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The Korea Trade R

esearch Association

Journal of

Korea Trade

ISSN 1229-828X

Volume 24 Number 6 2020

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Journal of Korea Trade Volum

e 24 Num

ber 6 2020

Journal of Korea Trade purports to support

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Mokwon University Korea

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Myongji University Korea


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Keimyung University Korea

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Journal of

Korea Trade

ISSN 1229-828X


JKTThe Korea Trade

Research Associationwwwnewktraorg

What Drives the Listing Effect in Acquirer Returns Evidence from the Korean Chinese and Taiwanese Stock MarketsByoung-Jin Kim and Jin-Young Jung 1Application of the Terms and Conditions of English Law Related to the Duty of Utmost Good Faith under Marine Insurance Contract Korean Supreme Court Decision 20181025 Docket No2017Da272103Jee-Moon Pak 19Innovation Space Driving Business Growth of Semiconductor Enterprises A Case Study of South Korean Samsungrsquos Investment in ChinaEun-Young Nam and Xiao-Long Wang 37Consumer Animosity to Foreign Product Purchase Evidence from Korean Export to ChinaJin-Hee Kim and Myung Suk Kim 61Analysis of Gender Chapters in Five Free Trade Agreements and Its Lessons for KoreaBomin Ko 82The 2019 Hong Kong-Mainland China Arrangement on Mutual Assistance in Court-ordered Interim Measures A Major Breakthrough for Hong Kong-seated International Arbitral ProceedingsJung Won Jun 101The Nationality Effect of Price Discrimination in the Container Shipping Market and Its Implications for Development Economics Treating Hanjin Shippingrsquos Collapse as a Natural ExperimentKo Byoung-Wook 115Can Traditional Industry Firms Be Born Global Case Study with a Focus on Chinese and Korean FirmsQingsong Kang Ki-Chang Yoon and Joshua Park 135The Impact of Export Insurance on Exports to ASEAN and India The Experience of KoreaKoung-Rae Lee and Seo-Young Lee 157Empirical Analysis of Effect of Entrepreneurship on Export Performance Focusing on the Mediated Effect of Technology Capability and Export Support Policy of Start-UpsSe-Hwan Joo and Gun-Hoon Shin 173

wwwnewktraorg

1

JKT 24(6)

What Drives the Listing Effect in Acquirer Returns Evidence from the Korean

Chinese and Taiwanese Stock Markets

Byoung-Jin Kim Department of Business Administration Korea Polytechnic University South Korea

Jin-Young Jungdagger College of Business Administration Inha University South Korea

Abstract Purpose ndash This study investigates whether a listing effect exists in cross-border MampAs and whether the effect can be attributed to the uncertainty of the GDP growth rate in the target firmrsquos home country We apply a joint variable analysis using MampA announcement data from the Korea Exchange (KRX) Shanghai Stock Exchange (SSE) and the Taiwan Stock Exchange (TWSE) from 2004 to 2013 We also conduct an event study using the measure of the uncertainty of the GDP growth rate (based on IMF statistics) in 55 target countries Designmethodology ndash We measure the abnormal return (AR) using the market-adjusted model We test the significance of the AR and the cumulative abnormal return (CAR) using a one-sample t-test We examine the characteristics of the CARs depending on whether the target company is listed by applying a difference analysis using CAR as a test variable In addition we set CAR (-5 +5) as a dependent variable to identify the cause of the listing effect and test both the financial characteristic variables of the acquirer and the collective characteristic variables of the merger as independent variables in the multiple regression analysis Findings ndash First we find the listing effect of cross-border MampAs in the KRX SSE and TWSE which represent the capital markets in Korea China and Taiwan respectively This listing effect persists during the global financial crisis and has a negative effect on the wealth of acquiring shareholders especially when the target countries are emerging markets Second greater uncertainty regarding the target countriesrsquo economic growth in cross-border MampAs has a negative effect on the wealth of acquiring firmsrsquo shareholders Third our empirical analysis demonstrates that the listing effect is attributable to the fact that firms listed in a target country with greater uncertainty of economic growth are more directly and greatly exposed to uncertain capital markets through stock markets than are unlisted firms Originalityvalue ndash This study is significant in that it presents a new strategic perspective in the study of cross-border MampAs by demonstrating empirically that the listing effect is attributable to the uncertainty regarding the economic development of the target firmsrsquo home countries

Keywords China Cross-border MampA GDP Growth Uncertainty Korea Listing Effect Taiwan JEL Classifications F14 G15 G34

1 Introduction Cross-border MampAs have been a tool for firmsrsquo globalization since the 1990s and play a

critical role in foreign direct investment (FDI) Cross-border MampAs are a means to secure excellent human resources and technologies as well as market dominance which take

This work was supported by an Inha University Research Grant dagger Corresponding author jyjunginhaackr

copy 2020 Korea Trade Research Association All right reserved

Journal of Korea Trade Vol 24 No 6 October 2020 1-18

httpsdoiorg1035611jkt20202461

ISSN 1229-828X

Journal of Korea Trade Vol 24 No 6 October 2020

2 considerable time and money to obtain within a short period These ultimately improve firmsrsquo management efficiency and global competitiveness (Aybar and Ficici 2009) They are also a business strategy for survival in the era of globalization amid a rapidly transforming business environment As cross-border MampAs are a critical business strategy a firm should decide to proceed only when the MampA outcomes align with the goal of increasing shareholdersrsquo wealth However empirical studies on the impact of the announcement of a cross-border MampA on shareholdersrsquo wealth depending on the group attributes of the mergers report mixed results Moeller and Schlingemann (2005) report a ldquosize effectrdquo whereby small-sized firms gain positive abnormal returns (ARs) from the announcement of cross-border MampAs whereas big firms gain zero or negative AR On the ldquodiversification effectrdquo the school of thought of increased value mainly advocated by Lewellen (1971) and that of diminished value mainly advocated by Levy and Sarnat (1970) present conflicting results regardless of whether the MampAs are domestic or cross-border

Among the group attributes of cross-border MampAs Faccio McConnell and Stolin (2006) find a ldquolisting effect1rdquo in their study of 17 Western European countries regardless of time or nationality Although they predict that this effect might be due to an economic phenomenon they do not provide a definite answer as to its causes Mateev (2017) also report that in the UK and European countries which have the most active MampAs in the world European acquirers witness positive ARs from both domestic and cross-border acquisitions but there are significant differences in the means of payment for acquisition and the listing of the target company Karels Lawrence and Yu (2011) examine the announcement effect of cross-border MampAs between US and Indian firms and conclude that the acquiring firm gains insignificantly positive (+) ARs when the acquiring firm is a listed Indian firm and the target is a listed US firm while the acquiring firm gains significantly positive (+) ARs when the target firm is a non-listed US firm This result confirms the existence of the listing effect but does not reveal a clear reason

Cross-border MampAs are a universal tool for FDI (Liou 2018) in which the target countryrsquos GDP affects the investment decision Bevan and Estrin (2004) Franco and Gerussi (2013) and Resmini (2003) state that the target countriesrsquo GDP has a critical effect on decision making related to FDI and Deichmann (2001) states that GDP is the best indicator of market growth when determining FDI Additionally Bekaert Harvey and Lundblad (2005) Henry (2000) Kenny and Moss (1998) Levine (1997) Levin and Zervos (1998) and Rajan and Zingales (1998) report that economic development has a highly positive correlation with capital markets and Kinateder Fabich and Wagner (2017) report that the wealth of the target firmrsquos shareholders is positively related to the GDP growth rate in cross-border MampAs Hence we exploit this intuition to investigate several hypotheses regarding economic volatility and the listing effect We measure economic volatility in the target countries by dividing the covariance between the worldwide and the target country GDP growth rates by the variance of worldwide GDP growth rate for 10 years We use a sample of 324 non-financial firms listed on the Korea Exchange (KRX) Shanghai Stock Exchange (SSE) and the Taiwan Stock Exchange (TWSE) 2 that announced (and completed) cross-border MampAs between 2004 and 2013 in 55 target countries and conduct an event study

1 Faccio McConnell and Stolin (2006) report a phenomenon in which acquirers achieve zero or negative CARs when acquiring listed targets and positive average CARs when acquiring unlisted targets in studies of MampAs Therefore they refer to this listing factor as the ldquolisting effectrdquo in acquirersrsquo announcement returns

2 We included only completed deals in the sample becausemdashdue to high uncertaintymdashmany announced cross-border MampAs are eventually cancelled

What Drives the Listing Effect in Acquirer Returns Evidence from the Korean Chinese and Taiwanese Stock Markets

3 Our main results are as follows First we confirm the presence of a listing effect of cross-

border MampAs in the KRX SSE and TWSE until recently Second greater uncertainty of economic growth in the target countries has a negative effect on the wealth of acquiring firmsrsquo shareholders in cross-border MampAs Third we prove empirically that the listing effect in cross-border MampAs is more prominent when the uncertainty of economic growth in the target countries is higher because listed firms are more directly and greatly exposed to uncertain capital markets through stock markets than are unlisted firms

The remainder of this paper is structured as follows The next section introduces related prior studies and develops the hypotheses and Section 3 presents the study methodologies and sample Section 4 lays out the empirical analysis and the studyrsquos findings and Section 5 sums up the study and presents the conclusions

2 Preceding Studies and Hypothesis Development

21 Literature Review Chang Sae-Young (1998) examines the listing effect of an MampA in which the AR is either

zero or negative if the target firms are listed and the AR is significantly positive when the target firms are not listed Chang Sae-Young (1998) reports that the acquisition of unlisted firms leads to a positive AR but even the acquisition of listed firms can lead to a positive AR for acquiring firms when the transaction is paid for in stock which shows that the listing effect may differ depending on the payment method of the merger Additionally Fuller Netter and Stegemoller (2002) argue that the acquisition of unlisted firms or affiliated firms results in a positive AR and paying for the deal in stockmdashrather than cashmdashwill lead to even greater profit due to the liquidity discount tax effect and control effect

The listing effect is evident not only in cross-border MampAs but also in domestic mergers Conn et al (2005) study the disclosure effect among British listed firms by distinguishing between domestic and cross-border MampAs and between listed and unlisted firms They report that the announcement effect related to acquiring a listed firm has a significantly negative correlation with the AR in domestic MampAs and is zero for cross-border MampAs while the announcement effect associated with acquiring an unlisted firm has a significantly positive correlation for both domestic and cross-border MampAs Mantecon (2009) examines 6824 events involving 75 bidder countries and 128 target countries between 1985 and 2005 and finds that listed target firms have a significantly negative correlation with the acquirerrsquos CAR whereas unlisted target firms have a significantly positive correlation in both domestic and cross-border acquisitions Chari Ouimet and Tesar (2009) study multinational firms in industrialized economies between 1986 and 2006 and compare cases where they acquire firms in emerging and advanced markets They find that the acquisition of unlisted target firms results in a significantly positive AR for the acquirers both in emerging and advanced markets In short the listing effect from the announcement of cross-border MampAs occurs in both cross-border and domestic mergers as well as in emerging and developed markets The acquiring firmsrsquo shareholders obtain negative or almost zero gains if the target is a listed company but obtain a significantly positive AR if the target is an unlisted company

Faccio McConnell and Stolin (2006) claim that the hypotheses on the listing effect in the studies by Chang Sae-Young (1998) and Fuller Netter and Stegemoller (2002) fall short of fully explaining the cause of the listing effect For 17 Western European countries from 1996 to 2001 Faccio McConnell and Stolin (2006) include control variables such as payment method at the time of merger the size of the target company Tobinrsquos Q information leakage


4 and block deal transactions in the ownership structure Regardless of the controls when firms acquire a non-listed company they gain a significant positive (+) AR but when firms acquire a listed company the result is a zero or negative (-) AR However these studies argue only that the listing effect is due to economic phenomena of the target countries rather than the peculiar institutional or regulatory characteristics of the target countriesmdashthey do not reveal the direct cause

22 Hypothesis Development Previous studies analyzing the listing effect of cross-border MampAs consider only the target

countryrsquos GDP or GDP growth rate as a control variable overlooking the uncertainty of the GDP growth rate as a cause variable Hence we measure the uncertainty of GDP growth rates in the target countries to explain the causes of the listing effect of cross-border MampAs in terms of the uncertainty of economic growth in the target countries which Faccio McConnell and Stolin (2006) do not clearly explain Building on these ideas we measure the uncertainty of the target countriesrsquo economic growth via the GDP index of 189 countries published by the International Monetary Fund (IMF) over the 10 years prior to the acquiring firmsrsquo MampA announcement as below

i) TGDP

ii) WGDP

iii) σП

sum П13 П

iv) CovП П

sum П

13П П

13 П

v) TargetcountrysGDPgrowthuncertainty П13

П

П

(1)

where (t= -10 -9 -8 -7 -6 -5 -4 -3 -2 -1) TGDP target country irsquos GDP growth rate for the year t immediately prior to the

announcement

WGDP worldwide average GDP growth rate of 189 countries for the year t immediately prior to the announcement

σП

variance of GDP of 189 countries for the 10 years from the year immediately prior to the announcement

CovП П covariance between target country irsquos GDP growth rates and the GDP growth rates of 189 countries for the 10 years from the year immediately prior to the announcement

П average GDP growth rate of target country i for the 10 years from the year immediately prior to the announcement

П average GDP growth rate of the 189 countries for the 10 years from the year immediately preceding announcements and

Target countryrsquos GDP growth uncertainty target country irsquos volatility of GDP growth rate


5 When the uncertainty of a target countryrsquos GDP calculated as above is high it suggests that

there is high uncertainty regarding the target countryrsquos economic growth Listed firms in a target country with high uncertainty of economic growth are more likely to be greatly exposed to uncertain capital markets through stock markets in light of the findings by Levine and Zervos (1998) who suggest that economic growth has a highly positive correlation with stock markets Therefore we expect that firms in countries with high GDP volatility will display a negative listing effect in cross-border MampAs We thus propose the following hypotheses

H1 In the capital markets of Korea China and Taiwan there is a listing effect of cross-border

MampAs H2 Cross-border MampAs involving a target firm listed in a country with great uncertainty of

economic growth listed during the financial crisis or listed in an emerging market will have a negative effect on the wealth of acquiring firmsrsquo shareholders

3 Study Methods and Sample

31 Study Methods 311 Calculation of AR We choose the market-adjusted model over the market model to calculate AR to minimize

the bias in estimating parameters (Bouwman Fuller and Nain 2009 Brown and Warner 1985) Bouwman Fuller and Nain (2009) recommend the market-adjusted model for event studies for MampAs because firms that disclose multiple MampAs may experience a bias in estimation results as the parameter estimation period includes more than one MampA announcement for the market model resulting in a biased estimator

AR = R - R (2)

where

AR AR of individual stock i on day t R actual returns of individual stock i on day t and R market index returns on day t

For the market returns in the market-adjusted model we use index returns from the Korea

Composite Stock Price Index (KOSPI) for Korea the Shanghai Stock Exchange Composite Index (SSEC) for China and the Taiwan Weighted Average Stock Index (TAIEX) for Taiwan Per CAR we sum up the ARs throughout the event period As this study focuses on market reactions to the announcement of cross-border MampAs we use the MampA announcement date as the baseline date to calculate the ARs

312 Difference Test on CARs Depending on Whether Target Firms Are Listed In order to verify how CAR changes depending on whether the target firms are listed this

study performs a difference analysis with a t-test on independent samples where the group variable is whether target firms are listed and the test variable is CAR Per classification of the group variable if Target Public Status from the SDC Platinum Database is marked as Public the variable is classified as ldquoListed Targetsrdquo and otherwise as ldquoUnlisted Targetsrdquo The test statistics for the t-test are as follows


6

Test statistics on testing difference =

(3)

where

number of firms that acquired listed firms number of firms that acquired non-listed firms

the variance of the aggregated CARs across firms that acquired listed firms and

the variance of the aggregated CARs across firms that acquired non-listed firms

313 Multiple Regression Analysis of Market Reactions To verify the listing effect of cross-border MampAs and attribute it to the uncertainty of the

target countriesrsquo economic growth we use 324 events involving non-financial institutions and 55 target countries where the firms announced cross-border MampAs in the KRX SSE and TWSE between 2004 and 2013 as a sample and perform a multiple regression analysis The dependent variable is CAR (-5 5) calculated by summing the ARs throughout the event period using the market-adjusted model

The independent variables are the listed target dummy listed target emerging dummy and listed target 2008crisis dummy and the control variables are the target countryrsquos GDP growth uncertainty size of the target countryrsquos GDP target countryrsquos FDI amount cultural index of the target country and financial characteristics of the acquiring firms In addition we determine the cause of the listing effect from the uncertainty of GDP growth in the target companyrsquos country by conducting a multiple regression analysis with a cross-term of the dummy variable reflecting whether the target firms are listed and a variable for the target countriesrsquo GDP growth rate uncertainty as an explanatory variable

Model 1 is a multiple regression model designed to verify the listing effect of cross-border MampAs in the KRX SSE and TWSE

Model 1

=+Listed target dummy+Target listed in emerging dummy +Target listed during 2008crisis dummy +13Target GDP growth uncertainty+GDP of a target country +FDI of a target country+Culture index of a target country +sum

Control variables of acquiring firms+ (4)

Model 2 is a multiple regression model designed to determine the cause of the listing effect

from the uncertainty of GDP growth of the target country with the cross-term of the dummy variable reflecting whether target firms are listed and target countriesrsquo GDP growth rate uncertainty as an explanatory variable

Model 2

=+Listed target dummyTarget GDP growth uncertainty +Target listed in emerging dummyTarget GDP growth uncertainty


7 +Target listed during 2008crisis dummyTarget GDP growth uncertainty +Listed target dummy+Target listed in emerging dummy +Target listed during 2008crisis dummy +Target GDP growth uncertainty+GDP of a target country +FDI of a target country+Culture index of a target country

+sum Control variables of acquiring firm+13 (5)

We define the independent variables in the regression models below

bull Listed target dummy equals 1 if the Target Public Status (an item from the SDC Platinum database) is ldquopublicrdquo and 0 otherwise

bull Target listed in emerging dummy equals 1 if the target company is a listed company in a country that is not a G7 country and 0 otherwise

bull Target listed during 2008crisis dummy equals 1 if a firm acquired a listed company during the 2008 global financial crisis and 0 otherwise

bull Target GDP growth uncertainty described in Section 22 in detail bull GDP of a target country the natural logarithm of the target countryrsquos GDP for

the year prior to the MampA announcement bull FDI of a target country the sum of FDI inflows and FDI outflows divided by the

GDP of the target country for the year prior to the MampA announcement bull Culture index a target country Hofstedersquos cultural dimensions score bull Market value of acquiring firm the natural logarithm of the total market

capitalization for common stocks (unit US $1000) at the end of the year immediately prior to the announcement of cross-border MampAs

bull Leverage of acquiring firm the ratio of the total debt divided by the total assets of the year-end balance sheet for the year immediately prior to the MampA

bull Gross Margin of acquiring firm the ratio of the total margin divided by total revenues multiplied by 100

bull ROA of acquiring firm the ratio of net income divided by total assets on the year-end balance sheet for the year immediately prior to the MampA announcement

bull Tobinrsquos Q of acquiring firm the ratio of the sum of the total market capitalization of common stocks and the debt divided by total assets

32 Sample We select the sample from the data provided by the SDC Platinum Database for non-

financial companies that disclosed and completed cross-border MampAs in the KRX SSE and TWSE which represent the capital markets in Korea China and Taiwan respectively between 2004 and 2013 Table 1 shows the sampling process For stock price and financial data we collect data from FactSet Research Systems3

3 FactSet Research Systems is a professional financial data software company that provides analysts at financial institutions and investment bankers with financial data and corporate financial information


8 Table 1 Sample Selection Process

Selection Criteria Observation Korea China Taiwan Total

Cross-border MampA events between 2004 and 2013 from the SDC Platinum Database

1015 2159 553 3727

LESS - Acquiring firms are not listed (400) (1429) (207) (2036) - MampAs were disclosed but did not take effect (266) (366) (179) (811) - Acquiring firms are financial institutions (20) (61) (6) (87) - Target firms are financial institutions (12) (36) (3) (51) - The ticker symbol for the event cannot be verified (98) (193) (6) (297) - Sample observation from SDC Platinum Database 219 74 152 445 - Stock price and financial data are not available for

the event (39) (24) (58) (121)

- Final sample observation 180 50 94 324

Panel A in Table 2 shows the acquiring countries by year The number of cross-border

MampA events increased annually between 2004 and 2013 for the KRX SSE and TWSE with 180 cases 50 cases and 94 cases respectively Panel B represents target firms by country In the sample 56 target firms are from the US 55 from China and 23 from Australia As for listing country 11 target firms are listed in Australia (1803) 8 in Canada (1311) and 6 in the US (984)

Table 2 Acquiring Countries by Year and Target Firms by Country

Panel A Distribution of Acquiring Countries by Year

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Korea (n=180)

7 13 13 9 22 16 27 32 25 16

China (n=50)

5 1 1 4 6 10 7 7 3 6

Taiwan (n=94)

10 7 9 10 7 16 12 6 9 8

Total (n=324)

22 21 23 23 35 42 46 45 37 30

Panel B Distribution of Target Firms by Country

N Listed Listed portion

United States 56 6 984 China 55 3 492 Australia 23 11 1803 Japan 20 3 492 Germany 18 2 328 United Kingdom 13 0 000


9 Table 2 (Continued)



Canada 12 8 1311 Indonesia 11 1 164 India 10 4 656 Brazil 9 2 328 Singapore 8 1 164 Vietnam 8 3 492 France 7 0 000 Hong Kong 7 1 164 Czech Republic 6 0 000 Netherlands 4 2 328 Philippines 4 3 492 Russian Fed 4 1 164 Chile 3 0 000 Italy 3 0 000 Malaysia 3 1 164 Hungary 2 1 164 Israel 2 1 164 Norway 2 1 164 Poland 2 0 000 Slovak Rep 2 0 000 Sweden 2 0 000 Denmark 1 1 164 Finland 1 1 164 Kazakhstan 1 1 164 South Korea 1 1 164 Taiwan 1 1 164 Thailand 1 1 164 Other 22 0 001 Sample of total 324 61 10000

Table 3 reports the results of the one-sample t-test to see if there is a significant difference

between 0 and the observed values of AR calculated using the market-adjusted model based on the announcement date for the 324 events as well as for CAR calculated by summing the AR values throughout the event period The results of the one-sample t-test on AR are 034 for day -1 036 on day 0 and 039 for day +1 which are all significant The CAR values are significant and positive ranging from 098 to 180 in the results of the one-sample t-test of CAR

=sum AR

(t-n -1 tn 1234510) (t-n -5 tn 12345) These findings suggest that cross-border MampAs in the KRX SSE and TWSE increase the wealth of acquiring firmsrsquo shareholders and therefore are in line with findings by Chair Ouimet and Tesar (2009) Francis Hasan and Sun (2008) Goergen and Renneboog (2004) and Mantecon (2009)


10 Table 3 Acquiring Firmsrsquo AR and CAR Based on the Disclosure of Cross-Border MampAs

Event days Mean t-value Event window Mean t-value

-5AR -0099 -0662 CAR(-11) 1105 3814

-4AR 0285 2208 CAR(-12) 1107 3444

-3AR 0272 1794 CAR(-13) 1168 3500

-2AR 0175 1084 CAR(-14) 0989 2859

-1AR 0344 2241 CAR(-15) 1038 2767

0AR 0368 2232 CAR(-51) 1738 4147

1AR 0393 2680 CAR(-52) 1741 3972

2AR 0003 0019 CAR(-53) 1801 4136

3AR 0060 0428 CAR(-54) 1622 3800

4AR -0179 -1217 CAR(-55) 1671 3805

5AR 0048 0330 CAR(-110) 1033 2198

Notes 1 324 cross-border MampA events in the KRX SSE and TWSE between 2004 and 2013 2 We provide heteroskedasticity-robust t-statistics 3 plt01plt005plt001

33 Descriptive Statistics of the Variables Table 4 reports the descriptive statistics for the dependent and independent variables for

the final sample of 324 cases The mean value of the dependent variable CAR (-5 5) calculated by summing the AR throughout the event period using the market-adjusted model is 167 and the median is 062 The mean market value which is the natural logarithm of the total market capitalization for common stocks (unit US$1000) at the end of the year immediately before the disclosure of cross-border MampA is 1468 and the median is 1486 The mean firm value (Tobinrsquos Q) which is the sum of the total year-end market capitalization of common stocks (unit US$1000) for the year immediately prior to the disclosure of cross-border MampAs and the total debt on the year-end balance sheet (unit US$1000) divided by the total asset on the year-end balance sheet is greater than 1 for both the mean and median which suffices as an incentive for new facility investments Lastly the mean and median for the target countriesrsquo GDP growth rate uncertainty (Target GDP growth uncertainty) which is calculated by dividing the covariance of the worldwide GDP growth rate and the target countriesrsquo GDP growth rate by the variance of the worldwide GDP growth rate via the GDP index published by the IMF on 189 countries for the past 10 years are 083 and 080 respectively both smaller than 1 However the value for the third quartile is greater than 1 at 104

Table 4 Descriptive Statistics

Variables Mean Median Standard deviation

First quartile

Third quartile

Sample size

CAR (-55) of acquiring firm

1664 0540 7914 -2750 5911 324

Target GDP growth uncertainty

0839 0810 0479 0530 1050 324

GDP of a target country

28024 28302 2238 27014 29261 324




First quartile

Third quartile

Sample size

FDI of a target country 0389 0398 0056 0373 0415 324 Culture index of a target country

4788 5416 1730 5298 5476 324

Market value of acquiring firm

14692 14860 2140 13190 16180 324

Leverage of acquiring firm

47249 48978 18391 32283 60755 324

Gross margin of acquiring firm

21919 17506 15699 10416 29908 324

ROA of acquiring firm 10835 11960 16000 5009 18449 324 Tobinrsquos Q of acquiring firm

1538 1233 1006 0954 1638 324

4 Empirical Analysis Results

41 Difference Analysis of CARs Depending on Target Firmsrsquo Listing Status

Table 5 represents the results of the t-test of the difference analysis of the independent samples where the group variable is whether the target firms are listed and the test variable is CAR to examine how CAR changes depending on whether the target firms are listed For all the CAR

=sum AR

(t-n-1 tn 1234510) (t-n-5 tn 12345) test variables the group variable of ldquoListed Targetsrdquo displays a mixed result of insignificantly positive and negative correlations whereas the group variable of ldquoUnlisted Targetsrdquo consistently displays a significantly positive result The difference analysis results for the group variables CAR

=sum AR

(t-n-1 tn 4510) (t-n-5 tn 12345) consistently display significantly different reactions where the group variable ldquoUnlisted Targetsrdquo registers a greater AR This result indicates that the announcement of cross-border MampAs in the KRX SSE and TWSE has a positive effect on the wealth of acquiring firmsrsquo shareholders when the target firms are not listed

Table 5 Testing for Difference on CAR Depending on Whether Target Firms are Listed

Variables Listed Targets Unlisted Targets Difference

Mean(A) t-value

Mean(B) t-value Difference

(A) - (B) t-value


0269 0353 1295 4176 -1026 -1248


0147 0164 1326 3926 -1179 -1233


0416 0442 1339 3829 -0923 -0921




Mean(A) t-value


(A) - (B) t-value


-0343 -0348 1292 3598 -1635 -1842


-0430 -0424 1371 3461 -1802 -1874


-0485 -0462 2243 4977 -2729 -2551


-0607 -0520 2274 4916 -2881 -2576


-0338 -0273 2287 5084 -2626 -2359


-1097 -0870 2240 5197 -3337 -3076


-1184 -0924 2320 5211 -3504 -3142


-0571 -0473 1361 2795 -1932 -1649

Note plt01 plt005 plt001

42 Multiple Regression Analysis of the Listing Effect of Cross-Border MampAs

Table 6 presents the results of the multiple regression analysis using Model 1 to verify the listing effect of cross-border MampAs in the KRX SSE and TWSE In columns (1) and (2) the independent variables Listed target dummy and Target listed in emerging dummy show a significant negative (-) market response and in column (3) the independent variable Target listed during 2008crisis dummy shows an insignificant negative (-) market reaction This market reaction means that the listing effect exists in Korea China and Taiwan In addition in all columns (1) (2) and (3) the control variable Target GDP growth uncertainty shows a positively significant negative market response Thus the economic uncertainty of the target firmrsquos country has a negative impact on the wealth of the acquirerrsquos shareholders In addition the control variable for the market value of the acquiring firm shows a significant negative (-) market response in all columns (1) (2) and (3) indicating a size effect The results of this empirical analysis positively support Hypothesis 1 that the listing effect of cross-border MampAs appears in the capital markets of Korea China and Taiwan and that when companies listed in emerging markets are acquired the listing effect is stronger

Table 6 Market Reactions to the Listing Effect of Cross-Border MampAs

Variables ltModel 1gt(1) (2) (3)

Listed target dummy -3846(-3411)

Target listed in emerging dummy -5194(-3681)

Target listed during 2008 crisis dummy -5122 (-1487)



Variables ltModel 1gt

(1) (2) (3) Target GDP growth uncertainty -2539

(-2699) -2596

(-2765) -2315 (-2402)

GDP of a target country 0042(0154)

-0095(-0341)

0075 (0267)

FDI of a target country 4539(0433)

3375(0324)

2297 (0216)

Culture index of a target country -0201(-0759)

-0035(-0133)

-0085 (-0316)

Market value of acquiring firm -0698(-3092)

-0699(-3110)

-0702 (-3066)

Leverage of acquiring firm 0002(0066)

0006(0228)

0006 (0191)

Gross margin of acquiring firm 0025(0690)

0021(0578)

0011 (0309)

ROA of acquiring firm -0017(-0579)

-0015(-0490)

-0018 (-0603)

Tobinrsquos Q of acquiring firm -0046(-0091)

0014(0028)

0164 (0317)

Year dummy effects Yes Yes Yes Country fixed effects Yes Yes Yes Sample size 324 324 324 F-value 2746 2860 2186 AdjR2 0093 0099 0065

Notes 1 We report heteroskedasticity-robust t-values in parentheses 2 plt01 plt005 plt001

Table 7 represents the results of the multiple regression analysis using Model 2 to attribute

the listing effect of cross-border MampAs to the uncertainty of target countriesrsquo economic growth In Model 2 we interact the independent variables Listed target dummy Target listed in emerging dummy and target listed during 2008crisis dummy with the variable Target GDP growth uncertainty and input the cross-terms as explanatory variables Column (1) reports the result for the cross-term Listed target dummyTarget GDP growth uncertainty which shows a significant negative (-) market response We can interpret this result to mean that the acquisition of a listed company in a country with high uncertainty in its GDP growth rate negatively affects the wealth of the acquiring shareholders In other words companies listed in countries with high uncertainty in GDP growth will negatively affect the wealth of shareholders of acquiring companies because listed companies are more directly exposed to uncertain capital markets than are non-listed companies through the stock market supporting Hypothesis 2 Column (2) is the result for the cross-term Target listed in emerging dummyTarget GDP growth uncertainty which also shows a significant negative market


14 response When acquiring companies listed in emerging capital markets the higher the uncertainty in the target countryrsquos GDP growth rate the more negatively it will affect the wealth of the acquirerrsquos shareholders thus lending stronger support to Hypothesis 2 In addition in column (3) the Target listed during 2008crisis dummyTarget GDP growth uncertainty variable shows a significant negative (-) market response implying the listing effect appeared even during the global financial crisis and the cause is the GDP growth rate of the target country In sum the listing effect negatively affects the wealth of the acquirerrsquos shareholders because companies listed in countries with high uncertainty in the GDP growth rate are more directly exposed to the uncertain capital markets through the stock market This empirically proves that the uncertainty of the GDP growth rate of the target country is the cause of the listing effect which has not yet been clearly explained in prior studies of cross-border MampAs

Table 7 Listing Effect of Cross-Border MampAs and the Target Countryrsquos GDP Growth

Uncertainty


Listed target dummyTarget GDP growth uncertainty

-2135 (-2474)

Target listed in emerging dummyTarget GDP growth uncertainty

-1380(-1931)

Target listed during 2008crisis dummy Target GDP growth uncertainty

-4147 (-3113)


Target listed in emerging dummy -4780 (-3231)

Target listed during 2008crisis dummy -3036 (-0877)

Target GDP growth uncertainty -2184(-2131)

-2480 (-2619)

-1917 (-1999)


-0110(-0395)

0019 (0070)


3887(0373)

4472 (0426)


-0061(-0231)

-0186 (-0702)

Control variables of acquiring firm included included included Year dummy effects Yes Yes Yes Country fixed effects Yes Yes Yes Sample size 324 324 324 F-value 2845 2759 2621 AdjR2 0109 0098 0091



15 Table 8 shows the results of a logistic regression analysis to verify the robustness of the

results considering the heteroscedasticity when performing regression analysis using ARs (Harrington and Shrider 2007) Column (1) shows that the lower the CAR of the acquiring firms the higher the target GDP growth uncertainty and that the smaller the GDP of the target country the higher the likelihood of the target company being a listed company Column (2) shows that the lower the CAR of acquiring firms the higher the target GDP growth uncertainty and that the smaller the GDP of the acquirer country the higher the likelihood that the target firm is a listed company in an emerging capital market Column (3) confirms that the listing effect also existed during the 2008 financial crisis These research results are consistent with the results reported in Tables 6 and 7 In addition the fitness test of the logistic regression model and the Hosmer and Lemeshow test have statistically significant values

Table 8 Robustness Test Using Logistic Regression Analysis

Variables (1) (2) (3)

Listed target dummy

Target listed in emerging markets

Target listed during 2008crisis

CAR(-5 5) of acquiring firm -0066 (9326)

-0093 (9477)

-0099 (2973)

Target GDP growth uncertainty 1173 (9367)

1664(11552)

3569 (5069)

GDP of a target country -0195(3992)

-0840(19388)

-0507 (3304)


5188(1357)

16095 (0823)

Culture index a target country -0148(3512)

0247(3623)

0075 (0093)

Control variables of acquiring firm included included included Year dummy effects Yes Yes Yes Country fixed effects Yes Yes Yes Sample size 324 324 324 -2 Log L 28065 17485 3732 χ2 3237

(0000) 5507

(0000)2226

(0075) Hosmer and Lemeshow Testχ2 6222

(0622) 5891

(0659)1029

(0245) Notes 1 We report heteroskedasticity-robust Wald-values in parentheses

2 plt01 plt005 plt001

5 Conclusion This study investigates the listing effect of cross-border MampAs in terms of the uncertainty

of the target countryrsquos GDP growth rate We use a sample of 324 non-financial firms listed in the KRX SSE and TWSE that announced and completed cross-border MampAs between 2004 and 2013 in 55 target countries using an event study We confirm the negative ARs on the


16 wealth of the acquiring companyrsquos shareholders when acquiring a listed company in a cross-border MampA The main empirical analysis results of this study are as follows

First the listing effect of cross-border MampAs in Korea China and Taiwan occurred until recently When the target company is listed in an emerging capital market it has a greater negative impact on the wealth of the acquiring companyrsquos shareholders Second we find that the higher the uncertainty of the target countryrsquos GDP growth rate the more negatively it affects the wealth of the acquirerrsquos shareholders and that a size effect also appears in cross-border MampAs Third the listing effect in cross-border MampAs is due to the target countryrsquos GDP growth uncertainty We suggest that the higher the uncertainty in the GDP growth rate the more directly exposed the companies are to the capital market (through the stock market) compared to non-listed companies In addition the uncertainty in the GDP growth rate of the target country can explain the listing effects of cross-border MampAs when acquiring listed companies in emerging markets and during the 2008 global financial crisis

The results have great significance in that they present a new perspective in the study of cross-border MampAs by demonstrating that the listing effect is caused by the uncertainty of the GDP growth rate of the target country through empirical analysis Faccio McConnell and Stolin (2006) failed to show the causes even though they predict that the listing effect may be due to economic phenomena rather than the institutional or regulatory characteristics of the target country Recent research demonstrates that management performance improves after cross-border MampAs (Lane Koka and Pathak 2006 Park and Roh 2018 etc) while other results seem to indicate poor management performance (Stahl and Voigt 2008 Zhu Xia and Makino 2015 etc) in the long-term prospects Accordingly we aim to investigate the long-term effect of the listing effects of cross-border MampAs on management performance in a future study

References

Aybar B and A Ficici (2009) ldquoCross-Border Acquisitions and Firm Value An Analysis of

Emerging-Market Multinationalsrdquo Journal of International Business Studies 40 1317-1338

Bekaert G C Harvey and C Lundblad (2005) ldquoDoes Financial Liberalization Spur Growthrdquo

Journal of Financial Economics 77 3-55

Bevan A and S Estrin (2004) ldquoThe Determinants of Foreign Direct Investment into European

Transition Economiesrdquo Journal of Comparative Economics 32(4) 775-787

Bouwman C K Fuller and A Nain (2009) ldquoMarket Valuation and Acquisition Quality Empirical

Evidencerdquo The Review of Financial Studies 22(2) 633-679

Brown S and J Warner (1985) ldquoUsing Daily Stock Returns The Case of Event Studiesrdquo


Chang Sae-Young (1998) ldquoTakeovers of Privately Held Targets Methods of Payment and

Bidder Returnsrdquo The Journal of Finance 53(2) 773-784

Chari A P Ouimet and L Tesar (2009) ldquoThe Value of Control in Emerging Marketsrdquo Review of

Financial Studies 23 1-30

Conn R A Cosh P Guest and A Hughes (2005) ldquoThe Impact on UK Acquirers of Domestic

Cross-border Public and Private Acquisitionsrdquo Journal of Business Finance amp Accounting 32(5-

6) 815-870

Deichmann J I (2001) ldquoDistribution of Foreign Direct Investment among Transition

Economies in Central and Eastern Europerdquo Post-Soviet Geography and Economics 42(2)


17 142-152

Faccio M J McConnell and D Stolin (2006) ldquoReturns to Acquirers of Listed and Unlisted Targetsrdquo

Journal of Financial and Quantitative Analysis 41 197-218

Francis B I Hasan and I Sun (2008) ldquoFinancial Market Integration and the Value of Global

Diversification Evidence for US Acquirers in Cross-Border Mergers and Acquisitionrdquo Journal

of Banking amp Finance 32(8) 1522-1540

Franco C and E Gerussi (2013) ldquoTrade Foreign Direct Investments (FDI) and Income Inequality

Empirical Evidence from Transition Countriesrdquo The Journal of International Trade amp

Economic Development 22(8) 1131-1160

Fuller K J Netter and M Stegemoller (2002) ldquoWhat Do Returns to Acquiring Firms Tell Us

Evidence from Firms That Make Many Acquisitionsrdquo Journal of Finance 57(4) 1763-

1793

Goergen M and L Renneboog (2004) ldquoShareholder Wealth Effects of European Domestic and

Cross-Border Takeover Bidsrdquo European Financial Management 10 9-45

Harrington S and D Shrider (2007) ldquoAll Events Induce Variance Analyzing Abnormal Returns

When Effects Vary Across Firmsrdquo Journal of Financial and Quantitative Analysis 42(1) 229-

256

Henry P B (2000) ldquoStock Market Liberalization Economic Reform and Emerging Market Equity

Pricesrdquo The Journal of Finance 55(2) 529-564

Karels G E Lawrence and J Yu (2011) ldquoCross-Border Mergers and Acquisitions between

Industrialized and Developing Countries US and Indian Merger Activityrdquo The International

Journal of Banking and Finance 8(1) 35-58

Kenny C and T Moss (1998) ldquoStock Markets in Africa Emerging Lions or White Elephantsrdquo

World Development 26(5) 829-843

Kinateder H M Fabich and N Wagner (2017) ldquoDomestic Mergers and Acquisitions in BRICS

