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The Shifting Location Decisions of Korean Outward FDI

Jungmin Kim* Ph.D. Candidate International Business and Strategy College of Business Administration Seoul National University

Dong Kee Rhee Professor International Business and Strategy College of Business Administration Seoul National University

September 1, 2008 * Correspondence to: Jungmin Kim, Room.309, College of Business Administration, Seoul National University, 599 Gwanak-ro, Gwanak-gu, Seoul 151-916, Korea. Tel. +82-11-339-8209; Email: The Shifting Location Decisions of Korean Outward FDI

Korea has clearly moved from being developing county to one of developed countries. In the context of investment development path developed by Dunning, we examine the important factors for the locational decisions of Korean outward foreign direct investment, considering host countries at very different stages of economic development. In line with this objective, this paper tests empirically the determinants of Korean outward investment using macro economic factors of host countries along with the two Korean business group case studies, namely, Samsung and LG. Thus, this paper seeks locational changing trends of Korean outward FDI as firm strategy considerations. We test our hypotheses using official Korean outward FDI data collected from 1994 to 2005. The behavior of Korean investment showed several distinctive features. The statistical analysis of investments by Korean firms revealed significant changes in the regional investment of FDI, and changed of its traditional determinants as well. From the empirical tests and the two case studies, we found out that the dynamic effects of economic development have influenced on the shifts of outward FDI characteristics.

Key words: Korean outward FDI, theory of FDI, location decisions, MNE firm strategy

Our argument starts the Korean outward FDI possesses unique characteristics that differentiate from developed countries on the basis of investment development path. Recently, changing patterns of outward foreign direct investment have raised important questions in emerging economies (Hejazi and 1

Paul, 2003). This paper examines the determinants of location decisions of Korean outward FDI by analyzing Korean outward FDI into both developed and developing countries over 12 years. Although previous studies indentify stages process to firm internationalization which is linked to geographic distance (Johanson and Vahlnes, 1977) and the types of foreign direct investment (FDI) motivations, few studies have attempted to develop a theory of explaining the relational characteristics of the types of FDI motivations reflecting location decisions. Namely, many of the empirical studies have focused on the relation between motivations and location decisions of FDI without considering different economic level variations. Thus, using official data from domestic and international key organizations as of the end of 2005, this research is one of the first empirical test formally the forces driving Korean outward FDI. This study is using the theory of FDI that integrates firm strategy as well as macro economic factors. As scholars identified, the traditional FDI theories have implied that the investing firm is from a developed country and the invested country is less developed country (Makino et al., 2002; Moon, 2004). Perhaps, like Erramilli et al.(1997) mentioned, this is because the focus of empirical studies was mainly in developed countries which are taking ownership advantages in all foreign host locations. On the other hand, many scholars also argue that this traditional argument is not satisfactory in explaining a variety of FDI in newly industrialized and emerging economy countries. Since they did not much considered any specific cases in which emerging country firms expanded their international activities from their home countries to both...
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