[THE INVESTOR] Kia Motors has built a new production facility in Mexico, securing a base for its advance into North and South American markets.

The $3 billion plant is Kia’s fourth overseas production facility, with the three others located in China, Slovenia and the United States. It is capable of producing 400,000 cars per year.

With the new factory in Mexico, Kia's overall production capacity came to 3.56 million vehicles per year. Notably, the Mexican plant boosts the company’s overseas production capacity to 1.96 million, surpassing its domestic production capacity of 1.6 million.

The new plant represents a win-win formula for the Korean car producer and the Latin American country.

In the first place, it allows Kia to advance into the Mexican market, which is the second largest in Latin America with annual demand expected to reach 1.75 million cars in 2020.

Kia has thus far been unable to penetrate the promising market due to its high import tariff of 20 percent. But the Mexican government has allowed Kia to sell 10 percent of the new factory’s output in the local market free of duty, allowing it to compete with foreign companies.

The factory also enables Kia to tap into Mexico’s strengths as a global auto production base, including its extensive network of free trade agreements, low-cost labor, and geographical proximity to North and South American markets.

Furthermore, Kia was offered substantial financial incentives in building the new factory. The Mexican government has allowed it to use a sprawling plant site of 5 million square meters free of charge, exempted it from corporate taxes for five years and built infrastructure, including power plants and exclusive rail lines, for the plant.

Kia will in return add 15,000 new jobs to the Mexican auto industry, fueling the country’s rise as a global vehicle manufacturing hub.

For Kia, it was inevitable to build a new factory in Mexico, but it would have been much better for Korea if it had built the plant here.

Domestic companies have lost appetite for new investment in Korea due to high wages, complex regulations and frequent labor disputes. The government needs to think hard to induce Korean companies to set up plants here.

Labor unions should also refrain from making inordinate demands. The unions of Hyundai Motor and Kia Motors staged partial strikes for 28 times this year alone, calling for higher wages. Such a reckless attitude prompts domestic companies to build new facilities overseas, causing an industrial hollowing-out here.

(theinvestor@heraldcorp.com)