Lessons for firms heading abroad

Finance

Published: 26 Jan. 2012, 20:24

Lessons for firms heading abroad

Academics and officials discuss strategies for Korean financial companies to expand overseas at the Westin Chosun Hotel in Sogong-dong, central Seoul yesterday. From left to right: Kim Byoung-ho, vice president of Hana Bank; Choi Gong-pil, head research fellow at the Korea Institute of Finance; Shim Sang-bok, head of the JoognAng Ilbo Economic Research Institute, Chang Sea-jin, professor at the National University of Singapore; and Noh Jin-ho, a research fellow at the Hana Institute of Finance. By Kim Do-hoon

With more companies eyeing overseas markets, experts are urging local financial firms to benchmark the experiences of Korean manufacturers in the 1990s.

At a forum in Seoul discussing the foreign market entry strategies of Korean financial companies yesterday, experts noted that they are still taking baby steps compared to how much potential there is for growth, with much room left to learn from the mistakes of others.

“The foreign market operations of domestic financial companies still mostly depend on the transactions being made by domestic companies, Korean residents or nationals,” said keynote speaker Chang Sea-jin, a professor at the National University of Singapore. “As such, they are in a similar situation to the one Korean manufacturing firms found themselves in when they tried to expand into foreign markets in the early 1990s.”

He recommended that Korean financial companies benchmark successful cases of domestic manufacturers hopping national borders.

“Even global companies such as Samsung Electronics and Hyundai Motor had several setbacks around the end of the 1980s, when they were in the beginning stages of globalization,” Chang said. “Financial companies must learn from the difficulties LG Electronics experienced after it acquired U.S. firm Zenith, and cases like that.”

He cited the missteps that LG Electronics made when it acquired TV manufacturer Zenith for $350 million in 1995, such as a lack of adequate due diligence and belated efforts to assimilate or restructure. This eventually led LG Electronics to rack up $1 billion in losses and close down Zenith’s entire manufacturing facilities.

“What we learned from such experiences is that companies without a definite competitive edge are likely to fail in their attempts to penetrate overseas markets due to the liabilities of being ‘foreign,’ such as their comparative lack of market knowledge,” said Chang.

“Such liabilities decrease over time, with experience and gradual investments made to lessen risk.”

At the forum, experts agreed that financial companies should expand overseas. According to data cited by Chang, Korea Exchange Bank has more foreign outlets than any of its domestic rivals, at 27, while Hana Bank had just nine as of last March.

“The common denominator for banks from advanced economies that are trying to enter foreign markets is that they only take on businesses they are confident in,” said Noh Jin-ho, a research fellow at the Hana Institute of Finance.

“These banks only entered regions with which they share a cultural affinity or resolutely gave up on businesses in fields they are not confident in.

“Korean banks cannot approach foreign markets with their eyes closed, hoping to find the right solutions when they get set up. They should first build up core competencies at home and use these as a springboard to jump overseas.”

By Lee Jung-yoon [joyce@joongang.co.kr]