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Abstract
In 1996, the South Korean conglomerate LG announced a £1.67 billion investment in Wales to manufacture consumer electronics and semiconductors. The project was to be Europe’s largest inward investment project, and LG was offered the UK Government’s most generous grants. However, the semiconductor plant was built but never entered production, while the consumer electronics facility closed in stages up to 2006. This article responds to calls for a ‘new business history’ by using the ill-fated investment as a case study of business failure, arguing that narrow firm-specific factors do not fully explain LG’s failure in Wales. The article finds instead that analysis of distorted institutional environments in South Korea and Wales, linked to rent-seeking behaviour by LG, provides a fuller answer.
Notes
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4. The ‘cultural’ approach is outlined within Fridenson, Business Failure and the Agenda of Business History. Many studies (e.g.: Graham, RCA and the Videodisk: The Business of Research) fit within the narrow firm-level approach. The ‘incentives’ approach includes works such as: Buckley. Business History and International Business; Brownlow. Back to the Failure: an Analytic Narrative of the De Lorean Debacle, and; Brownlow. Soft Budget Constraints and Regional Industrial Policy: Reinterpreting the Rise and Fall of DeLorean.
5. UNCTAD. World Investment Report, Annex 1.
6. ‘Greenfield’ refers to an investment on a new site, as opposed to one linked to an expansion of an existing operation or to a merger or acquisition.
7. Wales Audit Office. Protecting Public Money in the LG Projects, 9.
8. In the 1960s, theorists such as Hymer rejected perfectly competitive markets, instead focusing on the ability of firms dominant in home markets to use company-specific scale factors to expand through FDI. Dunning’s Ownership, Location and Internalization (OLI) stressed the importance of such factors within FDI. Later refinements to OLI explained the existence of multinational corporations (MNCs) and hence FDI, through transactional market failures. Such ‘internationalisation’ theory proposes that MNCs invest internationally when the transaction costs of intermediate goods are greater than the internal governance costs of transnational production. Rugman and Verbeke extended this by highlighting MNC’s manipulation of internal resources to gain competitive advantage, while Matthews emphasised the capture of external resources as a strategic goal of internationalisation. Theorising moved beyond narrow market power and efficiency-based considerations towards strategic management issues, but generally stressed the importance of company-specific factors. See Hymer. The International Operations of National Firms; Dunning and Lundan. Multinational Enterprises and the Global Economy; Dunning and Narula. Multinationals and Industrial Competitiveness; Rugman and Verbeke. Extending the Theory of the Multinational Enterprise; Matthews.
9. Wade. Governing the Market, 342.
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32. Ungson, Steers and Park. Korean Enterprise, 43.
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50. Gooberman. Welsh Office Exceptionalism.
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56. UKTI project database, author’s calculations.
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66. TNA WA 8/234 WDA Board Papers, 28 June 1996.
67. TNA WA 8/235 WDA Board Papers, 24 July 1996.
68. Interview with Garel Rhys, WDA Board Member (1994–1998), November 2011.
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70. TNA WA 8/235 WDA Board Papers, 30 May 1996.
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72. TNA WA 8/235 WDA Board Papers, 24 July 1996.
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78. TNA WA 8/237 WDA Board Papers, 2 October 1996.
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80. Wales Audit Office. Protecting Public Money in the LG Projects, 7.
81. Interview with Brian Morgan, WDA Chief Economist (1991–1997), December 2011.
82. TNA WA 8/241 WDA Board Papers, 29 November 1996.
83. TNA WA 8/246 WDA Board Papers, 18 April 1997; WA 8/251, 18 September 1997.
84. TNA WA 8/250 WDA Board Papers, 21 November 1997.
85. TNA WA 8/264, WDA Board Papers, 26 January 1999.
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91. WDA 8/326, WDA Board Papers, 3 June 2004.
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98. Matthews and Cho. Tiger Technology, 41.
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101. National Assembly for Wales, Audit Committee. Protecting Public Money in the LG Projects, 2007, 34.
102. Hynix Semiconductor Wales, WDA. The Hynix Fab Proposition in Wales, UK.
103. Wales Audit Office. Protecting Public Money in the LG Projects, 9.
104. UKTI project database.
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110. UKTI project database.
111. Author’s interview with Ron Davies, Secretary of State for Wales (1997–1999) March 2011.
112. ‘Bribing for Britain.’ The Economist, 8 June 1996.
113. Shin. European Integration and Foreign Direct Investment in the EU, 197.
114. TNA WA 8/252 WDA Board Papers, 29 January 1998.
115. Crafts. East Asian Growth, 156, 162.
116. E.g. Mazzucato. The Entrepreneurial State; Moretti. The New Geography of Jobs.