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Geneva, Switzerland, 5 December 1996

Investors from the Republic of Korea have recently discovered Europe: foreign direct investment (FDI) from that country in Europe was US$611 million in 1995 compared to US$144 million in 1992. While North America remains their main investment location beyond Asia, the European Union has gathered momentum as a target for their activities. About one tenth of total Korean FDI is now located in Europe, according to the UNCTAD secretariat, which is undertaking research on Asian FDI. Korean firms have also recently started a few very big projects in Central and Eastern Europe, most of which are not yet reflected in FDI flow and stock data.

A detailed analysis by the UNCTAD secretariat of Asian direct investment in the European Union is expected to be released in January 1997. This publication, undertaken at the request of the Government of Thailand, will complement a study published jointly by the UNCTAD secretariat and the European Commission in March on direct investment of the European Union in Asia (see TAD/INF/2643). Both reports are undertaken within the context of a recently established working group of the ASEM (Asia-Europe Meeting) which brings together governments and the private sector on investment issues. They met in Bangkok on 7-9 July and in Paris on 14 October.

The overwhelming bulk of Korean outward FDI is undertaken by large industrial conglomerates, chaebols, which are among the most globalized TNCs from Asian developing economies. Their primary motive in investing beyond Asia has been to gain market shares in host countries or access to new technologies and skills.

The United Kingdom is the most favoured investment destination of Korean companies in the European Union. The LG Group this year announced its plan to establish a semiconductor plant and a consumer electronics plant in Wales with total investments of US$2.34 billion and the creation of 6100 jobs. Wales is also expecting a truck and heavy equipment plant from the Halla group, another Korean chaebol.

Sectorally, Korean investment has shifted over the last couple of years from trading activities to specific manufacturing industries. Nearly three quarters of its FDI in Europe is in electrical and electronic products. However, the most remarkable investment in Central and Eastern Europe is the acquisition of car manufacturing plants in Romania, Poland and the Czech Republic by Daewoo, taking advantage of privatization programmes in these countries. Daewoo has decided to make Central and Eastern Europe the centrepiece of its vehicle producing operations for all of Europe.

The need for a direct presence in a large and rich market, and access to advanced technology and skills appear to be among the main pull factors of Korean FDI investment in the European Union. Privatization programmes have played a key role in attracting FDI in Eastern and Central Europe.