenty years experience of helping foreign companies in
Korea.
Communications: Without a Korean translator, especially with regard written
documents, both into and out of Korean, any would-be businessman is going to
encounter serious difficulties.
Documentation and regulations: However thoroughly a legal or business adviser
digs, until a business actually moves into the Korean market, it cannot fully predict
what kind of bureaucratic procedures it is likely to encounter.
Beware of middlemen: Korea has many would-be agents or middlemen. Unless
you have references from other foreign clients about their successes, hesitate to
deal with them.
Meet other foreigners doing business in Korea: Listen to their experience and try to
analyse their problems in order to avoid repeating them.
Be careful about hiring Koreans: Korean labour law makes it difficult to fire workers
for incompetence.
40
PROMOTIONAL EVENTS AND EVENT ORGANIZERS
2007 Seoul Motor Show
April 5 – April 15, 2007
KINTEX, Ilsan
Seoul, Republic of Korea
Seoul Truck Show 2007
July 5 – July 8, 2007
COEX
Seoul, Republic of Korea
Korean Automobile Manufacturers
Association (KAMA)
658-4, Deungchon-dong, Gangseo-gu
Seoul, 157-030, Republic of Korea
Tel.: (82-2) 3660-1887/9
Fax: (82-2) 3660-1901
E-mail: [email protected]
Internet: http://www.motorshow.or.kr
The Korea Economic Daily
441 Junglim-dong,jung-gu,
Seoul, Republic of Korea
Tel.: (82-2) 786-4011
Fax: (82-2) 360-4515
E-mail: [email protected]
2008 Busan International Motor Show
May 2 – May 12, 2008
Bexco
Busan, Republic of Korea
Seoul Auto Salon 2007
July 5 – July 8, 2007
3rd Fl., Atlantic Hall COEX
Seoul, Republic of Korea
Busan Metropolitan City
2001, Jungangno, Yeonje-gu
Busan, Republic of Korea
Tel.: (82-51) 888-4411
Fax: (82-51) 888-2109
Internet: http://www.busan.go.kr
SeoulMesse I&C
3F, Janhak-Bldg., 222-3
Jamsil-dong, Songpa-gu,
Seoul, Republic of Korea
Tel.: (82-2) 3432-4557
Fax: (82-2) 3432-4559
E-mail: [email protected]
Internet: http://www.souleautosalon.net
41
KEY CONTACTS AND SUPPORT SERVICES
Canadian Government Contacts
Canadian Embassy in Seoul
th
Kolon Building, 9 Floor
45, Mukyo-dong, Jung-gu
Contact: Won-il Chung, Trade Commissioner
Seoul, Korea Tel.: (82-2) 3455-6056
Fax: (82-2) 755-0686
E-mail: [email protected]
Internet: http://www.infoexport.gc.ca
Export Development Corporation
151 O'Connor St.
Ottawa, ON K1A 1K3
Tel.: 1-866-283-2957
Fax: (613) 237-2690
Internet: http://www.edc.ca
Industry Canada
Aerospace and Automotive Branch
th
235 Queen St. 7 Floor, East Tower
Ottawa, ON K1A 0H5
Contact: Brian Sundue, Senior Sector
Development Officer
Tel.: (613) 946-8183
Fax: (613) 952-8088
E-mail: [email protected]
Internet: http://strategis.ic.gc.ca
International Trade Canada
125 Sussex Dr.
Ottawa, ON K1A 0G2
Internet: http://www.infoexport.gc.ca
Asia and Oceania Commercial Relations
Korea (WOA)
Contact: Edsel Aytona, Trade Commissioner
Tel.: (613) 944-2630
Fax: (613) 996-1248
E-mail: [email protected]
Canadian Industry Associations
Automotive Industries Association of
Canada
1272 Wellington St.
Ottawa, ON K1Y 3A7
Tel.: (613) 808-2920
Fax: (613) 728-6021
Internet: http://www.aiacanada.com
Canadian Manufacturers and Exporters
1 Nicholas St., Suite 1500
Ottawa, ON K1N 7B7
Tel.: (613) 238-8888 or (416) 798-8000
Fax: (613) 563-9218
Internet: http://www.cme-mec.ca
Automotive Parts Manufacturers’
