Britain Basks in Hefty New Influx of Asian Investment
LONDON — SOUTH Korea is joining Japan as a major source of foreign investment in Britain, and economic analysts say other Asian countries will soon follow suit.
In what looks like the starting point for a massive capital injection by other South Korean companies into in the United Kingdom, Samsung Group, the consumer electronics conglomerate, has decided to invest 450 million ($734 million) in a complex of factories to make computers, TVs, and microwave ovens near Newcastle in northeast England. Samsung, which boasts 30.8 billion in worldwide annual sales, also announced that it will make London the headquarters of its European sales operation. The move - part of an international expansion drive - will bring 3,000 jobs to an area with one of the worst unemployment rates in Britain.
Samsung's action follows a decision earlier this year by NEC Corporation, the Japanese electronics giant, to invest 530 million in a computer plant in Scotland, where unemployment levels also are high. Britain won both investments against stiff competition from other European countries, particularly Spain and France.
Second wave of Asian investment
Garel Rhys of the Cardiff Business School says the Samsung and NEC moves are part of a ``second wave'' of Asian investment, following decisions in the 1980s by the Nissan Motor Company and Toyota Motor Corporation, two of Japan's leading car manufacturers, to build large assembly plants in the UK.
Professor Rhys notes that South Korean firms are showing a willingness to ride on the back of non-Asian countries that are prepared to sink money into British factories and take advantage of what in European terms is the country's comparatively low-wage and social-benefits structure.
On Oct. 18, Rover, the leading UK automaker, now owned by Germany's BMW, announced that it was creating 1,450 new jobs in anticipation of expanding sales into continental Europe and the United States. The plan includes a 30 million agreement with the Kia Corporation, South Korea's second-largest carmaker, to develop a new range of engines for the Rover group.
Meanwhile, Daewoo, another South Korean automaker, unveiled one of its models at the International Motor Show in Birmingham, England, and launched an advertising campaign claiming that Daewoo was ``the biggest car company you've never heard of.'' Apart from Hyundai cars, South Korean vehicles are a novelty on British roads.
Chan Bae, managing director of Samsung UK, says South Korean investment in Britain will increase rapidly. ``The Korean economy is growing fast, and the Seoul government is encouraging big companies to invest abroad,'' he says.
Gap in labor costs narrowing
The company chose to set up in the UK partly because of an 80 million British government grant, Mr. Bae acknowledges. But the gap between British and Korean labor costs is narrowing, and he says it is becoming more economical to manufacture on a European site than send products on a long sea journey from Seoul.
By using Britain as a manufacturing base, Datsun, Toyota, and other Japanese companies have been able to take advantage of the European Union's ``single market,'' which permits customs-free movement of goods throughout the 12-nation grouping. Samsung, NEC, and other Asian companies will be able to do the same.
Rover's decision to link up with Kia has sparked reports that Ford Motor Company, the giant US carmaker, may decide to cooperate with Mazda to produce cars in Europe with a Mazda emblem. Ford owns 24.5 percent of Mazda, which is the only leading Japanese carmaker without a European production base.
Rhys says if South Korea does as well in Britain as Japan has done, other Asian countries will want to follow similar policies. ``Before long, we will see Malaysian and Indonesian companies moving into Europe,'' he says.
Inflation levels and trade union attitudes are key factors in deciding where Asian investors will go. A Samsung official says Madrid offered to pay for one-third of the start-up costs if the company had chosen to build there, but Spain's militant trade unions and high inflation tipped the balance in favor of the UK.