Countries Acquirers and Targetsrdquo Emerging Markets Review 32 190-199

Lane P J B R Koka and S Pathak (2006) ldquoThe Reification of Absorptive Capacity A Critical

Review and Rejuvenation of the Constructrdquo The Academy of Management Review 31(4) 833-

863

Lewellen W G (1971) ldquoA Pure Financial Rationale for the Conglomerate Mergersrdquo The Journal of

Finance 26(2) 521-537

Levine R (1997) ldquoFinancial Development and Economic Growth Views and Agendardquo Journal of

Economic Literature 35(2) 688-726

Levine R and S Zervos (1998) ldquoStock Markets Banks and Economic Growthrdquo American

Economic Review 88(3) 537-558

Levy H and M Sarnat (1970) ldquoInternational Diversification of Investment Portfoliosrdquo American


Liou R (2018) ldquoWhat is in a Name Cross-National Distances and Subsidiaryrsquos Corporate Visual

Identity Change in Emerging-Market Firmsrsquo Cross-Border Acquisitionsrdquo International

Marketing Review 35(2) 301-319

Mantecon T (2009) ldquoMitigating Risks in Cross-Border Acquisitionsrdquo Journal of Banking amp

Finance 33(4) 640-651

Mateev M (2017) ldquoIs the MampA Announcement Effect Different Across Europe More Evidences

from Continental Europe and the UKrdquo Research in International Business and Finance 40(C)

190-216

Moeller S and F Schlingemann (2005) ldquoGlobal Diversification and Bidder Gains A Comparison

between Cross-Border and Domestic Acquisitionsrdquo Journal of Banking amp Finance 29(3) 533-


18 564

Park B I and T Roh (2018) ldquoChinese Multinationalsrsquo FDI Motivations Suggestion for a New

Theoryrdquo International Journal of Emerging Markets 14(1) 70-90

Rajan R and L Zingales (1998) ldquoFinancial Dependence and Growthrdquo The American Economic

Review 88(3) 559-586

Resmini L (2003) ldquoThe Determinants of Foreign Direct Investment in the CEECs New Evidence

from Sectoral Patternsrdquo Economics of Transition and Institutional Change 8(3) 665-685

Stahl G K and A Voigt (2008) ldquoDo Cultural Differences Matter in Mergers and Acquisitions A

Tentative Model and Examinationrdquo Organization Science 19(1) 160-176

Zhu H J Xia and S Makino (2015) ldquoHow do High-Technology Firms Create Value in International

MampA Integration Autonomy and Cross-border Contingenciesrdquo Journal of World Business

50(4) 718-728

wwwnewktraorg

19

JKT 24(6)

Application of the Terms and Conditions of English Law Related to the Duty of Utmost Good

Faith under Marine Insurance Contract Korean Supreme Court Decision 20181025

Docket No2017Da272103

Jee-Moon Pakdagger

Department of International Trade Graduate School Sungkyunkwan University South Korea

Abstract Purpose ndash This paper analyzes how to interpret the legal view of the precedents to the UK Insurance Act 2015 comparing it to the UK Marine Insurance Act (MIA) 1906 with a focus on the relationship between the duty of uberrimae fidei and the duty of disclosure Furthermore this study focuses on the judgment of the Korean Supreme Court in a case that examined whether the legal nature of the duty of disclosure or duty of uberrimae fidei in insurance law can be considered as a matter related to the insurerrsquos liability when the applicable terms of English law are incorporated under the insurance contract Designmethodology ndash This paper belongs to the field of explanatory legal study which aims to explain and test whether the choice of law is linked to the conditions that occur in the reality of judicial practice The approach that is used toward this problem is the legal analytical normative approach The juridical approach involves studying and examining theories concepts legal doctrines and legislation that are related to the problem Findings ndash Regarding the requirements and effects of breach of the duty of disclosure if English law and the Korean Commercial Act are handled differently from each other and Korean law is recognized as the applicable law outside of the insurerrsquos liability it may be whether the insurerrsquos immunity under English law is contrary to s633 of the Korean Commercial Act In considering the breach of the duty of disclosure as a matter of the insurerrsquos liability even if English law is applied as a governing law the question of how to interpret the agreement of the governing law in this case may also be raised in the interpretation of Korean International Private Law in relation to the applicable law that applies to the rest of the matter excluding the matters of liability Originalityvalue ndash According to the Korean Supreme Court judgement under the governing law of the MIA 1906 the basis for recognizing the assuredrsquos pre-and post-contractual duty of disclosure is separate and the only important matters to be notified by the assured after the conclusion of the insurance contract are those that are ldquorelevantrdquo and ldquomaterial circumstancesrdquo that are ldquorelevantrdquo to the matter in question after the conclusion of the insurance contract

Keywords Choice of Law English Law Governing Law Korean Commercial Act Marine

Insurance Act Utmost Good Faith JEL Classifications F10 G22 K12 L90

1 Introduction The very foundation of a contract of marine insurance rests on the principle of uberrimae

fidei (utmost good faith) Insurance is a contract of uberrimae fidei as declared in s17 of the

dagger First and Corresponding author jeemoonpaknavercom




ISSN 1229-828X


20 UK Marine Insurance Act 1906 (hereinafter MIA 1906) this section partially codified the common law According to this principle both parties to the insurance contract must voluntarily disclose to each other all facts material to the risk Any breach of this duty shall render the contract voidable at the option of the aggrieved party in other words the party who has suffered as a result of this breach Although an insurance contract is a simple commercial contract it differs from other commercial contracts with regard to the application of this principle (iEduNote nd) The codification was intended to reproduce as exactly as possible the existing law relating to marine insurance (Gilman et al 2018) The origin of the duty of good faith was relevant to the issue of remedies for breach and to how the duty was given effect in practice This is the principal reason why it was important to understand where the duty comes from Section 17 attracted very little attention in cases following the MIA 1906 A passing reference was made to it in Cantiere Mercanico Brindisino v Janson (1912) in which Vaughan-Williams LJ suggested that avoidance on the ground of non-disclosure of a vesselrsquos unseaworthiness under a policy containing a ldquoseaworthiness admittedrdquo clause might be based on s17 of the MIA 1906 rather than s18 (Hodges 1996)

In common law only insurance contracts provide an example of ldquoutmost good faithrdquo The person taking up the insurance shall have the duty to disclose to the insurance company all facts of which she is aware or that may affect the premium or acceptance of the risk The failure to do so makes the contract voidable at the option of the insurance company which means the contract is rescinded (LawTeacher 2018)

The first case in which much significance was attached to s17 was Container Transport International Inc v Oceanus Mutual Indemnity Association [Bermuda] Ltd (1984) (hereinafter CTI case) Although this decision attracted a great deal of criticism in other respects and was subsequently overruled on the main issue of whether a breach of good faith non-disclosure or misrepresentation that did not induce the contract can afford grounds for avoidance this did not affect the importance of the dicta contained in the judgments Sections 18 and 20 of the MIA 1906 have been described as ldquoillustrations or consequencesrdquo of the rule set out in s17 that insurance was a contract of utmost good faith as articulated by Lord Lloyd in Pan Atlantic Ins Co Ltd v Pine Top Ins Co Ltd (1995) (hereinafter Pan Atlantic case) but it was clear that in cases involving a question of pre-contractual non-disclosure or misrepresentation by the insured the requirements of materiality and inducement and other requirements of ss18 and 20 generally had to be met Although the ldquofair presentationrdquo test suggested by Kerr L J in the CTI case was accepted in subsequent cases this was not a substitute for the requirements in the ensuing sections Indeed in Banque Financiere de la Cie v Westgate Insurance Co (1998)(hereinafter Banque Financiere case) the Court of Appeal rejected a formulation of the test for materiality seemingly derived from the CTI case and the use of ldquobroad concepts of good faith and fair dealingrdquo as a guide to the scope of the reciprocal duty owed by insurers

However in a subsequent Court of Appeal case a rather different approach was taken In Drake Insurance Plc v Provident Insurance Plc (2004)(hereinafter Drake Insurance case) the Court of Appeal was prepared to find that the exercise by an insurer of its right to avoid a policy had to be carried out in good faith such that bad faith would prevent its exercise A differently constituted Court of Appeal which delivered its judgment only a short time before the judgment in the Drake Insurance case came to the opposite conclusion (Brotherton v Aseguradora Colseguros SA 2003)

These cases were related to the exercise of the right of avoidance and were technically examples of the post-contractual duty of uberrimae fidei However what these cases serve to illustrate for present purposes is that some members of the Court of Appeal at least were willing to give s17 teeth so far as insured parties are concerned by using it as a mechanism to

Application of the Terms and Conditions of English Law Related to the Duty of Utmost Good Faith under Marine Insurance Contract Korean Supreme Court Decision 20181025 Docket No2017Da272103

21 curtail an otherwise unrestricted right on the part of the insurer to avoid the policy in which there had been a breach by the insured of the pre-contractual duty of utmost good faith (Gilman et al 2018)

In other words the Law Commissions explicitly recommended preserving the role of utmost good faith ostensibly as an ldquointerpretative principlerdquo but apparently with one eye to allowing future developments on the basis of it Moreover as if this was not clear enough the treatment in the English Insurance Act 2015 (hereinafter 2015 Act) of s17 of the MIA 1906 confirms the point This provision was long accepted as reproducing the common law and hence as applying de facto to all insurance (Soyer and Tettenborn 2016) Sections 18 to 20 of the MIA 1906 have been repealed and any rule of law of the same effect as those provisions is abolished in relation to contracts of insurance and variations entered into after the regime came into force (August 12 2016) Part II of the 2015 Act revises the whole topic of the pre-contractual duty of utmost good faith in sections that are part restatement part codification or attempted codification and part new law under the label the ldquoduty of fair presentationrdquo The new statutory regime applies to contracts of insurance entered into after August 12 2016 and to variations of contracts of insurance entered into at any time after August 12 2016

In Korean Supreme Court Decision (2018) it was determined that provisions related to the utmost good faith and duty of disclosure provided in ss17ndash20 of the MIA 1906 apply to marine insurance including the governing law In the case of sea transportation and marine insurance it is very important because English law and precedents have long played a leading role This case fully reflects the intent of English precedents regarding the interpretation of ss17ndash18 of the MIA 1906 for example Banque Financiere (1996) The Good Luck (1992) New Hampshire Insurance Co v MGN Ltd (1995) Societe Anonyme drsquoIntermediaries Luxembourgeois v Farex Gie (1995) Fraser Shipping Ltd v Colton and Others (1996) and The Star Sea (2001) etc

The purpose of this study is to analyze how the English Insurance Act 2015 changed the duty of utmost good faith The insurance law meaning of the MIArsquos duty of utmost good faith system will be thereby clarified Furthermore while the Korean Supreme Court judgment is related to the duty of uberrimae fidei and duty of disclosure under the MIA 1906 the consideration of the duty of utmost good faith under the MIA 1906 is related to the duty of uberrimae fidei and duty of disclosure under the Korean Commercial Act In addition through the review of the Korean Supreme Court judgment the study is intended to examine the legal implications of the duty of uberrimae fidei and duty of disclosure under insurance contract law

2 Outline of Utmost Good Faith

21 Meaning of Utmost Good Faith The old theory of uberrimae fidei originated in the early stages of marine insurance and

roughly translates from Latin into English as of ldquoutmost good faithrdquo all parties to marine insurance contracts have mutual responsibilities and insist on their duties in accordance with the highest standards of good faith based on ethics and efficiency In addition to being essential to insurance contracts the obligation of utmost good faith also stems from the nature of the insurance relationship the insured is regarded as morally obliged to disclose all the information materials that the insurer is required to provide The harsh penalty under uberrimae fidei for voiding the policy should also deter insured parties from withholding information from an insurance carrier or carelessly completing an insurance application


22 (Gibbs 2015)

In addition uberrimae fidei is economically inevitable because the insurer had no reasonable means to effectively acquire information without modern transportation or ubiquitous digital transmission (Zhu 2020)

In English insurance law the duty of utmost good faith separates insurance law principles from contract law principles because whilst the former require volunteering material facts before the contract was concluded the latter do not impose such an obligation on the contracting parties (Gurses 2016) The duty of disclosure is admittedly closely related to the doctrine of uberrimae fidei The truth however as can be seen from the judgment of Lord Mansfield in Carter v Boehm (1766) is that the duty of disclosure stems from the principle of uberrimae fidei and not vice versa (Hodges 1996) However this does not mean that the two notions are synonymous covering the same ground They may well overlap but as the duty of utmost good faith is the source from which the duty of disclosure and the law of representation originate it has to be the wider and more potent of the two concepts (Hodges 1996) A breach of the duty of uberrimae fidei is generally established by proof of non-disclosure or misrepresentation This has somehow over the years caused the line between the defenses of non-disclosure and of utmost good faith to blur The realization that they are distinct principles came recently with the cases of CTI and in particular The Litsion Pride (Black King Shipping Corpn v Massie 1985)

In the 19th century the cases referred to ldquothe duty of utmost good faithrdquo to express the ldquopre-contractual duty of disclosurerdquo and the ldquoduty not to misrepresent material factsrdquo (Gilman et al 2018) Avoidance was the only recognized remedy under English law for breach of pre-contractual duties Demands for alternative remedies such as claiming damages for the breach instead of avoiding the contract ab initio were rejected by the courts (Gurses 2016)

Under the MIA it was discussed whether s17 in other words the duty of utmost good faith was illustrated exhaustively (Merkin 2010) by ss18ndash20 of the MIA 1906 The duty of fair presentation of the risk derives from the duty of uberrimae fidei As the case law illustrated the scope of the duty of uberrimae fidei is broader than the pre-contractual duties Its implications have been discussed by English courts in various different contexts in which the definition of good faith the scope of the duty of good faith and remedy for its breach have been referred to but determined authoritatively (Gurses 2016)

The fact that the only remedy afforded by this section is ldquoavoidancerdquo of the contract creates enormous difficulties (Soyer 2015) At the pre-contractual stage in most instances ldquoavoidancerdquo would be an impractical remedy for the assured especially if a breach is detected after the insured property suffers a loss (Shin Gun-Hoon 2011a) The duty at the post-contractual stage is also not free from controversy The remedy of ldquoavoidancerdquo is often deemed to be too harsh and courts have been forced to resort to innovative construction techniques in order to impose restrictions on the scope of the post-contractual duty of good faith (Shin Gun-Hoon 2011b) Initially on the premise that there is no justification for requiring the same high degree of openness post-contractually as is expected from parties at the pre-contractual stage it was held in The Star Sea that only fraudulent failure to act in good faith post-contract gives rise to the right to avoid (Soyer 2014)

After the making of the insurance contract however the content of the duty of utmost good faith is not clear The House of Lords dealt with The Star Sea case which was closely related to the duty of utmost good faith and judged that in litigation the duty of utmost good faith did not apply to the acts of the assured (Chung Dae 2005)

Building upon that principle in KS Merc-Skandia XXXXII v Certain Lloyds Underwriterrsquos (The Mercandian Continent)(2001) Longmore LJ held that it would be appropriate to invoke the remedy of avoidance in a post-contractual context if the innocent party would otherwise


23 be justified in accepting the conduct of the party in breach of the duty as a repudiatory breach of the policy This approach presupposes that the need to observe good faith in the post-contractual context would normally be associated with a contractual obligation and it attempts to align ldquoavoidancerdquo with contractual remedies that would be applicable when the clause in question is breached in a fraudulent fashion Naturally these authorities originally designed to ameliorate the harshness of the remedy of avoidance impose a serious constraint on the scope of the insurerrsquos post-contractual duty of good faith if they do not trivialize it (Soyer 2017)

22 The Traditional Regime of Utmost Good Faith 221 The Test of Materiality As regards the duty of full disclosure prior to the time of making the contract the assured

is bound to disclose ldquomaterialrdquo circumstances Whether the circumstance or representation is material is a question of fact Under ss 18(2) and 20(2) of the MIA 1906 a circumstance or representation is material if it ldquowould influence the judgement of a prudent insurer in fixing the premium or determining whether he will take the riskrdquo (Koh Jae-Jong 2008) This test is often referred to as ldquothe prudent insurer testrdquo or ldquothe prudent underwriter testrdquo(Eggers 2017)

The approach toward determining a ldquomaterialrdquo circumstance under the wording of the MIA has been a highly complex and contentious affair making it quite central to calls for reform The above-stated ldquoprudent insurerrdquo requirement under s18 of the MIA 1906 for determining whether a circumstance was material was developed from the perspective of the insurer and imposes an onerous burden of disclosure on the insured without providing any guidance (Choi Mi-Soo 2017) Despite the maritime roots of the MIA 1906 the Court of Appeal drew no distinction between marine and non-marine insurance contracts and adopted this ldquotest of materialityrdquo as a general principle in Lambert v Cooperative Society Ltd (1975) Nevertheless McKenna J in empathizing with the insured made it clear that this case showed the unsatisfactory state of the law (LawTeacher 2019)

The test of materiality was further developed in the Pan Atlantic (1975) case in which the House of Lords affirmed the previously held view that the phrase ldquoinfluenced the judgementrdquo referred merely to factual circumstances that the insurer would have liked to know of but not necessarily acted on when assessing risks This objective test meant that insured parties were required to disclose every piece of information that would have an effect on the mind of the insurer This caused two main problems First it meant that insured parties were held to an impossibly high standard of disclosure and were expected to effectively read into the mind of a prudent insurer Second it meant that insurers could avoid policy disputes (LawTeacher 2019)

To mitigate the harshness of the law the House of Lords introduced a second independent limb of ldquoinducementrdquo to the test of materiality This was a subjective test that required insurers to provide evidence showing that a material circumstance had induced them to enter into the contract In St Paulrsquos Fire amp Marine Insurance Co v McConnell Dowell Contractors Ltd (1995) this was achieved using evidence from other insurers as well as expert witnesses Although it did impose an appropriately higher burden of proof on the insurer in cases of non-disclosure such an approach also added a degree of complexity and artificiality to the materiality test (Blackwood 2013) For example in Marc Rich amp Co AG and another v Portman and Others (1996) Longmore J found the insurer in question to be ldquoa most unsatisfactory witness [who] revealed a surprising ignorance or indifference to prudent underwriting practicerdquo Nevertheless the inducement requirement did allow the court to limit insurersrsquo recourse to the drastic remedy of avoidance as illustrated in the Drake


24 Insurance case (2004) However Merkin has criticized this approach as coming perilously close to allowing the court to underwrite the policy itself (Merkin 2007) The subjective test of materiality still very much insurer-centric does little to improve the clarity and scope of an insuredrsquos disclosure obligations

222 Representation The insurer will be able to rely on a material misrepresentation giving rise to a right of

avoidability if he or she can establish that the representation was false (Eggers 2017) If the representation is one of fact the representation will be true if it is ldquosubstantially correct that is to say if the difference between what is represented and what is actually correct would not be considered material by a prudent insurerrdquo That is if there has been a representation of expectation or belief in order to establish that there has been a misrepresentation the insurer will have to prove that the assured represented the expectation or belief dishonestly (Eggers 2017)

The term ldquorepresentationrdquo under the MIA connotes principles of uberrimae fidei as laid out under s17 If the assured turns out to have had the intention of deceiving the insurer though it may not be about a material fact and this act by the assured would lead him to a breach of duty of utmost good faith the effect of which would render the contract voidable at the option of the insurer under s17 (LawTeacher 2018)

The other important feature of representation is that s 20(3) of the MIA 1906 tells us that ldquorepresentation may be either a representation as to a matter of fact or as to a matter of expectation or beliefrdquo

Accordingly to Templeman and Lambeth (1986) there are three types of representations a representation simply of fact a representation of expectation and a representation of belief Section 20(3) gives the impression that there are two types of representations namely as to a matter of fact and as to a matter of expectation or belief

223 Avoidance The party who has been guilty of a non-disclosure or misrepresentation could not of

course avail itself of its wrongful act to treat the contract as void The other party to the insurance could however elect either to treat the contract as valid or to repudiate it although strictly speaking the insurer had no positive obligation to do either (Gilman et al 2018)

If the assured failed to disclose a material circumstance to one insurer but not another only the former would be one policy might contain a separate and distinct contract relating to each separate item of insured property even if there is only one assured so that in the case of a fleet policy there may be a separate insurance contract for each vessel that is a member of the fleet (depending on the terms of the policy) (Eggers 2017)

In Carter v Boehm Lord Mansfield refers to a contract being void for non-disclosure and indeed case law on the doctrine of uberrimae fidei in the 18th and early 19th centuries refers for example to a policy being rendered void or avoided for non-disclosure or misrepresentation seemingly without the intervention of an election to avoid on the part of the insurer (Pak Jee-Moon 2019) Nothing however turned in these cases on the distinction between a void and voidable contract (Bennett 2006) The latter part of the 19th century however witnessed the start of a change in favor of the policy being analyzed as voidable (Morrison v Pacific Fire amp Universal Marine Insurance Co 1872) but the cases were not unanimous (Anderson v Pacific Fire amp Marine Insurance Co 1872) and in 1887 Arnould still stated that the contract was void ipso facto whenever misrepresentation or concealment had entered into its making (Bennett 2006) The matter was placed beyond doubt by ss17 18 and 20 of the MIA 1906 all of which provide unambiguously that the policy may be


25 avoided or that the insurer may avoid the contract

A contract can be avoided from the time that a breach of duty is to be found in the contract Rescission is not compulsory but only occurs if the party discovers that there is a breach of duty of good faith In such a case the party may choose to avoid the policy or not The party is under no obligation to avoid the policy and it depends on his decision It is also not necessary that avoidance of a policy should be exercised for serious breaches of duty and the court shall not have the power to intervene in the policy to do so (LawTeacher 2018)

The effect of avoidance for non-disclosure or misrepresentation was that the policy was set aside ab initio The avoidance was certainly retroactive in the sense that the parties were entitled to a return of the premium and repayment of losses paid prior to the time of avoidance

224 Pre-Contractual Duties The first notable feature of s17 of the MIA 1906 is that it expressly applies to both insured

and insurer The principle that reciprocal duties of disclosure are owed by both parties was recognized by Lord Mansfield in Carter v Boehm (1766) and has never since been questioned The subject was discussed in the pre-contractual stage in Carter v Boehm (1766) in which Lord Mansfield gives as an example the position of an underwriter who insured a ship for a voyage which he privately knew to have arrived (Soyer 2017)

Despite this very early recognition of mutual duties there appear to have been no cases in the English courts in which it was necessary to examine the scope of the duty owing by an insurer or in which breach of the duty of uberrimae fidei by insurers was invoked by an assured until the 1980s when breach of good faith was put forward as one of the grounds for claiming damages in the Banque Financiere case (Gilman et al 2018) A number of observa-tions as to the nature and scope of the insurerrsquos duty of good faith in the light of Banque Financiere litigation are in order First it is indisputable that such a duty exists and s17 of the MIA 1906 has been viewed as the statutory basis for codifying the principles of equity law developed over the centuries prior to the enactment of the MIA 1906 Second the first-instance judge and the Court of Appeal by drawing an analogy with the assuredrsquos pre-contractual duty of good faith needed to engage in judicial lawmaking in order to define the degree of materiality given that s17 is silent on the point Last but not least avoidance not only provides an impractical remedy for the assured but also has proved something of a stumbling block in allowing alternative remedies as its existence led the judges in the Court of Appeal to conclude that the judicial basis of the statutory duty stems from the jurisdiction exercised by the Court of Equity

In other words whilst there may have been instances in which an insured could have breached its pre-contractual duty of uberrimae fidei other than by breach of the duty to make disclosure and only to make representations that are true (as expressed by ss18ndash20 of the MIA 1906) in practical terms non-disclosure and misrepresentation were the most important aspects of the pre-contractual duty of uberrimae fidei as it applies to insured parties

In almost every instance in which a policy of marine insurance is affected the underwriter must rely solely on the good faith of the assured for supplying him with full and true information of many of those facts on which the character and nature of the risk and consequently the rate of premium and policy terms depend It is to the assured that all communications respecting the actual state of the property proposed for insurance such as the time and place at which the goods are to be loaded or the ship is to sail ndash the force and equipment of the vessel her current situation and progress in her voyage etc ndash are in the first instance addressed it is thus the natural and sole depositary of much of that information a full and true communication of which is absolutely essential to the underwriter in order that it may


26 correctly judge the nature of the risk and the proper rate of premium (Gilman et al 2018)

That summary is consistent with the principles laid down in the Pan Atlantic case which is now the leading authority on the requirement of materiality and inducement in this branch

The Pan Atlantic case was appealed to the House of Lords in proceedings that involved a challenge to the holdings in the CTI case on both materiality and inducement grounds By a bare majority the House of Lords upheld the CTI case on materiality confirming the rejection of the deceive influence test while unanimously reversing it with respect to inducement (Bennett 2006) The House of Lords approved the CTI case but that decision was interpreted by the Court of Appeal in the Pan Atlantic case as doing no more than rejecting the different decision test Nevertheless three factors indicate that the House of Lords went further and positively espoused the relatively lenient test of objective relevance to the assessment of the risk First the question posed by Lord Mustill militates against interpreting the statements of Lord Mustill and Lord Goff as merely rejecting the decisive influence test Second Lord Mustill stated that while not decisive they furnished substantial support for the view that the duty of disclosure extended to all matters that would have been taken into account by the insurer when assessing the risk that he was consenting to assume Third commenting on the decision of the Court of Appeal in the Pan Atlantic case Lord Mustill observed that had it not been bound by the rejection in the CTI case of any requirement of inducement of the actual insurer the court might have felt freer in its ruling on materiality The House of Lords held that an actionable breach of the duty of uberrimae fidei must induce the actual underwriter into the contract Consequently the House of Lords was able to enjoy this greater freedom with respect to the test for materiality reject the incorporation therein of any element of inducement and espouse the lower threshold

In St Paul Fire amp Marine Insurance Co (UK) Ltd v McDonnell Dowell Constructors Ltd (1995) the Court of Appeal confirmed that the House of Lords in the Pan Atlantic case had indeed answered in full the question posed by Lord Mustill The Court also considered the impact of the ruling of the House of Lords on the different risk test of the Court of Appeal As Evans LJ said in the Court of Appeal in St Paul Fire amp Marine Insurance Co (UK) Ltd v McDonnell Dowell Constructors Ltd (1995) the ldquoprudent insurerrdquo is ldquono more than anthro-pomorphic conception of the standards of professional underwriting which the Court finds it appropriate to upholdrdquo The Court of Appealrsquos focus upon the prudent insurerrsquos appreciation of a difference between the true risk and that presented was expressly approved by the House of Lords quoting Lord Mustillrsquos statement that the whole object of the rules as to repre-sentation misrepresentation and concealment was to enable the insurers to judge accurately the risk that they undertake With respect this interpretation seems incorrect Subsequent cases vary in the formula they espouse The Court of Appeal in the above case did however reject an argument that materiality required the circumstance to increase and not merely alter the perceived risk Many factors may increase the risk in some respects but decrease it in others To this extent the test adopted by the Court of Appeal in the Pan Atlantic case is clearly no longer good law

225 Other Weakness The MIA made no distinction between innocent non-disclosure negligent non-disclosure

and fraudulent concealment (Birds 2019) This meant that an insured could have acted well within the meaning of ldquogood faithrdquo but still fail to meet the standard of utmost good faith Moreover an insurance proposal form does not remove overarching disclosure obligations In Schoolman v Hall (1951) the insuredrsquos claim was rejected after it was found that he had previous convictions that were not disclosed despite there being no prompt for such infor-mation on the proposal form In this regard there is also no obligation for the insurance to


27 ask any questions (LawTeacher 2019)

Perhaps the most glaring drawback with the MIA would be that it only provided a single remedy of policy avoidance ab initio Given that courts did not entertain the idea of damages in insurance law a breach of disclosure obligations would allow the insurer to pay all premiums back to the insured and act as if the policy had never existed For obvious reasons this draconian approach was ldquocritical[ly] flaw[ed] [in] that [it] provided insurers with remedies which in many circumstances [were]disproportionaterdquo

It is also important to note that the law did not distinguish between consumer and commercial insured parties Despite some protections being offered to consumers the state of the law was quite aptly described by Tyldesley as being ldquoarchaic unclear and unfairrdquo (Tyldesley 2009)

3 Development of the Duty of Utmost Good Faith

31 Outline Under the old law the underwriter was precluded from avoiding the policy (1) if in the

meantime he had done something to affirm it or (2) if an estoppel had arisen for example if the rights of third parties had intervened or if the assured party had altered his position in the belief that the contract was a subsisting one It does not appear that the 2015 Act has altered the application of those principles and the discussion here remains relevant Questions of affirmation and waiver are separate and distinct concepts despite overlap between the two The relevant principles are of general application The right to avoid may be lost either by an election to affirm the contract or by reason of an estoppel It is clear that before there can be an affirmation the underwriter must have full knowledge of the facts entitling him to avoid the policy He then has a reasonable time in which to decide what course of action to take and he cannot be said to have affirmed the policy until such time has elapsed (Gilman et al 2018)

In other words the duty owed by the assured during negotiations and before the contract is made and duties of agents effecting the insurance were set out in some detail in ss18ndash20 of the MIA (now repealed by the 2015 Act) (Lee Jung-Won 2016) By contrast s17 was expressed in broad general terms (and remains in force albeit amended by the 2015 Act) The most obvious differences between s17 and the sections that followed were that s17 referred to mutual duties that it contained no express reference to the concept of materiality and that it was not confined in terms to the pre-contract stage (Gilman et al 2018) The 2015 Act is said to have abolished the doctrine of utmost good faith It may take just as long before the effects of the new statute begin to be seen in the courtrooms or filter through the adquate transparency of the insurance industry (Costabel 2017)

Under the 2015 Act the pre-contractual duty of utmost good faith is renamed the ldquoduty of fair presentation of the riskrdquo Moreover the 2015 Act codified some of the common law principles developed since the MIA came into force and also brought clarifications to some issues such as the ldquoknowledge of insurerrdquo and ldquoknowledge of insuredrdquo in relation to the fair presentation of the risk (Gurses 2016)

The concept of utmost good faith as a creator of substantive rights and duties rather than as a subsidiary principle of interpretation would effectively disappear as a result of the legislation that became the 2015 Act The question is whether this is correct or whether there remains more scope than appears for utmost good faith concepts to affect insurance contracts and their performance (Soyer and Tettenborn 2016)


28 At first sight it might be thought that a combination of the 2015 Act and establishment

case law provided an open-and-shut case for the Law Commissionrsquos position It is not only that the Act supplanted the old common law duty in the two most high-profile aspects of utmost good faith pre-contract information and fraudulent claims More important is the combination of Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd (1990) (hereinafter Banque Keyser Ullmann case) and s14 of the 2015 Act In the Banque Keyser Ullmann case the Court of Appeal rebuffed an attempt to invoke a breach of the duty of uberrimae fidei (in that case a deliberate failure by underwriters to inform) as a breach of contract sounding in damages implying that the only remedy for infringement was avoidance of the contract but since s 14 now bars avoidance for any breach of that duty it must follow that the duty itself is now devoid of substantive content

It is submitted with respect that this argument will not do for a number of reasons First Banque Keyser Ullmann case and the cases following it are authority for the claim that damages are not available for breach of the duty of uberrimae fidei where the breach lies in non-disclosure They do not it is suggested rule out damages for breaches of other aspects of the good faith duty Second it is worth remembering that there are possible remedies other than damages and avoidance These include not only other monetary remedies such as those based on unjust enrichment but also more importantly the response of ineffectiveness (in the case in which restrictions are put on the exercise of rights) Third there are a number of documented cases in which the courts have intervened on the basis of a lack of utmost good faith and which are not caught by the 2015 Act These subdivide into a number of categories However this is a large subject and deserves a section unto itself

First some decisions suggest that considerations of utmost good faith may on occasion control (and where necessary invalidate) the exercise of rights arising under an insurance contract One instance is the liability insurerrsquos invariable right to take over and control legal proceedings against the insured In Groom v Crocker (1939) the Court of Appeal was in no doubt that because of the obvious potential conflict of interest involved insurers could only do this ldquoin what they bona fide consider to be the common interest of themselves and their assuredrdquo Hence in that case the court took the view that an insurer could not legitimately admit fault by the assured for reasons not of forensic tactics but to safeguard the insurerrsquos own private knock-for-knock arrangement and subsequent cases have made it clear that for the same reason where liability cover is limited the insurer also owes at least some duty not to compromise the assuredrsquos position as regards uninsured liabilities Again where an insured has been guilty of non-disclosure but the insurer has ldquoblind-eyerdquo knowledge of other facts that might make that non-disclosure innocuous the Court of Appeal suggests that it may be contrary to good faith for the latter to avoid at least without consulting the insured This may or may not be academic in connection with avoidance but it may well be relevant elsewhere for example when in a given case an insurer has the right to cancel the contract for the future or demand extra precautions be taken

The precise ambit of the application of the good faith principle in this connection is uncertain For example it has been said not to apply in cases in which liability insurers stipulate that settlements of third-party claims will not honored unless previously approved these have been held subject simply to the general contractual rule that discretions of this kind must not be exercised capriciously or arbitrarily and not to any further demand that they be exercised with regard to the assuredrsquos own interests Nevertheless that it applies to at least some specific rights seems clear

The duty of good faith may affect (1) the duty to exercise at least some particular rights with a view to the otherrsquos interests (2) a duty to correct mistakes (3) some aspects of the duty to provide information during the policy and possibly (4) a duty to minimize loss It seems however that there is no reason to regard these as closed categories In a later stage it is worth


29 asking how if at all the duty of utmost faith might be generalized ndash a matter of some interest raising issues not only of possible analogies from other contracts classified with insurance as contracts of the utmost good faith but also of recent development in the field of good faith generally within English law

With the implementation of the 2015 Act s17 of the duty of utmost good faith under the MIA 1906 has been a rule of the past and retroactively void as a consequence of the breach having been abolished (Jin Hong-Ki 2016) In other words the 2015 Act retained s17 of the MIA 1906 that ldquomarine insurance contract is a contract based on utmost good faithrdquo but due to the breach the rule for recognizing the right to cancel the contract was deleted Furthermore the 2015 Act abolished all case law related to disclosure and representation of the MIA (ss 18 to 20) (Chung Dae 2019)

32 Exercise of Rights A number of authorities have indicated that the insurer might be precluded from exercising

an apparent right (eg the right to avoid the policy) if it is evident that the insurer has not acted in good faith whilst exercising the remedy In Strive Shipping Corporation v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Grecia Express) (2002) Colman J said that having regard to what he said was the equitable origin of the duty of uberrimae fidei an insurer should not be entitled to avoid a policy for non-disclosure if to do so would be unconscionable Colman J was considering the example of a case in which there had been non-disclosure of suggested material facts which it transpired at trial did not in fact exist He considered that it would be unconscionable and in breach of the insurerrsquos duty of uberrimae fidei to avoid in those circumstances

That reasoning was unfavorably commented on by the Court of Appeal in Brotherton v Aseguradora (No2)(2003) (albeit not expressly overruled) In that case Mance LJ said that (1) whether or not of equitable origin the right to avoid was not subject to any requirement that it be exercised in good faith or conscionably and (2) in any event recent authority had been concerned to limit the post-contractual duty of utmost good faith to cases of repudiation or fraud He concluded that even if there was room for developing a principle that the right of avoidance was subject to a requirement that it be exercised in good faith a matter on which he said he was expressing no view at all Brotherton v Aseguradora (No2)(2003) was not a case in which it would be of relevance

There is no doubt that the duty of uberrimae fidei continues even after the insurer has committed itself It is true that (apparently because of the reduced need for co-operation at this stage) the duty is less exacting after that time (and in some respects amounts to little more than a prohibition on actual fraud) Nevertheless the argument that one party needs extended protection from self-interest and where necessary the fulfilment of positive duties and the demonstration of something more than a simple absence of bad faith may still convincingly apply in a number of specific instances Take for example the case in which a liability insurer has the right to conduct litigation for the defense There may be a need for at least some control here to protect the interests of the insured as the Court of Appeal has put it the insurerrsquos discretion will protect it only ldquoprovided that they do so in what they bona fide consider to be the common interest of themselves and their assuredrdquo Thus where cover is limited the insurer must be under some duty in conducting the defense not to compromise the assuredrsquos position as regards uninsured liabilities and indeed in Groom v Crocker (1939) the Court of Appeal took the view that it was unacceptable for an insurer to admit fault by the assured when the object was not tactical litigation but instead the desire not to imperil the insurerrsquos own knock-for-knock arrangements with another provider Conversely where a liability insurer agrees to meet the costs of a settlement by the insured the latter cannot claim


30 indemnity if he was not acting in good faith toward the insurer or knowingly sacrificed the insurerrsquos interests to his own Again where an insured has been guilty of non-disclosure but the insurer has ldquoblind-eyerdquo knowledge of other facts that might make that non-disclosure innocuous the Court of Appeal has said that it may be contrary to utmost good faith for the insurer to avoid at least without consulting the insured This latter instance is possibly academic today insofar as it applies to avoidance but it may well be relevant elsewhere for example when in a given case an insurer has the right to demand that extra precautions be taken and if they are not to cancel cover for the future The precise ambit of the application of the good faith principle in this connection is uncertain For example it has been said not to apply in cases in which liability insurers stipulate that settlements of third-party claims will not be honored unless previously approved these have been held subject simply to the general contractual rule that discretions of this kind must not be exercised capriciously or arbitrarily and not to any further demand that they be exercised with regard to the assuredrsquos own interests Nevertheless the fact that the principle of good faith applies to at least some specific rights seems clear

The major content of the 2015 Act on the duty of disclosure and duty of utmost good faith is as follows First s 14 of the 2015 Act removes avoidance from the scope of s 17 of the MIA 1906 Second the insurerrsquos duty of fair presentation under the 2015 Act pertains to volunteering of relevant information because of the inherent imbalance of knowledge between the parties

33 Provision of Information The duty of fair presentation requires the assured to disclose information that the assured

ldquoknow[s] or ought to knowrdquo This duty entails a considerable burden on the assured greater than that under the MIA 1906

The most obvious case of provision of information after conclusion of the contract the possibility of being bound up with the duty of utmost good faith is the rules on subsequent modifications and fraudulent claims However these are not relevant to this article since (a) as regards subsequent modifications it seems clear that Part 2 of the 2015 Act applies to the whole field (b) there is some doubt whether the rule as to fraudulent claims is in fact an outgrowth of utmost good faith the Insurance Act 2015 applies to the exclusion of any common law remedy (Kim Jae-Woo 2019) Nevertheless (c) that this latter area is also now pre-empted by Part 3 of the 2015 Act is authority that utmost good faith may go further than this First where the terms or circumstances of the insurance contract require information to be provided during the contract in order to inform a decision by the insurer the knowing provision of false information or fraudulent non-disclosure of relevant facts may amount to a breach of the duty of uberrimae fidei Second while the courts will not infer as a matter of course a duty by an insured to keep his insurer informed good faith may in special circumstances give rise to one Thus in the Court of Appeal decision in Alfred McAlphine Plc v BAI (Run-Off) Ltd (2000) concerning failure to keep a liability insurer properly informed Waller LJ seemingly accepted that deliberate concealment or misinformation might be a breach of the duty of uberrimae fidei

In Phoenix General Insurance Co v Halvanon Insurance Co Ltd (1985) Hobhouse J took the view that where the circumstances demanded it ndash particularly in the case of liability insurance and reinsurance ndashan obligation would arise out of good faith to keep adequate records and make them available to the insurer (or reinsurer) in order to allow the latter to keep track of his liabilities It was not made clear what the remedy would be in such a case but it seems from later authority that there is no reason why remedies other than avoidance should not be available


31

4 Case Analysis

41 Main Issues and Holdings In Korean Supreme Court Decision (2018) the plaintiff (the insured) as an exporter

entered into an export contract for crane materials with a buyer in Brazil On the other hand plaintiffs entered into a contract for carriage of goods by sea to transport the above cargo from Masan port Korea to Brazil with the company that became the carrier (hereinafter freight forwarder) by exercising the right to intervene as a freight forwarder