Association
10 Four Seasons Place, Suite
Toronto, ON M9B 6H7
Tel.: (416) 620-4220
Fax: (416) 620-9730
Internet: http://www.apma.ca
42
Korean Government Contacts
Embassy of Korea in Canada
150 Boteler St.
Ottawa, ON K1N 5A6
Tel.: (613) 244-5010
Fax: (613) 244-5034
Internet: http://www.emb-korea.ottawa.on.ca
Invest Korea
300-9 Yumgok-dung, Seocho-gu
Seoul, Republic of Korea
Tel.: (82-2) 3460-7543/7545
Fax: (82-2) 3460-7946/7
Internet: http://www.investkorea.org
Korean Consulate General, Toronto
555 Avenue Rd.
Toronto, ON M4V 2J7
Tel.: (416) 920-3809
Fax: (416) 24924-7305
Internet: http://www.koreanconsulate.on.ca
Korean Trade-Investment Promotion
Agency (KOTRA)
300-9, Yumgok-dong, Seocho-gu
Seoul, Republic of Korea
Tel.: (82-2) 3460-7114
Fax: (82-2) 3460-7777
Internet: http://www.kotra.or.kr
Korean Consulate General, Montreal
1 Place Ville Marie, Suite 2015
Montreal, QC H3B 2C4
Tel.: (514) 845-2555
Fax: (514) 845-1119
Internet: http://koreanconsulate.qc.ca
KOTRA Toronto office
65 Queen St. West, Suite 600, PO Box 9,
Toronto, ON M5H 2M5
Tel.: (416) 368-3399
Fax: (416) 368-2893
Internet: http://www.kotra.or.kr
Korean Consulate General, Vancouver
1600-1090 W. Georgia St.
Vancouver, BC V6E 3V7
Tel.: (604) 681-9581
Fax: (604) 681-4864
Internet: http://www.mofat.go.kr/ee/ee_a002/
ee_caba/ee_jpjp02.jsp
Ministry of Commerce, Industry and
Energy (MOCIE)
Government Complex II
1, Joongang-dong, Kyonggi-do
Gwachon, 427-723, Republic of Korea
Tel.: (82-2) 503-9440/1
Fax: (82-2) 503-9438
Internet: http://www.mocie.go.kr
Korea Customs Service Clearance Bureau
Daejon Government Complex 920
Doonsan-Dong, Seo-gu
Daejon City, 302-701, Republic of Korea
Tel.: (82-42) 472-2181
Fax: (82-42) 481-7819
Internet: http://www.customs.go.kr
43
Korean Industry Associations
Korea Automobile Importers and
Distributors Association (KAIDA)
PSG Bldg, 563-30, Sinsa-dong, Gangnam-gu
Seoul, 135-891, Republic of Korea
Tel.: (82-2) 518-9924
Fax: (82-2) 518-9926
Internet: http://www.kaida.co.kr
Korea Importers Association (KOIMA)
Hankangro 2-ka, Yongsan-gu
Seoul, 140-875, Republic of Korea
Tel.: (82-2) 792-1581
Fax: (82-2) 749-1830
Internet: http://www.koima.org
Korea Auto Industries Co-operative
Association (KAICA)
1638-3, Seocho-dong, Seocho-gu
Seoul, 137-070, Republic of Korea
Tel.: (82-2) 587-0014
Fax: (82-2) 583-7340
Internet: http://www.kaica.or.kr
Korean International Trade Association
(KITA)
159-1 Samsung-Dong, Gangnam-gu
Seoul, 135-729, Republic of Korea
Tel.: (82-2) 1566-5114
Fax: (82-2) 6000-5100
Internet: http://www.kita.net
Korean Automobile Manufacturers
Association (KAMA)
658-4, Deungchon-dong, Gangseo-gu
Seoul, 157-030, Republic of Korea
Tel.: (82-2) 3660-1800
Fax: (82-2) 3660-1900
Internet: http://www.kama.or.kr
Major Korean Vehicle Manufacturers
GM Daewoo
426-1, Chongchon-2 dong, Pupyong-gu
Inchon, Republic of Korea
Tel.: (82-32) 510-4114
Fax: (82-32) 510-4670
Internet: http://www.gmdw.co.kr
Renault-Samsung
16-18th HSBC Bldg. 25 Bongrae-dong
Choonggu
Seoul, Republic of Korea
Tel.: (82-2) 3707-5000
Fax: (82-2) 757-4577
Internet: http://www.renaultsamsungm.com
Hyundai Motor Company
231 Yangjae-dong, Seocho-gu
Seoul,137-938, Republic of Korea
Tel.: (82-2) 3464-1114
Fax: (82-2) 3464-3453
Internet: http://www.hmc.co.kr
Ssangyong Motor
150-3 Chilgoi-dong, Pyungtak Kyonggi-do
Republic of Korea
