Supporting the "New Southern Policy" that looks at the development of Korean companies in India
South Korea's Moon Jae-in administration announced the "New Southern Policy" in November 2017, and has been promoting this policy ever since. On the diplomatic side, the aim is to increase the degree of freedom in diplomacy by expanding the conventional diplomatic axis, which has been centered on the four countries surrounding the Korean Peninsula, to the "New Southern Region" (10 ASEAN countries and India). There is. From an economic point of view, it is trying to capture the market in the new southern region, which has a large population and is expected to have high economic growth.
India becomes an even more important market for South Korea
Further digging into economic aims, it is also important to reduce dependence on China. For example, exports to China accounted for 25.3% of the total exports of South Korea in 2021, exceeding a quarter. However, it is difficult to expect a significant increase in exports to China due to intensifying competition with Chinese companies. In addition, the risk of dependence on China is increasing due to the prolonged conflict between the United States and China. Therefore, strengthening economic relations with the new southern region has become an important issue.
The new southern policy has produced some results. The Ministry of Foreign Affairs of Korea showed the results of the new southern policy in the "2022 Major Business Promotion Plan" (announced on December 23, 2021). Specifically, (1) President Moon visited 11 countries in the new southern region, and exchanges at the level of high-ranking government officials were deepened. (2) At the US-Korea summit meeting in May 2021, the Biden administration He mentioned that he was able to express cooperation with the New Southern Policy for the Indo-Pacific strategy. In addition, the Ministry of Industry, Trade and Resources stated in a press release released on December 28, 2021 that (1) the value of exports to the new southern region was 111.9 billion from January to November 2021 from 86.1 billion dollars in 2016 before the policy announcement. Specific results include the increase to the dollar and (2) the increase in foreign direct investment (declaration basis) in the region from 2018 to 2020 by more than 70% compared to 2015 to 2017, and the deepening of economic relations. And said.
However, there are still challenges in the new southern policy. On the economic side, the issue is that the ties between trade and direct investment are concentrated in one country in Vietnam. For example, in 2021, exports to Vietnam accounted for 45.6% of South Korea's exports to the new southern region, reaching just under 50%. In order to reduce the risk of concentration in Vietnam, it is necessary to strengthen economic relations with countries other than Vietnam. Therefore, India, a major power in South Asia, is attracting attention.
As far as trade statistics and foreign direct investment statistics are concerned, the economic relationship between South Korea and India cannot be said to be very close so far. By country / region, India is the 7th largest exporter (2021) and the 25th largest foreign direct investment (January-September 2021) for South Korea. Nevertheless, Samsung Electronics and Hyundai Motor Co., Ltd., which represent the Korean industry, are already focusing on the Indian business, and the results have been achieved. In the future, it is expected that the number of Korean companies that will challenge Indian business in search of new growth markets will increase. Therefore, in this paper, we have decided to give an overview of the recent economic relations between South Korea and India.
South Korea's exports to India are driven by intermediate goods
Looking at South Korea's trade with India, exports have been on an increasing trend, while imports have been sluggish since 2012 (see figure). As a result, South Korea's trade surplus with India continues to increase. In 2021, it was $ 7.5 billion. By the way, as of 2021, India is the fifth largest trade surplus partner country / region for South Korea after Hong Kong, Vietnam, China and the United States.
The trade imbalance between the two countries casts a shadow over the revision of the Korea-India Comprehensive Economic Partnership Agreement (CEPA). The Korea-India CEPA came into effect in January 2010. Since then, time has passed, and what the South Korean side wants is a CEPA revision in anticipation of raising the market openness. On the other hand, the Indian side is wary of further expansion of the trade deficit. It was agreed that the revision negotiations that started in 2016 will be resumed in January 2022 after being suspended for a while. That said, its whereabouts will be unpredictable (see Business Report dated 18 January 2022).