The freight forwarder started shipment of the cargo on May 12 2013 and the surveyor issued a first report stating that the wooden crates packing some of the cargo were damaged Cargoes that were marked for damage to the wooden crates were returned before shipping and shipped on board after repackaging

On May 16 2013 the freight forwarder became the policy-holder and the cargo insurance contract was signed with the plaintiff as the insured On May 17 the first mate (officer) issued the Matersquos Receipt (MR) containing the cargorsquos foul statement On May 22 the freight forwarder informed the defendant that the clean bill of lading was issued without a letter of guarantee (LG) The actual carrier requested an LG issued by the plaintiff but the plaintiff refused it

Subsequently the agent of the actual carrier requested the issuance of a clean bill of lading to the actual carrier and issued an LG and on behalf of the captain a clean master bill of lading to the freight forwarder On May 24 at the request of the freight forwarder a special contract was added to the insurance contract in this case to waive subrogation rights to the policy-holder

At the time of arrival at the landing port it was found that a significant proportion of the cargo was damaged and the plaintiff replaced and repaired the damaged goods according to the export contract

When the plaintiff made a claim against the insurer (defendant) for the substantial amount of damages caused by the damage to the cargo the defendant cancelled the insurance contract on the grounds that the plaintiff had breached the duty of utmost good faith under the MIA The problem was that the plaintiff did not notify the insurer of the poor packing before the pre-contract shipment and did not notify the post-contract issuing of the LG

42 Summary of Decision When the transfer of a claim is made for the main purpose of launching a lawsuit even if

the transfer of the claim does not fall under trust law it is invalid because s6 of the Trust Act is applied by analogy The main purpose of making a lawsuit should be judged in light of the circumstances and manner in which the claim transfer contract was concluded the time interval from the conclusion of the transfer contract to the lawsuit and the relationship between the transferor and the transferee

Section 17 of the MIA 1906 states ldquoA marine insurance contract is a contract based on utmost good faith and if either party does not comply with the utmost good faith the other party may cancel the contractrdquo Under the MIA 1906 the duty of the utmost good faith applies at all claim stages of post-contract execution and accident of a marine insurance contract What are significant here all matters that influence the judgment in determining whether or not the insurer will calculate premiums or undertake risks (Kim In-Hyun 2019)

Thus the duty of utmost good faith under the MIA is a principle of fair dealing that


32 continues even post-contract and must be observed throughout the contract However even in the implementation stages of the insurance contract if the duty of the utmost good faith is recognized as a broad and general duty there is a concern that the equity of the contractual relationship may be injured by causing an excessive burden on the insured Therefore once the contract is concluded it should be considered that it is not reached to the extent that it demands aggressive action to increase the convenience of the other party and it is considered to be relaxed with the duty not to damage the other or damage the contract relationship In particular when adding or changing the content of an existing contract during the conti-nuation of the insurance contract under the MIA the duty of disclosure is burdened only for material circumstances such as the duty of disclosure provided for in s18 of the MIA 1906

43 Review 431 The Legal Nature and Context of the Governing Clauses of English Law Legally speaking the duty of utmost good faith is a bilateral obligation in the sense that it

is borne not only by the insured but also by the insurer and is a continuing obligation in that it is borne not only before but after the establishment of an insurance contract Section 17 of the MIA 1906 stipulates that both parties to the insurance contract bear the duty of utmost good faith The duty of utmost good faith is only recognized between insurer and insured so the insurer is not liable for the assignee of the claim paid (Kim Hyun 2020) The duty of disclosure provided for in ss18ndash20 of the MIA 1906 is derived from the duties of utmost good faith but the duties of utmost good faith are independent of this duty of disclosure and cover it Since the insurance contract is a bona fide contract the insuredrsquos duty of utmost good faith does not end with the establishment of the insurance contract but it is an ongoing obligation during the insurance period (Yoon Seong-Geun 2018) Therefore the insured is obliged to inform the insurer of material facts obtained after the initial provision of the information especially if the information originally provided has changed materiality The duty of utmost good faith is recognized for mutuality so the insuredrsquos duty of disclosure is governed by s18 of the MIA 1906 before the contract is established and s17 after its establishment but the insurerrsquos duty of disclosure relies on only s17 of the MIA 1906 stipulating the obligation to comply with the utmost good faith (Lee Pil-Bok 2019)

The issue was whether insurer was obliged to inform the insured bank of the employeersquos embezzlement of the insurance broker as to whether the insurer is liable for the duty of disclosure prior to the conclusion of the insurance contract The duty of disclosure was first considered in the Banque Financiere case and after the contract was concluded the duty of disclosure was recognized in The Good Luck

However in Korea there is a strong opinion that the statute of repose for the termination (or cancellation) of the contract due to the breach of the duty of disclosure determines the nature of the insurance contract as a matter of establishment and effectiveness In particular regarding the judgment in 1991 ldquothe governing clauses of the foreign law are not immediately invalidated pursuant to s663 of the Korean Commercial Act because the result of the application of foreign law in accordance with these clauses will be disadvantageous to the policy-holder rather than the provisions of the Korean Commercial Actsrdquo (Lee Jung-Won 2019a) It is encouraging that the all-designated theory was adopted based on the instruction This is interpreted prima facie as a contradiction between the Korean Supreme Court Decision (2016) and Korean Supreme Court Decision (2018) Korean Supreme Court Decision (2018) follows the partial designation as Korean Supreme Court Decision (2016) but it decides the nature of the duty of disclosure as a problem that is covered by the ldquoinsurance liabilityrdquo


33 432 Application to Post-contract in Duty of Utmost Good Faith In Korean Supreme Court Decision (2018) the scope of protection of duty of the utmost

good faith is changed as of the date of the insurance contract May 16 2013 After concluding the insurance contract in this case a nonparty (company) issued a clean BL to the defendant without issuing an LG for the cargo With regard to the change of the insurance contract with the addition of the special provision for the waiver of subrogation right in this case the judgment of this case makes it difficult to conclude that the series of circumstances under which the LG was issued is a material situation with respect to changes in the insurance contract of this case It was decided that plaintiffs or the nonparty (company) could not be regarded as breaching the duty of utmost good faith consistently required after concluding the insurance contract in this case

The duty of utmost good faith in s17 of the MIA 1906 is broader than the duties in ss18 and 20 of the MIA 1906 and applies even after an insurance contract is concluded or after an accident occurs In this case the judgment goes further and determines that the duty of utmost good faith must be followed even after the conclusion of the insurance contract (Yoo Jung-Won 2019) However even in the implementation stage of insurance contracts if the duties of utmost good faith are recognized as broad and general duties there is a risk of overburdening the insured and damaging the equity of the contract relationship (Lee Jung-Won 2019b) Therefore once the contract has been concluded it should be considered that it does not reach the extent that it demands to act in order to increase the convenience of the other party of the contract It should be regarded as being relieved by duty of not causing damage to the other party or harming the contractual relationship

5 Conclusions English law adopts an adversarial model of contractual negotiations requiring each party

to accept responsibility for its own interests The law will assist a party that has been induced into a contract by an inaccurate or misleading statement termed a misrepresentation A contract so induced is voidable meaning that it is liable to be set aside retrospectively through the remedy of rescission However there is no general duty to volunteer information even though it may be evident that such information would be regarded as highly relevant by the other party in deciding whether to contract and if so upon what terms Insurance contracts however constitute an exception to the rule they are contracts of the utmost good faith (uberrimae fidei) and the doctrine of utmost good faith not only reaffirms a passive duty to refrain from misrepresentation but also imposes a pro-active duty to volunteer certain infor-mation Breach of such duties affords the innocent party the option of retrospective avoidance of the contract The fact that the remedy is absolute and uncompromising has led to detailed scrutiny of all aspects of the doctrine

In other words the new statutory regime applies to contracts of insurance entered into after August 12 2016 and to variations of contracts of insurance entered into at any time after August 12 2016 Many of the relevant principles are common to both regimes but where that is so the principles will be directed to the MIA 1906 regime the new Ch 18B will then deal with the specific features of the 2015 Act avoiding repetition so far as possible

The duties owed by the insured during negotiations and before the contract is made and duties of agents affecting the insurance were set out in some detail in ss18ndash20 (now repealed by the 2015 Act) By contrast s17 of the MIA 1906 was expressed in broad general terms (and remains in force albeit amended by the 2015 Act) The most obvious differences between s17 and the sections that followed were that s17 referred to mutual duties that it contained no


34 express reference to the concept of materiality and that it was not confined in terms to the pre-contract stage

In Korean Supreme Court Decision (2018) the Court considered whether not to notify the matters to be notified before and after the conclusion of the contract is against the principle of utmost good faith (1) Before the conclusion of the insurance contract it was a question whether the failure to notify the first survey that the cargo was damaged was a breach of the principle of utmost good faith The Korean Supreme Court considered that the first survey was not important and in actual transportation there was no problem as the damaged wood packaging was replaced with a normal one before shipment (2) After the insurance contract is concluded shippers issue a LG to the carrier in order to issue a clean bill of lading However in this case it was issued by a ship agent for the issuance of a master bill of lading and it is difficult to see it as an LG in the ordinary sense When summarizing the circumstances in which an insurance contract with the same content as the series of reasons for issuing an LG was additionally concluded the court decided that the plaintiff the insured was not important to notify the issuance of the LG Even if the final survey report before the conclusion of the insurance contract was found to have been loaded in a damaged state if this was not disclosed it would be evaluated as breaching the principle of utmost good faith as it is an important factor in calculating the premium

In Korean Supreme Court Decision (2018) the Supreme Court said ldquoWhen adding or changing the contents of an existing contract during insurance contract under the MIA 1906 the duty of disclosure is borne only for the material circumstances in relation to the change and for all material circumstances such as the duty of disclosure specified in s18 of the MIA 1906 it is not necessary to notifyrdquo In this case the Korean Supreme Court has a separate basis for recognition of insuredsrsquo pre- and post-contractual duty of disclosure under MIA 1906 In addition it is meaningful to reaffirm the position of the English precedent in that the important matters to be disclosed by the insured after the establishment of an insurance contract include only matters in question and material circumstances after the conclusion of the insurance contract

References

Bennett H (2006) The Law of Marine Insurance (2nd ed) Oxford England Oxford University

Press

Birds J (2019) Birdrsquos Modern Insurance Law (11th ed) London Sweet amp Maxwell

Blackwood G (2013) ldquoThe Pre-contractual Duty of (Utmost) Good Faith The Past and the Futurerdquo

Lloydrsquos Maritime and Commercial Law Quarterly 320 311-324

Choi Mi-Soo (2017) ldquoA Study on the Effect on Breach of the Duty of Disclosure in Trade Insurancerdquo

Journal of International Trade and Insurance 18(2) 215-239

Chung Dae (2005) ldquoA Study on the Star Sea Case in England and the Duty of Utmost Good Faith in

a Contract of Marine Insurancerdquo Maritime Law Review 17(2) 109-138

Chung Dae (2019) ldquoA Study on Reform of the Duty of Utmost Good Faith in a Contract of Marine

Insurance of 1906rdquo The Journal of Comparative Law 19(1) 129-161

Costabel A M (2017) ldquoUtmost Good Faith in Marine Insurance A Message on the State of the Dis-

Unionrdquo Journal of Maritime Law amp Commerce 48(1) 1-34

Eggers P M (2017) ldquoThe Fair Presentation of Commercial Risks under the Insurance Act 2015rdquo In

M Clarke and B Soyer (Eds) The Insurance Act 2015 A New Regime for Commercial and

Marine Insurance Law Boca Raton FL Informa Law from Routledge

Gibbs J L (2015) The Argument for Utmost Good Faith in Property Insurance (Texas Law) 360


35 Available from httpwwwzellecomnews-publications-425

Gurses O (2016) ldquoWhat does ldquoUtmost Good Faithrdquo Meanrdquo Insurance Law Journal 27 124-134

Gilman H M Templeman C Blanchard P Hopkins and N Hart (2018) Arnould Law of Marine

Insurance and General Average (19th ed) London Sweet amp Maxwell

Han Chang-Hi (2017) ldquoUtmost Good Faith Doctrine of the Policyholder under the English Insurance

Act 2015rdquo Hanyang Journal of Law 34(3) 369-3965

Hodges S (1996) The Law of Marine Insurance London Cavendish Publishing

iEduNote (nd) Utmost Good Faith in Insurance Contract Marine Insurance Life Insurance

Available from httpwwwiednotecomutmost-good-faith

Jin Hong-Ki (2016) ldquoUtmost Good Faith after the Formation of Contract under English Insurance

Law and its Implication to our Lawrdquo Journal of International Trade and Insurance 17(3) 201-

228

Kim In-Hyun (2019 March 21) ldquoImportant Case Analysis by Field in 2018rdquo Maritime Law

Available from httpmlawtimescokrContentArticleserial=151692

Kim Hyun (2020) ldquoMust Have the Utmost Good Faithrdquo Shipping News Net Available from

httpwwwshippingnewsnetcomnewsarticlePrinthtmldxno=32476

Kim Jae-Woo (2016) ldquoThe Duty of Disclosure under the Doctrine of Utmost Good Faith in Marine

Insurance Contract In Connection with the UK Insurance Act in 2015rdquo Korea Trade Review

44(3) 137-154

Koh Jae-Jong (2008) ldquoA Historical Study on the Utmost Good Faith of the Insurance Contractrdquo

Commercial Law Review 27(1) 153-183

LawTeacher (2018) The Marine Insurance Available from httpwwwlawteachernetfree-law-

essayscontract-lawthe-marine-insurancephp

LawTeacher (2019) Pre-Contractual Duty of DisclosureAnalysis Available from httpwww

lawteachernetfree-law-courseworkpre-contractual-duty-disclosure-6638php

Lee Jung-Won (2016) ldquoA Review on the Duty of Fair Presentation in the Insurance Act 2015rdquo

Maritime Law Review 28(2) 37-76

Lee Jung-Won (2019a) ldquoA Review on the Relationship between Insurerrsquos Liability and the

Governing Law with Comments mainly on Korean Supreme Courtrsquos Docket No2017Da

272103rdquo Chonnam Law Review 39(4) 119-143

Lee Jung-Won (2019b) ldquoA Study on the Co-relationship between the Duty of Utmost Good Faith

and the Amendment of an Insurance Contractrdquo Dong-A Law Review 85 139-168

Lee Pil-Bok (2019) ldquoLegal Nature and Contents of the Governing Clauses of the English Law in

Marine Cargo Insurance Supreme Court Decision 2016623 Docket No2015Da5194rdquo

Monthly Maritime Korea 545 Available from httpmmonthlymaritimekoreacomnews

articleViewhtmlidxno+=2352

Merkin M R (2007) Insurance Law Introduction Boca Raton FL Informa Law form Routledge

Merkin M R (2010) Marine Insurance Legislation (4th ed) London Informa Law

Pak Jee-Moon (2019) ldquoA Study on the Origin and Current Status of the Utmost Good Faith in the

Marine Insurance Act Focused on the Carter v Boehm Caserdquo Korea Trade Review 44(2) 83-

94

Shin Gun-Hoon (2011a) ldquoA Trends for Reforming the Duty of Utmost Good Faith English Insurance

Contracts Law Focused on the Policyholderrsquos Pre-Contractual Duty in Insurance Contracts for

Businessrdquo The International Commerce amp Law Review 49 257-281

Shin Gun-Hoon (2011b) ldquoMain Trends for Reforming Marine Insurance Law in England Focused

on the Insurerrsquos Post-Contractual Duty of Utmost Good Faith-rdquo The Journal of International

Trade and Insurance 12(3) 41-74

Soyer B and A Tettenborn (2016) ldquoA Mapping (Utmost) Good Faith in Insurance Law-Future

Conditionrdquo Law Quarterly Review 132 618-638


36 Soyer B (2014) Marine Insurance Fraud Boca Raton FL Informa Law from Routledge

Soyer B (2017) ldquoThe Insurerrsquos Duty of Good Faith is the Path Now Clear for Introduction of New

Remediesrdquo In M Clarke and B Soyer (Eds) The Insurance Act 2015 A New Regime for

Commercial and Marine Insurance Law Boca Raton FL Informa Law from Routledge

Templeman F and R J Lambeth (1986) Templeman on Marine Insurance its Principles and

Practice (6th ed) London Pitman

Tyldesley P J (2009) ldquoArchaic Unclear and Unfair-Part 1rdquo New Law Journal 2009(159) 961-

962

Yoo Jung-Won (2019) ldquoAnalysis of Important Cases on Transportation Law and Insurance Law in

2018rdquo Human Rights and Justice 481 162-184

Yoon Seong-Geun (2018) ldquoIntroduction of Important Judgement in the Field of International

Transaction Law in 2018rdquo Korean Forum on International Trade and Business Law 27(2) 227-

267

Zhu Mingting (2020) ldquoThe Utmost Good Faith in Maritime Insurance The Naturerdquo Beijing Law

Review 2020(11) 99-107

Alfred McAlphine Plc v BAI (Run-Off) Ltd[2000] Lloydrsquos Rep IR 352

Banque Financiere de la Cie v Westgate Insurance Co (1996) 2 All ER 947

Black King Shipping Corporation and Wayang (Panama) SA v Mark Ranald Massie (ldquoThe Litsion

Priderdquo) [1985] 1 Lloydrsquos Rep 437

Brotherton v Aseguradora Colseguros [2003] Lloydrsquos Rep IR 774

Cantiere Meccanico Brindisino v Janson [1912] 2 KB 112 affirmed on appeal [1912] 3 KB 452

KS Merc-Skandia XXXXII v Certain Lloyds Underwriters (The Mercandian Continent) [2001]

Lloydrsquos Rep 563

Marc Rich amp Co AG and another v Portman and Others[1996] Lloydrsquos Rep 430

Pan Atlantic Ins Co Ltd v Pine Top Ins Co Ltd [1995] 1 AC 501 Economides v Commercial

Assurance Co Plc [1998] Q B 587

Phoenix General Insurance Co v Halvanon Insurance Co Ltd [1985] 2 Lloydrsquos Rep 599

Saint Paul Fire amp Marine Insurance Co (UK) Ltd v McDonnell Dowell Constructors Ltd [1995] 2

Lloydrsquos Rep 116

Schoolman v Hall [1951] 1 Lloydrsquos Rep 139

Socieacuteteacute Anonyme drsquoIntermediaries Luxembourgeois v Farex Gie [1995] LRLR 116 at 135

St Paul Fire amp Marine Insurance Co (UK) Ltd v McConnell Dowell Constructors Ltd [1995] 2 Lloyds

Rep 116

wwwnewktraorg

37

JKT 24(6)

Innovation Space Driving Business Growth of Semiconductor Enterprises

A Case Study of South Korean Samsungrsquos Investment in China

Eun-Young Nam Department of Business Administration Sejong University South Korea

Xiao-Long Wangdagger Graduate School of Management of Technology Pukyong National University South Korea

Abstract Purpose ndash The purpose of this study is to investigate the direct and indirect impact of innovation space factors on the growth of semiconductor enterprises Designmethodology ndash This empirical study uses the financial statements of 83 semiconductor listed companies in 23 provinces from 2004 to 2019 approved by CSRC (2019) A stepwise regression and backward regression are employed in order to examine the role of innovation space to expand technology investment in promoting business growth and uses South Korean Samsungrsquos investment in China as a test case Findings ndash Results indicate that innovation space technology input geographical area ownerrsquos background operating years and financing liabilities all contribute to a boost in business growth Factors such as carbon emission financial liberalization government efficiency technology input and financing liabilities further influence management growth Innovation space follows a nonlinear pattern and this plays a positive role in magnifying the influence of technology on management growth Additionally operations of the state-owned companies and expansionary financing enter-prises are influenced by the external economy Regarding the spatial distribution the Samsung investment in 24 companies in China shows that Samsung focuses on the acquisition of scarce resources for semiconductor production as a component of its investment and innovation strategy Originalityvalue ndash Even though prior research has considered the concepts studied here this study contributes to empirically evaluate the direct impact of innovation space on business growth and the indirect impact of innovation space on business growth through technology investment This study includes an in-depth discussion of the practical effects that innovation space has on Chinarsquos economy using a case of South Korean Samsungrsquos investment in China as a test the empirical findings

Keywords Business Growth Innovation Space Semiconductor Industry Samsungrsquos Investment

Technology Investment JEL Classifications C12 F18 O30

1 Introduction Innovation space is a form of material space which promotes the knowledge economy this

spatial concept is larger than industrial agglomeration space The knowledge economy has

This work was supported by Shanghai Municipal Education Commission ldquoResearch on Intellectual Property Public Domain Issues under the Strategy of Innovation-Driven Developmentrdquo (2019-01-07-00-07-E00077) the China Science and Technology Association (Project NO19WURD006)

dagger Corresponding author wangxlwxueducn




ISSN 1229-828X


38 become an important factor in improving the competitiveness among countries regions and cities Science technology and innovation capability aim to attract enterprisesrsquo investment and promote regional economic growth (Bercovitz and Feldman 2007) Innovation space includes the urban belt space innovative cities and innovative units Moreover innovation space comprises the following a group of manufacturing enterprises engaged in the production and supply of innovative products educational and research institutions and governments Educational institutions aim to train innovative talents research institutions are further engaged in the dissemination of innovative knowledge and technology Government agencies and commercial intermediaries support innovation activities through finance policies and regulations

In practice the impact of innovation space on business growth plays an important role which may be that of a ldquopromoterrdquo andor a ldquoblockerrdquo Additionally strengthening industrial agglomeration increasing knowledge spillover effect and geographical distribution of patents can significantly promote the sales of local enterprises (Luan Chun-Juan Wang Xu-Kun and Lin Ze-Yuan 2008)

Chinarsquos innovation space can enhance the competitiveness between Chinese enterprises and foreign enterprises improve the human cost of enterprises and intensify the impact of foreign enterprises on local enterprises In 2018 China formulated several policies to promote scientific and technology innovation With a series of enacted laws and regulations to promote innovation it is clear that innovation space could play a pivotal role in promoting business growth in China

Globally most economists agree that innovation space can influence business growth but in China consensus has not yet been reached Two main arguments have been postulated the first measures the distribution of innovation density in Chinese cities by using Newtonrsquos gravity model This demonstrates a significant positive spatial correlation between geo-graphical characteristics and innovation input and output (Li Jing Tan Qing-Mei and Bai Jun-Hong 2010) Chen Yu and Xie Fu-Ji (2017) argued that the Pearl River Delta the Yangtze River Delta and the Bohai Rim have enjoyed significant increases in innovation in the last few years whereas the Shenzhen Suzhou and Tianjin cities play an obvious role in the growth rate In terms of input and output efficiency Niu Xin and Chen Xiang-Dong (2013) adopted low input and high efficiency for Tianjin high input and high efficiency for Beijing high input and low efficiency for Shanghai Jiangsu Shandong and Guangdong and low input and low efficiency for Shaanxi

The second argument is based on Chinarsquos provincial panel data from the macro-regional environment which includes property rights protection tax preference capital loans university RampD talent acquisition and the industrial chain This data is used to analyze the impact of innovation space on business growth Bai Jun-Hong Jiang Ke-Shen and Li Jing (2009) postulate that the government is the first external agent of technological innovation and the scientific and technological talents are the main drivers of innovation strategy Xie Zuo-Miao and Peng Juan-Juan (2006) and Wang Wen-Ting and Kan Li-Rong (2020) believe that the proportion of foreign direct investment (FDI) in a region provides a pivotal role in promoting technology investment On the other hand Chen Yu Li Xiao-Ping and Bai Peng (2007) and Xie Jia-Zhi Liu Si-Ya and Li Hou-Jian (2014) believe that the scale of urban credit has a significant positive effect on the RampD investment

However macro data fails to identify the parameters of innovation space that influence specific industries The innovation space factors affecting business growth are not yet identified in Chinarsquos semiconductor industry As a corollary the current Chinese literature focusing on the heterogeneity of the business growth model mostly uses sample estimation and threshold regression In this approach the apriorism subjectivity and deviation of sample

Innovation Space Driving Business Growth of Semiconductor Enterprises A Case Study of South Korean Samsungrsquos Investment in China

39 selections are unavoidable

We therefore pose the following questions Can innovation space improve the operational growth of the semiconductor industry From an innovation space perspective what are the factors that affect the heterogeneity of the semiconductor industry What is the significance of Samsungrsquos spatial distribution investment in Chinarsquos semiconductor industry This study uses a ldquodata-drivenrdquo method to investigate the role of innovation space to expand technology investment in promoting business growth Using the financial statements of listed companies in 2004-2019 approved by CSRC (2019) we carry out a direct comparison of relevant vari-ables of innovation space factors Under the endogeneity control we use stepwise regression to determine the main effect model Using the main effect variables we develop a multivariate quadratic model and backward regression to eliminate non-significant variables We also investigated the interaction effect and non-linear trend between the independent variable and the dependent variable To test the findings we pick South Korean Samsung Electronics Co Ltd (Samsung)rsquos investment in China as a test case

The rest of the paper is structured as follows Section 2 provides the literature review In Section 3 we develop the hypothesis and provide data collection and methods Section 4 we carry out the empirical research based on the financial statement data of Chinarsquos listed companies in 2004-2019 and the basic results are tested with alternative variables In Section 5 we analyze the investment space strategy of Samsung Electronics in China as a test case In Section 6 we summarize the paper and offer policy recommendations

2 Literature Review Innovation space is an important growth pole for regional and national development From

a global perspective innovation space of different scales is booming High-end innovation produces high-level innovation results and improves the innovation competitiveness in cities However in China it believed that ldquocrowding-out effectrdquo was found in the current innovation space (Yu Yong-Ze and Liu Da-Yong 2013) The repeated city construction waste of resources and political influence on enterprises have significant negative effects on business growth (Bai Yi-Xin Liu Xing and An Ling 2008) Two different consensuses in academic circles are positive innovation space in promoting economic growth and its consistent impact

In the first argument we must consider whether Chinarsquos urban innovation space offers ldquopositive externalityrdquo roles consistent with promoting business growth or whether the innovation space lacks information communication and sharing resource scarcity conflict market competitions human cost increase and imparts other negative effects The Chinese cityrsquos economic growth reflects the enterprisersquos technology investment behavior In practice urban managers should moderately influence the government to guide their innovation and RampD They should also identify the government as the external driver of technological innovation using the scientific and technological talents as the urban innovation strategy (Xie Wei-Min Tang Qing-Quan and Lu Shan-Shan 2009) The market mechanism should pro-vide the spatial spillover innovation effect help to break the regional monopoly and enhance the production capacity learning and research This also strengthens the communication between cities and avoids ldquonegative externalitiesrdquo Regarding innovation investment man-agers should use the best input and output according to the innovation stage From the enterprise development perspective technology investment has a significant impact on the sales volume in the early stage of internationalization In the later stage the influence of the enterprise-scale economy on business performance will increase (Chen Heng and Chen Wei


40 2006) Growth is recorded in enterprises when management technological innovation and transformation technology are put in place Moreover executive incentives the relationship between executive and innovation efficiency should be adjusted appropriately Executive equity incentives have a significant role in promoting technology investment based on an inverted U-shaped relationship (Xu Ning 2013) However Bai Jun-Hong and Jiang Fu-Xin (2015) argue that avoiding the excessive politicization of enterprises is essential

The second argument is whether the innovation space of Chinarsquos semiconductor industry is consistent with foreign experience or whether there is marked heterogeneity in the innovation space of Chinarsquos semiconductor industry Many studies use empirical research to understand the role of technology inputs on business growth and the role of government technology in enterprise technology FDI promotes the innovation of local enterprises in the short term however the impact of technology on the local enterprises is insignificant (Zhang Qian-Xiao and Feng Gen-Fu 2008) From the classification of geographical location Tianjin and Shaanxi in China have low input efficiency whereas Beijing Shanghai Jiangsu Shandong and Guangdong have high input efficiency This argument cannot reasonably explain the investment behavior of Samsung chips in Xirsquoan which is the capital of Shaanxi Province and maintains a local semiconductor industry worth approximately 8 billion US dollars annually In 2018 Samsung invested 1815 billion Yuan (approximately 2553 billion US dollars) in semiconductor projects in Xirsquoan Within the Samsung investment space in China the government introduced policies that supported Samsungrsquos investment to increase the number of research institutions in colleges and universities Samsung investment also serves as the ldquoexternal substitutionrdquo for Japanrsquos semiconductor core materials in response to trade disputes between South Korea and Japan

Xirsquoan city is rich in production of polyimides photoresistors and high-purity hydrogen fluoride It has great advantages as a material supplier However the host country lacks scarce resources for multinational corporations (Xi Guo-Ming and Ge Shun-Qi 2000) Sun Zao and Song Wei (2012) believed that the technology investment intensity in state-owned listed companies is significantly lower than that of privately listed companies Moreover political policies related to enterprises tend to reduce innovation efficiency Particularly technical efficiency raw materials and political connection of Chinarsquos semiconductor industry determine the impact of innovation space on business growth Table 1 summarizes previous studies that focus on the innovation space in China

In the first argument a relationship between innovation space and business growth is related to the ldquopositive-negativerdquo relationship The ldquohomogeneous-heterogeneousrdquo relationship is remarked in the second argument By establishing multiple high-order regression models this study investigates an ldquooptimal-nonoptimalrdquo relationship as well as the optimal economic point of enterprises with different eigenvalues Due to page limitations this article does not discuss relevant literature on control variables

Previous studies have verified the relationship between innovation space technology investment and business growth based on the heterogeneity of regions industries and scales However the following gaps are observed in the existing studies First lack of data to compare the innovation space group and non-innovation space group Previous studies used a GDP indicator or urban line data but failed to classify or code the comprehensive coefficient of innovation space Second many studies target specific industries specific scales and indi-vidual projects With bias in sample selection it is difficult to observe the innovation space from different perspectives Moreover the lack of evaluation of the intermediary variables and control scalars reveals that innovation space and business growth have an intermediary role


41 Table 1 Summary of Previous Studies on Innovation Space in China

Author Research Topics Data Sources Research Conclusion

(1) Impact of Innovation Space on Business Growth

Fang Yuan-Ping and Xie Man (2012)

Provincial Innovation

Panel data of 31 provinces in China

A negative correlation of patent level for every 10000 college students

Wang Wen-Ting and Kan Li-Rong (2020)

Strategic Emerging Industries

2013-2017 China high-tech zone data

Strategic emerging industries and high-tech zone variables are correlated

Lu Yan-Qin and Zhao Bin (2020)

Foreign Investment

Provincial panel data 2000-2017

FDI and regional innovation play a positive role in promoting urban economic development

(2) Classification of Technology Input Based on Innovation Space Factors

Gu Yuan-Yuan and Shen Kun-Rong (2012)

Government Behavior

China inter-provincial panel data

Full competition of officials has a positive effect on enterprises technology investment

Shen Kun-Rong and Sun Wen-Jie (2009)

Market Competition

Data of large and medium-sized industrial enterprises and foreign-funded enterprises in China from 1998 to 2004

In the short term foreign capital has obvious negative effects on China enterprises which narrows the gap in the long term

(3) Classification of the Intermediary Role of Expanding Technological Input and Business Growth Based on the Innovation Space

Li Mei (2010) Human Capital Accumulation

Chinas FDI data 1985-2008

Lack of capital accumulation and RampD personnel harms the technology absorption capacity

Cheng Zhong-Hua and Liu Jun (2015)

Urban Space Industrial data of 285 cities above prefecture level in China from 2005 to 2007

Diversification and intra industry competition promote manufacturing innovation

(4) Classification of Operating Performance According to Other Factors

Xu Feng (2010) Innovative Methods

Case study of Samsung China R amp D center

The success of innovation such as Six Sigma and TRIZ within Samsungrsquos enterprise can improve the innovation ability

Chen Yu and Xie Fu-Ji (2017)

Innovation Center City

Data of 25 cities in the Yangtze River Delta

Innovation presents the phenomenon of space locking and innovation is concentrated in Shanghai and Hangzhou

Previous studies borrow the concepts of ldquocapital structurerdquo and ldquofinancing scalerdquo however

some hidden intermediary factors are ignored such as the characteristics of enterprise owners regional enterprises and the enterprise debt ratio To control the missing variables this study adds control variables such as the ownerrsquos gender educational background engineering background the level of corporate debt nature of technology ownership business operating


42 years and geographical areas However previous studies pay more attention to the linear relationship of variables They neglect that innovation space factors and control variables have a multi-dimensional effect on business growth This shows that the relationship is nonlinear

3 Research Hypotheses Data and Methods

31 Research Hypotheses A systematic model is developed taking semiconductor business growth as a research

object innovation space as the independent variable technology investment as the intermediary variable and the characteristics of owners and enterprises as control variables

Innovation space called the spatial distribution of technological innovation is a cluster innovation network of funds talents patent technology suppliers and technology service companies within a certain space area Cassiman and Veugelers (2006) note that the knowledge spillover effect on innovation space helps enterprises to access market information and reduce transaction costs By forming a spatial regional brand organizations can obtain positive external benefits Finally many investors believe that enterprises with innovation space are more likely to obtain bank loans and venture capital than those without innovation space Thus market competition and technology investment can strengthen the social reputation and help enterprises to expand access to key resources

Gao Yu et al (2017) believe that innovation space affects both the semiconductor IDM market and other markets such as FABLESS and FOUNDRY Focusing on funding factors Adler and Kwon Seok-Woo (2002) identifies a spatial difference between capital gathering and regional economic growthmdashwhen semiconductor listed companies move to the innovation space The cost advantage of obtaining capital gathering is more obvious The diversity and convenience of financing are achieved formally or informally (Di Zhou and Mao Xiang-Huang 2019) The accumulation of talents and patent property rights has a positive effect on the mutual promotion of industrial structure upgrades (Yin Xiu-Fang 2019) Moreover universities technical service enterprises and suppliers promote regional economic development (Wu Jie 2011) Semiconductor market opportunities often promote RampD to develop new products Moreover the innovation space superior talents and university resources can promote business growth (Fang Palmatier and Evans 2008) Using Marshallrsquos research on the relationship between industrial space agglomeration and macro-economics Carlsson (2006) discussed the innovation space extensively to provide enterprises with ldquointernational visionrdquo and ldquoinnovative thinkingrdquo Innovation space significantly affects how companies respond to market competitions promote economic growth increase labor productivity and reduce transportation costs and transaction costs Innovation space continues to migrate along with the industrial transfer (Niosi and Bellon 1994)

Economies of scale economies of scope spillover effects bank loans and venture capital are the factors that facilitate the growth of Chinese semiconductor listed companies Typically innovation space enhances the economies of scale For example the expansion of an internal scale offers benefits to an enterprise Moreover external economies of scale facilitate markets of raw materials and products which help to achieve spatial competitive advantage and the growth of the supply chain Additionally the economic effect of innovation space is generated as an output of industrial agglomeration Enterprises depend on each other based on the implementation of the division of labor This reduces the average cost and increases competition and cooperation thereby improving the enterprisersquos operating profits


43 These facilitate the growth of semiconductor listed companies This leads to Hypothesis 1

H1 Innovation space has a positive effect in promoting the growth of semiconductor

enterprises Technology investment is a technique enterprise use to achieve competitive market

advantage It reflects the importance enterprises attach to technological innovation and it is an indicator that affects sustainable business growth Different factors such as the ownerrsquos gender education level engineering background and the ownership of technology are motivators for technological investment For example public shareholders and government RampD subsidies improve production efficiency and sustainable business growth (Jerome 2001) Specifically positive government policies on RampD and tax benefits influence tech-nological investment and innovation space Technology input theory emphasizes a restriction of market pressure on enterprisesrsquo behavior Rover (1956) noted that enterprises must comply with market rules and regulations neglecting an initiative to increase technological input For innovation space to be effective in driving business growth enterprises must invest in advanced technology expand business strategy and increase RampD expenditure These initiatives will have a positive impact on a global value chain

Reppas and Christopoulos (2005) pointed out that technology investment can accelerate technology reduce the waste of resources and improve production efficiency in the manu-facturing industry In response to market competition Porterrsquos environmental hypothesis shows that enterprises in innovation space will adopt technology input that meets the governmentrsquos expectation to market The impact of innovation space on investment is reflected in the way business owners pay attention to the export and the strategy of semi-conductor technology rather than achieving low cost (He Jian 2005) If enterprises actively respond to environmental regulations and market competition they will derive opportunities from technology investment obtain subsidies tax reliefs land and other key resources helping them to achieve competitive advantages While expenditure on RampD increases the operating cost it helps enterprises to reduce production costs improve production efficiency break down technical barriers and obtain the best quality per unit cost Fang Palmatier and Evans (2008) use empirical studies to demonstrate that innovation space promotes greater technology investment in technology-intensive industries than the non-technology intensive industry

H2 The positive effect of innovation space on technology investment Innovation space has a positive impact on technology investment and business growth

Typically enterprises with innovation space can define the direction of investment the intensity of investment and the acquisition of financing through technology investment With innovation space enterprises will achieve benefits that include administrative approval land acquisition loan guarantee and policy preference (Guumlner Malmendier and Tate 2008) Moreover the distribution of information and resources is different between enterprises with innovation space and enterprises without innovation space Rejean et al (2002) proved that Chinese semiconductor listed companies with innovation space rely on their social networks to expand information channels and enhance decision-making This showed that enterprises with innovation space faced lower investment uncertainty and enjoyed shorter investment cycles Besides which innovation space offers unique advantages related to access to key resources Before implementing technology investment the listed companies use innovation space to determine the impact of the net inflow Implementing technology investment is


44 ultimately reflected in the enterprisesrsquo products revealing that innovation space offers market opportunities and easy access to human resources

H3 Innovation space expands positive technology investment and business growth 32 Data and Research Methods We collect 2004-2019 data from the financial statements of 83 semiconductor listed

companies located in 23 provinces of CSRC (2019) To avoid data selectivity bias we select the data set that consists of innovation space factors information demographic characteristics of business owners and other attributes of enterprises This enhances data credibility and helps to explore the listed companies from different perspectives

A defined innovation space is different between China and other countries At present three representatives of innovation space are the EU Innovation Scoreboard proposed by the European Commission the National Innovation Capability Index proposed by Porter and Stern and the Global Innovation Index Using 5 first-level indicators and 53 second-level indicators evaluation of Chinarsquos innovation space represents the regional innovation capability evaluation proposed by the Chinese Academy of Sciences In this paper the indicators of innovation space include education and scientific research as well as the annual high school graduation rate The urbanization index is an increase in the number of urban residents compared to the previous month The carbon emission index is the annual carbon emission per capita The tax policy index is the annual comprehensive tax burden rate divided by the national fiscal budget revenue and the annual GDP output The financial marketization index is the ratio of annual credit scale to the annual GDP output value The major factors envisioned to attract economic migration to the city are government efficiency the number of days to start an enterprise and the human settlement environment

By the end of the third quarter of 2019 the net income and ownerrsquos equity of the innovation space group were 23109 billion Yuan and 2719 billion Yuan respectively higher than that of the non-innovation space group This reflects that the innovation space has increased the technology RampD and the operations of Chinese semiconductor enterprises Some differ-ences are noted in the operation growth of innovation space However the results do not prove that innovation space influences business growth For enterprises with technology investment does innovation space influence technology investment and promote business growth To solve endogeneity stepwise regression and backward regression are used to establish the optimal model of investigation Table 2 shows the definitions of related variables

To improve data accuracy the sample data are processed as follows First we reduce the difference between variables logarithm for the dependent variable of ownerrsquos equity and operating income as shown in equation (1)

lowast (1)

Moreover the independent variable intermediate variable and control variable The

variable interaction and the value of variables are encoded refer to equation (2)

(2)

Table 3 provides the descriptive statistics of relevant variables the peak value of variable

data is greater than 0 indicating that the overall data distribution is steep compared with the


