Competitive dynamics and firm resources in the internationalization of Korean manufacturing firms 1981-2002

Abstract

This study proposes internationalization as a strategic process for firms to adapt to competitive environments, compete with rivals, and grow. Drawing on the industrial organization economics perspective, and the resource-based view, this study investigated how relative market positions and resource positions of Korean manufacturing firms are related to their international involvement. Export intensity and foreign subsidiary numbers are used as measures of international involvement. An empirical examination of international strategies from 1981 through 2002 of publicly traded Korean manufacturing firms revealed that competitive market positions and firm resources have different implications for exports and foreign direct investments (FDIs). Specifically, dominant domestic market position, domestic market share growth, and marketing resources appear to be positively related to the growth of FDIs but negatively associated with export performance. Cost leadership was positively associated with export performance. However, it was not related to FDIs. Consequently, this research found that cost leadership is an efficient strategy for export-led growth, while differentiation strategy, especially based on marketing activities, is effective for FDI-led growth. Some structural differences were observed among chaebol and non-chaebol group affiliations related to international strategies. Chaebol affiliations seem to be positively associated with FDIs but not related to exports. Non-chaebol business group membership was found to be negatively related to both exports and FDIs. Although some scholars speculated that going abroad is a sign of domestic weakness, this research shows that the speculation is only accurate in terms of exports. Non-dominant firms tend to seek alternative growth via exports. Conversely, domestically dominant firms tend to have more foreign subsidiaries than non-dominant firms. Therefore, FDIs seem to reflect domestic strength. Finally, it seems that for Korean firms, exporting is simultaneously weighed with domestic expansion, but FDIs come after domestic expansion alternatives.