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Korean conglomerates expand global network

SK Innovation’s oil platform in operation at an offshore mining area in Vietnam. (SK Group)
SK Innovation’s oil platform in operation at an offshore mining area in Vietnam. (SK Group)
Local firms look for opportunities for old and new businesses abroad

Faced with a fast saturating domestic market, local firms have increasingly been seeking growth in overseas markets.

For some, such as Hyundai Motor Group, overseas expansion has been an extension of their main businesses.

Others, such as SK Group, have used overseas expansion as an opportunity to break into new areas as well as for bolstering existing businesses.

For SK Group, telecommunications and petrochemicals businesses are often referred to as its two pillars within the domestic market.

In its overseas drive, however, much of the focus has been placed on mineral resources.

In September, the group’s raw materials business began in earnest when its trading arm SK Networks invested $700 million in the Brazilian iron ore miner MMX.

Since then, SK Group chairman Chey Tae-won has focused on expanding his group’s global networks.

In January, Chey spent two weeks touring Australia and Brazil, during which he inspected mines the company has invested in, as well as other business opportunities such as industrial complexes in Brazil, the company said.

At present SK Group holds between 5 percent and 25 percent in four coal mines in Australia. The group’s stakes in the four mines equate to about 2 million metric tons of coal per year, the company said.

“Since the chairman began pushing the resource development project, SK Group’s revenues from related businesses broke the 1 trillion won ($923 million) mark for the first time last year,” said a senior vice president of SK’s brand management office.

“With him visiting resource-rich countries that are seeing trillions being invested in the field, the chairman’s global management on resource development will play an increasing role.”

From the local business community, Hyundai Motor Group has been among the first to seek globalization.

The group’s first attempt began in the 1980s when Hyundai Motor Co. set up a plant in Canada. While the plant was shut down not long after its opening in 1989, the group’s two carmakers and their international network have come a long way since.

After the initial failure of Canadian venture, Hyundai restarted its overseas ambition by opening a plant in Turkey in 1997. Since then Hyundai and its sister carmaker Kia Motors Corp. have set up plants in seven countries ― China, Czech Republic, India, Turkey, Slovakia, Russia and the United States.

In addition, Hyundai began works on a new plant in Brazil, which is projected to become the world’s third largest car market in 2015 after China and the U.S.

The two carmakers’ global strategy, however, has not been limited to building plants in other countries.

In order to better cater to the different markets, the carmakers have taken to developing vehicles specifically for a particular market such as the Kia cee’d for the European market and the Hyundai i10 for Europe and India.

“Setting up overseas production bases is beneficial not only because tariffs can be avoided, but also because it allows the company to respond to changes in the market more quickly,” an industry official said.

“In addition, while having overseas bases may reduce the benefits gained from free trade agreements, producing and marketing locally can reduce logistics costs and time.”

However, carmakers aren’t alone in seeking to speed up their growth in the global market through overseas production networks.

POSCO, the world’s fourth largest steelmaker, has also been seeking to expand its presence in the international market by setting up operations in strategic locations.

Last year, the company began works on its first and Southeast Asia’s first integrated steelworks in Indonesia.

For POSCO, which had at the time been experiencing problems with its plans for a facility in India, the project came as a breakthrough in its efforts to take the lead over Chinese and Japanese rivals.

The steelmaker is also hoping to take a slice of the growing Latin American market through a joint venture with Dongkuk Steel Mill Co. and the Brazilian mining firm Vale to build steelworks in Brazil.

Since then the plans for a steelworks and an iron mine development project in India have been given the go ahead by the Indian government, giving POSCO the potential to gain leadership in one of the world’s fastest growing economies.

“India was selected for the project due to the country’s rich resources and the high growth potential of its steel market as part of our plans to strengthen the global network,” a POSCO official said.

STX Corp., whose businesses are centered on shipbuilding, is another local conglomerate to have pushed overseas expansion.

As it did in increasing its size, the company has adopted a quick and targeted strategy to overseas expansion. Established in 2001, STX Group has grown at an unprecedented rate through a series of acquisitions to become the country’s 12th largest conglomerate last year.

Beginning with the establishment of STX Dalian, which operates the group’s production base in China, in 2006, STX Group went on to acquire the Norway-based cruise ship specialist Aker Yards.

While the group’s shipbuilding businesses targeted China and Europe, its heavy industries and construction arms have targeted the African and Middle Eastern markets.

STX Heavy Industries was recently signed on to undertake a $3 billion power plant contract in Iraq, while STX Construction Co. is carrying out a $10 billion housing project in Ghana.

By Choi He-suk  (