45 normal distribution The skewness of variable data is 0445-1770 showing z little deviation between the data distribution and the normal distribution

Table 2 Definitions of Variable Indicators

Variable Symbols DefinitionDependent Variable

Ownerrsquos Equity Equi Ownerrsquos equity at the end of the accounting period

Business Income Inco Amount of operating income at the end of the accounting period

Education Educ High school graduation rate

Urbanization Urba The annual urban population growth rate

Independent Variable

Carbon Emission Carb Annual per capita carbon emissions tons

Tax Policy Tax The ratio of annual urban fiscal income to GDP

Financial Marketization Finamark The ratio of annual urban credit scale to GDP

Government Efficiency Goveeffi Days needed to start a business

Living Environment Liveenvi The net amounts of urban migrants

Innovation Space or Not Innospac (x1-x7) the composite coefficient is 0lower than the sample mean (- 0081) others are 1

Intermediary Variable

Technology Input Techinpu Amount invested in technology RampD at the end of the accounting period

Ownerrsquos Gender Gend Gender of executive director at the beginning of the accounting period 0 for female and 1 for male

Education Background of the Enterprise Owner

Educback The educational level of the executive director at the beginning of the accounting period 1 for below University 0 for University 1 for above university

Engineering Background Engiback Whether it is an engineering major or engineer title not 0 but 1

Control Variable

Geographical Area Geog The city of the enterprise is - 1 in the western region 0 in the central region and 1 in the eastern region

Form of Owner Formowne The non-state-owned capital holding of the enterprise is 0 and the state-owned capital holding is 1

Years of Operation Yearoper Number of years of establishment

Financing Liabilities Liab Amount of financing liabilities at the end of the accounting period


46 Table 3 Descriptive Statistics of Variables

Variable Obs Mean Median Stddev Kurt Skew Mini Maxi Equi 937 11455 11530 1132 0113 -0403 7157 14433 Inco 937 11445 11446 1169 -0077 0116 7962 14821 Educ 937 92827 96 214411 12912 -04452 29 153 Urba 937 12480 095 14510 25198 10915 -22 81 Carb 937 74026 6545 49407 62443 17704 031 3592 Tax 937 1715 17 61163 -0091 -0014 01 334 Finamark 937 96008 8075 561551 00556 08108 10 2717 Goveeffi 937 19306 185 17688 29447 16933 2 60 Liveenvi 937 21676 695 39606 94360 20013 -263 1335 Innospac 937 0267 1 0443 -0899 1049 0 1 Techinpu 937 15480 8863 2134408 29978 4422 382 259590 Gend 937 0980 1 0137 47333 -7016 0 1 Educback 937 0402 1 0708 -0683 -0755 -1 1 Engiback 937 0565 1 0495 -1933 -0265 0 1 Geog 937 0863 1 0431 10032 -3272 -1 1 Formowne 937 029 0 0454 -1145 0925 0 1 Yearoper 937 1616 15 7977 6414 1744 1 61 Liab 937 130284 50620 254734 34020 5127 1206 2377000

To overcome endogenous problems stepwise regression and backward regression are used

to build the optimal fitting model For endogeneity the explanatory variable and the interpreted variable are the causal problems We are concerned about whether business growth can promote innovation space Western studies believe that the innovation space can increase attraction to cities and improve the citiesrsquo economic growth and innovation com-petitiveness The influx of foreign-funded enterprises will reduce the business growth of local enterprises in the short term However using the knowledge spillover effect local enterprises can narrow the gap between innovation ability and foreign-funded enterprises to promote their growth in the long run Chinese studies demonstrate the positive role of innovation space which includes the improvement of technical efficiency improvement of capital structure and the diversification of geographical trade These facilitate the business environ-ment and business growth Regardless of the mechanism of innovation space the logical argument of Chinese and Western theories on this issue is as follows innovation space investment facilitates business growth thus no endogenous problem is detected

For the second endogeneity there is a choice of whether to omit variables Enterprises have a certain selection mechanism in deciding whether these variables affect both innovation space and business growth However the variables of representation are difficult to count The enterprises in innovation space are regarded as the treatment group rather than using the enterprises in innovation space as the control group To evaluate whether innovation space can promote business growth a direct approach is to compare the difference between the operating income and the ending balance of the ownerrsquos equity of the treatment group and the control group This helps to detect if the operating income of the innovation space group is higher than that of the non-innovation space group For rational enterprises we choose an innovation space environment to explain a rise in the innovation corridor and innovation cities

This study uses a counterfactual framework (Rubin 1974) to show whether enterprise (i)


47 is in innovation space with virtual variable Di = 0 1 where (1) represents innovation space and (0) represents non-innovation space (Di) is the processing variable reflecting whether the enterprise (i) is processed The business income and innovation space are (Yi) and (Di) respectively Besides we observe the value of technology investment of enterprises recorded as (Xi) and known as the covariate In this way the population can be represented by (Y0 Y1 D x) Whether the enterprise (i) is in the innovation space environment depends on the observable characteristics of the ownerrsquos population the debt ratio of the enterprise and the form of ownership (Z) The specific steps of the model are deconstructed as follows

The first step is to build a model of explanatory variables

Yi=xiβ+γDi+ui (3) To analyze the impact of innovation space and technology investment on business growth

this paper focuses on two aspects business income and ownerrsquos equity After substituting the variables the regression model is as follows

In(income)=β0+γIs+βiXi+u (4)

In(Ownerrsquos equity)=β0+γIs+βiXi+u (5)

We use are natural logarithm for variables business income and ownerrsquos equity (Is) is the

two values virtual variable of innovation space (X) is the control variable and (u) is the random error If γ gt 0 there is positive innovation space effect otherwise if γ lt 0 there is negative innovation space effect

In the second step the Probit model is used to build the processing equation

D=α+δZ+ɛ (6) If D gt 0 then (Is) = 1 if D lt 0 then (Is) = 0

Prob(Is=1|Z)=φ(δZ)

Prob(Is=0|Z)=1-φ(δZ) Equation (6) is used to analyze whether the potential selection variables will affect the

innovation space mechanism After substituting the variables set the selection equation is as follows

D=α+δ1Z1+δ2Z2 +ɛ (7)

In this Equation (7) (Z) is the latent variable the intervention effect model assumes that

the two random error terms (u) and (ɛ) are subject to the binary normal distribution and that VAR (u) = σ2 VAR (ɛ) = 1 Cov (u ɛ) = ρ σ2 (ρ) is the correlation coefficient of the two random error terms (u) and (ɛ) Here we must test the likelihood of the original hypothesis to indicate that the two random variables (u) and (ɛ) do not have the same parameters the regression equation and the selection equation are independent of each other and OLS regression is appropriate


48 The stepwise regression is used to develop the optimal model The main effect model in

Table (2) was analyzed using stepwise regression and to identify the most important variables Table 7 shows the specific definition of the innovation space category variable Based on the principle of a frugal model the unitary model is used as the basic regression equation the formula is shown in equations (8) and (9)

(8)

(9)

Table 4 summarizes the stepwise regression T value and corresponding p-value of each

step The model (1) adds the virtual variable of innovation space Moreover the correlation coefficient is positive and significant showing that innovation space has a positive role in promoting business growth Second the model (2) adds the technical input index the correlation coefficient is positive showing that it is significant and the adjusted Rsup2 coefficient increases Third the model (3) shows that the ownerrsquos gender educational background and engineering background have no significant effect However the geographical region of the enterprise has a positive and significant effect on its growth coefficient The decision coefficient increased after adjustment In the models (4) (5) and (6) the owner form operation period and financing liability index are included The display coefficient is positive both are significant The T value and the adjusted Rsup2 are improved

The stepwise regression is recommended in the final model This includes innovation space technology investment geographical region owner background operation period and financing liabilities The basic regression equation is as follows

13

(10) However equation (10) ignores the interaction and higher-order terms of potential

variables In the variable selection we use backward regression for the dependent variable We eliminate the insignificant variables in the second-order model owing to the limited space this paper does not report the specific backward regression The equation (11) gives the following output

13 lowast

lowast

lowast lowast lowast innospac lowast Techinpu lowast Liab

(11) The final model includes innovation space technology investment innovation space

geographical region owner background operation period financing liability and financing the second term of liabilities The Pearson correlation coefficient was tested in each variable in the regression equation (11) The results show that the correlation coefficient of the main variables is 03 or less proving no obvious multicollinearity problem between the variables and regression analysis Table 5 shows the results


49 Table 4 Stepwise Regression Modeling for Business Growth Stepwise (1) (2) (3) (4) (5) (6) Constant 11102 10902 11089 11363 10849 10879 Innospac 1315 0834 0841 0832 0649 0624 T value 18371 11285 11425 11276 9008 8533 Techinpu 0455 0447 0439 0381 0338 T value 13858 13696 13344 12025 8523 Geog 0213 0188 0280 0293 T value 3201 2748 4281 4454 Formowne 0106 0166 0149 T value 1603 2626 2326 Yearoper 0038 0038 T value 10372 10243 Liab 0072 T value 1822 Standard error 0970 0884 0880 0879 0833 0832 Rsup2 2652 3905 3971 3988 4610 4630 Adjusted R sup2 2644 3892 3952 3962 4582 4595 F value 33749 29925 20489 15457 15931 13364 Obs 937 937 937 937 937 937

Note plt01 plt005 plt0001 Data source CSRC (2019)

Table 5 Pearson Correlation Coefficient

Innospac Techinpu Geog Formowne Yearoper Liab Innospac 1 Techinpu 046 1 Geog 000 -005 1 Formowne 016 020 -023 1 Yearoper 033 028 013 -003 1 Liab 036 030 002 023 027 1

Note the coefficient below 03 is a low correlation expressed by

4 Empirical Test In this empirical research we examine the impact of innovation space factors on business

growth (hypothesis 1) We also empirically measure the impact and significance of each factor Moreover we investigate the impact of innovation space factors on the growth of technology investment (hypothesis 2) We distinguish the virtual variables of innovation space test the effect of innovation space and technology investment on business growth Moreover we test whether hypothesis 3 is supported Finally operating income is used as an alternative variable of the ownerrsquos equity Regression analysis and F value are used to test the robustness of the impact of innovation space and technology investment on business growth


50 41 Innovation Space Factor and Business Growth Indicators of innovative spatial factors are education and scientific research urbanization

carbon emissions tax policies financial marketization government efficiency and human settlements Using stepwise regression to verify the main effect model the relationship between carbon emission curve and tax policy is not significant The regression equation between innovation space factor and business growth is as follows

13 13 (12)

By using the quadratic formula of multiple variables the optimal model results are given in

equation (13) after removing the insignificant variables

5065 0016 0113 006013 000213

001113 000002313 0025 0000067 00001 (13)

From the regression results in Table 6 the primary indicator the education level has

increased the ownerrsquos equity by 161 The growth rate of urbanization promotes 1051 of ownersrsquo equity reduces carbon emissions and promotes 618 of financial marketization It reduces the number of business days and increases the ownerrsquos equity by 246 The relationship between the above independent variables and business growth is linear

Table 6 Regression Results of Innovation Space Factor of Ownerrsquos Equity

Dependent Variable （13）Β-Coefficient Standard Error T-value P-value


Educ -0016 0002 5571 0000 Urba -0100 0040 2495 0013 Carb -0060 0004 -4997 0000 Carb2 -0002 0000 5226 0000 Finamark -0011 0003 3860 0000 Finamark2 -0000023 0000 -1950 0052 Goveeffi -0025 0005 -4819 0000 Goveeffi2 -0000067 0000 3648 0000 Liveenvi -00001 0000 1313 0190

Intercept 5065（7773） Correlation Coefficient 9060 Rsup2 8209 Adjusted R sup2 8105 Number of samples 202F value 79176（0000） Note plt01 plt005 plt0001 Source CSRC (2019)

The trend is not linear in the second project Although this reduces carbon emissions and

promotes business growth we determine a positive U-shaped structure with the notch upward the curvature is 0002 the tangent point is 9187 Financial marketization and business growth are inverted U-shaped structures with a concave downward curvature of -


51 0000023 The cut-off point is 12247 The curve relationship between the number of days to start a business and the business growth is a positive U-shaped structure with a curvature of 0000067 and a cut-off point of 1931 days This shows that the lower the carbon emission is better When the carbon emission is lower than the concave point the business growth and carbon emission will decrease When the financial marketization is not active the better The point cut shows that when the scale of credit exceeds 12247 the business operation is significantly reduced Regarding government efficiency and administrative efficiency admi-nistrative costs are curvilinear The cut-off point shows that the optimal external economy exists when the number of business days is 1931

42 Innovation Space Technology Investment and Business Growth Innovation space the criterion of the virtual variable is whether the comprehensive

coefficient of x1-x7 factors is greater than -0081 of the sample mean If it is greater or equal to 1 this is in innovation space If it is lower it is not an innovation space In the main effect model of stepwise regression the impact of tax policy is not significant so the classification index is deleted A comprehensive coefficient = education and scientific research coefficient + urbanization coefficient - carbon emission coefficient + financial market coefficient - government efficiency coefficient + residential environment coefficient ( 0081) judged as innovation space Refer to Table 7 for details

Table 7 Comprehensive Coefficient of Innovation Space Discrimination

Factor Mean Stddev Formula Mean Stddev Coefficient Comprehensive Educ 92827 214411

0147 1 16 0024 Urba 12480 14510 -0205 1 16 -0034 Carb 74026 49407 -0173 1 16 -0028 Tax 96008 561551 -0271 1 16 -0045 Finamark 19306 17688 -0045 1 16 -0007 Goveeffi 21676 39606 -0371 1 16 -0061

Mean Value of the Comprehensive Coefficient -0081 Technology input and control variables constitute a part of the main effect model

Intermediary variables are examined through an interaction between innovation space and technology input Stepwise regression was used to verify the main effect of the model Besides the gender educational background and engineering background of the business owner have no significant effect on business growth By using the quadratic formula for multiple vari-ables the optimal model results are provided in equation (14) after removing the insignificant variables

10822 1012 1729 0551 lowast 0902 0242 0143$ 0279 lowast

lowast amp$ 0032 0380 lowast lowast 0188() 0548 lowast lowast () 0363() (14)

From the basic regression results in Table 8 the interaction coefficient between innovation

space and technology investment is significant whereas the coefficient of the second term of technology investment is negative indicating that the relationship between technology investment and business growth correlates with an inverted U-shaped structure The


52 curvature is -0902 The notch is downward and the tangent point is 31725 The data of technical input is substituted with the formula (2) The calculated cut-off point is 83193 million Yuan

Table 8 Regression Results of Innovation Space Technology Investment Business Growth

Dependent Variable （14） Β-Coefficient Standard Error T-value P-value


Innospac 1012 0090 11175 0000 Techinpu 1729 0096 17965 0000 InnospacTechinpu 0551 0135 4076 0000 Techinpu2 -0902 0062 -14417 0000 Geog 0242 0057 4246 0000 Formowne 0143 0061 2343 0019 InnospacTechinpuFormowne

0279 0040 6978 0000

Yearoper 0032 0003 9327 0000 InnospacTechinpuYearowne

0380 0090 4197 0000

Liab 0188 0078 2406 0016 InnospacTechinpuLiab

0548 0107 5089 0000

Liab2 -0363 0095 -3809 0000 Intercept 10822（13555） Correlation Coefficient 7797Rsup2 6080Adjusted R sup2 6029Number of samples 937 F value 11946（0000）

Note plt01 plt005 plt0001 Source CSRC (2019)

In the eastern region state-owned holding operating years and financing liabilities pro-

mote the growth of ownersrsquo equity Innovation space - technology investment - owner form innovation space - technology investment - operating life and innovation space - technology investment - financing debt has a positive effect Moreover we record an inverted U-shaped curve relationship between financing liabilities and ownerrsquos equity growth with a curvature of -0363 In a concave downward the code value of the cut-off point is 5188 In equation (2) the financing cut-off point is approximately 14518 billion Yuan The innovation space coefficient is significant indicating that the innovation space can promote business growth This supports Hypothesis 1 The regression equation of innovation space and technology investment is 13 0284 1060 lowast T=16274 F=264873 adjusted R2=04698 This significantly supports Hypothesis 2 The coefficients of innovation space that of technology input owner is 0279 technology input operation life is 0380 and that of technology input financing debt is 0548 This shows that the innovation space of technology investment has an impact on business growth


53 43 Robustness of Test Based on the backward regression and regression model in equation (10) the optimal

model of the independent variable and business income is established The equation is as follows

11530 05836 03318 01173 02034 0015 lowast 0212

lowast lowast (15) Table 9 shows the regression results Innovation space technology investment geo-

graphical region state-owned holding background and innovation space technology investment owner form promote the growth of business income

Table 9 Regression Results of Operation Income



Innospac 05836 00901 64721 0000 Techinpu 03318 01335 24847 0013 Geog 01173 00487 24076 0016 Formowne 02034 00861 23609 0018 TechinpuFormowne -00150 00057 -26235 0008 InnospacTechinpuFormowne

02120 01076 19694 0049

Intercept 11530（222865） Rsup2 6300Adjusted R sup2 5695Number of samples 937F value 104216 Note plt01 plt005 plt0001 Source CSRC (2019)

In the scatter diagram of variable residuals the results E (ɛ) = 0 No obvious trend is found

in the residuals of each variable showing that the model is not incorrectly assumed Forecast () residual map of the model assumes that the error variance is constant The residual histogram generated by the normal distribution assumes that normal error is reasonable From the residual diagram in time sequence the positive residual value is significantly higher than that of a negative number and the fitting degree of the multiple regression model is F = 104216 The adjustment Rsup2=05695 Therefore the assumption of independent error is reasonable In conclusion OLS regression is appropriate

5 Space Strategy of Samsung Investment in China Presently South Korea is the third-largest semiconductor industry transfer having over-

taken Japan In 2018 sales of global semiconductors reached US $4373 billion Samsung SK Hynix and MEGULAR in the United States accounted for 95 of the global DRAM market share Samsung alone accounts for 439 of the global market


54 The semiconductor industry invests in the ecological industrial chain to accumulate profits

It is also a national industry for South Korea that exploits both strategic and market op-portunities In the spatial shifts of the semiconductor industry the industry and universities collaborate to promote the transfer of a range of semiconductor technologies from Boston to Silicon Valley With this collaboration the governments industry and academic institutions realized market opportunities for the transfer of semiconductors in Japan Samsung is promoting the ldquofuture of semiconductor component development projectrdquo with the Univer-sity For example the company signed a ldquocooperation agreement with six universities in South Korea to carry out on human resource training to develop semiconductor materials components and equipment technologyrdquo The focus of this cooperation is to strengthen the industrial support for enterprises upstream the industrial chain and provide SW-SOG solutions to achieve market competitive advantage for system semiconductors

In 2019 South Korearsquos semiconductor exports accounted for approximately 20 of the total exports The semiconductor industry is one of South Korearsquos largest sectors and it provides supports for other weak industries The most recent trade friction between South Korea and Japan started on June 28 2019 Japan announced that it would remove South Korea from its trade ldquowhite listrdquo and impose ldquoembargordquo on South Korean export to Japan Japan restricted the importation of polyimines photoresistors and high purity hydrogen fluoride for semiconductor production However trade and investment between South Korea semiconductor and China may help to mitigate the impact of this trade friction Since Samsung has entered China 27 years ago the company has followed the Chinese government industrial guidance Samsung has adjusted its industrial layout to adapt to the rapid deve-lopment and change in the international market Based on the Samsung news report of 2018 Samsungrsquos industrial layout in China has been transformed into a high-end manufacturing industry in line with Chinese government guidance Over the past six years the company has continued to invest in high-end industries in China with investments valued more than 20 billion US dollars higher than the industrial adjustment

In the future Samsung will continue to invest in high-end industries in China As the largest consumer of semiconductor DRAM products China imported DRAM products valued more than 13 billion US dollars in 2016 China is gradually developing semiconductor innovation space and the Yangtze River Delta region Shanghai and Suzhou have formed the most complete and concentrated industrial chain in Chinarsquos semiconductor industry The Bohai Rim region Beijing and Tianjin are the core of the industrial region The Pearl River Delta region and Shenzhen also form the industrial cluster At present Samsung invested 1815 billion Yuan in the Xirsquoan market filling the gap in the industrial chain of Northwest China

From the perspective of innovation space factors Samsung investment in Xirsquoan project in South Korea is characterized by the following features in June 2014 China successively issued the national integrated circuit industry development promotion program GUANZHONG-TIANSHUI Economic Zone Development Plan Several state council policies facilitate software development and the integrated circuit industry State preferential policies on software and the integrated circuit industry have increased through Shaanxi Provincial Peoplersquos government Laws and regulations The government also formulated the 12th Five Year Plan for the development of the software industry integrated circuit industry and Xirsquoan integrated circuit industry

To provide a good environment for the continued development of the semiconductor industry the Xirsquoan government subsidizes 30 of Samsungrsquos investment constructs factories for Samsung provides free land and provides basic amenities such as water electricity transportation and greening Besides these factors the government levies 15 corporate income tax on the Samsung project after 10 tax exemptions and 10 half-tax reductions


55 Regarding RampD and innovation Xirsquoan has 672 scientific research institutions 130 national key laboratories and 731 universities The level of training of personnel offers an absolute advantage for the city as its strength of scientific research ranks third in China Xirsquoan is located at the center of China connecting the East the West and the north The geographical trade position is unique Moreover Xirsquoan has obvious advantages in human resources (Qian Xiao-Ye Chi Wei and Li Bo 2010) According to the national income data of China Statistics Bureau in 2018 the annual average salary of Xirsquoan in 2018 was 50436 Yuan while that of Suzhou in the Yangtze River Delta is 94124 Yuan Tianjin in the Bohai economic zone was 70452 Yuan and that of Shenzhen in the Pearl River Delta was 111708 Yuan Moreover Xirsquoan is rich in production of polyimides photoresistors and high-purity hydrogen fluoride The resources provided good ldquosubstitutionrdquo for South Korea during recent South Korea-Japan trade friction Dover is Chinarsquos largest supplier of high-purity hydrogen fluoride it is also the worldrsquos largest semiconductor silicon chip producer LONGJI Co Ltd and 15 other large semiconductor raw material suppliers offer huge advantages to China

To avoid the endogeneity of explanatory variables and interpreted variables this paper lists the establishment dates of raw material suppliers compared with the establishment date of Samsung (Xirsquoan) No problem is found in the cause and effect inversion Table 10 compares the data

Table 10 Main Variables and Statistical Description of Samsungrsquos Investment Space in China

Variable Name First-tier and Second-tier

Cities

Non-First tier and

Second-tier Cities

Variable Name

First-tier and Second-tier

Cities

Non-First tier and Second-

tier Cities

Raw Material Supplier

214 20 Distribution of Investment

Enterprises in China

22 2

GDP Output Value (trillion)

3984 205 Population (100 million)

289 023

Number of Colleges and Universities

731 9 Insured Number (10000)

520 083

Law Firm 11108 201 Credit Scale (trillion)

928 342 Owners Equity

(100 million yuan)66986 4976

To grasp the impact of South Korean Samsungrsquos investment innovation space in China we

carry out empirical research to investigate the impact of various factors of innovation space on business growth We selected a total of 24 enterprises which Samsung in China has investment interest as of February 2020 We develop the regression model using the following variables number of raw material suppliers urban GDP urban population number of colleges and universities number of social security participants legal rights on properties financial marketization urban line level and legal protection of property rights - urban line-level interaction as shown in equation (16)

100917 1540 0230 4527

0016 16072$ 63308() (16) Table 11 shows the regression results The regression coefficients are significant for raw

material suppliers the number of the urban population colleges and universities social


56 insurance participants financial marketization and urban line-level division Besides innovation space factors the factors of raw material suppliers social security and the first and second-tier cities have a positive relationship with business growth This evidences the reasons for Samsungrsquos continuing investment in the Xirsquoan semiconductor project

Table 11 OLS Regression Test

Variable Ownerrsquos Equity（16） Raw 1260 11979 15400 (0007) (0009) (0003) GDP -8198 -69287 -62855 (-0150) (-0161) (-0069) Urba 0011 0114 0230 (0882) (0359) (0100) Educ 2068 3076 4527 (0069) (0031) (0009) Goveeffi 0014 0014 0016 (0157) (0172) (0100) Lega 0032 0011 0103 (0559) (0837) (0141) Finamark 10622 7728 16072 (0100) (0067) (0046) Cityline 63570 63308 (0077) (0067) Interaction 00678 (0117) Intercept -10368 -105193 -100917 (-0173) (-0879) (-0356) Sample size 24 24 24 Adjusted R sup2 0466 0522 0601


6 Discussion This paper examines the role of innovation space to expand technology investment in

promoting business growth We use the financial statements of 83 semiconductor listed companies in 23 provinces from 2004 to 2019 approved by CSRC (2019) In particular we establish a model of innovation space to promote the growth of the Chinese semiconductor enterprises using stepwise regression and backward regression It measures the degree and trend of each factor of innovation space technology input and variables affecting the business growth In this section we first discuss the theoretical and practical implications of our findings We conclude with an acknowledgement of the limitations of this study and offer suggestions for future research

61 Theoretical Implications Globalization the knowledge economy and innovation have become important factors in

improving the competitiveness among countries regions and cities Science technology and


57 innovation capability aim to attract enterprises investment and promote regional economic growth (Bercovitz and Feldman 2007) Moreover the approach to human capital finance and the legal environment have become an important strategic choice of enterprises (Gu Yuan-Yuan and Shen Kun-Rong 2012) Chinarsquos innovation space can enhance the com-etitiveness between Chinese enterprises and foreign enterprises improve the human cost of enterprises and intensify the impact of foreign enterprises on local enterprises Chinarsquos provincial panel data from the macro-regional environment which includes property rights protection tax preference capital loans university RampD talent acquisition and the industrial chain are used to analyze the impact of innovation space on business growth

However previous studies some hidden intermediary factors are ignored such as the characteristics of enterprise owners regional enterprises and the enterprise debt ratio They neglect that innovation space factors and control variables have a multi-dimensional effect on business growth In addition they pay more attention to the linear relationship of variables Thus this research makes three important theoretical contributions

First this study adds control variables such as the ownerrsquos gender educational backround engineering background the level of corporate debt nature of technology ownership business years and geographical areas

Second we investigated the interaction effect and non-linear trend between the indeendent variable and the dependent variable In the analysis the relationship is linear between independent variables intermediary variables and control variables on business growth However the trend relationship of some indicators is non-linear Carbon emission and government efficiency have a positive U-shaped relationship with business growth with cut-off points of 9187 tonsperson and 1913 days The effects of Green Economy and the governmentrsquos efforts to promote business growth are not linear The relationship between financial marketization technology investment financing liabilities and business growth is an inverted U-shaped trend It is estimated that the growth of Chinarsquos semiconductor industry is 12247 The debt level of billion Yuan has reached the optimal economy For enterprises we can use the regression model to calculate the optimal economic point of the enterprise

Third among the factors hypothesized to enhance innovation space education and scientific research urbanization carbon emission financial marketization and government efficiency significantly promoted the business growth of semiconductor enterprises However the impact of tax policy and human settlements on the dependent variables is not significant It is generally agreed that a reduction of the tax burden can improve profits and promote the business growth of enterprises However this paper demonstrates that tax policy is not related to business growth Previous research mostly shows that the value-added tax rate or urban tax rate directly ignores the tax burden of some cities in China By controlling the tax deduction and increasing tax collection and management the tax administration offset the effect of a decrease in the value-added tax rate It is reasonable to divide the urban fiscal income by the GDP percentage When human settlements and urban population growth rate index is adopted a large deviation is noted between Chinarsquos statistical caliber and the actual situation The urban mobility of the non-urban population is not included in the urban employment rate resulting in the deviation of the empirical results

The spatial distribution of South Korean Samsung in China and the analysis of Xirsquoan investment projects shows that the innovative spatial growth effects of first-tier and second-tier cities are better than those of non-first tier and second-tier cities In the first and second-tier cities we analyze the impact of various innovative space factors on business growth Moreover the number of raw material suppliers and social security factors have a positive impact on business growth However the protection of property rights measured by the number of law firms has no significant impact on business growth China has strict approval


58 procedures for the establishment of law firms with no positive correlation with the degree of urban development However the scale of law firms in first-tier and second-tier cities is larger than that of non-first tier and second-tier cities

62 Practical Implications In addition to providing theoretical implications this study sheds light on policy sug-

estions Innovation space may cause temporary income reduction in China However in the long

term the spillover effect of knowledge can improve economic growth and welfare The innovation space can promote the operating income and ownerrsquos equity of semiconductor listed companies Innovation space plays a greater role in promoting business growth of the state-owned holding enterprises debt expansion and enterprises with more than average operating years The state should play a leading role in technology investment and relaxing financial market financing constraints

It is recommended to promote investment in technological innovation in Chinarsquos semi-onductor industry and improve investment to promote business growth The results show that technology investment can promote business growth Chinarsquos semiconductor market has a large capacity Thus it is urgent to increase the input of technological innovation to increase the value-added per unit and promote the business growth of semiconductor enterprises However there is an inverted U-shaped structure in the relationship between technology investment and business growth Enterprises must calculate the optimal investment benefit by combining the eigenvalues

The Chinese government and the semiconductor industry association should strengthen the innovation connection with scientific research institutions and draw lessons from the production research and learning of Samsung in South Korea To create the material space we should facilitate policy for institutional space and economic growth The integrated circuit industry education innovation platform and semiconductor RampD innovation fund can solve the problem of talent acquisition in the semiconductor industry The RampD and human settlements indicators are positively related to business growth

This study establishes a model of innovation space to promote the growth of semionductor enterprises It measures the degree and trend of each factor of innovation space technology input and variables affecting the business growth

However some limitations are noted in the research New variables can be introduced to explore the relationship between the characteristics of business owners legal protection of property and other indicators that affect business growth The professional experience of business owners political relevance availability and capability of lawyers and court property cases can expand the analysis of business growth Further research could expand this inquiry into these contexts Addition of variables related to these characteristics would benefit a future revision of this model

References

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Management Review 27(1) 17-40

Bai Jun-Hong and Fu-Xin Jiang (2015) ldquoSynergy Innovation Spatial Correlation and Regional Innovation

Performancerdquo Economic Research 7 174-187

Bai Jun-Hong Ke-Shen Jiang and Jing Li (2009) ldquoOn the Efficiency and Total Factor Productivity Growth

of Chinarsquos RampD Innovationrdquo The Journal of Quantitative and Technical Economics 23 139-151


59 Bai Yi-Xin Xing Liu and Ling An (2008) ldquoThe Influence of Ownership Structure on RampD Investment

Decisionrdquo Statistics and Decision Making 5 131-134

Bercovitz J E L and M P Feldman (2007) ldquoFishing Upstream Firm Innovation Strategy and University

Research Alliancesrdquo Research Policy 36(7) 930-948

Carlsson B (2006) ldquoInternationalization of Innovation Systems A Survey of the Literaturerdquo Research

Policy 35(1) 56-67

Cassiman B and R Veugelers (2006) ldquoIn Search of Complementarity in Innovation Strategy Internal

RampD and External Knowledge Acquisitionrdquo Management Science 52(1) 68-82

Chen Heng and Wei Chen (2006) ldquoA DEA Research on RampD Efficiency Compare with Most Famous

Transnational Corporations in PRC USA and South Koreardquo Science and Technology Progress and

Countermeasures 8 7-10

Chen Yu and Fu-Ji Xie (2017) ldquoStudy on Spatial Difference and Evolution of Innovation in Yangtze River

Delta Based on Exploratory Spatial Data Analysisrdquo Technology Economics 36(3) 8-13

Chen Yu Xiao-Ping Li and Peng Bai (2007) ldquoHow Market Structure Influence RampD Input An Empirical

Analysis on Chinarsquos Manufacturersquos Panel Datardquo Nankai Economic Studies 1 135-145

Cheng Zhong-Hua and Jun Liu (2015) ldquoIndustrial Agglomeration Spatial Spillover and Manufacturing

Innovation Spatial Econometric Analysis Based on Chinese citiesrsquo Datardquo Journal of Shanxi

University of Finance and Economics 37(4) 34-44

Fang E R W Palmatier and K R Evans (2008) ldquoInfluence of Customer Participation on Creating and

Sharing of New Product Valuerdquo Journal of The Academy of Marketing Science 36(3) 322-336

Fang Yuan-Ping and Man Xie (2012) ldquoThe Effect of Innovation Elements Agglomeration on Regional

Innovation Output-Based on Chinese Provinces and Citiesrsquos ESDA-GWR Analysisrdquo Economic

Geography 32(9) 8-14

Friedman J H (2001) ldquoGreedy Function Approximation A Gradient Boosting Machinerdquo Annals of

Statistics 29(5) 1189-1232

Gao Yu Cheng-Li Shu Jiang Xu Shan-Xing Gao and A L Page (2017) ldquoManagerial Ties and Product

Innovation The Moderating Roles of Macro-and Micro-Institutional Environmentsrdquo Long Range

Planning 50(2) 168-183

Gu Yuan-Yuan and Kun-Rong Shen (2012) ldquoThe Effect of Local Governmentsrsquo Behavior on Corporate

RampD Investment Empirical Analysis Based on Chinarsquos Provincial Panel Datardquo Chinarsquos Industrial

Economy 10 77-88

Guumlner A B U Malmendier and G Tate (2008) ldquoFinancial Expertise of Directorsrdquo Journal of Financial

Economics 88(2) 323-354

He Jian (2005) ldquoStudy on Latecomersrsquo RampD Strategy of Managing Across Borders A Case of Samsungrdquo

Review of South University 7 192-216

Landry R N Amara and M Lamari (2002) ldquoDoes Social Capital Determine Innovation To What

Extentrdquo Technological Forecasting and Social Change 69(7) 681-701

Li Jing Qing-Mei Tan and Jun-Hong Bai (2010) ldquoSpatial Econometric Analysis of Regional Innovation

Production in China An Empirical Study Based on Static and Dynamic Spatial Panel Modelsrdquo

Management World 7 43-55

Li Mei (2010) ldquoHuman Capital RampD Input and OFDIrsquos Reverse Technology Spilloversrdquo World

Economic Research 10 69-77

Liu Si-Ya and Jia-Zhi Xie (2014) ldquoProduct Involvement Perceived Risk and Repurchase Intention of

Financial Commoditiesrdquo Journal of Nanjing Normal University (Social Science Edition) 5 7

Lu Yan-Qin and Bin Zhao (2020) ldquoForeign Direct Investment Regional Innovation and Urbanization

Development Dual Perspectives Based on Government and Marketrdquo Technology Economics 39(1)

149-155

Luan Chun-Juan Xu-Kun Wang and Ze-Yuan Lin (2008) ldquoComparison of Patent Distribution Between

Samsung Electronics CO LTD and Huawei Technologies CO LTDrdquo Scientific Management


60 Research 2 18-21

Niosi J and B Bellon (1994) ldquoThe Global Interdependence of National Innovation Systems Evidence

Limits and Implicationsrdquo Technology in Society 16(2) 173-197

Niu Xin and Xiang-Dong Chen (2013) ldquoInnovation Connection between Cities and Spatial Structure of

Innovation Networkrdquo Chinese Journal of Management 10(4) 575-582

Qian Xiao-Ye Wei Chi and Bo Li (2010) ldquoThe Role of Human Capital in Regional Innovation Activities

and Economic Growth Spatial Econometric Studyrdquo The Journal of Quantitative and Technical

Economics 4 107-121

Reppas P A and D K Christopoulos (2005) ldquoThe Export-Output Growth Nexus Evidence from African

and Asian countriesrdquo Journal of Policy Modeling 27(8) 929-940

Shen Kun-Rong and Wen-Jie Sun (2009) ldquoThe Market Competition Technical Spillover and the RampD

Efficiency of Domestic Enterprises An Empirical Research Based on the Industry Levelrdquo

Managememt World 1 38-48

Sun Zao and Wei Song (2012) ldquoEvaluation on the Independent Innovation Ability of Strategic Emerging

Industry Construction of Industry Innovation Indicator System Which Takes Enterprises as Subjectrdquo

Economy Management Journal 8 49-65

Wang Chao and Hui-Zhi Zhang (2018) ldquoThe Successful Experience and Enlightenment of Developing

Semiconductor Industry in South Koreardquo Northeast Asia Economic Research 5(9) 44-53

Wang Wen-ting Li-Rong Jian Di-Fei Wang and Jin-Long Chao (2020) ldquoEmpirical Study on the Spatial

Correlation Network of Independent Innovation Efficiency in National High-Tech Zonesrdquo

Technology Economy 39 (1) 61-73

Wu Jie (2011) ldquoAsymmetric Roles of Business Ties and Political Ties in Product Innovationrdquo Journal of

Business Research 64(11) 1151-1156

Wu Xiao-Bo Xue-Feng Liu and Guan-Nan Xu (2006) ldquoThe Shift of Technological Paradigm and the

Match of Dynamic Capabilities The Case of Samsungrsquos Dynamic Capabilitiesrdquo Journal of

Chongqing University (Social Science Edition) 4 40-46

Xi Guo-Ming and Shun-Qi Ge (2000) ldquoInternationalization Strategy of Multinational RampDrdquo World

Economy 10 3-12

Xie Wei-Min Qing-Quan Tang and Shan-Shan Lu (2009) ldquoGovernment RampD Funding Enterprise RampD

Expenditure and Independent Innovation Empirical Evidence from Chinese Listed Companiesrdquo

Financial Research 6 86-99

Xie Zuo-Miao and Juan-Juan Peng (2006) ldquoThe Experience and Enlightenment which Technology

Innovation in Samsung Brings Usrdquo Scientific Management Research 24(4) 117-120

Xu Ning (2013) ldquoExecutive Equity Incentiversquos Positive Effects on RampD Input in High-Tech Companies

An Empirical Study Based on Nonlinearity Perspectiverdquo Science of Science and Management of S

amp T 2 12-20

Yin Xiu-Fang (2019) ldquoHuman Capital Agglomeration Urbanization and Industrial Structure Upgrading

An Empirical Analysis Based on the Yangtze River Delta Urban Agglomerationrdquo Journal of

Changchun University of Science and Technology (Social Science Edition) 32(5) 97-103

Yu Yong-Ze and Da-Yong Liu (2013) ldquoThe Effect of the Space Outflow of Chinarsquos Regional Innovation

and the Effect of the Outflow of Value Chanins A Study from the Perspective of the Innovative

Value Chain on the Model of the Panel of Multidimentsional Spacerdquo Management World 7 6-23

Zhang Qian-Xiao and Gen-Fu Feng (2008) ldquoThree Different RampD Spillovers and Technological

Innovation of Local Enterprises Evidence from Chinese High-tech Industriesrdquo China Industrial

Economy 11 64-72

Zhou Di and Mao-Xiang Huang (2019) ldquoThe Research on Coupling Level Difference and Path of Human

Capital and Economic Growth in Chinarsquos Five Urban Agglomerationsrdquo Advances in Economics

Business and Management Research 85 223-234

wwwnewktraorg

61

JKT 24(6)

Consumer Animosity to Foreign Product Purchase Evidence from Korean

Export to China

Jin-Hee Kim Sogang Business School Sogang University South Korea

Myung Suk Kimdagger Sogang Business School Sogang University South Korea

Abstract Purpose ndash This paper examines how the consumer animosity of partner country influences the purchase of foreign products We analyzed news sentiment to determine whether Chinese consumerrsquos animosity affect the purchase of the products made in Korea around the time when the US Terminal High Altitude Area Defense missile system was deployed in South Korea Designmethodology ndash To measure the tone of Chinese consumer animosity more carefully we utilized a text mining technique of the Chinese language to read the publicrsquos opinion Using Chinese news paperrsquos editorials of 20151-201810 we analyzed the sentiment toward Korea and regressed it with Korean export to China Findings ndash Empirical results report that Chinese consumers tended to reduce their purchase of consumer goods from Korea when the animosity increased that is the sentiments of Chinese news editorials were negative In contrast the animosity did not affect the purchase of Korean intermediates or raw materials We further analyzed the effect by dividing the animosity into three categories politics economics and culture Among these groups political news exhibits a unique effect on Chinese purchase on consumer goods from Korea Originalityvalue ndash Existing literature on animosity models has measured the animosity by collecting the consumersrsquo opinions through survey at a given time point whereas it is measured by analyzing the tone of the press release by sentiment analysis during the time period around the event occurrence in this study

