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When Craig Lesser and Byung-mo Ahn sat down at the bar, only a few issues were keeping them from closing the biggest foreign investment deal in Georgia’s history.
Mr. Lesser, the state’s economic development commissioner at the time, wrote a list on the back of the tab, asking the Kia Motors America chairman how they could meet in the middle.
Before they left that evening, Mr. Lesser had secured Mr. Ahn’s $1 billion-plus commitment to build a Kia plant with a handshake — and an offer of state incentives that would be later valued at some $450 million.
“I texted [then-]Gov. Perdue and said, ‘We have a deal,’” Mr. Lesser said, praising his counterparts’ shrewd negotiating skills as he shared the story behind the investment at a March 23 forum supported by the Korea Economic Institute of America at Georgia State University.
In Mr. Lesser’s eyes, the Koreans at the top of the automotive company knew what they wanted and how to get it. But they were also sincere and loyal, valuing a personal relationship established over time, he told students and businesspeople.
That came in handy when Mississippi came calling, offering more cash incentives than Georgia had put on the table.
Mr. Ahn stuck with Georgia, explaining it in somewhat of a parable: “‘My friend, I’m about to get married; how can I pursue another woman?” Mr. Lesser recalls him saying.
Mr. Lesser tied that brand of loyalty to the diplomatic alliance that has linked the two countries since the Korean War, underscoring how the economic relationship buttresses their defense ties.
“It’s more than trade and investment, we need them to be with us in that very critical region,” said Tamer Cavusgil, executive director of the Georgia State University Center for International Business Education and Research, who also moderated the panel discussion.
Now as much as ever, trade and defense are linked. Korea faces domestic crises including bribery scandals that forced the impeachment of President Park Geun-hye last month, as well as external threats to its trade-heavy economy. China, its top trading partner, has lashed out over South Korea’s deployment of the U.S.-made Terminal High Altitude Air Defense, or THAAD, which was installed in the face of continued North Korean ballistic missile tests.
China has instated a de facto ban on its tourists traveling to Korea, starving the Korean economy of their deep-pocketed spending. Special security was brought in to protect the Korean national soccer team’s players and fans as it faced off with China in the central Chinese city of Changsha. Some Chinese netizens saw their upset victory, a slim 1-0, as a proxy for how the diplomatic spat would turn out.
Kyle Ferrier, director of academic affairs and research for the Korea Economic Institute of America, said Korea has always aimed to balance security ties with the U.S. and its more Asia-focused economic imperatives. China is making that difficult right now, but the possible negative effects of disagreement mean that they’ll move on, he said.
“Both countries have a strong trading relationship and need to eventually get beyond this small snafu,” Mr. Ferrier said.
Trade Gap: Correlation or Causation?
U.S. President Donald Trump ruffled feathers during the election season when he questioned the value of U.S. troop installations in South Korea. He has also blasted the free-trade agreement with the country, saying it has led to a massive trade deficit.
While it’s true that a surge in Korean imports of cars, auto parts and other goods has widened the imbalance, GSU Assistant Professor Heechun Kim posits that it’s more a result of market factors than intentional action by the government.
For one, Korean exports have risen even as its currency, the won, has become more valuable against the dollar — the opposite of what economic theory dictates.
As for the trade gap in cars, he says GM and Ford are caught in the middle — squeezed by German luxury brands at the top end of the market and at the bottom by smaller Korean cars that appeal more to consumers in style, size and price.
“To their eyes, U.S. cars don’t make them stand out from the crowd,” Dr. Kim said, and it’s not economical for American automakers to tweak U.S.-made models to sell a few thousand of them in a faraway market, he said.
Tesla Motors, on the other hand, has a six-month waiting list for test drives in the country, showing that brands with the right positioning can succeed in a market where “Made in the USA means virtually nothing,” Dr. Kim said.
He cited another comparison in the big-box retail segment. Walmart, which sells based on price, struggled in South Korea and in 2006 sold its remaining stores to Shinsegae, which operates the successful E-Mart discount retail chain.
“South Koreans are used to shopping at department stores. Low price means low quality,” Dr. Kim said.
Meanwhile, Costco thrived by putting a store in the Yangjae area of Seoul, an affluent district with a lot of Koreans who had returned after studying in the U.S. It’s now one of the busiest Costco stores in the world.
Mr. Ferrier also pointed out that increase in American services like law and architecture, which were opened by the 2012 trade deal, don’t show up in the goods trade data.
Bringing It Home
The health of the Korean economy is no longer just a far-off concern. Since the FTA was enacted, the stock of Korean investment in the United States has more than doubled to $40 billion, according to KEI.
Much of that has come to the South, where parts suppliers have followed the Hyundai and Kia plants, and where some other major industrial players like SKC and Doosan have found homes. LG announced in February plans to build a $250 million home appliance plant in Clarksville, Tenn.
Georgia had 13 Korean investments announced last fiscal year, and Alabama has also had its fair share.
Auburn, Ala., has become a bedroom community for Korean executives and their families working in the auto plants of east Alabama and west Georgia, said Ardnt Siepmann, the city’s director of industrial development.
In a city of about 65,000 people, now some 3,000 are Korean, with churches and community centers now springing up to serve the nascent community, and children integrating into the school system.
“You will see that there is no class without two or three Korean kids,” he said.
Mr. Siepmann, who is German-born, said he was “shocked” by the protectionist rhetoric around the time of the U.S. elections, given his view from the ground. While convinced that “investment follows trade,” he did concede that people’s views on trade are contingent on how it affects them. To him, eight Korean projects out of Auburn’s 25 international investments help prove that the benefits of the relationship flow in both directions.
“International investment is huge for our local economy,” he said, noting that he sees each plant as a “profit center” for the community.
Still, there seems to be more room for cultural awareness. A Bloomberg Businessweek article this week fingered negative aspects of the foreign-led auto boom in the South. The story pointed out gruesome safety accidents and repeated OSHA violations at some factories owned by Korean, German, Japanese (and also U.S.) investors, some allegedly resulting from lax training and overly ambitious quotas.
At one point in 2010, Alabama had a 50 percent higher OSHA infraction rate than the national average, though that has dropped since, according to the article. And from 2012-16, Korean-owned factories accounted for 36 percent of the infractions and more than half the fines in the state. They made up about a quarter of the parts plants in Alabama.
Despite these issues, as well as wages lower than the national average, the auto boom has provided jobs to communities hit hard by the exodus of the South’s textile industry.
Kia employs more than 3,000 workers directly, but the overall impact including suppliers is now pegged at more than 10,000 jobs, with some estimates ranging up to 15,000. Kia has also catalyst for the area’s broader workforce training initiatives and has been a big customer of the Georgia ports, which support hundreds of thousands more positions in the state.
That future was on Mr. Lesser’s mind when he went to Seoul to witness the official signing of the Kia deal with Mr. Ahn and Hyundai-Kia Automotive Group chairman Chung Mong-koo.
“This was the most emotional thing that has happened to me in my professional career,” Mr. Lesser said of watching Gov. Perdue sign the papers at a large ceremony. “It dawned on me at that moment, how many lives in Georgia, in Alabama and in our region were going to be impacted by Kia’s investment in Georgia.”
At the end, Mr. Ahn presented him with a photo album. The bar tab was on the back page. Now, there are Korean barbecue restaurants in West Point.
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