Kia Investment In Sovakia

The KIA name derives from two Chinese characters, 'ki' meaning 'rising up' and 'a' meaning 'Asia'. KIA can therefore be roughly translated as 'Rising out of the East' or 'Rising out of Asia'

(www.kiamotors.com, History at Glance)

1. Introduction

The arrival of a number of foreign investors is a confirmation that Slovakia is one of the most attractive locations in central Europe. In this report, we will be looking at the reasons why Kia Motors, a Korean automobile manufacturer, chose to begin a greenfield investment in Slovakia rather than their main opponents, Czech Republic, Hungary and Poland.

2. Company Outline

Name: KIA MOTORS CORPORATION

Major Products: Automobiles

Industry Classification: Transport equipment

Date of Establishment: December 11, 1944

Amount of Capital: 1.85 trillion Won (USD1.54 billion)

Number of Employees: 31,196

(www.kiamotors.com)

Kia was established in 1944 in Seoul, and is the oldest vehicle manufacturer in Korea. It started as a family business, hand-making bicycle parts. Making their first motorcycle C-100 was recorded as a birth of Korean vehicle industry in 1961.

The following developments and products were in:

1962 - "K360" the first 3-wheel truck

1971 - "Titan" 4-wheel truck

1973 - first gasoline engine

1974 - Korea's first passenger car "Brisa", first to be exported and sold in Middle East

1978 - Korea's first diesel engine, produce by Kia

1978 - Kia producing under licenses the Peugeot 604 and Fiat 132 sedan

1989 - The first overseas R&D centre was opened in Japan

1992 - Kia opened its U.S. subsidiary, Kia Motors America

1993 - Launch of Sephia passenger car: first European operation

In 1997 Kia went into receivership due to Asian financial crisis. In 1998 they were taken over by Hyundai Business Groups and began the path to their current success. A year later Kia was going strong and profitable again. By 2002 they had their 10 millionth car in production and also became a sponsor for the Australian Open tennis tournament.

Today Kia is operating in 160 countries worldwide, has got 10 overseas subsidiaries and 4 overseas R&D facilities.

3. Description of Inward Investment Project

Kia is prepared to invest a total of Ђ700 million in the new facility in Slovakia, which will have a yearly output capacity of 200,000 units per year and create 2,400 jobs. Construction began in the autumn 2004, with a trial production period and vehicle production is due to start late-2006.

The verdict by Kia to build the European plant was based on past and present strong sales and market share increase in the European market. Kia is at the moment Europe's fastest-growing automotive brand, and one of the fastest-growing globally. Last year in Europe, Kia sold a record 150,000 vehicles and this year is hoping to export over 240,000 vehicles.

"Our decision to build a new plant in Slovakia reflects Kia's strong commitment to the European market and to meeting the increasing demand of European consumers for our products," announced Kia Motors Senior Executive Vice-President and COO Yong-Hwan Kim. "Our new European plant will allow us to manufacture more vehicles more quickly for this growing market and get them to our customers more efficiently," he added.

(www.media.kiamotors.com)

Kia's new European plant will produce brand new models currently being designed specifically for the European market. Main priorities of Kia are safety of the vehicles and be environmentally friendly. Their target is to develop technologies, which will not only satisfy "demanding" customers but will be able to protect the environment.

Once the new plant is in full production, Kia is expected to boost its overall European sales for both vehicles imported from Korea and built in plant in Slovakia to a maximum of 500,000 cars by 2008. Other participating automotive parts suppliers include among others Hyundai Mobis

Investment of Kia Motors and Hyundai Mobis in Slovakia:

Total investment 700 mil EURO

(50% loan / 50% own capital)

Investment of subcontractors 226 mil EURO

State aid from public funds 9ml SKK

Motorway completion 22mil SKK

The Zilina plant is the main project of Kia's determined drive to expand in Central Europe. The plant will enable the automaker to retail cars regionally at a tax charge of 10% instead of the existing 17.1%.

4. Why Slovakia?

4.1. Location

Geographically, Slovakia is situated in the heart of Europe, which provides an easy access to the countries of the European Union, such as Germany, Czech Republic, Poland, etc. Slovakia offers an easy access through Ukraine to Eastern Europe if the investors decide to supply these markets.

Fig. 1 - Slovak exports to selected countries

http://www.sario.sk/index.php?idd=34&typ=2

4.2. Workforce

Many companies already invested in Slovakia and benefit from the great potential of its highly educated young people. 87% of the Slovak population receives secondary education, with 13.2% continuing to university. The average unemployment rate in Slovakia was 15.3% in 2003: in the Zilina region where the project is being undertaken, unemployment was 11.4%. This means that KIA Motors will have easy access to a large number of educated, skilled workers in this region.

Fig. 2 - Education Level of Population

http://www.sario.sk/index.php?idd=34&typ=2

4.3. Low