Keywords China Consumer Animosity Political Conflict Sentiment Analysis South Korea JEL Classifications F14 F18 F51 F52

1 Introduction The impact of cross-national relations on bilateral trade has been an important research

topic in several areas including international business economics and politics Klein Ettenson and Morris (1998) proposed an animosity model wherein they argued that ani-mosity lsquothe remnants of antipathy related to previous or ongoing military political or economic eventsrsquo can influence consumersrsquo willingness to buy foreign products Since then the animosity model approach has become a representative cognitive science tool to explain consumersrsquo purchase behavior in international markets when they have country-specific animosity Modified and extended versions of the animosity model have been suggested in numerous articles (Kalliny and Lemaster 2005 Kalliny et al 2017 Lee Je-Hong 2018 Nijssen and Douglas 2004)

dagger Corresponding author myungkimsogangackr




ISSN 1229-828X


62 Recently some studies have attempted to examine cross-country political conflict and its

impact on trade independent of survey-based animosity literature They focused on measuring the effect of political conflict using versatile methods other than surveys One strand of the research utilized a dummy variable method or its modified version or a difference-in-difference (DID) approach (Heilmann 2016 Wan Lian and Chen 2019) Meanwhile Pandya and Venkatesan (2016) examined the frequency of anti-counterpart-country negative news in the host country Du et al (2017) developed their own index to measure political conflict conveyed by newspapers They identified political events in newspapers and reflected them in their model assigning weights according to event severity

To the best of our knowledge there was no paper on how political economic and cultural sectors affect exports dynamically It was hard to find a proxy to measure politics economy and culture in time series basis In the existing literature consumersrsquo animosity for an event is typically measured via survey research and the effects before and after an event are analyzed using the DID method However consumersrsquo animosity may dynamically change in due course according to the changing social opinions about the event In this paper we suggest a new approach to address the shortcomings of extant literature in terms of measuring animosity by applying sentiment analysis a text mining scheme to a time series based on daily newspapers The collected positive and negative sentiments expressed in newspapers were examined and employed to measure the extent to which political conflict affects trade

We aimed to explain how Chinese consumers reduced their purchase of Korean products after Terminal High Altitude Area Defense (THAAD) deployment under the animosity mode Chinarsquos import growth is an inevitable result of the rapid development of its economy and the Chinese government has also proposed expanding imports in various policies (Wei and Zhao 2015) As a result Chinarsquos global influence as a huge importer has grown Ani-mosity which affects Chinese consumersrsquo purchases has also become very important

To implement our method we first investigated the impact of the aggregated animosity during THAAD deployment on the purchase of Korean products Next we divided animosity into three groups political economic and cultural animosity this categorization was used in modified animosity models (Kalliny and Lemaster 2005 Ma Wang and Hao 2012) We collected news editorials displaying the three types of animosity separately and examined their impact on Korean product purchase

The remainder of this paper is organized as follows First the theoretical background and literature regarding the animosity model are reviewed and explained Next we present the hypotheses regarding our proposed animosity model The methodology including data collection sentiment analysis and statistical models are presented in the following section The next section discusses the analysis results and main contributions of this paper In the final section we present our concluding remarks

2 Theoretical Background and Literature Review

21 Animosity Model Approach Klein Ettenson and Morris (1998) claimed that country-specific animosity was another

important element in foreign product purchase intention They proposed an animosity model comprising two types of animosity (war and economic animosity) and consumer ethnocentrism War animosity is caused by military conflict between two countries Eco-nomic animosity refers to the feelings for an economically-dominant country since it has an

Consumer Animosity to Foreign Product Purchase Evidence from Korean Export to China

63 excessive impact on many domestic industries Fig 1 illustrates the basic framework of the animosity model Klein Ettenson and Morris (1998) showed that country-specific animosity directly influences consumer willingness to buy foreign products On the other hand consumer ethnocentrism has a direct or indirect impact on foreign products purchase based on product judgement

Fig 1 The Original Animosity Model

Kalliny and Lemaster (2005) extended the animosity model by adding cultural and

religious animosity to the original animosity model (Klein Ettenson and Morris 1998) They proposed that cultural and religious animosity affects consumersrsquo foreign product purchases Their model proposed that war economic cultural and religious animosity affects firm entry mode Lee Je-Hong (2018) found evidence of Chinese consumersrsquo animosity toward Koreans and Korean products after deploying THAAD Xie (2018) also find that cultural affinity measured by mandarin test (HSK) has influence of promoting trade

A common methodological feature of animosity model literature is that the survey-based method was used exclusively to measure animosity As mentioned in the introduction section besides animosity-model-based literature many studies have focused on the impact of political conflict on trade and measure conflict or animosity using versatile methods other than the survey approach

22 Political-Conflict-Focused Approach Heilmann (2016) analyzed several cases of political conflict between nations In particular

he used the DID model to measure the boycott period of four countries He stated that the reduction in bilateral trade was followed by several boycotts the boycott of Danish goods in Muslim countries during the Muhammad Comic Crisis in 2005ndash2006 US boycott of French goods over the Iraq war in 2003 Chinarsquos boycott of Japanese goods during the Diaoyu Senkaku Island conflict in 2012 and Israelrsquos boycott of Turkish products during Gaza conflict in 2014

Wan Lian and Chen (2019) also employed the DID method to measure the effect of THAAD deployment on imported Korean goods in China They found that Chinese imports from Korea declined by 15 after February 2017 Based on these findings Wan Lian and Chen (2019) argued that the government could use political relations to influence the


64 economic position of trading partners Shen and Kwak Ro-sung (2019) also examined eco-nomic effects of the Korean Wave and THAAD by questionnaire

Meanwhile some papers use newspaper to measure the conflict Pandya and Venkatesan (2016) focused on the political conflict between the US and France When France and the US had a dispute over the Iraq war US consumers reduced their purchase of French-style branded products in US supermarkets Pandya and Venkatesan (2016) measure the animosity towards France each week by counting the number of Fox News programs that reported regarding the US-France conflict Du et al (2017) measured Chinarsquos political relations with nine major countries by Chinese newspapers and estimated their effect on trade They employed a political relation index based on reports of bilateral political events obtained from Chinese newspapers assigning weights ranging from -9 to 9 to events based on their severity

23 Animosity and News Articles Earlier we reviewed two strands of literature analyzing the consumer response on the

occurrence of international conflict or consumer animosity occurred Unlike the animosity model approach the studies using the political-conflict-focused approach did not consider consumersrsquo animosity They only focused on whether a change occurred in the consumption of imported goods from the country in conflict before and after an event (most of them are political conflicts) However the consumersrsquo animosity might implicitly be involved in their process from the event occurrence to the trade amount change Therefore we consider the political-conflict-focused studies to be of similar kind with the animosity model approach cases in this paper Some important empirical studies of the animosity model and political conflict approach are summarized in Table 1

As presented in Table 1 numerous studies analyzed the conflict or animosity using the survey or DID method However recent studies have utilized the newspapers to measure the degree of conflict (Du et al 2017 Pandya and Venkatesan 2016) Public opinions about issues with other countries can be formed through the countryrsquos own newspapers Consumers may be influenced by the newspaper content and thus reduce their consumption of imported goods from the countries in conflict Therefore it can be used as a new tool for measuring and analyzing the effect of national conflicts on consumption declines In many areas other than the consumer animosity or political conflict the newspapers have been used in explaining consumer behaviors Apart from only counting the positive and negative news studies analyzing the sentiment of news are increasing For example Doms and Morin (2004) examined whether the tone and volume of economic words in the news affect consumers Uhl (2011) found that news sentiment explains changes in private consumption

Meanwhile overseas channels such as Google YouTube and Facebook are blocked in China Therefore various media sources of information are not able to influence consumersrsquo purchasing intentions Chinese news editorials become the main medium of information communication between the Chinese government and consumers which can form public opinion The Chinese government can unilaterally deliver the statersquos position regarding various issues to consumers through newspaper media With other sources blocked consumers are likely to trust the information obtained from news media and eventually agree with the newspaperrsquos opinion As a result news editorials can generate consumer animosity The increased animosity may drive consumers to reduce consumption of goods from the adversarial country


65 Table 1 Animosity and Political Conflict Related Literature

Author Home Country

Foreign Country

AnimosityConflict Background

AnimosityConflict Analysis Tool

Consumer Response Types

Klein Ettenson and Morris (1998)

China Japan Occupation Massacre Unfair trading practices

Survey for 244 people Willingness to buy Japanese products compared to domestic products

Shoham et al (2006)

Jewish Israelis

Arab Israelis Armed dispute Second Intifada

Survey for 135 people Willingness to buy Arab-Israeli products and service

Lee Je-Hong (2018)

China Korea THAAD deployment in Korea

Survey for 357 people Korean national image and satisfaction of Korean products

Heilmann (2016)

Muslim countries China USA Turkey

Denmark Japan France Israel

Muhammad cartoon crisis SenkakuDiaoyu island conflict US boycott of France Turkeyrsquos boycott of Israel

DID method when each event occurred

Imports from boycotted country

Pandya and Venkatesan (2016)

USA France US boycott of France for Iraq war

The number of Fox News Programs reported regarding the conflict

Supermarket products that consumer deemed to French brand

Du et al (2017)

China 9 countries (USA Japan Russia etc)

- Political relation index from Chinese newspapers according to severity

Exports to China from partner country

Wan Lian and Chen (2019)

China Korea Thaad deployment in Korea

DID method at July 2016(official announcement of THAAD deployment) and Feb 2017 (approval of the land exchange for the deployment)


Shen and Kwak Ro-Sung (2019)

China Korea THAAD deployment in Korea and Korean wave

Survey for 302 people Product attitude Product attachment

3 Hypotheses Development

31 Proposed Model Our theoretical model is illustrated in Fig 2 We expanded the base model of the previous

study (Kalliny and Lemaster 2005) In the proposed model we first examined the effect of


66 aggregated animosity on foreign product purchase Next we categorized animosity into three groups political animosity economic animosity and cultural animosity and examined them separately Political animosity is superordinate to war animosity and concerns political issues from military events to free trade agreements Economic animosity has the same concept as the base model ie negative feelings towards an economically-dominant country or multinational corporation Cultural animosity also follows the main model ie animosity towards celebrities game or TV program

Fig 2 Proposed Conceptual Framework on Animosity of Present Study

32 Hypotheses Construction Based on the proposed model framework in Fig 2 we first tested whether Chinese

aggregated animosity affects the purchase of Korean products (H1) Interestingly in previous studies only consumer goods and highly branded products were damaged by the animosity while intermediates or raw materials were not affected (Heilmann 2016 Li and Liu 2017) Based on these findings we derived three sub-hypotheses corresponding to consumer goods (H1a) intermediates (H1b) and raw materials (H1c) as follows Table 2 presents the variable definitions and its literature background

H1 The animosity towards South Korea in Chinese news editorials affects Chinarsquos import of

Korean goods H1(abc) The animosity towards South Korea in Chinese news editorials affects Chinarsquos

import of Korean (consumer goodsintermediatesraw materials) We categorized news editorials along three dimensions political animosity economic

animosity and cultural animosity based on the extended animosity models Although some research focused on political conflicts only in this study we broadened the scope due to the availability of news editorials that covered many topics Thus following the similar contexts of H1 we derived sub hypotheses H2 H2a H2b and H2c which corresponds to the impact of political animosity on consumer goods intermediates and raw materials respectively The detailed hypotheses are listed as follows


67 H2 The political animosity towards South Korea in Chinese news editorials affects Chinarsquos

import of Korean products H2(abc) The political animosity towards South Korea in Chinese news editorials affects

Chinarsquos import of Korean (consumer goodsintermediatesraw materials) We tested the effects of economic and cultural animosity on the Chinese import of South

Korean products using hypotheses H3 and H4 respectively We generated their respective sub-hypotheses concerning consumer goods intermediates and raw materials by adding the indices a b and c respectively as follows

H3 The economic animosity towards South Korea in Chinese news editorials affects Chinarsquos

import of South Korean products H3(abc) The economic animosity towards South Korea in Chinese news editorials affects

Chinarsquos import of South Korean (consumer goodsintermediatesraw materials) H4 The cultural animosity towards South Korea in Chinese news editorials affects Chinarsquos

import of South Korean products H4(abc) The cultural animosity towards South Korea in Chinese news editorials affects

Chinarsquos import of South Korean (consumer goodsintermediatesraw materials) Table 2 summarizes the existing research sources for each independent and dependent

variable in the present paper the operational definitions of the variables are also given For the dependent variables many studies have set product consumption of partner countries as a dependent variable (Du et al 2017 Heilmann 2016 Wan Lian and Chen 2019) Moreover following some studies that have analyzed consumer and corporate consumption by dividing products into consumer goods intermediate goods and raw materials (Heilmann 2016 Li and Liu 2017) we include the type of goods The SOK index is derived from sentiment analysis thus the basic method is the same as the sentiment analysis (Uhl 2011 Wei et al 2017) Furthermore in many studies animosity was analyzed by the impact of political economic and cultural divisions on consumption (Kalliny and Lemaster 2005 Shen and Kwak Ro-Sung 2019) By referring to other studies (Du et al 2017 Uhl 2011 Wan Lian and Chen 2019) we set the control variable as those that could affect exports to China

Table 2 Variables and Related Literature

Content Definition SourceDependent variables

Chinese import from Korea

Chinese purchase of Korean products

Du et al 2017 Heilmann 2016 Wan Lian and Chen 2019

Consumer Goods import from Korea

Chinese purchase of Korean consumer goods

Heilmann 2016 Li and Liu 2017 Pandya and Venkatesan 2016

Intermediates import from Korea

Chinese enterprisesrsquo purchase of Korean intermediates

Heilmann 2016 Li and Liu 2017

Raw Materials import from Korea

Chinese enterprisesrsquo purchase of Korean raw materials




Content Definition Source Independent Variables

SOK Index SOK Index represents international events and its interpretation from media

Uhl 2011 Wei et al 2017

Political SOK Index Political SOK Index represents the event of international relation and its interpretation from media

Heilmann 2016 Kalliny and Lemaster 2005 Pandya and Venkatesan 2016 Shen and Kwak Ro-Sung 2019

Economic SOK Index

Economic SOK Index represents the event of Korean enterprises and its interpretation from media

Kalliny and Lemaster 2005 Shen and Kwak Ro-Sung 2019

Cultural SOK Index Cultural SOK Index represents the event of Korean entertainment and its interpretation from media


Policy (After Mar2017 is 1 otherwise 0)

After Feb 2017 approval of the land exchange for the deployment(its effect to import from Korea was proved by Wan Lian and Chen (2019)) Control variable

Lian and Chen Wan 2019

Chinarsquos Import Growth

Control variable Du et al 2017

Chinese CPI Control variable Uhl 2011

4 Data and Empirical Specification

41 Sentiment Analysis In recent years people are increasingly generating and consuming enormous amounts of

textual data via the internet (Zhang et al 2018) Thus we can gain valuable information by mining textual data Text mining is the process of deriving patterns and trends from text One of the analytical methods of text mining is emotional analysis which measures how good and bad the sentiments of text are

Research regarding sentiment analysis conducted in English has already evolved signi-ficantly whereas sentiment analysis in the Chinese context is still developing (Lee and Renganathan 2011 Lizhen et al 2014 Zhang Xu and Wan 2012) The Chinese language has characteristics that differ from those of the English language One of the features of the Chinese language is the lack of spacing between words Additionally Chinese characters often comprise a combination of one or more Chinese characters (Peng Cambria and Hussain 2017) Thus the first step would be segmentation of phrases

For word segmentation three of the most popular Chinese word tokenisation programmes available are ICTCLAS THULAC and Jieba segmentor ICTCLAS was invented by Dr Zhang Huaping (Zhang et al 2003) and provides application programming interfaces (APIs)


69 in C++ Java Python etc Meanwhile THULAC (Li and Sun 2009) was developed at Tsinghua University and supports C++ Java and Python Lastly Jieba1 is an open-source Chinese text segmentor It is easy to access because it supports nine programming languages (Peng Cambria and Hussain 2017) Hence we used Jieba for this analysis The next step was sentiment classification The input words were classified as lsquopositiversquo lsquonegativersquo or lsquoneutralrsquo

42 Data Collection For data collection we considered the period from January 2015 to September 2018 to

cover the period before and after the deployment of THAAD in South Korea The sentiment of Chinese newspapers towards South Korea varied from time to time and consumer response may have changed accordingly To capture the regression relationship between these variables we utilized the monthly-aggregated news editorial information regarding South Korea The dynamics of monthly sentiment scores are shown in Fig 3 and the main event timeline is summarized in Table 3

Fig 3 shows the monthly changes of sentiment in Chinese news editorials about South Korea January 2015 to September 2018 The sentiment index from Chinese newspapers ranged from minus001 to 013 approximately As Fig 3 indicates the sentiment index was low in June and July 2015 due to the Middle East Respiratory Syndrome (MERS) also known as camel flu The index surged to about 013 in November 2015 when the Chinese prime minister Li Keqiang visited South Korea Then the sentiment index plummeted due to the announcement of the THAAD deployment in February 2017 The Chinese government changed its position when the Lotte Group provided land to the South Korean government to deploy the THAAD missile system in February 2017 Subsequently a total of 87 Lotte supermarkets in China were shut down by Chinese authorities Thus the sentiment index fell sharply in the following month (March 2017)

Fig 3 Sentiment on Korea (SOK)

Note The red dash line denotes the time when Chinese opinion has deteriorated (March 2017) Source Authorsrsquo reconfiguration and modification using Chinese news (2015-2018)

In May 2017 the Go match between Lee Sedol and AI AlphaGo drew significant interest

from the Chinese people In June 2017 many articles were written promoting harmony with neighboring countries to increase enthusiasm for Chinarsquos lsquoOne Belt One Roadrsquo project In


70 OctoberndashNovember 2017 China authorities allowed group tours to Seoul in Shandong Beijing consequently the sentiment index increased

Diplomatic relations between South Korea and China changed remarkably in 2015ndash2018 the main factor that affected this relationship was the South Korean governmentrsquos decision to deploy the US THAAD system After the THAAD deployment in Seongju the North Kyungsang Province the tension between South Korea and China escalated In particular Lotte Group became the target of direct retaliation since it had provided the Seongju site for the THAAD deployment Lotte supermarkets in China could not withstand this situation and eventually closed its business in China Moreover at that time the South Korean retail industry in China had suffered a slump

Table 3 News Timelines about South Korea

Date Event

2015321 South KoreandashChinandashJapan Summit Meeting in Seoul Korea

2015327 South Korea joined AIIB

20156ndash7 MERS spread in South Korea

20159 President Park Geun-hye visited China

201511 China prime minister Li Ke Qiang visited South Korea

20151220 The KoreandashChina FTA was executed

201627 South Korea announced its decision on THAAD deployment

2016930 Korean Ministry of National Defense announced the THAAD deployment in Seong-Ju North Gyeongsang Province Korea

201610 Samsung Electronics found fault in cell phone battery

201731 87 Lotte mart supermarkets have been closed by authorities in China

201736 Equipment part for THAAD arrived in the Osan Air Base

2017315 China authorities banned group tours to Korea

20175 Go match between Se-dol Lee and AI AlphaGo

20171031 An extension of the maturity of the currency swap First-ever agreement between the two governments after the THAAD conflict

South Korea and China announced the results of discussions on closer bilateral relations

20171128 China authorities allowed group tours to Seoul in Shandong Beijing (except Lotte Hotel Duty Free Shop)

20171214 South KoreandashChina Summit Meeting discussion about the THAAD Resolution

2018426 Lotte Mart sold 21 Beijing stores to Chinese companies

Source Peoplersquos Daily (2015-2018) 43 Variable measurement This sub-section presents the data and variables and explains the sentiment index in further

detail The data and summary statistics are exhibited in Table 4


71 Table 4 Data and Summary Statistics

Variable Period Source Mean Max Min Std Dev

Dependent variables


20151ndash20189

Korea International Trade Association

00273 02626 minus02426 01375


20151ndash20189


00018 05189 minus07190 03088


20151ndash20189


00433 03194 minus02137 01560


20151ndash20189


minus00068 10090 minus08984 04404

Independent Variables

SOK Index 20151ndash20189

Website of Peoplersquos Daily

00519 01307 minus00133 00324


20151ndash20189

News articles 04222 1 0 04995


20151ndash20189

China National Bureau of Statistics

00326 03870 minus02060 01637

Chinese CPI 20151ndash20189

The Bank of Korea 1017696 1029 1008 04633

431 Dependent Variable The growth rate of Korean export to China calculated as the difference between the log-

transformed value of Chinese import from South Korea in the current month and that of the same month last yearrsquos was employed as a dependent variable Export data was obtained from the Korea International Trade Association and only included data regarding manufactured goods that passed through the customs office These data were analyzed after categorizing them into consumer goods intermediates and raw materials in the processing stage The effect of public opinion on trade is instant and only lasted for a short period and disappeared within two months (Du et al 2017) Thus we ignored the time lag between the dependent and independent variables

432 Independent Variable The sentiment index the main independent variable was created using Chinese newspaper

editorials We follow the approach in Uhl (2011) to construct monthly sentiment indices for 3 different type of news categories We searched for the news related to South Korea on the Peoplersquos Daily website in China The Peoplersquos Daily is one of the most influential newspapers in China and its website provides other newspaper articles as well Among the news articles about South Korea we collected news editorials for the period January 2015 to September 2018 News articles were aimed at reporting facts about events whereas news editorials were section for writersrsquo or authorsrsquo opinion often the governmentrsquos opinions which provide a clearer picture of their affinity or feelings towards South Korea Analyzing the sentiment


72 towards South Korea a total of 599 news editorials were collected from Chinese newspapers

The National Taiwan University Sentimental Dictionary (NTUSD) was used to classify positive and negative words It provides 11088 sentiment words containing 2812 positive and 8276 negative words The NTUSD was published in 2006 and is widely used by researchers in Chinese language sentiment analysis One of the widely used methods of computing the sentiment score is as follows (Peng Cambria and Hussain 2017 Wang and Ku 2016)

13

1313

131313 (1)

Here N(Positive term(d)) N(Negative term(d)) and N(Neutral term(d)) represent the

number of positive negative and neutral words respectively in one document lsquoSentiment Score(d)rsquo refers to the sentiment score of one document lsquodrsquo ie one news editorial and ranges between minus1 and 1

In this study instead of computing the sentiment score for one news editorial we calculated the sentiment score for the monthly-aggregated news editorials We aggregated all the news editorials about South Korea for a month and then calculated the sentiment score for the monthly-aggregated news editorials At first we attempted to sum all the sentiment scores of individual news editorials for a month but these scores tended to be overestimated In contrast our suggested method attenuated the problem Thus we utilised our modified monthly based sentiment score ie SOK which is given by

13131313

1313 (2)

1313 and 1313 are the numbers of positive and

negative terms respectively of all aggregated news editorials for a month The number of total words in the monthly-aggregated news editorials is denoted as 1313

According to literature there are four different types of animosity War animosity economic animosity cultural animosity and religious animosity (Kalliny and Lemaster 2005) Therefore we divided the news editorials according to their type of animosity and estimated the sentiment index using the news editorials belonging to each animosity Among the four animosity types religious animosity did not appear and was hardly defined in any South-Korea-related article so only the remaining three types of animosity were analyzed as shown in Fig 2 The news articles regarding the diplomatic relations between countries were classified as war animosity (or political animosity) the articles regarding Korean companies or business topics were classified as economic animosity and the articles on culture such as K-pop or the Go match of AlphaGo versus Lee Sedol were classified as cultural animosity The SOK index in Equation (2) was calculated separately for each different animosity

To analyses the effect of the sentiment index more precisely we added some control variables Firstly the deterioration of the growth of Chinese imports from Korea intensified in February 2017 when China adopted stronger policies resulting in the shutdown of Lotte supermarkets in China To control for government policies since then we added a dummy variable Besides this variable we also included some important macroeconomic variables such as the lag term of the dependent variable which represents the growth of Chinese imports from Korea the Chinese import growth rate and the consumer price index (CPI) to control the macroeconomic conditions of the Chinese market


73 44 Model Public opinion could affect consumersrsquo consumption Thus the sentiment of news

editorials could be a mediator influencing Chinarsquos import of South Korean consumer goods To measure these effects we built a model as shown in Equation (3)

ChineseimportfromKorea

SOKIndex ChineseimportfromKorea

Chineseimportgrowth Policy ChineseCPI 13 (3)

where ChineseimportfromKorea refers to the growth rate of Chinarsquos import of a good lsquogrsquo from Korea for the month lsquotrsquo SOKIndex is the sentiment score regarding Korea with animosity lsquoarsquo for the month lsquotrsquo Policy is a dummy variable which is 1 for after March 2017 and 0 otherwise Chineseimportgrowth refers to the global Chinese import growth representing Chinarsquos import demand and ChineseCPI is the CPI of China

The expected signs of the independent variables are summarized in Table 3 The SOK index and the Chinese import growth rate were expected to have positive relations with the rate of Korean exports to China The policy variable was expected to have a negative relation with rate of Korean exports to China The Chinese CPI was expected to have either a negative or positive relation with the rate of Korean exports to China based on the strength of the demand or supply effect

Table 5 Expected Sign of Independent Variables

Variables Expected sign

Independent variables

SOK index +

Policy minus

Chinese import growth +

China CPI minus+

Prior to the empirical data analysis the correlations between independent variables were

examined and the results are reported in Table 6 We calculated the correlations between each SOK replacement and other continuous covariates because the SOK index will be replaced with ldquoPolitical SOKrdquo ldquoEconomic SOKrdquo and ldquoCultural SOKrdquo according to the types of animosity in the further study Furthermore to check for the multicollinearity problem we computed the VIFs for each case and added them at the bottom of the table The correlation matrix and VIF outcomes are reported in Table 6 As shown in Table 6 multicollinearity concerns seem to be negligible because all the recorded VIF values were much less than 10 which is a usual cut-off point of multicollinearity

Table 6 Correlation Matrix and VIF

SOK Index

Political SOK

Economic SOK

Cultural SOK

Chinese import growth


01537 00312 00010 04886

Chinese CPI 00934 -00001 -00998 02520 00590VIF 102 103 101 128 100


74 5 Analysis Results

51 Baseline model results Table 7 summarizes our baseline model results related to hypotheses H1 H1a H1b and

H1c Table 7 shows that the coefficient estimates of the SOK index were only significant for Korean consumer goods imports with positive relationships (H1a) The second column demonstrates that as one unit of SOK increased the growth of consumer goods import increased by 259 In contrast the coefficient of the SOK index for other goods such as intermediates and raw materials were not significant This means that Chinese newspapersrsquo sentiment regarding South Korea only led the Chinese consumers to stop purchasing consumer goods People are easily exposed to imported consumer goods and hence could directly respond to them

In contrast both hypotheses H1b and H1c related to intermediate goods and raw materials respectively were not supported because the SOK index was not significant Chinese news articles about South Korea did not influence the import of intermediates and raw materials This implies that news articles cause consumer boycotts but not enterprise boycotts The test results for H1 was not supported either Intermediate products accounted for about 80 of the total South Korean exports to China which may have caused ineffective outcomes for the total Chinese imports from Korea regardless of Chinese consumersrsquo boycott

The signs of control variables were as expected when they were significant Chinese import growth was positively related to the total exports and intermediates cases The Chinese governmentrsquos authority had significant role in decreasing the import of Korean consumer goods The Chinese CPI was negatively related to consumer goods imported from Korea

Table 7 Baseline Model of the Effects of South Korean Exports to China

Variables Total Consumer

goods Intermediates Raw materials

(H1) (H1a) (H1b) (H1c) SOK (0044 (2593 (0080 -0526 (Sentiment on Korea) (0288) (1178) (0293) (2156)

Import from KOR (0497 (0369 (06045 -0193 (0123) (0138) (0129) (0181)

Chinese import growth (0376 -0205 (0386 (0422 (0132) (0564) (0130) (1022)

Policy -0019 -0644 -00132 (0581 (0046) (0182) (0049) (0329)

Chinese CPI -00412 -0331 -0028 -0035 (0030) (0122) (0029) (0224)

Constant (4179 33310 (2860 (3635 (2982) (12232) (2937) (22533)

Time Yes Yes Yes Yes Observations 45 45 45 45 R-squared 08453 05 08869 01458

Notes plt01 plt005 plt0001


75 Thus only consumer goods were only influenced by the animosity caused by news

editorials Consumers are the ones who read newspapers and are influenced by the articles therefore it is natural for Chinese consumers to stop purchasing Korean consumer goods in a conflict situation

52 Results for the Different Types of Animosities We also analyzed the effect of different types of animosity We defined the articles covering

the diplomatic relations between South Korea and China as lsquopolitical animosity (or war animosity)rsquo Korean multinational enterprises or their business as lsquoeconomic animosityrsquo and culture such as Korean dramas celebrities or AlphaGo as lsquocultural animosityrsquo

Our data analysis was based on monthly observations therefore there were a total of 45-month observations for the time-related model from January 2015 to September 2018 However some types of news editorials were not observed even once in the monthly aggregation Thus news editorials related to political conflict were observed only for 17 months economic and cultural sentiments were only observed for 31 and 35 months respectively

As shown in Fig 4 some sentiment scores were left blank because no articles related to political animosity were available for some months Since articles were aggregated on a monthly basis no articles were available for some months The sentiment score of political animosity fluctuated heavily The sentiment scores related to economic animosity were observed more frequently than those related to political animosity as shown in Fig 5 This is because many Korean enterprises exist in China and conduct business in many different ways Despite the negative sentiment scores for some months most months had positive economic animosity scores for South Korea Fig 6 depicts the cultural sentiment towards Korean culture like K-pop Korean dramas Go math of AlphaGo and Lee Sedol Among the three news types articles related to cultural sentiments were published most frequently Although the sentiment score was not very high it was mostly positive and did not fluctuate as much as other types of news

The red dashed line denotes the period when Lotte Group provided land for the THAAD deployment in Korea in February 2017 Subsequently the Chinese government changed its strategy implementing stricter rules for South Korea All the Chinese newspapers also expressed their animosity towards South Korea thereafter Thus regardless of the animosity category the sentiment towards South Korea was low at that time

Fig 4 Political Animosity SOK



76 Fig 5 Economic Animosity SOK


Fig 6 Cultural Animosity SOK


The hypotheses based on different types of animosity were examined and the related results

are given in Table 8 The results show the heterogeneity of animosityrsquos effect on different product types The total exports showed no significant correlation with any of the three news types and thus does not support H2 H3 H4 The reason for these results is similar with the H1 test results Among the total Korean exports to China the proportion of the intermediate products was high so total exports were affected more by intermediate exports Since news sentiment affects customers more quickly overall exports have not been affected by any type of news

The case of Korean consumer goods export revealed that only political conflict had a positive impact which supports H2a In contrast neither economic nor culture sentiment had any impact on consumer goods thus H2b and H2c were not supported We find that political conflict is the most significant factor of the consumer goods trade

A one unit increase in political conflictrsquos SOK was associated with a 226 increase in consumer goods growth rate Moreover according to Table 8 economic SOK and cultural SOK had no significant relations with any of the three animosities thus H3 (abc) and H4


77

Tabl

e 8 E

ffect

of S

OK

by A

nim

osity

on

Chin

ese I

mpo

rt fro

m K

orea

Dep

Var

iabl

es

Tota

l (H

2)

Tota

l (H

3)

Tota

l (H

4)

Cons

umer

go

ods

(H2a

)

Cons

umer

go

ods

(H3a

)

Cons

umer

G

oods

(H

4a)

Inte

r-m

edia

tes

(H2b

)

Inte

r-m

edia

tes

(H3b

)

Inte

r-m

edia

tes

(H4b

)

Raw

mat

eria

ls(H

2c)

Raw

mat

eria

ls(H

3c)

Raw

mat

eria

ls(H

4c)

Polit

ical a

nim

osity

minus0

042

(225

9

minus00

48(0

087

SOK

(025

2)

(095

7)(0

365)

(201

0)

Econ

omic

anim

osity

minus0

004

minus071

5(0

269

minus040

3

SOK

(0

2440

)

(083

6)(0

239)

(2

111)

Cultu

ral a

nim

osity

(0

106

(320

4minus0

096

9 minus0

515

SOK

(050

3)

(213

3)(0

445)

(3

865)

Impo

rt fro

m K

OR

minus02

02

0488

(057

0

minus0

011

(038

3

minus00

323

(029

4(0

574

(063

1

minus0

590

minus02

55minus0

102

(t-1)

(0

221)

(0

15)

(012

4)

(017

4)(0

169)

(018

9)(0

349)

(017

5)

(012

1)

(033

5)(0

251)

(020

8)

Chin

ese i

mpo

rt (0

287

(035

4

(035

9

(086

8minus0

366

minus15

37

(036

9(0

449

(0

413

minus09

39(0

422

(098

9gr

owth

(0

274)

(0

194)

(0

136)

(1

063)

(076

8)(0

689)

(041

3)(0

188)

(0

125)

(2

340)

(162

9)(1

056)

Polic

y (0

188

minus0

002

28

minus00

148

minus13

85

minus0

426

minus0

848

(015

7minus0

013

1 (0

0030

8 (0

870

(063

3(0

660

(009

76)

(006

41)

(004

63)

(034

5)(0

220)

(021

7)(0

144)

(006

48)

(004

40)

(071

5)(0

530)

(036

3)Ch

ines

e CPI

minus0

033

minus0

032

9 minus0

049

4 minus0

240

minus01

59minus0

436

(000

0minus0

017

9 minus0

029

8 minus0

123

minus01

13minus0

033

8(0

0547

) (0

0480

) (0

0308

) (0

207)

(016

3)(0

129)

(007

86)

(004

89)

(002

76)

(042

7)(0

374)

(023

3)Co

nsta

nt

(322

9 (3

349

(502

0 (2

406

1602

4366

minus00

532

(182

9 (3

056

1204

1163

(380

1(5

494)

(4

830)

(3

096)

(2

077)

(164

0)(1

299)

(789

4)(4

928)

(2

774)

(4

281)

(376

3)(2

341)

Tim

e Ye

s Ye

s Ye

s Ye

sYe

sYe

sYe

sYe

s Ye

s Ye

sYe

sYe

s

Obs

erva

tions

17

31

35

17

3135

1731

35

17

3135

R-sq

uare

d 08

86

0857

08

61

0726

0432

0454

0853

0890

09

10

0456

0146

0193

Not

e p

lt01

p

lt00

5

plt0

001


78 (abc) were rejected The result of the intermediates and raw materials are consistent with previous study (Li and Liu 2017) These results imply that news editorials about political animosity had a negligible impact on enterprises shortly

The control variables were again as expected when they were significant in the models For every product type the lagged last monthrsquos export growth had a positive correlation Chinese import growth was mostly positively correlated with Korean total and intermediates exports to China but negatively correlated with consumer goods It is not surprising because Korean consumer goods have more substitutes than intermediates The Chinese governmentrsquos policy was negatively correlated with consumer goods however total exports and raw materials were positively correlated with government policy This means that Chinese government policy was only focused on consumer goods not other product types Furthermore Chinarsquos CPI was negatively correlated with consumer goods

Empirical results show that animosity to partner countries shown in newspapers leads to a decrease in consumer goods purchases Moreover among the news the sentiment of political news had a significant impact on consumer goods Thus political animosity is uniquely effective in restricting Chinese consumersrsquo purchase of goods from Korea This finding is important because of its implication that political conflicts could influence the economic sector In particular China has a high consumer power globally due to its large population and a strong political influence over its people Therefore small open-economy countries should be cautious if they have a political dispute with China

6 Conclusions and Policy Implications In this study we measured consumer animosity by conducting a sentiment analysis of news

editorials In line with the findings of Kalliny and Lemaster (2005) and Uhl (2011) we proposed an animosity model showing that news sentiments have an explanatory power to consumption behaviors in global economy This approach has numerous advantages and contributes to existing literature in the following aspects

First unstructured data formats like texts are more useful for investigating cross-country relations than structured data like numbers For example when it comes to analyzing political and cultural relations textual data may be more informative than numerical data With the development of text mining techniques sentiment-based analysis will become more powerful and this paper may serve as a trigger for the implementation of advanced qualitative techniques in this research field

Second we can focus on not only the occurrence of an event but also the diffusion of the event by analyzing the sentiment towards the event in daily newspapers For example political relations can continue to improve or deteriorate after the occurrence of a single event Political relations can fluctuate and the degree of these fluctuations may vary with time due to some influencers There was no paper on how political economic and cultural sectors affect trade dynamically It was hard to find a proxy to measure politics economy and culture in daily basis The sentiment expressed in newspapers provides a good indicator of the dynamics of political relations

Lastly we can easily distinguish cross-country relations as political economic or cultural ones since news editorials can be simply grouped based on the type of news they convey Based on these advantages we could effectively investigate whether or not other realms of sentiment affect foreign product purchase

News sentiment towards a partner country is often delivered through newspapers but the question of whether or not people participate in a negative campaign remained unanswered


79 In this article we show that Chinese consumers reduced their purchases of Korean goods when the sentiment towards Korea in the news especially political conflict-related news was negative We analyzed monthly data and found that the influence of newspapersrsquo sentiment regarding country relations on consumption behavior was particularly instantaneous

To the best of our knowledge this is the first study to use sentiment analysis to measure peoplersquos opinions about a partner country Text mining was suitable for analyzing official media because newspapers deliver their position and opinions to the public Thus text mining can discern the extent of sentiment towards other countries Additionally we divided news into three types (politics economic and culture) and analyzed their effects on trade The sentiment towards one country can be generated diversely so it helps to know which topic affected consumersrsquo responses We found that political conflict with another country has a unique effect on consumersrsquo responses Similar to existing literature we also considered the effects of political conflict on different types of goods (consumer goods intermediates and raw materials) and found that only consumer goods were influenced by the news which indicates that an effective reduction in trade volume is mainly caused by consumer behavior

The implications of this study can be summarized as follows The theoretical application is that through this empirical study dynamic animosity can be measured using newspaper editorials For the practical application companies need to pay more attention to news editorials as they have a profound impact on consumer purchasing intentions in China In international relations with China government can observe Chinarsquos position through the tone of Chinese news editorials

This study suggests that utilizing text mining in the Chinese language to determine the publicrsquos opinion will help foreign enterprises in China to obtain a better understanding of Chinese consumers Our findings revealed that a relationship exists between politics and trade Moreover we found that news media acts as a link between the government and consumers The development of media may indicate a closer connection between consumer behavior and politics in global economy Therefore this paper could provide a model to analyze a countryrsquos media and consumer behavior It is useful for analyzing consumer and government in the context of developing countries lacking accurate data

Regardless of numerous advantages this paper leaves room for future research to detect which product among various consumer goods was more influenced by the news sentiment for practitionersrsquo trade strategy Future research can also expand the analysis by using other mediums such as websites and social networking sites to analyze sentiment toward other countries

References

Cambria E (2016) ldquoAffective Computing and Sentiment Analysisrdquo IEEE Intelligent Systems 31(2) 102-

107

Deng S T Mitsubuchi K Shioda T Shimada and A Sakurai (2011 December 12-14) ldquoCombining

Technical Analysis with Sentiment Analysis for Stock Price Predictionrdquo Paper Presented in 2011

IEEE 9th International Conference on Dependable Autonomic and Secure Computing Sydney