The new Southern Policy has set a goal of expanding South Korea's total exports and imports to India to $ 50 billion by 2030. That's an ambitious level, given that it was $ 23.7 billion in 2021.
Next, looking at exports to India by item, in 2021 in descending order, there are many intermediate goods in steel sheets, synthetic resins, semiconductors, petroleum products, and automobile parts (according to Korea's original MTI 3-digit classification). During this period, similar items have been the driving force behind exports to India. A certain amount of this was triggered by the expansion of Korean companies into India. For example, exports of auto parts to India surged from the 2000s to the early 2010s. This is the result of the expansion of local production of Hyundai Motor. In addition, semiconductor exports to India surged at the end of the 2010s. This coincides with Samsung Electronics' expansion of smartphone production in India.
Direct investment in India centered on manufacturing industries such as automobiles
South Korea's direct investment in India started in the latter half of the 2000s, and until 2017, it had been around 300 to 500 million dollars a year. Although it surged in 2018, it has returned to the $ 400 million range in 2019 (see Table 1).
By major industry, the ratio of manufacturing industry is high. Cumulatively up to September 2021, the manufacturing industry accounted for more than 80% of the total amount of direct investment in India. Among them, the ratio of automobiles (finished cars and automobile parts) is outstanding, and the cumulative total is over 40%. In addition, the surge in FDI in 1998, 2007 and 2018 reflects direct investment in the automotive sector. This is due to the construction of Hyundai Motor's first plant in India in 1998, the company's second plant in 2007, and Kia (name changed from "Kia" in January 2021) to Kia in 2018. In this way, it can be said that South Korea's direct investment in India depended on trends in the automobile field.
Other than automobiles, there is a large amount of direct investment in primary metals (especially steel).
On the other hand, in electronics, despite some investment by Samsung Electronics and LG Electronics, the cumulative total by September 2021 has not reached 200 million dollars. It is possible that investment was mainly through third countries (in this case, it is not reflected in South Korea's FDI statistics), but the exact reason is unknown.
| Year | Manufacturing industry | Non-manufacturing industry | total | Number of new corporations | ||||
|---|---|---|---|---|---|---|---|---|
| Primary metal | electronics | Car | others | subtotal | ||||
| 1995 | 0 | 0 | 0 | 6 | 6 | 7 | 14 | 13 |
| 1996 | 0 | 0 | 140 | 6 | 147 | Four | 150 | 11 11 |
| 1997 | 0 | 13 | 84 84 | 47 47 | 144 | 3 | 146 | 19 19 |
| 1998 | Five | 0 | 265 | 15 | 285 | twenty one | 306 | 11 11 |
| 1999 | 0 | 0 | 1 | 11 11 | 12 | 3 | 15 | 3 |
| 2000 | 1 | 0 | 0 | 6 | 8 | 7 | 15 | 7 |
| 2001 | 0 | 1 | Four | 1 | 6 | twenty four | 31 | 11 11 |
| 2002 | 0 | 1 | 8 | 15 | twenty three | twenty five | 48 | 9 |
| 2003 | 0 | 0 | 2 | 2 | Four | 13 | 17 17 | Ten |
| 2004 | 19 19 | 0 | 1 | 9 | 29 | 13 | 42 | twenty four |
| 2005 | 0 | 12 | 6 | 64 | 82 | Ten | 92 | 33 33 |
| 2006 | 0 | 7 | 52 52 | twenty four | 84 84 | 17 17 | 101 | 68 68 |
| 2007 | 0 | 2 | 357 | 116 | 475 | 31 | 507 | 85 |
| 2008 | twenty one | 6 | 59 | 54 | 140 | 54 | 194 | 66 66 |
| 2009 | 44 | 9 | 43 | 120 | 216 | 26 | 243 | 44 |
| 2010 | 18 18 | 7 | 79 79 | 51 | 155 | 43 | 199 | 53 |
| 2011 | 0 | 9 | 53 | 363 | 425 | 28 28 | 453 | 58 |
| 2012 | 0 | 3 | 71 71 | 167 | 240 | 75 | 315 | 49 |
| 2013 | 0 | 0 | 159 | 134 134 | 294 | 49 | 343 | 38 |
| 2014 | 0 | Five | 172 | 122 | 299 | 26 | 325 | 34 |
| 2015 | Ten | 3 | 75 | 144 | 231 | 88 | 320 | 53 |
| 2016 | 0 | 7 | 74 74 | 151 151 | 233 | 67 67 | 300 | 51 |
| 2017 | 152 | 7 | 180 | 63 63 | 401 | 100 | 501 | 111 |
| 2018 | 6 | 6 | 724 | 203 | 939 | 122 | 1,061 | 111 |
| 2019 | 33 33 | 35 | 131 131 | 144 | 342 | 88 | 430 | 128 128 |
| 2020 | 11 11 | twenty five | 69 | 272 | 377 | 244 | 621 | 74 74 |
