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Home > Articles > The Automobile Industry

South Korea's Automotive Policies - Part 1


The main objective of this analysis is to analyse the numerous policies undertaken by the Korean government to facilitate the development of the Korean automobile industry and other factors that may have contributed to its excellence. It begins by providing a brief background of the Korean automobile industry - Section A. In the long Section B, various policies implemented by the government are studied to gauge the extent to which each policy may have impacted the Korean automobile industry. Then, as the industry began to gain a stable footing, proactive government intervention began to dissipate. Hence, Sections C deal more with indirect and reactive government action, as well as reforms undertaken within the automobile manufacturing companies themselves in order to survive and adapt to the changing external conditions.

Between 1946 and 1955, the 4 Korean automobile manufacturers that form the landscape of the Korean automobile industry today, namely, Hyundai Motors Industry, Kyeongseong Precision Industry (Kia's predecessor), Sinjin Automobiles (Daewoo's predecessor) and Ha Dong-hwan Car Assembly Shop (SsangYong's predecessor), were founded. In 1955, the Korean automobile industry was started when Choi Mu-seong and his 3 brothers modified a US army jeep by mounting an engine to it, marking the first Korean car, named "Sibal". However, it was only after the first 5-year economic development plan was initiated in 1962 that the Korean government began to display increased interest in this industry, as it was handpicked among others to be one of the key drivers of economic growth. Thereafter, government policies were implemented to nurture and facilitate the development of the automobile industry. Table 1 below shows the various policies implemented by the government to protect, preserve and promote its automobile industry.

Table 1: Government Policies to Nurture the Automobile Industry

As illustrated above, the Korean government undertook extensive efforts to nurture its automobile industry, particularly during its infant stage. In general, the approach adopted was import-substitution coupled with export-promotion, meaning that the domestic environment was shielded from foreign competition through protectionist policies, while exports were encouraged through various incentives.

In general, the Korean automobile industry can be segregated into 4 stages of development:

1962 - 1967: Semi-knockdown assembly
- Local content near zero.
- Technology and auto parts were obtained through foreign licences and joint ventures.

1968 - 1974: Complete knockdown assembly
- Daewoo began production and established joint venture with General Motors (GM)
- Hyundai assembled Ford Cortina with 21% local content.
- Kia produced Brisa.

1975 - 1981: Mass production with increased local content
- Substantial increase in local content to 85%.
- Mass production techniques introduced, including the Toyota production system.

1982 - present: New product development and exportations
- Product diversification & in-house R&D began.
- Hyundai began exporting to the North American market.


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