NSW Australia 800-807

Doms M E and N J Morin (2004) Consumer Sentiment the Economy and the News Media (FRBSF

Working Paper No 2004-09) San Francisco CA Federal Reserve Bank of San Francisco

Du Y J Ju C D Ramirez and X Yao (2017) ldquoBilateral Trade and Shocks in Political Relations Evidence

from China and Some of Its Major Trading Partners 1990-2013rdquo Journal of International

Economics 108 211-225


80 Guo X F L G Yanyan and W Zhiqiang (2013) ldquoMulti-Aspect Sentiment Analysis for Chinese Online

Social Reviews Based on Topic Modeling and HowNet Lexiconrdquo Knowledge-Based Systems 37

186-195

Heilmann K (2016) ldquoDoes Political Conflict Hurt Trade Evidence from Consumer Boycottsrdquo Journal

of International Economics 99 179-191

Jung K S H Ang S M Leong S J Tan C Pornpitakpan and AK Kau (2002) ldquoA Typology of

Animosity and its Cross-National Validationrdquo Journal of Cross-Cultural Psychology 33(6) 525-539

Kalliny M A Hausman A Saran and D Ismaeil (2017) ldquoThe Cultural and Religious Animosity Model

Evidence from the United Statesrdquo Journal of Consumer Marketing 34(2) 169-179

Kalliny M and J Lemaster (2005) ldquoBefore You Go You Should Know The Impact of War Economic

Cultural and Religious Animosity on Entry Modesrdquo Marketing Management Journal 15(2) 18-28

Kalyani J P Bharathi and P Jyothi (2016) ldquoStock Trend Prediction Using News Sentiment Analysisrdquo

International Journal of Computer Science amp Information Technology (IJCSIT) 8(3) 67-76

Klein J G R Ettenson and M D Morris (1998) ldquoThe Animosity Model of Foreign Product Purchase

An Empirical Test in the Peoplersquos Republic of Chinardquo Journal of marketing 62(1) 89-100

Lee Je-Hong (2018) ldquoAnalysis of Impact of Export Competitiveness and Change of National Image Due

to Diplomatic Disputes Focusing on the THAAD Dispute between Korea and Chinardquo Journal of

International Trade amp Commerce 14(4) 273-289 httpdxdoiorg1016980jitc144201808273

Lee H Y and H Renganathan (2011 November 13) ldquoChinese Sentiment Analysis Using Maximum

Entropyrdquo In Proceedings of the Workshop on Sentiment Analysis where AI Meets Psychology

(SAAIP 2011) Chiang Mai Thailand 89-93

Li X and A Y Liu (2017) ldquoBusiness as Usual Economic Responses to Political Tensions Between China

and Japanrdquo International Relations of the Asia-Pacific 19(2) 213-236

Li Z and M Sun (2009) ldquoPunctuation as Implicit Annotations for Chinese Word Segmentationrdquo

Computational Linguistics 35(4) 505-512

Lizhen L S Wei W Hanshi L Chuchu and L Jingli (2014) ldquoA Novel Feature-Based Method for

Sentiment Analysis of Chinese Product Reviewsrdquo China Communications 11(3) 154-164

Luo Z and Y Zhou (2020) ldquoDecomposing the Effects of Consumer Boycotts Evidence from the Anti-

Japanese Demonstration in Chinardquo Empirical Economics 58 2615-2634

Ma J S Wang and W Hao (2012) ldquoDoes Cultural Similarity Matter Extending the Animosity Model

from a New Perspectiverdquo Journal of Consumer Marketing 29(5) 319-332

McCluskey J J and J F Swinnen (2004) ldquoPolitical Economy of the Media and Consumer Perceptions of

Biotechnologyrdquo American Journal of Agricultural Economics 86(5) 1230-1237

Pandya S S and R Venkatesan (2016) ldquoFrench Roast Consumer Response to International Conflictmdash

Evidence from Supermarket Scanner Datardquo Review of Economics and Statistics 98(1) 42-56

Peng H E Cambria and A Hussain (2017) ldquoA Review of Sentiment Analysis Research in Chinese

Languagerdquo Cognitive Computation 9(4) 423-435

Schumaker R P and H Chen (2009) ldquoTextual Analysis of Stock Market Prediction Using Breaking

Financial News The AZFin text systemrdquo ACM Transactions on Information Systems (TOIS) 27(2)

1-19

Shen Y and Ro-Sung Kwak (2019) ldquoCountry Image and Product Attitude An Estimation of Switching

Costs for the Korean Waverdquo Journal of Korea Trade 23(8) 45-72

Shoham A M Davidow J G Klein and A Ruvio (2006) ldquoAnimosity on the Home Front The Intifada

in Israel and its Impact on Consumer Behaviorrdquo Journal of International Marketing 14(3) 92-114

Uhl M W (2011) ldquoExplaining US Consumer Behavior with News Sentimentrdquo ACM Transactions on

Management Information Systems (TMIS) 2(2) 1-18

Wan S Z Lian and Y Chen (2019) ldquoTrade Effects of Political Conflictsrdquo Applied Economics Letters

27(11) 925-929

Wang S M and L W Ku (2016 May 23-28) ldquoANTUSD A Large Chinese Sentiment Dictionaryrdquo In


81 Proceedings of the Tenth International Conference on Language Resources and Evaluation (LREC

2016) Portorož Slovenia 2697-2702

Wei H and C Zhao (2015) ldquoThe Structure of Chinarsquos Imports A New Frameworkrdquo China amp World

Economy 23(5) 85-103

Wei Y C Y C Lu J N Chen and Y J Hsu (2017) ldquoInformativeness of the Market News Sentiment in

the Taiwan Stock Marketrdquo The North American Journal of Economics and Finance 39 158-181

Xie M (2018) ldquoCan Cultural Affinity Promote Trade HSK Test Data from the Belt and Road Countriesrdquo

China amp World Economy 26(3) 109-126

Zhang H P H K Yu D Y Xiong and Q Liu (2003 July 11-12) ldquoHHMM-Based Chinese Lexical

Analyzer ICTCLASrdquo Second SIGHAN workshop on Chinese Language Processing Sapporo Japan

184-187

Zhang S Z Wei Y Wang and T Liao (2018) ldquoSentiment Analysis of Chinese Micro-Blog Text Based on

Extended Sentiment Dictionaryrdquo Future Generation Computer Systems 81 395-403

Zhang W H Xu and W Wan (2012) ldquoWeakness Finder Find Product Weakness from Chinese Reviews

by using Aspects Based Sentiment Analysisrdquo Expert Systems with Applications 39(11) 10233-

10291

82

JKT 24(6)

wwwnewktraorg

Analysis of Gender Chapters in Five Free Trade Agreements and Its Lessons for Korea

Bomin Kodagger

Department of International Studies the Catholic University of Korea South Korea

Abstract Purpose ndash This paper attempts to compare five free trade agreements with gender chapters ratified by Chile and Canada and derives lessons for Korea in terms of gender-aware trade policy While Chile and Canada have three and two FTAs with gender chapter respectively Korea has none so far although it has already ratified an FTA with the two countries Designmethodology ndash This study first investigates all the gender-provisions with the gender chapters conducts a comparative analysis on the five chapters as well as a case study of one target FTArsquos implementation and achievements and finally suggests policy implications for Korearsquos trade administration as well as trade-related agencies Findings ndash According to the analysis there are three phases in terms of advancement in gender-related trade policy As Chile is in phase two and Canada is in phase three Korea remains in phase one It has a ministry related to gender within the government but not within the OMT It has statistics on female business but not of women traders It has a few gender-related provisions in its FTAs but not a gender chapter In this sense new mandates related to gender-aware trade policy for OMT KITA and KOTRA should be provided to realize the concrete economic benefits resulting from empowering women traders and policies promoting them Originalityvalue ndash Existing studies only focus on introducing gender-related international com-mitments and Korearsquos participation in them This paper is the first attempt to compare actual gender chapters of five FTAs ratified by two countries with the most advanced gender chapters in the world To gain benefits from the positive gender impact of trade agreements negotiating and signing gender responsive FTA with future partners is one of the most efficient as well as inclusive trade policies urgently needed for Korea

Keywords Free Trade Agreement Gender Chapter Gender-aware Trade Policy Trade and Gender JEL Classifications F13 K38 P52

1 Introduction Gender discussion in international society has been slowly evolving since the establishment

of the United Nations (UN) Gender refers to according to the UN the roles behaviors activities and attributes that a given society at a given time considers appropriate for men and women (Monteiro 2018 2) Gender refers to the social behavioral and cultural attri-butes expectations and norms associated with being a woman or a man Gender analysis is the systematic gathering and examination of information on gender differences and social relations to identify understand and redress inequities based on gender Lastly gender mainstreaming is a strategy for making womenrsquos as well as menrsquos concerns and experiences an integral dimension of the design implementation monitoring and evaluation of policies and programs in all political economic and social spheres so that women and men benefit equally and inequality is not perpetuated (Higgins 2012 6)

dagger First and Corresponding author bomingocatholicackr




ISSN 1229-828X


83 Women are often underrepresented in formal or regular jobs and internationally com-

petitive sectors as only 20 of export firms are owned or managed by a woman globally (UNTAD 2020 8) There clearly exists gender-differentiated roles in the market as well as gender-biased business finance and investment practices (UNTAD 2020 9-11) As an international policy option free trade agreements (FTAs) can promote gender equality and gender equality truly advances economic development (World Bank ITC 2020 1-2) The economic empowerment of women and international trade share an intricate relationship as effective regulation of international trade could support the economic empowerment of women There is however a lack of public awareness or efficient political will scarcity of gender-disaggregated data and absence of expertise on lsquotrade and genderrsquo issues within government departments responsible for carrying out trade negotiations (World Bank ITC 2020 3)

As multilateralism evolves and presents limitations to accommodate gender concerns FTAs have shown great potential as for gender equality to be adopted as a policy norm between trade partners Trade agreements can help create a level playing field for women and distribute the benefits of free trade equally between women and men Gender-inclusive trade agreements create fair opportunities To ensure that trade agreements create equitable opportunities and contribute to inclusive growth and development the specific needs of men and women must be mainstreamed in their design content and scope In this regard it is needed to recognize the role women play in international trade and to eliminate gender discrimination and barriers that block their access to trade and commerce In fact there are three cases highlighting why trade policies programs and projects should take gender issues into account business development and human rights cases (Higgins 2012 5-6 True 2009 122)

The first milestone for this issue is the Convention on the Elimination of all Forms of Discrimination Against Women (CEDAW) adopted by the United Nations General Assembly on December 18 1979 Ever since the gender issue has evolved from a mere social context into socio-economic and developmental contexts such as its relevance to trade Trade impacts women through different channels including work (both paid and unpaid) or work conditions entrepreneurship consumption and allocation of fiscal resources for the pro-vision of social services (Frohman 2017 1-2) Major international organizations and for a including UNCTAD OECD G20 and APEC began to seek means to address this issue more in depth linking trade and gender (UNCTAD 2020 OECD 2020) In 1999 the Framework for Women was firstly committed in APEC (Frohman 2020) UN subsidiaries such as World Bank (or WB) ITC ILO and FAO also conducted research on gender-related sectoral issues of their own interests (WB ITC 2020) In the case of FAO in particular a case study on the World Banana Forum has even led to the finding of five priority areas increasing womenrsquos employment opportunities fostering womens empowerment reducing gender pay gap improving occupational health and safety and addressing sexual harassment and gender-based violence (WTO 2019)

Gender discussions in multilateral trade regimes have been active only recently after the establishment of the WTO in 1995 Although the multilateral agreements of the WTO do not include any specific provisions related to gender different trade-related gender issues have recently been discussed in the WTO (Monteiro 2018 2) lsquoThe Buenos Aires Declaration on Trade and Womenrsquos Economic Empowermentrdquo launched and was signed at the WTOrsquos 11th

Ministerial Conference in 2017 (Monteiro 2018 WTO 2019) 123 WTO members including Korea joined this declaration exploring the links between trade and womenrsquos empowerment through dedicated events discussions and the exchange of information (WTO 2019) For the first time the members explicitly acknowledged that trade could play an important role


84 in driving female economic empowerment Moreover it is collectively recognized that trade can provide a variety of opportunities for female employment and economic development with the help of technological developments like e-commerce Evidence shows although trade tends to increase the availability of wage jobs for women particularly in export sectors factors such as discrimination lower skills and gender inequalities in access to resources may impede womenrsquos abilities to benefit from trade expansion (World Bank 2004) In this regard the WTO seeks to build a more inclusive trading system that will allow more women to participate in trade and to reap the economic benefits of global trading (WTO 2019) In terms of FTAs only a few agreements include a separate chapter on gender and trade They seek to promote gender equality and list areas of cooperation to promote full female participation and advancement in society for example female entrepreneurship and leadership (UNESCO 2020 12)

A WTO Workshop on Gender in Trade Agreements held in March 2019 at WTO Head-quarters in Geneva was a clearly a steppingstone for this issue It discussed how to incorporate gender issues into FTAs with particularly active countries including Canada Chile Uruguay UK Iceland Italy Switzerland Botswana Fiji and the European Commission (WTO 2019) Surprisingly gender discussions in regional trade agreements have a longer history than those in the multilateral regime In the 1990rsquos Regional Trade Agreements (RTAs) such as the treaty of the Economic Community of West African States (ECWAS) and the East African Community (EAC) first tapped ldquowomen and developmentrdquo pushing gender equality policies from employment to broader issues (Monteiro 2018) In the 2000rsquos not only gender equality but also gender mainstreaming or incorporating a gender lens in all policymaking became fundamental principles of the international trade community as the RTA between the European Union and Central American Community included several gender-related pro-visions on cooperation and labor standards

Fig 1 Evolution of the Number of Gender-related Provisions in RTAs

Note FTAs with the largest number of explicit gender-related provisions are dotted on the upper

right section of this graph and these five FTAs are the target of analysis Source Monteiro (2018 8)


85 In the last half of the 2010rsquos the number and share of RTAs with gender-related provisions

increased significantly as did the average number of gender-related provisions According to the WTO as depicted in Fig 1 there have been only five FTAs which have specific gender chapters Chile-Uruguay Chile-Argentina Chile-Brazil Canada-Chile and Canada-Israel The FTAs to which Chile is a party with Argentina and Uruguay and the amended FTAs negotiated by Canada with Chile and Israel include the most detailed and comprehensive gender-related provisions to date (Monteiro 2018 8) In fact most of these gender-related provisions are found in a chapter dedicated to trade and gender covering issues ranging from domestic policies and international agreements to cooperation activities and institutional arrangements including the establishment of a trade and gender committee and consulta-tions procedures Other gender-related provisions can be found in the preamble the chapters on investment labor and cooperation or the labor cooperation agreement in some of these RTAs

Internationally Korea has been a passive member participating in relevant discussions in the WTO APEC and even MIKTA countries including Mexico Indonesia Turkey and Australia (WTO 2019) Domestically however the government the trade association the trade promotion agency and even academia are more occupied with issues directly related to trade such as negotiating market access inward and outward and handling trade disputes with other countries as well as within the WTO Even the Ministry of Gender Equality and Family the only governmental gender-related entity in Korea is already fully occupied with non-trade issues such as family health and welfare This paper attempts to focus on the five FTAs with gender chapters conduct a comparative analysis of these FTAs and finally derive lessons for Korea especially for the Office of the Minister for Trade

2 Free Trade Agreements with Gender Chapters Over the years the number of RTAs with explicit gender-related provisions has increased

slowly but relatively steadily as of 2018 74 RTAs representing 13 of all RTAs analyzed include at least one provision explicitly referring to gender or gender-related issues In total 60 RTAs with gender-related provisions have been notified to the WTO and are currently in force So far almost 243 agreements include provisions referring potentially and implicitly to gender-related issues such as the protection of human rights the social dimension of sustainable development and the protection of vulnerable groups (Monteiro 2018 4-6) Prior to the 1990s only a couple of RTAs included gender-related provisions including EEC and ECCAS Between 1991 and 2001 the number of RTAs with gender-related provisions increased significantly reaching a peak in 2001 Between 2002 and 2015 the signing of RTAs with gender-related provisions increased slightly but the average number of specific gender-related provisions in RTAs decreased relatively and remained limited Since 2016 the number and share of RTAs with gender-related provisions has increased significantly as did the average number of gender-related provisions The RTAs to which Chile is a party with Argentina and Uruguay and the amended RTAs negotiated by Canada with Chile and Israel include the most detailed and comprehensive gender-related provisions to date (Monteiro 2018 7-9)

Trade and gender chapters are one of the items in explicit gender-related provisions with four elements (WTO 2019) First this chapter acknowledges the importance of incorpo-rating a gender perspective into economic and trade issues to ensure that economic growth is inclusive Second this reaffirms the commitment to implement UN Conventions against gender discrimination such as CEDAW and other relevant international instruments Third


86 this chapter provides a framework for Parties to undertake cooperation activities and capacity building on issues related to Trade and Gender Lastly this chapter often establishes a committee that oversees cooperation activities reviews operations of the chapter reports on the implementation of activities and monitors other chapters for their effects on gender In the process of implementation gender-based analysis and statistics as well as training and networking programs for woman traders are shared discussed or jointly developed This section attempts to explore specific provisions in the gender chapters of the FTAs negotiated by Chile and Canada and seeks to find domestic political backgrounds in each country

21 Chilersquos Cases Chile has four ratified FTAs with gender chapters Chile-Uruguay Chile-Canada Chile-

Argentina and Chile-Brazil This is the largest number in the world From a trade promotion perspective Chile has already enhanced its cooperative work with its FTA partners with gender chapters With the help of the trade and gender committees mandated by its FTAs Chile is in the process of implementing and cooperating on not only general commitments on gender-related provisions but also specific cooperation activities targeting gender issues For Chile the presidency of Michelle Bachelet (2014-2018) has led to the launch of gender equity policies within the public administration and policy formulation (Lopez and Munoz 2018) While focusing more on female economic empowerment entrepreneurship rural development and access to the financial sector Chile has conducted gender-mainstreaming and incorporated gender as a trade relevant issue By the General Directorate of International Economic Relations (DIRECON) Chilersquos Office of Minister for Trade a Gender Department was established in 2016 under the Ministry of Foreign Relations the institution responsible for trade policy This enabled Chile to communicate with other governments as well as ministries within the government in order follow-up on gender topics enhance internal gender policies and to manage programs to promote and support female participation in international trade (Lopez and Munoz 2018) Chilersquos the four FTAs with gender chapters mainly make references to the implementation of gender equality commitments included in global conventions with no specific commitments Although all are rather soft law appro-aches where dispute settlement mechanisms do not apply they are a stepping stone for the international trade society to continue to increase international engagement on trade and gender as well as to strengthen and innovate the chapter

211 Chile-Uruguay FTA (CUFTA) As shown in Table 1 CUFTA was first ratified in April of 1999 and the first round of

moderating this FTA was launched in March of 2012 This FTA was officially signed in April and ratified in October of 2016 This FTA historic and innovative in the history of inter-

Table 1 Timeline for the Target FTAs

FTA Original in Force

Updated Initiated

Updated Signed

Updated in Force

Chile-Uruguay Apr1999 Mar2012 Apr2016 Oct 2016 Chile-Argentina Aug1991 Aug2017 Nov2017 May2019 Chile-Brazil Oct1996 Mar2017 Nov2018 Nov 2018 Canada-Chile Jun 1997 Apr 2012 Dec2018 Feb 2019 Canada-Israel Jan 1997 Jan 2014 May 2018 Sep 2019

Source Authorrsquos analysis based on the WTO RTA Database


87 national gender-aware policy was the first attempt to create an independent chapter for trade and gender in an FTA (Lopez et al 2019) Although this FTA did not mention Goal 5 of the Sustainable Development Goals (SDGs) of the UN 2030 Agenda in its general commitment nor have binding dispute settlement mechanism it included 10 areas of cooperation with Uruguay as well as established a trade and gender committee in order to discuss joint proposals to support policies on trade and gender

212 Chile-Argentina FTA (CAFTA) As shown in Table 1 CAFTA was first ratified in August of 1991 and the first round of

moderating this FTA was launched on August of 2017 This FTA was officially signed in November of 2017 and ratified in May of 2019 Unlike CUFTA this FTA made commitments to not only Goal 5 of the SDGs of the UN 2030 Agenda but also the UN CEDAW and ILO Conventions Although this did not have a binding dispute settlement mechanism it included 12 areas of cooperation with Argentina and established a trade and gender committee to discuss joint proposals to support policies on trade and gender

213 Chile-Brazil FTA (CBFTA) As shown in Table 1 CBFTA was first ratified in October of 1996 and the first round of

moderating this FTA was launched in March of 2017 This FTA was officially signed and ratified in November of 2018 Unlike CUFTA this FTA made commitments to not only Goal 5 of the SDGs of the UN 2030 Agenda but also the UN CEDAW and ILO Conventions This FTA is very similar to CAFTA but had more specified areas for joint discussion and elaboration to support policies on trade and gender with Brazil Although this did not have a binding dispute settlement mechanism it included 12 areas of cooperation with Brazil and established a trade and gender committee with 7 mandates listed in the agreement

22 Canadarsquos Cases Canada has two ratified FTAs so far with gender chapters Chile-Canada and Canada-

Israel The two modernized FTAs with trade and gender chapter include four key objectives reaffirming the importance of incorporating a gender perspective into economic and trade issues reaffirming a commitment to international agreements on gender equality and womenrsquos rights including CEDAW providing a framework for parties to the agreement to undertake cooperation activities on issues related to gender and trade and establishing a dedicated trade and gender committee and other institutional provisions (Trade and Gender in Free Trade Agreements The Canadian Approach) Canada has an inclusive approach to trade where gender is one of the key issues (WTO 2019 Zakaria 2018) It acknowledges that gender-related barriers to trade exist and that trade liberalization affects men and women in different ways Thus it has domestic trade policy priorities such as feminist foreign policy gender equality and inclusive growth

Prime Minister Justin Pierre James Trudeau (2016ndashpresent) accelerated gender-responsive trade policies within the public administration as well as with ministries of other countries In fact Canada has three pillars in conducting gender-aware trade policy Gender Based Analysis Plus (GBA+) trade and gender chapters in FTAs and gender mainstreaming GBA+ means a total government approach to incorporating a gender lens in all policy making in order to help identify potential positive and negative effects of FTAs on people in Canada support continual strengthening and innovating of the Trade and Gender chapter and identify new opportunities for mainstreaming new gender responsive and inclusivity pro-visions in FTAs through consistent and regular updating of GBA+ FTA chapters before each


88 round of negotiations This approach also helps the country identify new areas of strategic data collection and analysis which works as a basic framework In addition areas of Canadarsquos gender-mainstreaming already cover labor government procurement investment trade in services temporary entry institutional arrangements policies related to small and medium enterprises (SMEs) and E-commerce (Larouche-Maltais et al 2019 WTO 2019)

221 Canada-Chile FTA (CCFTA) As shown in Table 1 CCFTA was first ratified in June of 1997 and the first round of

moderating this FTA was launched in April of 2012 This FTA was officially signed in December of 2018 and ratified in February of 2019 This was the first FTA with a gender chapter signed by Canada as well as the first in the G20 (The Canadian Approach 2020) This was greatly influenced by the Chile-Uruguay FTA the first FTA with a gender chapter Although it did not have a binding dispute settlement mechanism it included 11 areas of cooperation with Chile and established a trade and gender committee to discuss joint proposals to support policies on trade and gender Notably this new trade and gender chapter acknowledges that trade is not gender neutral and provides the foundation for both countries to work together on the development of gender-focused indicators and analysis

222 Canada-Israel FTA (CIFTA) As shown in Table 1 CIFTA was first ratified in January 1997 and the first round of

moderating this FTA was launched in January 2014 This FTA was officially signed in May of 2018 and ratified in September of 2019 This was the first FTA with a binding dispute mechanism for the gender chapter (Trade and Gender in Free Trade Agreements The Canadian Approach) It included 9 areas of cooperation with Israel and established a trade and gender committee to discuss joint proposals to support policies on trade and gender

3 Comparative Analysis of the Five FTAs1

31 General Provisions and International Agreements In the section on general provisions all the five FTAs include the sentence that they ldquoacknowledge

importance of incorporating gender into the inclusive economic growth and the key role of gender responsive policiesrdquo Except for the Chile-Uruguay FTA the other FTAs recall ldquoGoal 5 of the Sustainable Development Goals in the United Nations 2030 Agenda for Sustainable Developmentrdquo In the case of the two of Canadian FTAs a member of the OECD they recognize and follow the OECD Guidelines for Multinational Enterprises as they relate to gender Although Chile-Uruguay FTA only mentioned ldquooverall commitment towards the effective implementation of international agreements the other four FTAs ldquoreaffirm their commitment to effectively implement the obligations under the UN CEDAW adopted by the United Nations General Assembly on 18 December 1979rdquo

32 Cooperative Activities In the section of cooperation activities all five FTAs include the sentence that they will

1 This section represents an authorrsquos analysis from Lopez et al (2019) and the WTO RTA Database (2020) I deeply appreciate Ye-ji Kim a student at the Catholic University of Korea for her devoted help in terms of the translation of the Spanish Agreements into Korean


89 cooperate in ldquodesigning implementing monitoring and strengthening policies and programs to encourage womenrsquos participationrdquo and it will be done ldquowith the interaction with busi-nesses labor unions education and research organizations and other NGOsrdquo All FTAs listed more than nine areas of cooperation including ldquoskills enhancement financial inclusion agency and leadership access to science technology and innovation entrepreneurshiprdquo and priorities for cooperation activities are ldquoto be decided by the Parties based on their interests and available resourcesrdquo

33 Trade and Gender Committees and Contact Points In the section on the trade and gender committee and contact points all five FTAs include

the sentence that they will ldquodetermine organize and facilitate the cooperation activities and discuss joint proposals to support polices on trade and genderrdquo All FTAs listed more than five mandates that

ldquoThe Committee shall (a) determine organize and facilitate the cooperation activities and exchange of information under Article 133 (b) report and make recommenda-tions as appropriate to the Commission for its consideration on any matter related to this Chapter (c) discuss any matter of common interest including joint proposals to support policies and other initiatives on trade and gender (d) consider matters related to the implementation and operation of this Chapter and (e) carry out other duties as determined by the Partiesrdquo

Except for Chile-Brazil which meets bi-annually the rest ldquomeet annually as otherwise

agreed by the Partiesrdquo Moreover within two three or five years of entry into force ldquothe Committee shall consider undertaking a review of the implementation of this Chapter with a view to improving its operation and effectivenessrdquo

34 Dispute Settlement and Consultations In terms of dispute settlement the Canada-Israel FTA is the first as well as the only in the

world with a binding mechanism which includes that ldquoIf the Parties cannot resolve the matter in accordance with paragraph 1 they may consent to submit the matter to dispute settlement in accordance with Chapter Nineteen Dispute Settlementrdquo Regarding consultations all five FTAs include the sentence ldquothe Parties shall make all possible efforts through dialogue consultations and cooperation to resolve any matter that may arise relating to this Chapterrdquo In most cases gender-related provisions are excluded from the scope of the dispute settlement system as they are drafted with good-faith cooperation and best endeavors to solve disputes arising from gender-related provisions through dialogue and cooperation This implies that most gender considerations cannot be enforced through a binding and compulsory dispute settlement mechanism so a country faces no direct consequence for not meeting its obligations or commitments (World Bank ITC 2020 19)

Although CIFTA provides a binding dispute settlement procedure that applies to its gender-related commitments this jurisdiction is not compulsory as the parties must agree to it when a problem arises (World Bank ITC 2020 20) Future trade agreements should con-sider subjecting gender provisions to binding and compulsory dispute settlement provisions Parties could subject gender provisions either to the treatyrsquos general dispute settlement chapter or create a specialized mechanism to enforce gender-related commitments To ensure enforcement through dispute settlement provisions marginal and careful policy actions are


90 to be taken as enforcement often requires deep societal changes and long-term cooperation between stakeholders

4 Implementation and Achievements The Case of CCFTA CCFTA was originally in force from June of 1997 and updated negotiations were initiated

in April of 2012 which were signed and enforced from February 2019 according to Table1 Since CCFTA took effect in 1997 bilateral merchandise trade between the two countries has increased almost fourfold (Trade and Gender in Free Trade Agreements The Canadian Approach) In Canada 5674 jobs were directly or indirectly supported by merchandise exports to Chile 1611 of which were occupied by women More than 1200 Canadian businesses traded with Chile in 2016 and women-owned and equally owned Canadian businesses played a much bigger role in imports than in exports as the percentage of those businesses in export value was 105 and those in import value was 254 The portion of women-owned and equally owned businesses in the number of exporters recorded 164 while that in the number of imports was 299 The gender impacts of CCFTA can be summarized in Fig 2 below

Fig 2 Gender Impacts of the Trade Agreement Applied to CCFTA

Source Authorrsquos modification and analysis from World Bank ITC (202016)

Mentions of gender equality andor women in CCFTA are included in Arts 151ndash156

Canada-Chile Appendix IImdashldquoTrade and Genderrdquo (stand-alone chapter) Art N bis-03 ldquofemale entrepreneurshiprdquo labor side agreement ndash Part 1 objectives art 11 (m equality of


91 women and men in the workplace) Art 44 (h equal pay for men and women) ndash Annex 1 Art 7 (sex and other factors in relation to elimination of employment discrimination) and Art 8 (equal pay for women and men) (Larouche-Maltais and MacLaren 2019 7) Fields of cooperation include awareness-raising through programs on gender equality practices in business and female entrepreneurship policy experience-sharing especially on the design implementation and monitoring of policies for female economic empowerment access to economic opportunities especially initiatives to maximize benefits of the agreement for women (as workers or entrepreneurs) female empowerment activities such as leadership and decision-making skills enhancement and education in science technology and innovation gender-related data collection conducting gender-based analysis the collection of sex-disaggregated data and the use of gender-responsive indicators and statistics Activities consider women not merely employees or laborers but as entrepreneurs leaders decision-makers and scientists (World Bank ITC 2020 11) The designated entities of each country like the Department of Foreign Affairs Trade and Development for Canada and the Depart-ment of International Economic Relations are responsible for public reporting on progress toward these types of cooperation Both countries encourage industries and enterprises to incorporate corporate social responsibility explicitly related to gender

To support and coordinate bilateral cooperation initiatives a trade and gender committee has been established under both chapters that oversee cooperation activities reviews opera-tion of the chapter reports on implementation of activities and it monitors other chapters for their effects on gender This is helpful in that it creates a basic architecture for cooperation in reducing gender inequality for the parties to the FTAs These chapters do not however cover certain areas including specific funding parameters timelines for committee meetings or results and the harmonization of gender-related legislation (pay equity among others) between FTA parties (Larouche-Maltais and MacLaren 2019 30-31) CCFTA identifies several gender issues of importance to both governments but does not mention next steps to operationalize a reduction in gender inequality nor does it include potential gender indi-cators associated with each issue to monitor progress The latter would allow the committees to consolidate and focus work agendas and help establish clarity

Nonetheless CCFTA has developed detailed work plans for committees including descrip-tions of action items objectives implementation plans expected results leads and timelines as well as a commitment to public reporting on activities and results The two partners agreed to exchange information on gender equality laws policies and programs and female eco-nomic empowerment policies and programs to share experiences and practices on the GBA of trade policy and the collection and analyses of gender disaggregated data CCFTA certainly has increased the understanding of the gender dimension of trade agreements and their contributions to better policy making and enhanced public participation as well as increased public awareness It also promoted gender equity policies alongside trade promotion policies (WTO 2019)

5 Implications for Korea There are three phases as shown in the Fig 3 in gender-aware trade policy which can be

applied to the three traditional steps of trade policy creation in a country From this paperrsquos analysis in the previous sections Chile belongs to the second phase of gender-aware trade policy In the step for trade promotion it launched and promoted gender equity policies and enhanced cooperative work with other governments Next in the trade negotiation step it made a general commitment addressing gender issues either in gender provisions or chapters


92 and further implements and cooperates on general commitments including gender as well as on gender with its FTA partners In the step for trade dispute settlement although it does not include binding provisions for the gender chapter it designates a gender committee and provides contact points Other than Chile countries in Central and South America as well as Members of RTAs with gender provisions also belong to this phase

Fig 3 Three StepsThree Phases of Gender-Aware Trade Policy

Source Authorrsquos analysis based on Bensalem (2017) World Bank ITC (2020) and WTO (2019) Canada on the other hand belongs to the third phase the most advanced phase In the

step for trade promotion it conducts gender-mainstreaming in trade policy as well as well as attempts to measure the effects of the gender chapter over time Next in trade the negotiation step it decided to hold regular review meetings for the gender committee In the step for trade dispute settlements it settled a gender committee and provided contact points such as in its FTA with Israel This indicates that the gender chapter in FTAs was transformed from that of a soft law approach to that of a hard law approach as the phase changes Other than Canada and its FTA partner Israel other USMCA members including the US and Mexico as well as EU Members can be said to be moving toward to the third phase in terms of gender-aware trade policy In sum the most significant domestic political factor in strengthening and innovating gender chapter is pro-trade as well as pro-gender presidential leadership in each country both leading to domestic and international institutional arrangements As a result of the inclusion of gender chapters in their FTAs both had an opportunity to conduct gender-aware quantitative analysis as well as develop gender-aware training and promotion programs for female traders

Korea according to Fig3 belongs to the first phase of gender-aware trade policy In the


93 step for trade promotion it just introduces an inclusive approach to trade (Chung et al 2018) It is in the process of increasing its understanding of the gender dimension of trade agreements It also needs to overcome resistance and enhance public participation Next for the trade negotiation step it refers to or participates in international conventions or merely mentions in its trade agreements genderwomen In the step for trade dispute settlement although it does not include any explicit gender provisions or chapters it raises awareness of gender or gender-related provisions in international trade agreements Other than Korea Asia and the Middle East as well as other WTO members with a general commitment to gender issues also belong to this first phase Countries in this phase need to seek ways to settle institutional arrangements to proceed into the next phase

Table 2 Comparison of Global Rankings related to lsquoTrade and Genderrsquo

UN WEF

Human Development

Index

Gender Inequality

Index

OverallGlobal Gender

Gap

Economic Participation Opportunity

Gap Chile 42(4) 62(5) 57(4) 117(6) Uruguay 57(6) 59(4) 37(3) 64 (2) Argentina 48(5) 77(6) 30(2) 103(5) Brazil 79(7) 89(7) 92(6) 89(4) Canada 13(1) 18(2) 19(1) 30(1) Israel 22(2) 24(3) 64(5) 67(3) Korea 22(2) 10(1) 108(7) 127(7)

Notes 1 The number in the parenthesis is the ranking among the seven countries listed 2 The base year for figures of Human Development Index is 2019 3 The base year for figures of Gender Inequality Index is 2018 and it ranges from 0 where

women and men fare equally to 1 where one gender fares as poorly as possible in all measured dimensions

4 The base year for figures of WEF is 2019 Source UN Human Development Index (2019) UN Gender Inequality Index (2019) and Word

Economic Forum (2019) Table 2 shows that Korearsquos status in terms of global rankings related to lsquoTrade and Genderrsquo

is not satisfactory Internationally its participation and involvement in the lsquotrade and genderrsquo issue is positive but not proactive Domestically solid policy action or implementation of this issue remains ambiguous As mentioned in the introduction trade impacts women through different channels including work (both paid and unpaid) or work conditions entrepre-neurship consumption and allocation of fiscal resources for the provision of social services (Frohmann 2017 1-2) In summary Korea has several problems as follows It only has in-clusive trade policy not gender-aware trade policy so it should move to phase 2 as shown in Fig 3 It has not yet conducted any gender-related statistics related to trade for women traders Neither the Office of Minister for Trade (OMT) or Korea Trade Promotion Agency (KOTRA) Korearsquos trade promotion agency has developed any gender-related training and promotion programs based on gender-related statistics related to trade

To solve these problems new mandates should be granted to the OMT Korea Association of International Trade Association (KITA) and KOTRA respectively Korearsquos FTA team within the OMT should be to have more mandates in terms of gender-aware trade policy


94 The most significant mandate is to initiate actions for including a gender chapter in ongoing FTAs The Korea-Israel FTA was under negotiation between 2016 and 2019 and this was an overlapping period with the five FTAs with gender chapters according to Table 1 Israel included a gender chapter with Canada but not with Korea and this point should be carefully reviewed In this regard conducting a gender impact assessment prior to an FTArsquos entry into force is needed to identify the potential positive and negative gender impacts of the proposed trade agreement (Larouche-Maltais and MacLaren 2019 50)

Table 3 Brief Analysis of FTA Committees in 4 FTAs

FTA FTA Committees

Korea- Chile

FTA

Korea-Canada

FTA

Canada - Chile

FTA

Canada - Israel

FTA

Committee on Trade in Goods 3 times

Committee on Government Procurement 2 times times

Committee on Sanitary and Phytosanitary Measures 2 times times

Committee on Standards-Related Measures 2 times times

Committee on Trade Remedies 2 times times

Committee on Telecommunications Standards 2 times times

The Free Trade Commission 2 times times

Trade and Gender Committee 2 times times

Source Authorrsquos analysis based on the WTO RTA database (2020) As shown in Table 3 Korea has been focusing on traditional trade issues such as trade in

goods government procurement standards-related measures or trade remedies while its FTA partners have established gender committees with their partners For the on-going negotiations for the modernizing KoreandashChile FTA and the Korea-MERCOSUR FTA the team should make efforts to include a gender chapter or gender-related provisions up to the level of Central and South American countries in phase 2 of Fig 3 For upcoming negotiations updating FTAs with the Pacific Alliance EFTA and the EU Korea should make progress in terms of introducing gender chapters on behalf of female Korean traders (Bjoumlrkdahl et al

2015 202-203) To realize this the government should establish a gender department with an OMT domestic institutional arrangement to conduct gender-aware trade policy

If Korea attempts to initiate a discussion on creating a gender chapter with an FTA partner the chapter can benchmark the one in the Canada-Israel FTA Moreover it is better to decide financial resources for cooperative activities during the negotiation The trade and gender committee should meet annually and the review process for the implementation of the chapter should be held within two or three years after the first meeting of the committee In terms of a dispute settlement mechanism the new gender chapter for Korea should have a binding mechanism in that one of the parties can submit a matter for dispute settlement in


95 accordance with Dispute Settlement chapter of the FTA negotiated Domestically a new institutional arrangement includes forming a gender department in trade ministry with the government while the international institutional arrangement means settling a trade and gender committee with an FTA partner to hold regular review meetings Canada and Chile both have gender departments not only within the government but also within the trade ministry With its FTA partners Korea needs to depict gender-based trade barriers and to make a commitment to overcome such barriers by sharing methods and procedures for collecting gender-focused trade statistics and sex-disaggregated data exchanging experiences and best practices related to gender-based analysis of trade policies (UNCTAD 2020 13)

The OMT also must overcome resistance and increase the awareness and recognition of gender-aware trade policy for interest groups and the public In Korea there is still public sentiment that views trade as gender neutral and FTA is no place for gender considerations and for advancing social issues Some even see the application of a gender-aware trade policy as a zero-sum game men will lose if women receive equitable access As shown in Fig 4 Korea can experience lsquowin-winrsquo consequences for both genders if it applies a gender-aware trade policy As more female traders are invited trained promoted and financially sourced they can contribute to gaining more business opportunities for both genders which leads to a larger market share in the world market In this sense the government should change the lsquozero-sumrsquo perception of a gender-aware trade policy into a lsquowin-winrsquo context where both female and male traders can gain from the increased market share created by the new policy Policy makers and experts working in this field need to consider how the participation of women in trade can be promoted to its fullest potential