Tel.: (82-31) 610-1114
Fax: (82-31) 610-3700
Kia Motors
231 Yangjae-dong, Seocho-gu
Seoul, 137-938, Republic of Korea
Tel.: (82-2) 3464-1114
Fax: (82-2) 3464-6800
Internet: http://www.kia.co.kr
44
Foreign Vehicle Distributors in Korea
BMW Korea
Bojun Bldg. 70-13, Nonhyun-Dong,
Kangnam-gu
Seoul, 135-010, Republic of Korea
Tel.: (82-2) 3441-7800
Fax: (82-2) 548-5253
Internet: http://www.bmw.co.kr
Vehicle brands: BMW
Gojin Motor Imports
301-102, Songsu 2-Ga, Songdong-gu
Seoul, Republic of Korea
Tel.: (82-2) 2005-1190
Fax: (82-2) 2205-1191
Internet: http://www.gojin.com
Vehicle Brands: Volkswagen and Audi
Hansung Motor
Han Sung Bldg. 112-1, Banpo-Dong,
Seocho-gu
Seoul, 137-806, Republic of Korea
Tel.: (82-2) 532-3421
Fax: (82-2) 595-0334
Internet: http://www.hansung.co.kr
Vehicle brands: Mercedes-Benz and Porsche
DaimlerChrysler Korea
Star Tower, 737 Yeoksam-Dong,
Kangnam-gu
Seoul, 135-984, Republic of Korea
Tel.: (82-2) 2112-2666
Fax: (82-2) 2112-2601
Internet: http://www.daimlerchrysler.co.kr
Vehicle brands: Chrysler and Jeep
PAG Korea
Hannam-2 Dong, Yongsan-gu
Seoul, 726-173, Republic of Korea
Tel.: (82-2) 3781-3800
Fax: (82-2) 3785-3924
Internet: http://www.volvocars.co.kr
Vehicle brands: Volvo, Jaguar and Land
Rover
Ford Sales and Service Korea
Miraewasaram Internet Tower, 942-1
Daechi-Dong, Gangnam-gu
Seoul, 135-280, Republic of Korea
Tel.: (82-2) 3440-3600
Fax: (82-2) 3440-3700
Internet: http://www.ford-korea.com
Vehicle brands: Lincoln and Ford
Toyota Motor Korea
Oksan Building, 157-33 Samsung-dong
Gangnam-gu
Seoul, Republic of Korea
Tel.: (82-2) 3404-8200
Fax: (82-2) 553-3625
Internet: http://www.toyota.co.kr
Vehicle brands: Lexus and Toyota
General Motors Korea
GM Autoworld Building, 19-6 Seongsu 2-Ga,
3-Dong, Seongdong-gu
Seoul, Republic of Korea
Tel.: (82-2) 3408-6363
Fax: (82-2) 3408-6303
Internet: http://www.gmautoworld.co.kr
Vehicle brands: GM, Saab and Cadillac
45
Major Auto Parts Manufacturers in Korea
Daewoo International
541, 5-Ga, Namdaemunno, Chung-gu
Seoul, Republic of Korea
Tel.: (82-2) 759-2114
Fax. (82-2) 753-9489
Internet: http://www.daewoo.com
Korea Automotive Systems Co.
72 Sungsan-dong, Changwon
Gyungnam, Republic of Korea
Tel.: (82-55) 268-3500
Internet: http://www.kpw.co.kr
Korea Delphi Automotive Systems
580-1, Buk-Ri, Nongong-Eup Dalseong-Gun
Daegu, Republic of Korea
Tel.: (82-53) 610-1500
Fax: (82-53) 615-0786
Internet: http://www.kdac.co.kr
Halla Climate Control
1689-1, Shinil-dong, Daeduk-gu
Daejeon, Republic of Korea
Tel.: (42) 930-6114
Fax: (42) 930-6129
Internet: http://www.hcc.co.kr
Mando
949-3 Dokok-dong, Gangnam-gu
Seoul, Republic of Korea
Tel.: (82-2) 6244-2114
Fax: (82-2) 6244-2992
Internet: http://www.mando.com
Hyundai Mobis
ING Tower, 679-4 Yeoksam-1 Dong,
Kangsam-gu
Seoul, Republic of Korea
Tel.: (82-2) 2018-5114
Fax: (82-2) 2018-6000
Internet: http://www.mobis.co.kr
WIA Corporation
391-8 Gumjung-dong, Changwon
Kyungnam-gu, Republic of Korea
Tel.: (55) 280-9037
Fax: (55) 258-9184
Internet: http://www.wia.co.kr
Kefico Corporation
410, Dangjung-Dong, Kunpo-Si
Kyungki-Do, Republic of Korea
Tel.: (82-31) 450-9015
Fax: (82-31) 459-6054
Internet: http://www.kefico.co.kr
A comprehensive list of South Korean auto part suppliers can be found at the
Korea Auto Industries Co-operative Association Web site: http://www.kaica.or.kr.