| 2021 | Five | twenty three | 63 63 | 37 37 | 127 127 | 85 | 212 | 37 37 |
| Cumulative 1980-2021 | 327 | 182 | 2,912 | 2,357 | 5,777 | 1,274 | 7,051 | 1,236 |
| Composition ratio | 4.6 | 2.6 2.6 | 41.3 | 33.4 | 81.9 | 18.1 | 100.0 | ― |
Note 1: 2021 is the total from January to September. Note 2: The industry classification is reorganized based on the major and middle classifications of the original data.Source: Export-Import Bank of Korea Database
Looking at the cumulative amount of direct investment in India up to September 2021 by purpose, 70.0% of the total was "entering the local market". It overwhelms other purposes such as "utilization of low wages" and "protectionist trade". In particular, since 2014, the ratio of “local market advancement” to India directly has been in the 80% to 90% range every year. In this way, the aim of Korean companies that have expanded into India is mainly to acquire the Indian market.
Hyundai Motors are strong in the Indian market
As mentioned above, when checking the statistics of direct investment in India by industry, automobiles were the largest. The protagonists are Hyundai Motor Group's two finished vehicle manufacturers, Hyundai Motor and Kia. Both companies are doing well in the Indian market, as opposed to struggling in the Chinese market in emerging markets.
Hyundai Motor established a local subsidiary in India in 1996 and started mass production at its first plant in Tamil Nadu in 1998. The following points have been pointed out as the reasons for success despite the fact that the entry was slower than that of major overseas manufacturers.
One is a drastic decision based on the strong leadership of the top management. Such decisions are common to major Korean conglomerates. As a result, other leading foreign-affiliated manufacturers started with a small factory with tens of thousands of units, while the company invested $ 400 million from the beginning to build a large factory with an annual production of 120,000 units. Furthermore, by promising a high local procurement rate of parts and a certain amount of export of locally produced vehicles to the local government and showing that it will contribute to the local economy, it was approved to enter the market on its own. It was the first time for a foreign automobile manufacturer. It is also a result of the ability to make quick decisions.
The other is the introduction of a model that matches the characteristics of the local market. At that time, the passenger car market in India was the sole place of his Maruti Suzuki (then "Maruti Udhoyog") in the light and small car class of the mass market. On the other hand, other foreign-affiliated companies were launching products in segments with larger vehicle class. Among them, the company boldly introduced the model "Santoro" that matches the characteristics of the Indian market in the mini and small car class at a relatively low price range and gained popularity. Examples of improvements made according to the characteristics of the Indian market are (1) raising the vehicle height according to women's national clothing (sally), (2) raising the engine mounting position as a measure against inundation, and (3) hot climate. The performance of the air conditioner and brakes will be strengthened according to the situation, (4) the durability of the frequently used horn will be improved, and (5) the suspension will be strengthened according to the road conditions. The localization of such a model was successful, and the number of units sold expanded rapidly. After that, new models such as sport utility vehicles (SUVs) were added one after another to enhance the lineup. In 2008, the second plant was completed and the annual production capacity was increased to 650,000 units. As a result, Hyundai Motor is currently in the second largest share of the Indian passenger car market after Maruti Suzuki (see Regional Analysis Report dated May 17, 2021). In addition, Kia of the same group built a plant with an annual production capacity of 300,000 units and started production in 2019. Small SUVs are especially popular, and the number of units sold seems to be steadily increasing.