Fig 4 Changing Perceptions of Gender-Aware Trade Policy Zero-Sum to Win-Win

Source Authorrsquos analysis

Korea has lack of adequate gender disaggregated data and the capacity to interpret it in a

trade policy context such as indirect employment effects supply chains effects and consumer data by gender The role of KITA in terms of producing gender-aware statistical analysis should be emphasized In Section 3 each gender chapter includes cooperative activities on sharing methods and procedures for the collection of sex-disaggregated data the use of indicators and the analysis of gender-focused statistics related to trade In the statistics or a survey topics such as womenrsquos roles in Korean trade in terms of sectors products or services and markets should be regularly gathered and scrutinized Although Korea has already developed and provided policies targeting female-owned businesses by the Korean Womenrsquos


96 Development Institute an institute under the Office for Government Policy Coordination this is the right time for the OMT to target female traders in terms of gender- disaggregated data and surveys

Gender-award quantitative analysis published by DIRECON Chilersquos OMT is a good benchmark for this as shown in Fig 5 DIRECON published in 2017 the First Scan of Women Exporters in order to contribute to quantitative analysis to design better public policies with the first section devoted to the statistical analysis of the participation of women in export activities in Chile while the second compiled the main antecedents of the participation of women in world trade through studies carried out by international organizations (Lopez and Munoz 2018) It found most of the exports by female traders belonged to the food processing sector a traditional domestic industry and its share in exports of services by female traders was still low Korea promptly needs to elaborate on the impact of trade on women in three dimensions women as workers women as business owners and women as consumers (Larouche-Maltais et al 2019 WTO 2019) In summary KITA can conduct regular research on female participation in exports and imports detailed statistics on the participation of women-led trading firms in total exports the proportion of women-led trading firms by size or by sector but also the history of female traders in Korea as well as specific barriers for female traders doing business in Korea

Fig 5 Chilersquos Gendering Case in a National Survey on Enterprises

Source DIRECTON (2017)

In terms of developing gender-aware training and promotion programs the role of

KOTRA should be emphasized ProChile a Chilean trade promotion agency is a good model for this as it offers lsquoMUJEREXPORTArsquo a flagship program which aims to help women


97 businesses join export activities (Lopez and Munoz 2018 144) In 2017 a set of training and promotion actions were carried out benefiting more than 800 businesswomen in the overseas promotion of their products Although KITA has several promotion programs for female traders now it only invites female traders in certain regions or target sectors products or markets overseas (KITA 2020) In terms of trade facilitation and logistics projects with a strong gender focus KOTRA can also initiate projects such as those providing training and outreach for female traders on customs and border requirements and processes supporting womenrsquos trading organizations to increase their capacity to educate and support female traders on customs and border issues and educating female traders about real trading costs and requirements so they can negotiate fairer prices with intermediaries (Higgins 2012 40-41) In support of female empowerment there exists a list of examples for the most used trade policies by trade issue such as government procurement agriculture services and even standards and technical regulations (Boghossian 2019)

6 Conclusion There are six trade policy instruments contributing to gender equality the generation of detailed

data on trade and gender the evaluation of female impact on trade promotion of female entrepreneurship as exporters trade facilitation focusing on gender gender-mainstreaming in a grade regulation and a gender chapter in trade agreements (Frohmann 2020 19) For Korea a mere inclusion of a gender chapter in trade agreements is only one of six instruments to be implemented to perform trade policy for gender equality and unfortunately this minimum has not yet been met As Fig3 indicates there are three phases in terms of advancement in gender-related trade policy As Chile is in phase two and Canada is in phase three Korea remains in phase one It has a ministry related to gender within the government but not within the OMT It has statistics on female business but not those of female traders It has a few gender-related provisions in its FTAs but not a gender chapter Existing studies only focus on introducing gender-related international commitments and Korearsquos participation (Choi 2018) Further-more establishment of gender-related governmental entities is yet to be come It is the right time for Korea to adopt gender-aware trade policy to encourage its industries and enterprises to incorporate corporate social responsibility explicitly related to gender

This paper is the first attempt to compare actual gender chapters of Chile and Canada Korearsquos close trading partners New mandates related to gender-aware trade policy for OMT KITA and KOTRA should be provided to realize the concrete economic benefits resulting from empowering female traders and policies promoting them as shown in Fig 2 Korea should implement not only inclusive trade policy but also gender-aware trade policy by including a gender chapter in an FTA as well as establishing a trade and gender division KITA should conduct gender-related statistics related to trade for female traders KOTRA should develop and provide gender-related training and promotion programs based on gender-related statistics related to trade In this way it can increase the issuersquos coverage from one only by the Ministry of Gender Equality and Family but to one for the Ministry of Trade so that Korea can gain a win-win outcome for both genders in its trade policy as presented in Fig4 Further studies including an elaborate statistical survey on Korearsquos female traders or quantitative or comparative analysis using a lsquotrade and gender indexrsquo will be further promote policy discussions for this topic (UNCTAD 2017 35-37)


98

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Springer International Publishing

Boghossian A (2019) Trade Policies Supporting Womenrsquos Economic Empowerment Trends in WTO Members (Staff Working Paper ERSD-2019-07) Geneva Switzerland Economic Research and Statistics Division in the WTO 1-10

Bensalem H (2017) Gender as Included in Bilateral and Multi-party Trade and Integration Agreements (Research Study) Geneva Switzerland CUTS International 1-21

Choi Hye-Sun (2018) ldquoCurrent Discussions about Women and Trade in WTOrdquo Chonnam National University Law Review 38(4) 241-264

Chung Chul Chan-Kwon Bae Jong-Duk Kim Kyung-Hun Koo Min-Chul Chung Si-Young Lee and Hong-Yeol Han (2018) Social Cohesion and Implications for Korearsquos Trade Policy (Policy Analysis No 18-31) Sejong Korea Korea Institute for International Economic Policy

DIRECON (2018) II Analysis on Women Exporters Santiago Government of Chile Frohmann A (2017) Gender Equality and Trade Policy (Working Paper No 2017-24) Bern

Switzerland World Trade Institute 1-32 Frohmann A (2020) Trade Policy Tools to Contribute to Gender Equality (International Trade Series -

153) Santiago ECLAC 1-65 Higgins K (2012) Gender Dimensions of Trade Facilitation and Logistics a Guidance Note

Washington DC World Bank 1-46 Kim Jong-Soong Seon-Mee Shin Seung-Hyun Lee and Keun-Tae Kim (2018) Study of Policies

Supporting Women Entrepreneurs Seoul Korean Womenrsquos Development Institute Korea Association of International Trade Association (KITA) (2020) 2020 Womenrsquos Specialized

Products Overseas Expansion One-Stop Support Recruitment of Female Companies Participating in Export Business Available from httpswwwkitanetmberJobSportbsnsReqstSchdulcmmrcSportBsnsCldrcmmrcSportBsnsSchdulcmmrcSportBsnsSchdulDetaildosearchOpenYn=YampsearchReqType=detailamppageIndex=1ampcategory6CodeId=ampcategory4CodeId=ampseq=15736ampnIndex=1ampcheck1box=ALLampcheck2box=ALLampcheck3box=ALLampcheck4box=ALLampcategory6=ampcategory7=ampcategory4=ampcategory5=amptermDate=1ampstartdate=ampenddate=ampdateY=ampsearchKeyword=EC97ACEC84B1EAB8B0EC9785amporderType=amppageUnit=20 (accessed July 26 2020)

Korinek J (2005) Trade and Gender Issues and Interactions (OECD Trade Policy Working Paper No 24) Paris OECD 1-22

Larouche-Maltais A and B MacLaren (2019) Making Gender-Responsive Free Trade Agreements (Report ndash Jan -2019) Ottawa Canada The Conference board of Canada 1-61

Lopez D and F Munoz (2018) ldquoTrade Policy and Women in the Pacific Alliancerdquo Agenda International 36 133-150

Lopez D F Munoz and J Caceres (2019) Gender Inclusion in Chilean Free Trade Agreement (Working Paper) Santiago Institute of International Studies University of Chile 1-27


99 Monteiro J (2018) Gender-related Provisions in Regional Trade Agreements (Staff Working Paper

ERSD-2018-15) Geneva Switzerland Economic Research and Statistics Division in the WTO 1-36

OECD Trade and Gender (2020) Trade and Gender Available from httpswwwoecdorgtrade topicstrade-and-gender (accessed July 26 2020)

Trade and Gender in Free Trade Agreements The Canadian Approach (2020) Trade and Gender in Free Trade Agreements The Canadian Approach Available from httpswwwinternationalgcca trade-commercegender_equality-egalite_genrestrade_gender_fta-ale-commerce_genreaspx lang=eng (accessed July 26 2020)

True J (2009) ldquoTrading-in gender equality Gendered meanings in EU trade policyrdquo In E Lombardo P Meier and M Verloo (Eds) The Discursive Politics of Gender Equality New York NY Routledge 121-137

UN Gender Equality Index (2019) Gender Inequality Index Available from httpsdataunorg DocumentDataaspxq=gender+inequality+indexampid=415 (accessed July 26 2020)

UNCTAD (2017) Trade and Gender Toolbox How will the Economic Partnership Agreement

between the European Union and the East African Community Affect Kenyan Women Geneva Switzerland Author 1-55

UNCTAD (2020) Gender and Trade- Assessing the Impact of Trade Agreements on Gender

Equality Canada-EU Comprehensive Economic and Trade Agreement (UN-Women20201) Geneva Switzerland Author 1-24

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wwwnewktraorg

101

JKT 24(6)

The 2019 Hong Kong-Mainland China Arrangement on Mutual Assistance in

Court-ordered Interim Measures A Major Breakthrough for Hong Kong-seated

International Arbitral Proceedings

Jung Won Jundagger College of Law Kookmin University Seoul Korea

Abstract Purpose ndash This paper examines the ldquoArrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Regionrdquo (the Arrangement) which became effective on October 1 2019 calling on courts of mainland China and Hong Kong for reciprocal commitment in support of court-ordered interim measures in aid of arbitral proceedings Because the Hong Kong courts have granted interim measures in aid of arbitral proceedings seated in and outside of Hong Kong even prior to the Arrangement becoming effective this paper focuses on the significance of the Arrangement making Hong Kong the first and only seat outside of mainland China from which parties to arbitral proceedings may successfully obtain interim measures to preserve of assets properties andor evidence from Chinese courts to be enforced in China Designmethodology ndash The significance of interim measures in international arbitration and the existing circumstances of interim measures in support of international arbitral proceedings in mainland China and Hong Kong are discussed first in this paper Due to the confidential nature of arbitral proceedings while the details of applications for interim measures pursuant to the Arrangement cannot be discussed in examining the implications of the Arrangement the relevant and necessary information was made available from the Hong Kong International Arbitration Centre as it is one of the six qualified arbitral institutions under the Arrangement Findings ndash This groundbreaking Arrangement provides a mechanism for parties with China-related matters to more effectively resolve their disputes the opportunity for Hong Kong to become an unparalleled seat of arbitration and for mainland China to overcome some of its negative perceptions in international arbitration Because the Arrangement also allows parties to directly apply for interim measures from mainland Chinese courts parties with China-related matters should take note of this potential bypassing of the procedural hurdle which usually requires an arbitral institution to submit such applications in China and make strategic decisions accordingly as may be appropriate Originalityvalue ndash Because the Arrangement is a recent yet a significant agreement calling on courts of mainland China and Hong Kong for reciprocal commitment in support of court-ordered interim measures in aid of arbitral proceedings this study will provide useful guidance for parties with China-related matters all over the world especially in light of Chinarsquos rapid economic growth and extensive and prominent trade relationships in todayrsquos world Parties who foresee the need for interim measures from mainland Chinese courts should designate Hong Kong as their seat of arbitration and select one of the six qualified arbitral institutions under the Arrangement to administer their arbitral proceedings in order to benefit from the Arrangement

Keywords Hong Kong Interim Measures International Arbitration Mainland China Seat of

Arbitration JEL Classifications F10 F51 K40

dagger First and Corresponding author jungwonjungmailcom




ISSN 1229-828X


102

1 Introduction On April 2 2019 Hong Kong Special Administrative Region and mainland China signed

an agreement known as the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (the Arrangement) a reciprocal commitment to provide judicial assistance with respect to court-ordered interim measures in aid of arbitral proceedings The Arrangement went into effect on October 1 2019 officially making Hong Kong the first and only seat outside of mainland China from which parties to international arbitral proceedings may successfully seek and obtain interim measures from mainland Chinese courts in aid of their arbitration

While the text of the Arrangement especially in light of the language ldquomutual assistancerdquo may appear to suggest that the courts of both Hong Kong and mainland China will be engaging in this practice of court-ordered interim measures in aid of foreign arbitral proceedings for the very first time it should be clarified that such is not true Because the Hong Kong courts have already established their practice of granting interim measures in aid of arbitral proceedings whether seated in or outside of Hong Kong the great significance of the Arrangement lies solely with the fact that it enables parties to Hong Kong-seated arbitral proceedings to avail themselves of access to interim measures issued by the mainland Chinese courts to be enforced in mainland China Prior to the Arrangement if any party foresaw the need for interim measures in mainland China the parties had no choice but to seat their arbitration in mainland China about which they ndash particularly foreign parties ndash have been reluctant to do due to their concerns of potential lack of impartiality and independence of arbitral institutions as well as courts in mainland China Therefore the Arrangement has brought exciting prospects for the international arbitration community especially those with China-related matters in light of the accelerated economic growth in China Also importantly while Hong Kong has established itself as one of top five most preferred seat of arbitration for international arbitrations now it has all the more potential to rise to the very top as an unparalleled seat of arbitration since the Arrangement effectively has made Hong Kong the only seat outside of mainland China to benefit from such commitment

In this article the substance significance and implications of the Arrangement are examined While only time will reveal the actual effects of the Arrangement on resolution of disputes for arbitral parties with matters relating to counterparties assets properties andor evidence in mainland China it is certainly meaningful to shed light on the status of its use in the past six months since the Arrangement went into effect with information made available by the Hong Kong International Arbitration Centre (HKIAC) during the HKIAC Webinar series in April of 2020 Before delving into the discussion and implications of the Arrange-ment in Section 3 the significance of interim measures in international arbitration and current circumstances of interim measures in support of international arbitral proceedings in mainland China and Hong Kong are examined first in Section 2 in order to thoroughly comprehend the effects of the Arrangement with concluding remarks in Section 4

2 Interim Measures in Aid of International Arbitral Proceedings

21 The Significance of Interim Measures in International Arbitration International arbitration is based on partiesrsquo agreement to resolve their dispute(s) by

arbitration through an arbitral award issued by an arbitral tribunal of the partiesrsquo choosing

The 2019 Hong Kong-Mainland China Arrangement on Mutual Assistance in Court-ordered Interim Measures A Major Breakthrough for Hong Kong-seated International Arbitral Proceedings

103 rather than resorting to litigation in national courts As shown by the results from the International Arbitration Survey (2018) conducted by the Queen Mary University of London due to some of the characteristics commonly known as the advantages of international arbitration such as enforceability of arbitral awards avoiding specific legal systemsnational courts procedural flexibility and ability of parties to select arbitrators international arbitration has been a well-regarded and highly preferred method of resolving cross-border disputes While much of arbitral proceedings are fundamentally based on party autonomy because arbitral tribunals lack coercive powers some judicial assistance ndash for instance with respect to issuance andor enforcement of interim measures taking of evidence dealing with third parties recognition and enforceability of arbitral awards as well as setting aside of arbitral awards ndash from national courts of arbitral seats andor where arbitral awards are sought to be enforced is necessary Such necessity is inevitable even assuming full voluntary compliance of arbitral orders andor awards by the parties Consequently the seat of arbit-ration or arbitral seat which is the legal place of arbitration and not necessarily the physical location of where the arbitral proceedings take place exerts a substantial effect on arbitral proceedings by way of applicable national laws such as the national arbitration legislations which govern procedural issues of arbitral proceedings The seat of arbitration is generally designated by the parties in their arbitration agreement but in the absence of the partiesrsquo agreement to the seat of arbitration the arbitral tribunal or the arbitral institution selects the seat of arbitration Born (2012) noted that in international arbitration contexts only in rare cases where the parties have failed to incorporate any arbitral institutional rules andor could not have come to an agreement on the seat of arbitration national courts would get involved in the selection process of seat of arbitration Therefore and particularly for the purposes of this article the critical significance of the seat of arbitration cannot be underscored more in light of the Arrangement having made Hong Kong the first and only seat outside of mainland China from which parties may successfully seek and obtain interim measures from the Chinese courts in aid of their arbitral proceedings

Interim measures which are also known as interim relief conservatory andor provisional measures are protective relief that are issued in order to prevent one of the parties to proceedings from deliberately destroying the relevant evidence andor transferring properties andor assets while arbitral proceedings are pending so that the proceedings may be carried out effectively and also to ensure that following an arbitral award the prevailing party will be able to successfully enforce the arbitral award Article 17(2) of the UNCITRAL Model Law on International Commercial Arbitration (2006) defines interim measures as any temporary measure whether in the form of an award or in another form by which at any time prior to the issuance of the award by which the dispute is finally decided the arbitral tribunal orders a party to (a) maintain or restore the status quo pending determination of the dispute (b) take action that would prevent or refrain from taking action that is likely to cause current or imminent harm or prejudice to the arbitral process itself (c) provide a means of preserving assets out of which a subsequent award may be satisfied or (d) preserve evidence that may be relevant and material to the resolution of the dispute As such interim measures often have substantial effects on the resolution of the dispute(s) as they protect the relevant properties assets andor evidence necessary to resolve the disputes as well as injunctions in order to maintain the status quo until the arbitral award is rendered Therefore without interim measures a party may dissipate assets or hide andor even destroy evidence Consequently parties to international arbitral proceedings have increasingly been relying on interim measures

While the availability of interim measures in international arbitration is governed primarily by national arbitration legislation and the partiesrsquo arbitration agreement national courts are


104 generally vested with the authority to order interim measures and courtsrsquo authority to grant interim measures extends to situations where such measures are needed in support of arbitration proceedings In addition many of prominent international arbitral institutions empower arbitral tribunals with the authority to grant interim measures in their arbitration rules Some of exemplary rules providing such authority can be found in Article 28 of the International Chamber of Commerce (ICC) Rules (2017) of Arbitration Article 30 of Arbit-ration Rules (2016) of the Singapore International Arbitration Centre (SIAC) Article 23 of the HKIAC Administered Arbitration Rules (2018) as well as Article 25 of the London Court of International Arbitration (LCIA) Arbitration Rules (2014) Arbitral tribunal-ordered interim measures are binding on the parties and are enforced upon application to a com-petent court unless there are grounds for refusing recognition or enforcement As such although arbitral tribunals and national courts often enjoy concurrent jurisdiction over interim measures parties may be limited by the relevant national arbitration legislation such as the Chinese Arbitration Law which mandates parties to institution-administered arbit-rations to resort only to national courts for interim measures in aid of their arbitral pro-ceedings Like China Italy also prohibits arbitral tribunals from issuing seizures and any other interim measures giving its national courts the exclusive authority to grant interim measures pursuant to the Italian Civil Procedure Code article 818

22 Interim Measures in Aid of International Arbitrations in Mainland China Article 28 of the Arbitration Law of the Peoplersquos Republic of China (1994) provides that if

a party applies for preservation of property then the arbitration commission must submit the partyrsquos application to the peoplersquos court in accordance with the relevant provisions of the Civil Procedure Law Articles 10 through 16 of the Chinese Arbitration Law provide rigid require-ments and descriptions of designated arbitration commissions which may be distinct from the international practice and what are commonly referred to as international arbitration institutions If a party applies for preservation of the evidence where the evidence may be destroyed or lost or difficult to obtain at a later time then the arbitration commission shall submit to the basic peoplersquos court in the place where the evidence is located pursuant to Article 46 of the Chinese Arbitration Law Additionally according to Article 68 if a party to a foreign-related arbitration applies for preservation of the evidence the foreign-related arbitration commission shall submit the application to the intermediate peoplersquos court in the place where the evidence is located While there is no other special provisions for arbitration involving foreign elements relating to interim measures in the Chinese Arbitration Law Article 65 makes clear to apply other relevant provisions of the Arbitration Law for matters not covered in the chapter dealing with special provisions for arbitration involving foreign elements In short the Chinese courts have exclusive authority to grant interim measures in aid of arbitral proceedings under the Chinese Arbitration Law and applications for such must be submitted by an arbitration commission as direct applications by parties are not allowed

Moreover it is paramount to note that until the Arrangement became effective in order to obtain interim measures from mainland Chinese courts in aid of international arbitrations the arbitral proceedings must have taken place within mainland China However because of the perception that mainland Chinese courts and arbitral institutions may not be independent or impartial due to political and social factors parties to international arbitrations and in particular foreign parties have not preferred mainland China as their seat of arbitration According to the International Arbitration Survey (2010) conducted by the Queen Mary University of London and School of International Arbitration respondents to the survey regarded mainland China along with Moscow with one of the most negative perceptions as


105 a potential seat of arbitration Also Nobles (2012) found that although the Arbitration Court of the China Chamber of International Commerce (CIETAC) is one of the most prominent permanent arbitration institutions in China and thus is far more preferred over many other Chinese arbitral institutions it is still overcoming the perception of being biased in favor of domestic parties in international arbitration

Additionally the legal status of arbitral awards rendered by foreign arbitration institutions in mainland China remains unclear because China takes a distinct approach as to determi-ning the nationality of arbitral awards ndash based on where the particular arbitral institution is established and located ndash which departs from the international practice of determining such based on the seat of arbitration For instance Tao (2012) noted that the arbitral award issued by the ICC Court of Arbitration was deemed a French arbitral award according to the Chinese approach regardless of where the arbitral proceedings took place ndash even if the proceedings had taken place in mainland China ndash because the ICC is an arbitration institution established and located in France Consequently it has often been suggested for foreign parties to specify other places such as Hong Kong or Singapore as their seat of arbitration in the interest of consistent and predictable recognition and enforceability of arbitral awards Thus the Arrangement is a significant breakthrough for parties of international arbitrations with legitimate interests to be protected by interim measures ordered by mainland Chinese courts for their Hong Kong-seated arbitrations

23 Interim Measures in Aid of International Arbitral Proceedings in

Hong Kong The Hong Kong Arbitration Ordinance has largely adopted the UNCITRAL Model Law

(2006) which is in line with the international practice In particular Hong Kong has adopted the exact text of Article 17 of the Model Law in Section 35(1) of the Arbitration Ordinance providing authority to arbitral tribunals to grant interim measures upon a partyrsquos request In addition to having given effect to the exact language of Article 17 of the Model Law the Hong Kong Arbitration Ordinance has the added language as Section 35(2) provides further that the interim measure referred to in Section 35(1) to be construed to include an injunction but not including an order under Section 56 of the Arbitration Ordinance Also Section 35(3) provides that if the arbitral tribunal granted an interim measure upon application of any party the tribunal may issue an arbitral award to the same effect as the interim measure

Section 36 of the Arbitration Ordinance which has adopted and thereby given effect to the text of Article 17 A of the Model Law sets forth the conditions that must be satisfied in order for interim measures to be granted by an arbitral tribunal When a party requests an interim measure to (a) maintain or restore the status quo pending the determination of the dispute (b) take action that would prevent or refrain from taking action that is likely to cause current or imminent harm or prejudice to the arbitral process itself or (c) preserve assets out of which a subsequent award may be satisfied the party must satisfy the following two conditions before the arbitral tribunal may grant the interim measure firstly the party must show that harm not adequately reparable by an award of damages is likely to result if the measure is not ordered and such harm substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted and secondly that there is a reasonable possibility that the requesting party will succeed on the merits of the claim According to Section 36 of the Hong Kong Arbitration Ordinance the determination on this possibility shall not affect the discretion of the arbitral tribunal in making any subsequent determination However when a party is requesting an interim measure for preservation of potentially relevant evidence the two conditions set forth above only apply to the extent that


106 the arbitral tribunal considers appropriate Therefore arbitral tribunals are granted more discretion and flexibility in their determination of whether such conditions have been satisfied before issuing an interim measure of preserving relevant evidence pursuant to Section 36(2) of the Arbitration Ordinance

Additionally Hong Kong courts enjoy concurrent authority with arbitral tribunals to grant interim measures in aid of arbitral proceedings under the Hong Kong Arbitration Ordinance as Section 21 of the Arbitration Ordinance provides that it is not incompatible with an arbitration agreement for a party to request from a court before or during arbitral pro-ceedings an interim measure of protection and for a court to grant such measure Section 45 of the Arbitration Ordinance which governs court-ordered interim measures did not adopt the corresponding provision of the Model Law but instead Section 45(2) specifically provides the authority for Hong Kong courts to grant interim measures to any arbitral proceedings which have been or are to be commenced in or outside of Hong Kong Such broad and inclusive provision reflects the pro-arbitration attitude of Hong Kong courts Interim measures under Section 45 of the Hong Kong Arbitration Ordinance are consistent with the type(s) and description(s) of the interim measures provided in Article 17(2) of the Model Law given effect to by Section 35(1) of the Arbitration Ordinance Moreover for non-Hong Kong arbitrations the Hong Kong courts may grant an interim measure only if the arbitral proceedings are capable of giving rise to an arbitral award that may be enforced in Hong Kong and the interim measure sought belongs to a type or description of interim measure that may be granted in Hong Kong in relation to arbitral proceedings by the Hong Kong court according to Section 45(5) of the Hong Kong Arbitration Ordinance

In addition to having adopted the Arbitration Ordinance that is very much in line with the international practice another important reason that Hong Kong has evolved into one of the most preferred seat of arbitration is the pro-arbitration attitude by the Hong Kong judiciary Eliasson (2010) has noted that Hong Kong courts have established a reputation to be efficient and reliable and in order to respect party autonomy intervention by the Hong Kong courts is limited to those necessary to ensure the efficiency of the proceedings such as with respect to document production different forms of interim measures and ordering production of evidence before the arbitral tribunals Additionally Hong Kong was ranked the most judicially independent in Asia and eighth globally according to the World Economic Forumrsquos Global Competitiveness Report (2018) Furthermore as aforementioned even prior to the Arrangement calling on the Hong Kong courts for mutual assistance in aid of arbitral proceedings Hong Kong courts have already extended the arbitration-friendly attitude to arbitral proceedings whether seated in or outside of Hong Kong Of particular significance is the case in which the Hong Kong court continued an injunction granted to preserve the defendant Singapore companyrsquos assets (bank accounts) within Hong Kong in support of a Singapore arbitration in the case of Top Gains Minerals Macao Commercial Offshore Ltd v TL Resources Pte Ltd (2015) In the courtrsquos decision Justice Chan clarified the relevant test applicable in deciding whether the interim measure should be granted in support of arbitral proceedings seated outside of Hong Kong the court should first consider whether the facts of the case warrant the grant of interim measures if substantive proceedings were brought in Hong Kong and where the relief sought is for a Mareva injunction (order to freeze assets) the test would still be whether the applicant can show a good arguable case that there is a real risk of dissipation of assets and secondly whether it is unjust or inconvenient for the court to grant the interim measures With respect to the second prong of the test the court should consider whether the interim measure sought is currently the subject of arbitral proceedings and whether the court considers it more appropriate for the arbitral tribunal to deal with the interim measure being sought


107 With this general background and understanding of interim measures in support of

international arbitral proceedings in mainland China and Hong Kong the substance significance and implications of the Arrangement are discussed in the next Section

3 The Arrangement

31 What the Arrangement Entails ndash The Main Relevant Substance As aforementioned the Arrangement is particularly significant as it effectively provides

access to interim measures ordered by mainland Chinese courts for parties to institutionally administered arbitrations with Hong Kong as their seat of arbitration to be sought against respondents with assets properties andor evidence located in mainland China Until this landmark Arrangement Chinese court-ordered interim measures were unavailable for parties in arbitral proceedings seated outside of mainland China and Hong Kong became the first and only seat of arbitration outside of mainland China from which parties may successfully obtain interim measures from Chinese courts that will be fully enforceable in mainland China Although in nature the Arrangement calls for mutual assistance in support of arbitral proceedings by the courts of mainland China as well as those of Hong Kong courts in Hong Kong have been ordering interim measures in aid of arbitrations seated in as well as outside of Hong Kong as aforementioned Hence the primary components of the Arrangement which provides for reciprocal commitment by the mainland Chinese courts and thereby offers an unparalleled advantage for parties of Hong Kong-seated institutional arbitral proceedings with China-related disputes are examined in this section

First and foremost interim measures that are available under the Arrangement from courts of mainland China and those from Hong Kong are not textually identical and therefore must be addressed First only three types of interim measures may be sought from courts of mainland China (1) property preservation (2) evidence preservation and (3) conduct preservation On the other hand from the Hong Kong courts (1) injunction and other interim measure for the purpose of maintaining or restoring the status quo pending determination of the dispute (2) taking action that would prevent or refraining from taking action that is likely to cause current or imminent harm or prejudice to the arbitral proceedings (3) preserving assets and (4) preserving evidence that may be relevant and material to the resolution of the dispute may be sought pursuant to Article 1 of the Arrangement The interim measures that may be sought from Hong Kong courts are essentially the same as those provided under the aforementioned relevant provisions of the Model Law and the Hong Kong Arbitration Ordinance

While the actual language may not be identical interim measures sought to preserve assets andor property as well as to preserve evidence may overlap in substance ldquoConduct preservationrdquo available from mainland Chinese courts while not a commonly used phrase generally are used to compel or prohibit parties from performing certain actions in intellectual property cases according to the Interpretation of the Supreme Peoplersquos Court on Several Issues Concerning Laws Application to Review of the Conduct Preservation for Intellectual Property and Competition Dispute Cases (2015) Therefore relief sought to preserve conduct may nonetheless be construed as injunctive relief issued in order to maintain or restore the status quo andor prevent imminent harm or prejudice to arbitral proceedings corresponding to interim measures that are available from the Hong Kong courts Thus although the language describing each interim measure may differ in a technical sense due to the broad scope of such language describing the types of available interim


108 measures those available from the courts of mainland China and Hong Kong may ultimately be not as different as they may appear

Next Article 2 of the Arrangement narrowly defines ldquoarbitral proceedings in Hong Kongrdquo as those seated in Hong Kong and administered by one of the listed arbitral institutions or permanent offices Therefore ad hoc arbitrations which are arbitrations conducted without the benefit of an appointing authority or generally pre-existing arbitration rules and are subject only to the partiesrsquo arbitration agreement and applicable national arbitration legislation are not included under the Arrangement for mutual assistance between courts of Hong Kong and mainland China in court-ordered interim measures in aid of arbitrations It is further provided that the list of institutions and permanent offices is subject to confirmation by both sides and as of September 26 2019 the Hong Kong government announced the following six arbitral and dispute resolution institutions and permanent offices that are eligible for applying to the mainland Chinese courts for interim measures (1) HKIAC (2) CIETAC ndash Hong Kong Arbitration Center (3) ICC ndash Asia Office (4) Hong Kong Maritime Arbitration Group (5) South China International Arbitration Center ndash Hong Kong and (6) eBRAM International Online Dispute Resolution Centre

Article 3 of the Arrangement provides that a party to arbitral proceedings in Hong Kong may make an application for an interim measure to the Intermediate Peoplersquos Court of the place of residence of the party against whom the application is made or the place where the property or evidence is situated by reference to the provisions of the Civil Procedure Law and the Arbitration Law of the Peoplersquos Republic of China and relevant judicial interpretations

A highly notable feature of the Arrangement is that it allows parties to arbitral proceedings seated in Hong Kong to directly apply for interim measures from the Chinese courts One of the unique characteristics about Chinese arbitration is that in order to seek and obtain interim measures from the Chinese courts applications for such must be submittedpassed on to the competent peoplersquos court by arbitration institutions pursuant to the Chinese Arbitration Law However the Arrangement explicitly allows the parties to apply directly for interim measures as long as the parties do not make separate applications to more than one peoplersquos court where the property or evidence is situated fall within the jurisdiction of different peoplersquos courts While the ability of parties to apply directly to the competent courts departs from the usual mainland Chinese arbitration practice it is consistent with the urgency underlying interim measures and falls in line with international arbitration practice Furthermore the experience of HKIAC has revealed some benefits of bypassing the pro-cedural hurdle of having an arbitral institution submit applications for interim measures to the Chinese courts under the Arrangement HKIAC noted that the application process for interim measures has been quicker for parties to directly apply to the mainland Chinese courts rather than through the arbitral institution because local counsel in mainland China would know best the quickest way to file such applications including particular courts particular judges among other local advantages while Hong Kong-based arbitral institutions such as the HKIAC would not necessarily have access to such advantages It was also reported during the HKIAC Webinar Series (2020) that applicants were better able to keep control of the timing of the applications for interim measures if made directly

Furthermore the letter of acceptance issued by the relevant arbitration institution plays an important role under the Arrangement because according to Article 3 if the application for interim measures is made before the relevant institution or permanent office has accepted the case and the peoplersquos court of mainland has not received a letter from an institution or permanent office certifying its acceptance of the case within 30 days after the interim measure has been issued the peoplersquos court of mainland China shall discharge the interim measure


109 Article 4 of the Arrangement sets forth the necessary materials including the letter from the relevant institution or permanent office certifying its acceptance of the relevant arbitration case to be submitted to the peoplersquos court in mainland

Of particular significance the letter of acceptance by the relevant arbitral institution or permanent office plays an important role in the application for interim measures from a mainland Chinese court For instance any party to arbitral proceedings seated in Hong Kong and administered by HKIAC under its Administered Arbitration Rules or other rules issued by HKIAC or the UNCITRAL Arbitration Rules may apply to the Intermediate Peoplersquos Court for interim measures in accordance with the Arrangement as HKIAC is one of the six arbitral institutions or permanent offices qualified under Article 2 Thus HKIAC may provide assistance in facilitating any applications for interim measures before or after HKIAC accepts the arbitration and the party must make a request for letter of acceptance with the copy of the application for interim measures including all supporting materials It should be noted that while HKIAC does not charge any fee for issuing letters of acceptances it may charge fees for providing additional facilitation under the Arrangement As of April 29 2020 HKIAC has issued the requested letters of acceptances either on the same day or the next day of the request on an ex parte basis unless the applicant has indicated otherwise The letters of acceptances are directly delivered to the applicants sealed original hard-copy as well as by electronic mail With the original hard-copy the applicant would apply to the mainland court for interim measures It was reported during the HKIAC Webinar series (2020) that upon requests from the Chinese courts with respect to the applications for interim measures HKIAC has confirmed specific information regarding the applications and the cases pending with the HKIAC

Additionally Articles 5 and 7 of the Arrangement set forth the necessary information that must be specified on the application for interim measures from the mainland Chinese courts and the courts in Hong Kong respectively On one hand Article 5 includes particulars of the parties details of the application including the amount applied to be preserved andor the particulars of the conduct to be preserved the facts and justifications on which the application is based together with the relevant evidence clear details of the property and evidence to be preserved information about the property in mainland China to be used as security among others On the other hand Article 7 includes the answer asserted or likely to be asserted by the party against whom the application is made as well as any facts that might lead the court not to grant the interim measure being sought or not to grant it on an ex parte basis in addition to the common requirements under Article 5 such as the particulars of the parties and the details of the request and justification for such application Subsections (4) and (5) of Article 7 are notable and distinguishable requirements from those of Article 5 and such discrepancies arise primarily from the principle of full and frank disclosure required by the Hong Kong courts

Finally it is important to note that parties seeking interim measures from the mainland Chinese courts should be sure to sufficiently and specifically explain the urgency of circumstances calling for the need of an interim measure such as the legitimate rights and interests of the applicant may suffer irreparable damage or the enforcement of an arbitral award may become difficult as required by Article 5(3) of the Arrangement While not included in the text of the Arrangement parties should bear in mind that the Hong Kong courts would grant interim measures in support of foreign arbitral proceedings if the applicant demonstrates that there is a good arguable case that the foreign proceedings are capable of giving rise to a judgment or award that may be enforced in Hong Kong and it would not be unjust or inconvenient for the courts to grant such as aforementioned


110

32 Applications Made under the Arrangement and their Status as of April 29 2020

As of April 2020 the HKIAC is the only arbitral institution that has dealt with applications for interim measures under the Arrangement The very first application was filed on the date the Arrangement went into effect on October 1 2019 for which HKIAC issued its letter of acceptance on the following day and the application was granted by the Shanghai Maritime Court on October 8 2019 Such a quick turnaround by the Chinese court serves as evidence of serious undertaking of the commitment to review such applications expeditiously as required under Article 8 of the Arrangement As of April of 2020 seven of total of 20 applications for interim measures that have been filed before the mainland Chinese courts have been granted Applications sought for preservation of assets in total amount of USD 890 million and the Chinese courts (in Beijing Lianyungang Shanghai Xiamen Zhaoqing Shenzhen and Nanjing) have ordered preservation of assets worth USD 353 million The applications mainly sought to preserve assets with one or two exceptions that sought to preserve evidence which is consistent with the general understanding that Chinese courts are reluctant to order interim measures beyond preservation of assets andor property Given the quick turnaround with the applications that had been filed with the Chinese courts before the impact of the COVID-19 pandemic HKIAC seems to expect the results for the remaining applications to be forthcoming as the backlog with courts may ease up in near future

Moreover the composition of applicants and respondents for interim measures provides an informative finding in that foreign parties (primarily from the Netherlands Switzerland Japan Hong Kong Singapore the Cayman Islands and the British Virgin Islands) made up 70 percent of the applicants and as much as 40 percent of the respondents with assets andor properties in mainland China Such findings are significant because they demonstrate that the Arrangement has been used by mainland Chinese as well as foreign parties in obtaining interim measures to be enforced against not only mainland Chinese parties but also foreign parties whose assets andor properties are located in mainland China

33 Implications of the Arrangement 331 Hong Kong and its Prospect to Become THE Most Preferred Seat of

Arbitration While London Paris New York and Geneva have long enjoyed their status as the most

preferred seats of arbitration in international arbitration Singapore emerged as a regional leader in Asia around 2010 According to the International Arbitration Survey (2010) the top most influential factors for such responses were formal legal infrastructure (eg the national arbitration law track record in enforcing agreements to arbitrate and arbitral awards neutrality and impartiality of legal system) law governing the substance of the dispute and convenience of the seat of arbitration (eg location industry specific usageprior use by organization established contacts with lawyers in jurisdiction languageculture efficiency of court proceedings)

Since then Hong Kong has rather quickly risen to become and remain as one of the top five preferred seat of arbitration by users of international arbitration as demonstrated by the findings of the International Arbitration Survey (2015) conducted by Queen Mary University of London and School of International Arbitration in which Hong Kong was ranked among the top three most frequently used as well as preferred seat of arbitration Furthermore such results conveyed a great momentum shown by Hong Kong and Singapore as the third and fourth most popular seats of international arbitration respectively In addition to the


111 arbitration-friendly and reliable legal infrastructure that Hong Kong has to offer Eliasson (2010) noted that the geographical and cultural proximity to mainland China have also played important roles in its development as an ideal neutral seat of arbitration that may be accepted by Chinese companies as well as ldquowesternrdquo companies

Now with the Arrangement and its favorable treatment of Hong Kong to be the first and only seat of arbitration outside of mainland China from which parties may avail themselves of mainland Chinese court-ordered interim measures parties with China-related matters should ensure to clearly specify Hong Kong as their seat of arbitration and designate one of the qualified arbitral institutions under Article 2 of the Arrangement in order to benefit from the Arrangement Therefore the Arrangement which many in the international arbitration community refer to as a ldquogame-changerrdquo undoubtedly offers an unparalleled advantage for Hong Kong to rise to the very top of the list of the most preferred seat of arbitration especially given the size and exponential growth of China-related business transactions all over the world and subsequent cross-border disputes to follow Furthermore as third-party funding of arbitration is permitted in Hong Kong the Arrangement would likely encourage and reassure some third-party funders as it provides better access to assets andor properties located in mainland China that may be necessary to satisfy and recover on their claims

