Cross-Border Mergers and Acquistions, Crisis and Reversal of Fortune: Rise and Falls of GM Daewoo and Renault Samsung in South Korea

Thursday, 2 July 2015: 8:30 AM-10:00 AM
TW1.2.01 (Tower One)
Dongheon Lee, University College London, London, United Kingdom
Recent theoretical endeavours to understand the transnational (TNC)-led globalisation of production and trade integration and their impact to national/local economy have led to the development of global value chain (GVC) and global production network (GPN) frameworks. They suggest the developing countries might pursue development though deliberate integration into GVCs, i.e. strategic coupling accompanied with industrial upgrading. In this article I critically examine the development effect of integration of local economies into GVCs through cross-border mergers and acquisitions (M&As) to host economy, with special attention paid to small middle-income developing country.

The cases of South Korean automobile companies merged by foreign TNCs during 1997 Asian financial crisis problematise this prevailing policy implications of GVC/GPN approaches. Of all the developing countries since World War II, Korea was the only country that managed to build its own vertical supply chain, develop original models, and become competitive global players on world markets. The success of automobile industry was recognized as symbolic of East Asian export-oriented developmental state. However, the auto restructuring after 1997 Asian financial crisis completely transformed the developmental path of Korean auto industry. Of five passenger car makers, three was taken over by foreign TNC automakers; other two have merged to evolve into a global TNC by themselves.

Among four M&A cases, this paper explores two episodes of cross-border merger of Daewoo and Samsung car makers to General Motors (GM) and Renault in order to address the above questions of how local auto value chains have been integrated into TNC-led GVCs and whether this contributes to economic development of host economies and industrial upgrading. Based on corporate data, field investigation and in-depth interviews, I compare post-restructuring results of two merged firms GM Daewoo and Renault Samsung. Restructuring performances of two local firms after foreign acquisition have converged into similar state after one and half decade since the crisis happened, while there was ostensible difference in before-crisis local firms’ capability.

The findings suggest that Korean local auto value chains have been disintegrated, truncated and selectively coupled into TNC-led GVCs and that vertical specialization within GVCs gives negative impacts on local employment and value captures as well as long-term industrial upgrading. Finally, the paper argues that the vertical specialization has been accelerated by destructive coupling of persisting institutional structures of export-orientation strategy of developmental state and newly-layered institutional structures of FDI-led development strategies of post-crisis Korea.