In addition to new and additional investment in the manufacturing sector, investment in the non-manufacturing sector
What kind of Korean companies are strengthening their Indian business these days? The major cases of Korean companies expanding into India reported by the Korean media after January 2020 are summarized (see Table 2).
The first thing that catches the eye is the expansion of Indian bases of Korean companies that have already expanded into India. In the Hyundai Motor Group, Hyundai Mobis, an automobile parts manufacturer, established the second R & D base in India (April 2020). Kia also immediately moved to expand the factory (May 2020). In addition, Hyundai Motor has invested R & D costs of 40 billion rupees (about 60 billion yen at present, 1 rupee = about 1.5 yen), and has added 6 new models to the electric vehicle (EV) model, which is currently limited to 1 model. The company announced its plans to expand the EV market in India and prepare for competition with other companies (December 2021).
In the Samsung Group, Samsung Display built and started production of an organic EL module factory for smartphones (April 2021). It corresponds to Samsung Electronics' expansion of smartphone production in India. In 2018, Samsung Electronics built a smartphone factory in Noida, Uttar Pradesh in northern India (it is said to be the largest single factory in the company). As a result, related companies have been expanding their production bases in India one after another. By the way, the company used to produce mobile phones mainly in China, but due to rising production costs in China and sluggish sales in the Chinese market, production was relocated mainly to Vietnam. However, in Vietnam, there was a problem that the spread of the new coronavirus infection would hinder production. "Union Infomax" (November 19, 2021) said, "Samsung Electronics will reduce the production ratio in Vietnam, which accounts for 60% of the world's production, and transfer part of the production to Indonesia, mainly in India. "Plan" is reported. If this is the case, the aim can be interpreted as avoiding the risk of concentration in Vietnam. In addition, Samsung Electronics has a relatively high sales share in the Indian domestic market, so the importance of the Indian base is likely to increase in the future.
As a new move, confectionery maker Orion started operation of a new factory in India (February 2021). Focusing on the size and growth potential of the Indian market, it follows the success of rival Lotte Confectionery's Indian business. The company plans to produce choco pies as a starting point and expand the production items to biscuits and snacks in the future. It also sells mainly in large supermarkets and e-commerce, mainly in big cities, and also develops small-scale traditional sales channels.
Outside of the manufacturing industry, Krafton, a major game company, is investing in Indian startups in rapid succession. The company is reported to be "the most invested Korean company in India except for the manufacturing industry" (Korea Economic Daily, August 24, 2021, electronic version). This is the result of evaluating the future growth potential of emerging markets centered on India and the high level of IT technology in India.
Investment funds are also actively investing in India. In particular, the Mirae Asset Neighbor Asia Growth Fund, which was established by Neighbors and Mirae Asset Financial Group in 2018, initially invested mainly in companies in ASEAN countries such as Singapore and Indonesia, but has invested since the end of 2020. Axis is shifting to Indian companies. "India's IT platform market is expanding rapidly and the investment of this fund is concentrated in India," said the Korean Economic Newspaper (electronic version, October 28, 2021).
