SEOUL, South Korea - Long focused on internal development, South Korea is quietly becoming a weighty investor in Asia, with multinationals like Hyundai and Samsung proving to be tenacious matches for Japanese, American and European companies in China and elsewhere in the region.
South Korea has emerged as perhaps the largest single source of foreign investment in China, making $6.25 billion in fixed investments there last year, according to data from the Chinese Ministry of Commerce. And as investor attention swivels to India, South Korea's largest steel company, Posco, has agreed to make the largest Korean investment in another country, in a $12 billion iron mine and steel mill in the Indian state of Orissa.
Though it is overshadowed by the Asian giants China and Japan, South Korea has grown to become the 11th-largest economy in the world. Reflecting the nation's increased affluence and economic strength, Korean manufacturers are now looking abroad to achieve the powerful growth rates they only recently enjoyed at home, from exports and rising domestic demand. Much of this interest is supported by a strengthening currency, the won, which gained more than 15 percent against the dollar in 2004.
In a sea change, the government now says that to invest abroad is to be patriotic.
"Before, investment going in was good, and anything going out was bad," said Alan Timblick, a British citizen who directs Invest Korea, a government agency that has a new role: encouraging foreign investment. "Now, the companies are outsourcing their labor-intensive work, and moving up the technology ladder at their home base."
American investors in Asia, long used to Japanese competition, increasingly find themselves up against South Korean companies.
"In some dynamic areas, Korea is competing on the same level with the U.S. and Japan: shipbuilding industry, cellphones, automobiles," said Moon Hwy Chang, professor of international business at Seoul National University. "Korea cannot be a center for manufacturing any more because labor costs are rising. So Korea wants to be kind of a Switzerland at the center of northeast Asia - a center for finance, transportation, communication."
An economic casualty of wars and occupation a half-century ago, South Korea has grown aggressively, in the 1980's registering an average annual growth rate of 8.7 percent.
But more recently, its economy has looked increasingly mature. In the first half of this year, South Korea recorded a 3 percent growth pace, better than in Japan but lower than the United States. It is expected to achieve a growth rate of about 4 percent this year.
Korean exports soared 31 percent in 2004, but grew 7.3 percent in the first six months of this year.
Meanwhile, workers worry about a jobless recovery, employers say auto factory wages are approaching American levels, and almost everyone complains of soaring housing and land prices.
"South Korean wages have gotten too high to support a whole range of activities," said Edward M. Graham, a Korea trade and investment specialist at the Institute for International Economics in Washington. "The firms are keeping in South Korea the areas where they have a comparative advantage - the higher-tech, more capital-intensive businesses."
Indeed, in a familiar echo of worker complaints heard in the United States and Japan, Korean labor unions now accuse companies of exporting their jobs. Union leaders at Hyundai, the country's biggest automaker, have made the company's foreign investment plans an issue in wage negotiations this fall.
South Korea's outward investment thrust is most evident in steel, cars, cellphones and energy. And the main target is China, where more than 30,000 South Korean companies now do business.
This push into China last year did not attract much attention, perhaps because, according to the Chinese Commerce Ministry, the top three sources of foreign investment were Hong Kong, the British Virgin Islands and South Korea. But Hong Kong is part of China, and investments from the Virgin Islands are often conduits for money from a number of countries and sources, leaving South Korea as most likely the largest single source of foreign investment in China last year.
In 2004, Korean investment in China, mostly in steel and cars, overtook Japan's, which has an economy six times that of South Korea's.
Many Koreans say their country has an edge over Japanese companies in China because it does not face the hostility from World War II and before. "Sino-Korean relations date back 5,000 years," Chey Tae Won, chairman of the SK Corporation, South Korea's largest energy company, told a recent economic forum in Shanghai. Mr. Chey vowed to build "another SK" in China. By 2010, SK hopes to earn $5 billion a year from China, up from $2 billion this year. Of this, 60 percent would come from local companies there, with the rest from SK exports to China.
Although the SK Corporation generated $13.1 billion in sales outside South Korea last year, few Americans have heard of this Korean multinational. And SK Telecom, South Korea's largest mobile phone service provider, has cellphone ventures in Mongolia, China and Vietnam. But that was just a first step: a joint venture with EarthLink aims to begin mobile phone and wireless Internet services in the United States by the end of the year.
Samsung, South Korea's largest company, employs 50,000 workers in 29 factories in China.
"In the Chinese market, we are increasingly doing the R&D design work locally, hiring local people in the top management," said Woosik Chu, the head of investor relations for Samsung, which is best known in the United States for its flat-screen television sets and other consumer electronics. "So that way, the Chinese consumers feel as if it's their own brand."
Only capital-intensive components - largely semiconductors and liquid crystal display screens - are still made in South Korea.
In China's highly competitive car market, the Hyundai Motor Company has succeeded in becoming the most popular foreign line, according to sales figures for the first half of 2005. Hyundai plans to double its capacity in China to 600,000 a year. Kia Motors, a Hyundai affiliate, makes about 150,000 cars a year in China.
With plans for new plants in China, India, Turkey, the Czech Republic and the United States, Hyundai is on track to expand its overseas production to 50 percent at the end of the decade, from a recent 28 percent. Over the last 18 months, Hyundai's foreign sales rose 55 percent, while domestic sales increased 5 percent.
American carmakers are amply aware of the Hyundai challenge. In May, Hyundai opened its first American factory, a $1.1 billion assembly plant in Alabama. It helped increase Hyundai sales in the United States for the first eight months of the year by almost 11 percent, to nearly 311,000 vehicles, more than the sales of BMW or Volkswagen.
South Korean multinationals are also believers in the huge potential in the largest developing countries: Brazil, Russia, India and China.
Posco, the steel giant, has invested in 55 companies around the world, including 24 steel companies in China. Its India project, when completed, is expected to produce 12 million tons of steel a year, creating 48,000 direct and indirect jobs. In northern Brazil, Posco is studying a proposal by Companhia Vale do Rio Doce to build a 7.5-million-ton steel slab plant.
With China now curbing new investments in steel, Posco has an edge over Japanese companies. Many of the Japanese delayed investing in the 1990's because of huge debt problems at home. At that time, Posco and other Korean steel makers started to go to China.
"The big difference we had over the Japanese mills," said Kim Joon-Sik, manager of Posco's China and corporate strategic planning departments, "was entrepreneurship and pioneering spirit."