Korean Firms Increasing Investments in the U.S.
South Korea’s foreign direct investment (FDI) in the United States topped US$10 billion for the fourth consecutive year with an increasing number of South Korean companies running their manufacturing facilities in the United States. According to Reshoring Initiative, the United States’ manufacturing competitiveness index for this year is estimated to reach 100 to exceed that of China for the first time since 2016.
The index indicates each country’s manufacturing competitiveness on a 0 to 100 basis. The point of 100 means the highest manufacturing competitiveness in the world. In 2016, China scored 100 and the United States scored 99.5. This year, however, the score of China is estimated to fall to 93.5.
This implies that the United States’ competitiveness in terms of production has improved to the point of surpassing that of China, which has been the world’s largest manufacturer based on low labor costs. Meanwhile, South Korea’s competitiveness in the manufacturing sector is on the decline. The Korea Productivity Center recently announced that South Korea’s labor productivity index fell 0.7 percent year on year in the third quarter of last year and its manufacturing productivity edged up 1.5 percent in that quarter after a 9.8 percent increase in the third quarter of 2018.
Under the circumstances, more and more South Korean companies are increasing their investments in the United States. For example, SK Innovation, which began to build a factory in Commerce, Georgia last year, already invested 1.9 trillion won in the region and is planning to increase the investment by approximately one trillion won to better meet the increasing battery demand in the United States.
In December last year, LG Chem and GM agreed to establish a 50-50 joint venture in the United States. LG Chem is planning to invest one trillion won in the joint venture in the short term and the two companies’ total investment in the joint venture is estimated at 2.7 trillion won.
In May last year, Lotte Chemical built an ethylene and ethylene glycol production plant in Lake Charles, Louisiana. Hanwha Q Cells built a photovoltaic power generation module plant in Georgia in September last year and Hyundai Motor is going to invest 480 billion won to improve its facilities in Alabama. In addition, CJ Cheil Jedang built its 22nd plant in the United States in New Jersey last year Nongshim is planning to build its second plant in the United States in Corona, California.
As mentioned above, South Korea’s FDI in the United States recently topped US$10 billion for four years in a row. The FDI, which increased to US$13.6 billion in 2016, reached an all-time high of US$15.2 billion in 2017.
South Korean companies’ M&A-based investment in the United States is increasing as well. Specifically, the number of M&As of American companies by South Korean companies more than doubled from 15 to 36 from 2013 to 2018. For instance, Hanwha Aerospace acquired U.S. aircraft engine manufacturer EDAC Technologies and KCC acquired Momentive Performance Materials, the third-largest silicone manufacturer in the world, last year. In 2018, SK bought U.S.-based contract development and manufacturing organization (CDMO) AMPAC Fine Chemicals.
At present, the United States’ attractiveness as an investment destination is increasing based on its high economic growth rate and favorable business conditions such as a low corporate tax rate. In addition, the increasing uncertainties of the South Korean economy are adding to the attractiveness.