How Chinese Foreign Direct Investment Can Achieve Success in Korea: M&A Deals in the Automotive and Semiconductor Industries

Abstract

China is transforming itself into an aggressive investor based upon its more than US$1.5 trillion in foreign exchange reserves, the world`s largest. However, despite the huge expansion in quality base, the substantial performance of Chinese investors, in terms of gains in profit and technology spillover effects through overseas investment, has not been satisfactory. On the basis of a comparison between these two examples, the Shanghai Automotive Industry Corporation and BOE, which invested in the Korean ”backbone” industries of automobiles and semiconductors, this article suggests successful strategies for Chinese multinational Companies (MNCs) as follows:(1) prioritizing and implementing cross-border merger and acquisition (M&A)strategies; (2) ensuring managerial flexibility through responsiveness to changing local conditions; (3) increasing investment efficiency by differentiating foreign direct investment (FDI) strategies in individual countries or regions; and (4) pursuing mutual benefits between the investing Chinese company and its local partner to maintain a long-term partnership. Furthermore, this article will suggest that a more flexible, value-added, and mutually beneficial mode of investment by Chinese MNCs in the Korean market will enhance Chinese leverage within that market far beyond its current level, given the structure of such investment.