| Year / month | Korean company name | Total investment | overview |
|---|---|---|---|
| January 2020 | NH Agricultural Cooperative Capital | About 15 billion won | Acquired a 25% stake in the credit institution IFFCO Kisan. The plan is to develop businesses such as agricultural machinery purchase support and collateral financing. |
| March | NXC | 114.1 billion won | Invested in NIS Indra Fund for indirect investment in non-bank financial institutions in India. |
| April | Hyundai Mobis | — — | Established a second research and development (R & D) center in India. Promote the development of software required for autonomous driving and automatic parking. |
| in May | Kia | $ 54 million | Expanded factory in Andhra Pradesh. SUV to local production. |
| June | Doosan Heavy Industries | 200 billion won | Acquired additional shares of DPSI, a power generation EPC service subsidiary, with the aim of securing working capital to promote business in India. |
| July | Hyosung Heavy Industries | 29.9 billion won | Acquired additional shares of Hyosung T & D India Private, an affiliated company that manufactures barriers to improve the financial structure. |
| August | KB Finance | $ 3 million | Invested in FAI, a logistics management software SaaS, through a fund managed by KB Investment. |
| October | LS cable | — — | The second communication cable factory in Haryana is completed. Double the production capacity of communication parts. It plans to export not only to the Indian market but also to Europe and North America. |
| December | Neighbor, Mirae Asset Financial Group | The joint fund "Mirai Asset Neighbor Asia Growth Fund" has invested in Zomato, a major food delivery company. | |
| February 2021 | Hashed | — — | The blockchain specialist company has invested in Discustic Loves, an Indian social radio platform. Expectations for the growth of investee companies. |
| Orion | — — | A new factory in Rajasthan was completed and started operation. Produces choco pies and other products. By substituting local production for imports from the Vietnam factory, the aim is to reduce distribution costs and provide products that match the Indian market. | |
| Neighbor, Mirae Asset Financial Group | $ 75 million | Mirae Asset Neighbor Asia Growth Fund invests in FinTech startup Credit Bee. | |
| March | Krafton | 1.64 billion rupees | Invested in e-sports company Node-in Gaming. Strengthen the e-sports business in South Asia, the Middle East and Africa. |
| April | Samsung display | 53,670 million rupees | The organic EL module factory for smartphones built near Noida started operation. |
| June | Hashed, Krafton | — — | Invested in Loco, a game streaming platform. Expectations for future growth of the Indian mobile game and e-sports market. |
| July | Krafton | $ 45 million | Invested in Platilipi, a web novel platform. |
| Neighbor, Mirae Asset Financial Group | — — | "Future Asset Neighbor Asia Growth Fund" invested in Trel, a video and video platform startup company, and Share Chat, an SNS startup company. | |
| August | Batik | — — | The company, which manufactures dental X-ray equipment, started a dental material distribution platform service in India. |
| November | SD biosensor | 39.8 billion won | Additional investment in an Indian subsidiary. The aim is to increase the production capacity of the local medical equipment factory to 6.5 times that of the conventional one and enhance cost competitiveness. |
| Atomi | 2.5 billion rupees | Announced plans to build a food and supplement factory by 2025. | |
| December | Hyundai Motor | 40 billion rupees | It will invest 40 billion rupees in research and development (R & D) in India to sell six electric vehicle models by 2028. The aim is to respond to the future expansion of the Indian electric vehicle market. |
| Krafton | $ 5 million | Invested in the social platform FRND. Expectations for future growth. | |
| January 2022 | POSCO | $ 5 billion | Signed a Memorandum of Understanding (MOU) with the Adani Group to promote the construction of an environmentally friendly integrated steelworks in Gujarat. POSCO has a cold-rolled plating plant and a processing center in India, and aims to further improve its market position in the high-grade steel market by constructing an integrated steelworks. |
Note 1: "Year / Month" is based on the announcement date or news date of the company. The "Summary" is based on the content of the announcement date and the press date. Note 2: Targets include investment in existing corporations, new establishment / increase of local corporations, factory construction / expansion, and research and development (R & D) investment. Note 3: The company name is the company name at the time of announcement. Note 4: "-" has no value. Note 5: As of the beginning of February 2022, 1 won = about 0.1 yen and 1 rupee = about 1.5 yen.Source: Created based on various media reports and materials released by each company