46
BIBLIOGRAPHY
Print
Business Monitor International. “South Korea autos report.” 2006.
Chosun Ilbo. “Small sized car become popular but not in Korea.” February 27, 2007.
Edaily. “Imported car sales posted record high.” January 5, 2007.
Financial News. “Global auto parts companies to invest in Korea.” April 2, 2006.
Korea Auto Industry Cooperative Association (KAICA). “Korea auto industry handbook.” 2006.
Korean Automobile Manufacturers Association (KAMA). “Auto industry outlook for 2007.” 2006.
KAMA. “KAMA Journal.” 2006.
KAMA. “Automobile monthly statistics.” 2007.
Korea Development Bank. “Industry in Korea – automotive parts,” 2005.
Korea Economic Daily. “Kia quit production of its bus, Bongo.” May 30, 2005.
Korea Economic Daily. “Autoliv-Mando, a leader in airbags & seatbelts.” September 7, 2006.
Korea Herald. “Renault Samsung Motors posts record profit.” January 15, 2007.
Korea Times. “Auto exports to hit record USD $43 billion this year.” December 8, 2006.
Korea Times. “Mobis’ Law - Globalize auto parts and modules.” December 17, 2006.
Korea Times. “Hyundai Motor’s choice.” February 21, 2007.
Korea Times. “Hankook Tire to build new plant.” February 23, 2007.
Money Today. “Mando to supply USD $1 billion to GM.” November 11, 2006.
Maeil Business Newspaper. “Kia Motors sales reach new record.” January 2, 2007.
Maeil Business Newspaper. “Korea automotive parts industry still a way to go.” September 18, 2007.
Segye Newspaper. “ Korea automotive parts industry needs to renovate.” February 1, 2007.
st
Segye Newspaper “Additional USD $860 million export for 1 year with Korea-US FTA.” November
28, 2007.
Seoul Economic Daily. “Visteon to invest in Busan.” October 15, 2007.
47
Electronic
Invest Korea. “Business in Korea – Automobile & Auto Parts.” Accessed from
http://www.investkorea.org
Korea Institute of Industrial Technology Evaluation and Planning. “Top 100 automotive parts
companies.” Accessed from http://www.itep.re.kr.
Korea Institute for Industrial Economic & Trade. “An Analysis of the impact of the Korea-Japan FTA
focusing on the parts and materials industry.” Accessed from http://www.kiet.re.kr.
Korea Automobile Manufacturers Association. “Outlook for Korean Automobile Industry.” Accessed
from http://www.kama.or.kr.
Foundation of Korea Automotive Parts Industry Promotion. “Market trend of Korea automotive
industry.” Accessed from http://www.kapdb.org.
48
OTHER REFERENCE MATERIAL
Useful Internet Sites
Automotive Parts Manufacturers' Association: http://www.apma.ca
International Trade Canada (ITC): http://www.international.gc.ca
Embassy of Korea in Canada: http://www.emb-korea.ottawa.on.ca
ExportSource: http://exportsource.gc.ca
Foundation of Korea Automotive Parts Industry Promotion: http://www.kapkorea.org
InfoExport: http://www.infoexport.gc.ca
Korea Automobile Importers and Distributors Association (KAIDA): http://www.kaida.co.kr
Korea Automotive Industries Coop. Association (KAICA): http://www.kaica.or.kr
Korea Automobile Manufacturers Association (KAMA): http://www.kama.or.kr
Korea Customs Service: http://www.customs.go.kr
Korean Ministry of Commerce, Industry and Energy: http://www.mocie.go.kr
Korean Ministry of Construction and Transportation: http://www.moct.go.kr
Korean Trade-Investment Promotion Agency (KOTRA): http://www.kotra.or.kr
Strategis: http://strategis.gc.ca
Trade Team Canada Automotive: http://ttcauto.ic.gc.ca/ttcauto/TTCAuto.nsf
United States Department of Commerce: http://www.stat-usa.gov
49