332 Implications of Potential Changes to the Perception of Mainland China-

related Arbitral Proceedings Foreign parties have consistently expressed their reluctance in choosing mainland China

as their seat of arbitration due to concerns of persisting intervention by the Chinese government which potentially harms the independence and impartiality of arbitral tribunals as well as the courts according to Trigo (2016)rsquos study on recent developments in arbitration in China However the reported composition of applicants for interim measures from mainland Chinese courts and respondents against whom the interim measures were sought to be enforced against under the Arrangement thus far reveals some positive outlook for mainland China and its reputation in the world of international arbitration

As aforementioned it appears that the Arrangement is not being used exclusively by either the foreign party applicants or the mainland Chinese applicants Also and perhaps more importantly because the interim measures applied under the Arrangement have not been sought to be enforced exclusively against ndash or even disproportionately against ndash mainland Chinese parties the prospects of the positive impact that the Arrangement may have on the overall fair and effective resolution of disputes in support of international arbitration may even be better than anticipated Therefore if the mainland Chinese courts continue to carry out their commitment to expeditious and mutual assistance on court-ordered interim measures in aid of arbitral proceedings pursuant to the Arrangement the Arrangement may ultimately help users of international arbitration overcome some of their concerns about the Chinese courtsrsquo bias against non-Chinese parties as well as their reluctance about arbitrating China-related matters

Additionally in todayrsquos world many nations around the world have extensive trade relationships with mainland China due to the accelerated economic growth in China Of particular significance to Korea because China is a very prominent trade partner for Korea as demonstrated by findings by the Observatory of Economic Complexity (2018) that mainland China was Korearsquos number one trading partner making up 259 percent (USD 160 billion) of total of Korean exports with Korea ranking as Chinarsquos fourth trade partner making up 414 percent (USD 107 billion) of total of Chinese exports (if excluding Hong Kong which took account for 109 percent and USD 282 billion Korea would have ranked


112 third) Therefore China-related disputes and conflicts are inevitable for Korean businesses as a result of the sheer volume of commercial and investment transactions that take place between the two Thus Korean companies and other parties conducting business tran-sactions with their counterparts whose assets andor properties are in mainland China can and should certainly take advantage of the benefits the Arrangement offers in order to achieve more effective and enforceable dispute resolutions Hence if parties foresee the need for interim measures issued from mainland Chinese courts the parties should clearly and unambiguously designate Hong Kong as their seat of arbitration and select one of the six qualified arbitral institutions to administer their arbitral proceedings in their arbitration agreement(s) andor dispute resolution clause(s) Due to the broad scope of the interim measures that may be available pursuant to the Arrangement Korean parties may request the relevant mainland Chinese court to order their counterparts in China to suspend andor refrain from engaging in infringement conduct to continue construction work as promised andor to continue with shipment(s) in addition to properly preservefreeze assets and properties before any deliberate destruction andor dissipation may take place as aforemen-tioned Furthermore while only time will tell there may be additional international arbit-ration institutions such as the Korean Commercial Arbitration Board (KCAB) which do not currently have qualifying operations in Hong Kong but may consider seeking to establish one to be confirmed as one of the qualified arbitral institutions under the Arrangement in order to benefit their users as well as promote their status as an international arbitral institution

The significance of enforceable interim measures and the Arrangement the game-changing legal mechanism that allows access to such cannot be overstated because in many cases without such a favorable arbitral award may ultimately be rendered an empty judg-ment ndash about which foreign parties have had the strongest reluctance about arbitrating China-related matters ndash if assets andor properties could not have been timely preserved for due enforcement of the arbitral award

4 Conclusion As discussed above the Arrangement is a landmark agreement that provides access to

interim measures from the mainland Chinese courts to parties with institutionally admi-nistered arbitral proceedings seated in Hong Kong Consequently the Arrangement is particularly significant for Hong Kong as it offers an unparalleled advantage for its com-petitiveness as a seat of arbitration given the fact that Hong Kong is the only seat outside of mainland China from where parties to arbitral proceedings may successfully seek and obtain interim measures from the courts of mainland China

More significantly the Arrangement is a breakthrough for users of international arbitra-tion with disputes related to Chinese parties assets properties andor evidence in mainland China especially in light of Chinarsquos rapid economic growth and its extensive and prominent trade relationships with many nations in todayrsquos world As long as parties clearly designate Hong Kong as the seat of arbitration and specify one of the six qualified arbitral institutions pursuant to Article 2 of the Arrangement to administer the proceedings in their arbitration agreement they can take advantage of this landmark reciprocal commitment undertaken by the mainland Chinese courts Also as the COVID-19 pandemic has caused tremendous economic struggles for so many around the world the need for interim measures would prove to be more critical during such difficult times Moreover the HKIAC which has already enjoyed a large caseload involving mainland Chinese parties due not only to Hong Kongrsquos proximity to mainland China but also to its status as among the top five most preferred


113 international arbitral institutions according to the International Arbitration Surveys (2015 2018) its caseload may only be expected to increase since the HKIAC is currently one of the six qualified arbitral institutions under the Arrangement

Finally while arbitral institutions may facilitate with applications for interim measures from the mainland Chinese courts in particular with the necessary letters of acceptances by the institutions parties should be reasonable and strategic and consider whether they would prefer bypassing the procedural hurdle of having the arbitral institution applying for interim measures and instead apply directly to the relevant court in China since the Arrangement provides an exceptional mechanism permitting direct applications by the parties It should be noted that because the courts in Hong Kong have already established their practice of granting interim measures in support of arbitral proceedings seated in as well as outside of Hong Kong even prior to the Arrangement this article intentionally focused on discussing and highlighting the significance of the reciprocal commitment undertaken by the mainland Chinese courts

References

Born G B (2012) International Arbitration Law and Practice Alphen aan den Rijn The Netherlands

Kluwer Law International 27-116

Eliasson N (2010) ldquoA Brief Introduction to Arbitration in Hong Kongrdquo 23-SPG International Law

Practicum 46-49

Hong Kong International Arbitration Centre (HKIAC) (2020 April 22) ldquoHong Kong-Mainland China

Interim Measures Arrangement A Game Changerrdquo Hong Kong International Arbitration Centre

(HKIAC) Webinar Series Online

International Arbitration Survey (2010) Choices in International Arbitration Queen Mary University of

London and School of International Arbitration Available from httpwwwarbitrationqmulacuk

mediaarbitrationdocs2010_InternationalArbitrationSurveyReportpdf (accessed July 30 2020)

International Arbitration Survey (2015) Improvements and Innovations in International Arbitration Queen

Mary University of London and School of International Arbitration Available from httpwww

arbitrationqmulacukmediaarbitrationdocs2015_International_Arbitration_Surveypdf (accessed

July 30 2020)

International Arbitration Survey (2018) The Evolution of International Arbitration Queen Mary University

London and White amp Case Available from httpwwwarbitrationqmulacukmediaarbitrationdocs

2018-International-Arbitration-Survey---The-Evolution-of-International-Arbitration-(2)PDF

(accessed July 30 2020)

Nobles K C (2012) ldquoEmerging Issues and Trends in International Arbitrationrdquo California Western

International Law Journal 43(1) 77-108

Observatory of Economic Complexity (OEC) (nd) The Observatory of Economic Complexity Available

from httpsoecworld (accessed July 30 2020)

Tao J (2012) ldquoSalient Issues in Arbitration in Chinardquo American University International Law Review

27(4) 807-830

Trigo A C (2016) ldquoRecent Developments in Arbitration in China ndash Interim Measures How to Achieve

Proper Reliefrdquo Vindobona Journal of International Commercial Law and Arbitration 20 55-94

World Economic Forum (2018) The Global Competitiveness Report 2018 Available from httpswww

weforumorgreportsthe-global-competitiveness-report-2018 (accessed July 30 2020)

World Intellectual Property Organization (WIPO) (2015) Interpretation of the Supreme Peoplersquos Court on

Several Issues Concerning Laws Application to Review of the Conduct Preservation for Intellectual

Property and Competition Dispute Cases Available from httpswwwwipointedocslexdocslaws

encncn089enpdf (accessed July 30 2020)


114 Arbitration Law of the Peoplersquos Republic of China Available from httpswwwwipointedocslexdocs

lawsencncn138enpdfcrazycache=1

Hong Kong Arbitration Ordinance Available from httpswwwelegislationgovhkhkcap609

Hong Kong International Arbitration Centre (HKIAC) Administered Arbitration Rules (2018) Available

from httpswwwhkiacorgsitesdefaultfilesck_filebrowserPDFarbitration2018_hkiac_rulespdf

International Chamber of Commerce (ICC) Rules of Arbitration (2017) Art 28 Available from

httpsiccwboorgdispute-resolution-servicesarbitrationrules-of-arbitration

Italian Civil Procedure Code Art 818 Available from httpwwwarbitrationsruuserfilesfileLaw

Arbitration20actsItalian20Code20of20Civil20Procedurepdf

London Court of International Arbitration (LCIA) Arbitration Rules (2014) Art 25 Available from

httpswwwlciaorgDispute_Resolution_Serviceslcia-arbitration-rules-2014aspx

Singapore International Arbitration Centre (SIAC) Arbitration Rules (2016) Art 30 Available from

httpswwwsiacorgsgour-rulesrulessiac-rules-2016

Top Gains Minerals Macao Commercial Offshore Ltd v TL Resources Pte Ltd HCMP 16222015 (2015)

UNCITRAL Model Law on International Commercial Arbitration (2006) Available from httpswww

uncitralorgpdfenglishtextsarbitrationml-arb07-86998_Ebookpdf

wwwnewktraorg

115

JKT 24(6)

The Nationality Effect of Price Discrimination in the Container Shipping Market and Its Implications for Development Economics

Treating Hanjin Shippingrsquos Collapse as a Natural Experiment

Ko Byoung-Wookdagger Shipping Policy Research Department Korea Maritime Institute South Korea

Abstract Purpose ndash International trade leads to the international division of labor improving the efficiency of the global economic system Transport costs are a more serious barrier to international trade than customs tariffs An increase in competition in the transport sector may thus lead to a reduction in transport costs However if a carrierrsquos nationality significantly influences transport costs simply adding more competing carriers of different nationalities would be ineffective Therefore it is necessary to establish national or regional carriers to influence competition and reduce transport costs This study investigates this ldquonationality effectrdquo by treating Hanjin Shippingrsquos collapse as a natural experiment Designmethodology ndash The theoretical basis of this study is the 3rd-degree price discrimination in container shipping market By using the monthly data of container freight rates of Korea China and Japan this study shows the so-called Korea Premiums which are the empirical counterparts of nationality effect in Korea container shipping market For this empirical investigation the structural model with state-space form is used and the dummy models are also estimated In addition because China has been also affected by the Hanjinrsquos collapse the China premiums are considered too Findings ndash Compared with Japanrsquos case it is shown that there had been the so-called Korea premiums since the collapse of Hanjin Shipping These results are robust from both the state-space model and dummy models The time pattern of Korea premiums was consistent with the market evolution especially the pattern of substitutability in container shipping markets In addition this paper shows the magnitude of Korea premiums Originalityvalue ndash The argument of this study that the nationality effect can be interpreted as an extended concept of the home market effect is original which is expected to evoke future research efforts Further the discussion on the shipping industrial policy from both horizontal and vertical aspects will provide the relevant policy makers with solid information especially for the policy coordination in a global scale

Keywords Development economics Hanjin Shipping Industrial policy International transport

Nationality effect of price discrimination JEL Classifications C22 O25 R48

1 Introduction In 1776 Adam Smith stated that ldquothe extent of labor division must always be limited by the

extent of the marketrdquo Because the development of an economic system depends on the extent of the division of labor growing the market size has become the core subject of economics especially development economics For example Yang (2003) and Cheng and Yang (2004)

dagger First and Corresponding author valiancekmirekr




ISSN 1229-828X


116 showed an alternative framework to mainstream neoclassical economics for understanding the importance of the division of labor and related market size Water transportation is a crucial system that links separate economies which is why Adam Smith emphasized the importance of shipping services by saying ldquoAs by means of water carriage a more expensive market is opened to every sort of industry than what land carriage alone can afford itrdquo According to Stiglitz (2013 13) ldquoone of the core state functions is shaping infrastructure and supply chain logistics to ensure that the output of emerging manufacturing industries can move cheaply and quickly between countries and from production centers to marketsrdquo (hereafter Stiglitzrsquos hypothesis)

However the question is whether a significant part of these logistics services should be provided by national transportation companies The pros of a perfect market mechanism insist that the market will provide these services at the same market price For example it was reported that the financial authorities of Korean government insisted that due to the over-capacity in container shipping market there would be no problems in transporting container shipping cargoes (Yun Min-Hyun 2019) But the cons state that because there exists discrimi-natory marketing behavior in the container shipping market there will be significant dif-ferences in price and service quality Further if there existed this ldquonationality effectrdquo from the discrimination of global container shipping market then the government could implement container shipping industrial policy In addition the measurement of the nationality effect ie the national premiums in this article could help to determine the size of government support So this study aims to test this nationality effect in the container shipping market based on Stiglitzrsquos hypothesis

The term ldquonationalityrdquo is not used in this study in a social or patriotic sense but in an economic sense International trade literature shows that countries with higher demand for certain goods and services possess an international surplus in those industries This is described as the ldquohome market effectrdquo which means that this type of economy is more likely to have competitive national companies in those industries However when one such company exits the market (eg owing to market competition) what are the consequences for the economy of the country The nationality effect addresses this question We investigate whethermdashsince the exiting company had a significant market sharemdashthe resulting reduction in competition causes the remaining companies to increase their margins by exercising their newfound market power

Further the nationality effect was one of the most controversial topics during the restruc-turing of Korearsquos shipping industry in 2016 (Yun Min-Hyun 2019) The economic contribu-tions of Hanjin Shipping (eg revenue and value added) were easily observable and the sizes of these contributions could be calculated by analyzing its financial reports However uno-bservable benefitsmdashsupposedly from the nationality effectmdashneeded to be estimated (see Table 1) Hence the empirical analysis in this study may assist policymakers in evaluating the unobservable benefits of national shipping companies For example the argument for the nationality effect can be used as a rationale for the government support for another Korean

Table 1 Observable and Unobservable Economic Benefits of Hanjin Shipping

Observable Benefits Size Revenue $7 billion Value added $07 billion

Unobservable Benefits Reduction in freight cost To be estimated

Source Author

The Nationality Effect of Price Discrimination in the Container Shipping Market and Its Implications for Development Economics Treating Hanjin Shippingrsquos Collapse as a Natural Experiment

117 container carrier HMM which policy is seriously discussed in the global container shipping market and international organization So the quantitative analysis of nationality effect will help to identify the objective benefits of national shipping companies and thus discuss the appropriate policy tools for this pecuniary externality from shipping companies

The sudden collapse of Hanjin Shipping in 2016 can be used as a natural experiment to test the nationality effect Hanjin Shipping filed for bankruptcy protection in August 2016 and its services subsequently stopped At that time it was the largest shipping company in Korea and the seventh largest globally with a carrying capacity of 610000 TEUs (twenty foot equivalent units) meaning that Hanjin could carry 610000 containers simultaneously Its in-transit container cargo had an estimated value of $14 billion In addition owing to the arresting of Hanjinrsquos ships in many countries (Li and Dong 2020) the disruptions of its shipping services became worse For these reasons this event is thought to have influenced the overall condition of related markets significantly which makes the natural experiment possible (See Wooldridge 2016 It is notable that the results when using a difference-in-difference method which is a typical estimation tool for natural experiment are similar to those of this study) In particular it may have influenced market performance such as container shipping freight rates

A significant difference between the freight rates of Korea and other countries could indicate that the nationality effect did exist which has important implications for global economic development As transport costs are a more significant barrier to international trade than customs tariffs increased competition in the transport sector could reduce such costs (The forms of competition among shipping liners can be classified into 1) the cost leadership 2) service differentiation and innovation and 3) hybrid Lam and Wong 2018) However if the nationality effect is significant it is necessary to establish additional national or regional carriers since simply adding more foreign competing carriers would be ineffec-tive This study favors the former policy recommendation which has more relevance to developing economies with higher freight costs than to developed countries (For additional information on the freight cost burden of developing countries see Asturias and Petty (2013) Hummels Lugovskyy and Skiba (2009) and Kleinert and Spies (2011))

The remainder of this paper is divided into five sections Section 2 reviews the existing literature and this studyrsquos contribution while Section 3 presents the empirical model and explains the dataset Section 4 provides the empirical results and their interpretations and Section 5 discusses policy implications Section 6 concludes

2 Literature Review Haralambides (2004 11) comprehensively addressed the price determinants and price

stability in the container shipping market from an industrial economics viewpoint Regarding price discrimination he explained the principle of companies ldquocharging what the traffic can bearrdquo He specifically noted that such discrimination is neither uncommon nor unique to shipping given that arbitrage is not possible and that buyers are geographically separated However with the introduction of containers and freight all kinds (FAK) as well as individual and confidential service contracts most price discrimination of this kind has disappeared Sjostrom (1992) discussed whether shipping conferences practice economic price discrimi-nation and demonstrated the shortcomings in the literature regarding the test methods for price discrimination Most of the previous literature has tested price discrimination by regressing the freight rate on product valuemdashwhich is the demand-side variablemdashand a set of cost variables A positive coefficient of product value in these tests is interpreted as evidence


118 of price discrimination However these estimation results could be biased as some costs could correlate with values not included in the regression

Francois and Wooton (2001) presumed that shipping cost margins are far more significant than tariff barriers in many countries in terms of the relative costs to trade For similar results see Clark Dollar and Micco (2004) and Hummels (2001) From this point of view they illustrated the benefits of increased competition using their proposed model and its simulation one of which is the weakening of shipping conferencesrsquo influence They went on to state that if the number of shipping companies increasesmdashand the market share of each shipping company therefore decreasesmdashthese companies perceive market demand as more elastic and consequently behave more competitively Contrastingly if the number of com-panies were to decrease the industry would become more concentrated giving remaining companies the opportunity to exercise their increased power because of an increased market share Fink Mattoo and Neagu (2002) investigated whether transport costs are exogenously determined by technological developments or influenced by policy They claimed that a need exists not only for the further liberalization of government policy but also for reinforced international disciplines on restrictive business practices such as cargo reservation schemes shipping conferences and restrictions on port and auxiliary services The authors proposed two policies (i) end the exemption of collusive agreements in the maritime sector through national competition law and (ii) give foreign consumers the right to challenge shipping linesrsquo anticompetitive practices in the national courts of the countries of origin of these shipping lines

Hummels Lugovskyy and Skiba (2009) emphasized the relevant treatment of transport costs in the economic literature in the sense that the transportation service and costs are endogenous elements to the relevant international trade and amenable to cost reduction through concerted policy action They used this background to examine the economic effects of market power in the shipping market and adopted panel estimation models to demonstrate that price-discriminating carriers apply higher markups to goods with high prices high tariffs and low absolute import demand elasticity However as Sjostrom (1992) mentioned one should be cautious when considering the relationship between the markup and price of goods as a range of shipping service quality options are available to shippers Faster ships direct routing and more careful handling are options available at a premium rate and are more likely to be chosen for the transportation of high-quality goods Therefore the marginal cost can be related to the price of goods Sjostrom suggested a test strategy to avoid this identification problem If a positive relationship is discovered between tariffs and shipping prices we can attribute this to market power and not to variations in marginal shipping costs since the tariff does not influence the above-marginal cost relating to service quality Therefore tariffs have a direct increasing effect on the prices of foreign goods due to taxing and an indirect effect by inducing higher shipping prices while both decrease trade flows Particularly relevant from a policy perspective this study showed that market power somewhat explains the higher ad valorem shipping prices faced by developing countries As an example non-OECD exporters paid an average of 41 more than OECD exporters when shipping into the United States and an average of 40 more when shipping into Latin America

Kleinert and Spies (2011) claimed that circular causality exists between transport prices and trade levels in that there is a virtuous circle of lower transport costs and higher trade This argument was implicitly introduced by the observation that China trades high volumes with the United States and the European Union at modest transport prices compared with many African economies trading rather moderate trade volumes at high transport prices despite their more favorable geographic location Specifically the authors stated that increased cross-


119 border transactions not only stem from transport cost reductions but also boost investments in the international trade infrastructure which leads to further cost reductions

Bertho Borchert and Mattoo (2014) followed Fink Mattoo and Neagursquos (2002) observation that such policies as cargo reservation schemes affect shipping prices to demonstrate that government trade barriers in mode 3 (foreign investment restrictions on the shipping sector) have a significant effect in terms of increasing maritime transport costs and thus decreasing seaborne trade flow De Oliveira (2014) investigated the determinants of freight rates in six European countries and 47 partners Notably this studymdashsimilar to the works of Limao and Venables (2001) and Wilmsmeier and Hoffmann (2008)mdashused the freight rate of a homo-geneous unit (container) as the dependent variable Inter alia this study indicated that the level of competition between transport companies affects the freight rate

Recently there have been two notable research papers on the case of Hanjin Shippingrsquos sudden collapse One is Song Dong-Wook et al (2019) By reviewing available literature they suggested various external and internal factors for the Hanjin Shippingrsquos bankruptcy in both the outside and inside perspectives Also they provided a holistic interpretation of Hanjin Shippingrsquos case based on an interpretive structural modeling Particularly they stressed that Korearsquos public policy viewing shipping as a public goods did not necessarily remain effective over the years to come The other is Shin Sung-Ho et al (2019) Based on the duration analysis of charter contract managements of ten major containership chartering operators they showed that one major cause of Hanjin Shippingrsquos collapse was the miscalculation of chartering risk Also they pointed out that the resignation of top management having long chartering experience and the lack of effective governance such as the over-regulation from the Korean government were all the primary causes of Hanjin Shippingrsquos bankruptcy However this present study differs from the former two papers in a sense that it addresses not the causes but the economic consequences of Hanjin Shippingrsquos case

Our study contributes to the literature in three ways Firstmdashto the best of our knowledgemdashit is the first attempt to identify shipping carriersrsquo price-discriminating behaviors in specific countries by using time-series analysis Few studies have addressed the effect of national carriers such as Hanjin Shipping operating in Korea For example the literature considers the number of carriers to be a channel through which market power would decrease with price discrimination Therefore the national carrierrsquos role is neutral in this reduction in market power because it simply adds to the number of carriers without a differentiated impact on the freight rate In particular this simple addition of carriers to export-import transportation has been advocated by most of the shipping advanced countries In contrast to this argument this study demonstrates that in reality nationality is significant in an economic sense at least in the case of Hanjin Shipping in Korea So it is recommended to promote some national or regional shipping companies especially in industrial or developing countries

Second the nationality effect in the shipping market is more deeply interpreted in an economic sense Asturias and Petty (2013) and Kleinert and Spies (2011) indicated that the transportation sector is endogenous to international trade Therefore this study addresses the nationality effect in the shipping market especially as the extended concept of home market effects which is expected to trigger further research in other industrial areas

Third if we accept the nationality effect we should consider policy responses As stated before a simple increase in the number of carriers would be ineffective and more vigorous policy actions are required This study clearly illustrates the need for shipping industrial policies in both a horizontal and a vertical context However these policies could change the characteristics of strategic trade which could lead to retaliation We therefore propose a global governance strategy for the shipping industry This proposal has important implication especially for the crisis period of COVID-19 because many shipping countries have adopted


120 and will continue government support policies

In summary the economic interpretation of the nationality effect from the perspective of an extended home market effect and its implications for new policies are a synthesis to explain the determinants of transport costs in international trade from the aspects of optimal investment in technology and policy-related transport margins

3 Empirical Model and Data Fig 1 presents a flow chart of the empirical analyses of this study and their interpretations

Fig 1 Flow Chart of Empirical Analyses and their Interpretations

31 Theory of Price Discrimination Total revenue R is price multiplied by quantity

(1) Therefore marginal revenuemdashwhich is the change in revenue from selling an additional

unitmdashis calculated as follows

1

1

(2)

where ε

To maximize the companyrsquos profit marginal revenue must equal marginal cost

(3) Thus


121

1 1 ⟹

(4)

The left-hand term

is the pricecost margin or markup known as the Lerner index of

market power (Lerner 1934) A company in this situation can determine its prices based on demand elasticity As Varian (1992) explained by referring to Pigou (1920) three forms of price discrimination exist first-degree price discrimination or perfect price dis-crimination second-degree price discrimination and third-degree price discrimination In third-degree price discriminationmdashwhich is the most common formmdashthe seller charges consumers from different groups different unit prices

Suppose there are two groups of customers with differing aggregate demand curves and a company can determine to which group a customer belongs If resale between the two groups is prevented or limited (no resale condition) and if the company knows each grouprsquos aggregate demand curve (identification condition) then it would be profitable to set different prices for the two groups Considering the container shipping market the geographical segmentation of its customers (shippers) satisfies the identification condition and the non-storability of a shipping service satisfies the no resale condition

For simplicity we assume that the company (or a group of companies such as a cartel) determine the two prices by setting separate output levels The companyrsquos optimization problem is then presented as

max

13 13 where m is the assumed constant marginal cost

To maximize the companyrsquos profit

1 13 and 1

13

Therefore

1 1

⟹

||

||

(5)

A decrease in || will thus increase Thus when the value of is given increases 32 Data The sample countries for this study are Korea China and Japan Japan is the country of

reference since it was the least influenced by the collapse of Hanjin Shipping because of its large national carrying capacity relative to its cargo volume (see below Table 4) We consider four sample shipping routes East Asia to the United Statesrsquo west coast (EA-WC) East Asia to the United Statesrsquo east coast (EA-EC) East Asia to northern Europe (EA-EU) and East Asia to the Mediterranean (EA-MED) The sample period is from September 2012 to August 2020 The basic breakpoint is September 2016 which is the official date of Hanjinrsquos collapse Similar to previous studies including De Oliveira (2014) Limao and Venables (2001) and Wilmsmeier and Hoffmann (2008) this study uses the freight rate for a homogeneous container (TEU or FEU forty foot equivalent) as the freight price variable

Data sources include the Rate Discount amp Consulting Service (RADIS) for Korea Shanghai Export Containerized Freight Index (SCFI) for China and Drewry Index for Japan which are all FAK rates The FAK freight rate is applicable to all types of goods and is therefore not


122 restricted to a particular commodity Shipping companies quote FAK rates to forwarder consolidators such as the NVOCC which fill shipping containers with the different cargoes received from different shippers different consignees or both While the consolidator may charge its clients on a commodity-specific basis it pays the shipping carriers a predetermined FAK rate The RADIS rate is published on a monthly basis by the Korea Shippersrsquo Council and is calculated as a market average of the spot export container freight rates from 22 logistics companies It is the freight price including the ocean rate and various surcharges The SCFI for China is a comprehensive index reflecting the spot rates of 13 individual shipping routes It is similar to a FAK rate that includes the ocean rate and various surcharges and is published weekly Drewryrsquos container freight rates for Japan are based on the averages of the representative rates paid by freight forwarders to shipping carriers The sources for these rates are 28 freight forwarders located in Europe the Middle East North America South America and Asia The rate benchmarks represent the spot market rates for a container paid by forwarders to shipping carriers for a month or week Table 2 summarizes the dataset used in our calculations

Table 2 Explanation of the Data

- ExplanationSample Countries Korea China Japan Sample Routes East AsiandashWest Coast of the United States (EA-WC) Unit $FEU

East AsiandashEast Coast of the United States (EA-EC) Unit $FEU East AsiandashNorthern Europe (EA-EU) Unit $TEU East AsiandashMediterranean (EA-MED) Unit $TEU

Data Sources Korea RADISChina SCFI Japan Drewry

Sample Period September 2012 to August 2020

Source Author 33 Empirical Model 331 Basic Empirical Analysis for the Underlying Model Fig 2 illustrates the trends in freight rates for the EA-WC route While the freight rates co-

move the graph seems to indicate four sub-periods September 2012 to March 2015 April 2015 to August 2016 September 2016 to May 2020 and June 2020 to August 2020

Fig 2 Trends of Freight Rates for EA-WC

(Unit $FEU)

Sources Drewry (2020) KITA (2020) and SSE (2020)


123 However our study considers two subsamples beforeafter the date of the Hanjinrsquos collapse

Period 1 is from September 2012 to August 2016 and Period 2 is from September to August 2020 Incidentally the sample lengths of these two subsamples are the same as 4 years ie 48 months

Korean shippers experienced increased freight rates due to Hanjin Shippingrsquos collapse However this freight rate increase can be assessed by comparing selected reference rates Table 3 illustrates the change patterns of freight rates compared with those in China and Japan

Table 3 Change Patterns of the Freight Rates for Each Country

(Unit $FEU (WC EC) $TEU (EU MED)) Korea China Japan

EA-WC 09_12 to 08_16 2032 1749 2587 09_16 to 08_20 1885 1689 2002

Change -147 -60 -585 Change rate -7 -3 -23

EA-EC 09_12 to 08_16 3558 3142 4374 09_16 to 08_20 2934 2696 3179


EA-EU 09_12 to 08_16 1400 915 1756 09_16 to 08_20 1220 833 1409

Change -180 -82 -348 Change rate -13 -9 `-20

EA-MED 09_12 to 08_16 1602 1009 1652 09_16 to 08_20 1469 828 1329


Source Authorrsquos calculation Using Drewry (2020) KITA (2020) and SSE (2020) After the Hanjinrsquos collapse all the three countries have experienced the reduction of freight

rates on average This reduction of freight costs has been due to the scale effects of large container ships However the freight rate decreases of Korea and China seem to be smaller than that of Japan These differences in freight rate decreases can be explained by the relative strengths of the countriesrsquo national shipping capacities As Table 4 indicates Japanrsquos national container shipping capacity was five times larger than that of Korea and 11 times larger than that of China Therefore when shipping companies remaining after the collapse of Hanjin charged higher freight rates shippers in Japan could choose an alternative service provider from among their national carriers whereas shippers in Korea and China had a relatively small set of alternative service providers from which to choose Hence the demand elasticity of prices in the Japanese market was larger than those in Korea and China

Table 4 Comparison of National Carrying Capacity Relative to Cargo Volume

- Container Cargo Volume (2016) (mil TEU) S

Carrying Capacity(2017)

(1000 TEU) C(C100)S

Korea 226 1434 17China 220 1736 08Japan 216 1442 90

Source Alphaliner (2017) and Clarksons Research (2017)


124 332 Underlying Structural Model of Unobserved Price-Setting Behavior The basic price-setting behavioral model before the Hanjin collapse is presented as follows

where 0 ϕ 1 (6) (7) (8) (9)

where w is the logarithmic global price is the Korean price is the Chinese price and is the Japanese price

Additionally ~ 13 ~ 0 13

and are mutually independent of one another

This model presumes that an unobserved global freight rate exists which is expressed by

This price follows an autoregressive process In this model for example the price ratio of Korea relative to Japan is as follows

13

13

13

13 (10)

The theoretical price ratio for Equation (5) equals the ratio of expected values for Equation

(10) We normalize the model and assume

1 (11)

After the Hanjin collapse the price-setting model becomes

(6) (7-a) (8-a)

1 (9-a) This model assumes a Korea premiummdashmdashrelative to Japan and a China premiummdash

mdashrelative to Japan Specifically we can rewrite the above as the following state-space model Kim Chang-Jin and Nelson (1999) explained this state-space model and its estimation more in detail

For i = k (Korea) or c (China) [Measurement Equation]

H where equiv prime

H equiv 1 01 0 1 13 13 1 01 0 1 13 13

equiv prime [Transition Equation]


125

where F equiv 0 00 0 00 0 0 and equiv ~13 13 000 0 00 00 0

333 Empirical Models Based on the Observed Variables Instead of using structural equations with unobserved variables we derive regression

equations with the observed variables using the following dummy model The premiums of and can be measured by comparing the prices of pairwise

countries In summary

13 (16)

(17)

These equations assume that the premiums vary across the sample countries Regarding Korea the null hypothesis is that 0 If this null hypotheses is rejected we can measure the relative price increases after the collapse of Hanjin

Based on the point estimation of and the Korea and China premiums can be calculated as follows

13 exp (19)

exp (20)

4 Empirical Results

41 Estimation Results of the State-Space Model Table 5 and Table 6 illustrate the estimation results of the state-space model As implied by

the high correlations in the related freight rates and are close to unity and statistically significant For the dummy coefficients of the premiums relative to Japan ( and ) all the cases except China-Japan Medrsquos case show that the premiums have been statistically significant We can therefore conclude that there were additional freight costs in Korea and China relative to Japan

Table 5 Estimation Results of the State-Space Model Korea and Japan

- EA-WC EA-EC EA-EU EA-MED Estimate se Estimate se Estimate se Estimate se

0966 0003 0974 0002 0966 0004 0991 0004

0023 0004 0016 0003 0013 0006 0019 0006

1000 0001 0999 0001 0999 0000 0999 0000

0004 0001 0003 0001 0001 0000 0001 0000

0023 0004 0014 0003 0051 0007 0038 0005

0002 0001 0003 0001 0000 0000 0001 0000

Notes 1 and indicate significance levels of 10 5 and 1 respectively 2 Values of less than 11000 are excluded 3 The values of are close to unity which is similar with that of Munim and Schramm (2016)


126 Table 6 Estimation Results of the State-Space Model China and Japan


0947 0003 0957 0003 1071 0004 0924 0005

0029 0005 0022 0004 0018 0006 0008 0008

1000 0001 0999 0001 1000 0000 0999 0001

0004 0001 0003 0001 0001 0000 0002 0001

0031 0005 0021 0003 0041 0009 0077 0011

0002 0001 0003 0001 0000 0000 0001 0000


42 Breakpoint Tests First Table 7 indicates that we can reject the null hypothesis that no Korea premium

exists relative to Japan on all the four routes In addition we can also reject the additional null hypothesis that no China premium exists relative to Japan on all the routes except on the China-Med route However the dummy coefficient on the China-Med route is positive

Table 7 Dummy Tests of Breakpoints for Korea-Japan and China-Japan

Regression Equation 13 13

WC EC EU MED Korea

rsquos estimate

0023 0015 0013 0021

rsquos

t-value 5359 4597 2069 3531

rsquos

p-value 0000 0000 0041 0001


China rsquos

estimate 0028 0021 0023 0009

rsquos

t-value 5553 5214 2935 1089

rsquos

p-value 0000 0000 0004 0279

Notes 1 and indicate significance levels of 10 5 and 1 respectively 2 Values of less than 11000 are excluded

43 Korea and China Premium Measures Table 8 shows the Korea and China premiums per cargo unit (FEU or TEU) highlighting

that Korea and China premiums relative to Japan have been significant Specifically Korea premiums per one container box have been at least $100 relative to Japan


127 Table 8 Korea and China Premiums Using a Dummy Method

- EA-WC EA-EC EA-EU EA-MED

Korea and Japan

13322 359 120 213

China and Japan

13

351 440 134 58 Source Authorrsquos calculation

44 Time Pattern of Korea Premiums Fig 3 shows the time pattern of Korea premiums relative to those of Japan on the EA-WC

route A new Korean carrier SM Line started its service on this route in April 2017 This new service provided an alternative for Korean shippers increasing substitutability This change also increased the demand elasticity of prices The third-degree price discrimination formula implies that carriers should decrease their freight rates for this route In addition since June 2020 there has been a surge in container cargo demand given the shortage of container fleet capacity which has made freight rate jumps Further this trend has tightened the slot availability in this route which resulted in decreasing the demand elasticity of prices in Korea container shipping market These two typical market changes are reflected in the dynamics of the Korea premiums illustrated in this figure

Fig 3 Time Pattern of Korea Premiums Relative to that of Japan on the EA-WC route

(Dummy Method) (From Sep 2016 to Aug 2020) (Unit $FEU)

Source Authorrsquos calculations

Fig 4 shows the time pattern of Korea premiums relative to those of Japan on the EA-EU

route As well known in the market the alliance system reformed in April 2017 which led HMMmdasha Korean carriermdashto withdraw its ships from the EA-EU route and purchase shipping space from 2M (Maersk and MSC) This change decreased HMMrsquos market power Hence since April 2017 carriers have enjoyed more market power to set higher freight rates notably on the EA-EU route as illustrated in this figure

In summary the time pattern depicted in this article shows well the development of the relevant container shipping markets In particular the Korea premiums reflect the changes of substitutability of container shipping service in the considered routes However the Korea premiums seem to have disappeared in Korea-EU routes on average but remained in the Korea-US routes


128 Fig 4 Time Pattern of Korea Premiums Relative to that of Japan on the EA-EU route

(Dummy Method) (From Sep 2016 to Aug 2020) (Unit $TEU)


5 Discussion and Policy Implications The nationality effect we address in this study can be interpreted using the perspectives of

Linderrsquos (1961) hypothesis and the home market effect in international trade theory (Krugman 19801995) Linderrsquos observation states that countries tend to export goods for which they have high domestic demand rather than exporting based on conventional supply-based comparative advantage Specifically we compare this demand-side hypo-thesis with HeckscherndashOhlinrsquos supply-side theory Furthermore Linderrsquos theory has developed into Krugmanrsquos theory of home market effects which hypothesizes thatmdashbased on the assump-tions of increasing returns to scale and the existence of transport costsmdasha country with more consumers of an industryrsquos goods will run a surplus in that industry characterized by economies of scale

Similarly since Korea and China have developed into large trading countries leading to a remarkable increase in demand for shipping services it has become necessary to establish national shipping carriers primarily through large investments in expensive ships (Asturias and Petty 2013) This investment was well documented by the shipping industry in Korea and China (see Korea Shipownersrsquo Association 2007) Previously the home market effect was clear However the nationality effect arose after large shipping companies with scale economiesmdashpossessing improved shipping technologymdashexited their respective shipping markets Since the exiting shipping company had a significant market share the resulting reduction in competition compelled the remaining oligopolistic shipping carriers to increase their shipping margins This explanation is directly related to the observation that small and developing countries suffer more from the high transport costs caused by price discrimi-nation in the container shipping market as stated by Asturias and Petty (2013) Hummels Lugovskyy and Skiba (2009) and Kleinert and Spies (2011)

The analysis in this study reveals that because of the existence of price discrimination and a substitutability change some pecuniary effects have arisen at the national level Hence the nationality effect makes it necessary to implement specific policy for shipping industries in open economies including Korea Logically one aim of this policy should be to decrease freight rates and improve service quality Table 9 summarizes the economic size export level and fleet size of selected countries showing that most large open economies (except for the United States) have the corresponding shipping power


129 Table 9 Size and Ranks of GDP Exports and Fleet (2016)

(Unit billion US dollars for GDP and Exports million DWT for Fleet) GDP - Exports Fleet

Country Rank Size Country Rank Size Rank Size US 1 18036 China 1 2275 3 165 China 2 11158 US 2 1505 8 67 Japan 3 4383 Germany 3 1329 4 112 Germany 4 3363 Japan 4 625 2 223 Korea 11 1377 Korea 6 527 7 80

Sources ISL (2017) World Bank (2017) and WTO (2017) This interpretation of national carriers can also be applied to small and medium-sized

trading countries that have insufficient shipping companies Previous studies emphasized that the liberalization of restrictions on foreign investment in the shipping industry could reduce freight costs However our study argues that if there is no significant national counterpart that can function as a substantial competitor foreign shipping companies may act as a colluding cartel leading to continued and persistent price discrimination in these small and medium-sized countries Therefore national carriers can play a role in substantially reducing international transport costs beyond simply adding to the number of competing carriers Further this argument might be applied to the container terminals and port industry That is the promotion of national port companies would enhance the efficiency of international logistics market

Moreover regarding the need for an industrial policy for the shipping industry some important issues have arisen in developed countries One example is a government-related financial institute in China promising approximately $26 billion to support its national carrier COSCO Similarly Germanyrsquos central and regional governments have also provided their national carrier Hapag-Lloyd with the financial support of approximately $24 billion Taiwanrsquos government announced that it would provide financial support of approximately $2 billion to its national carrier Yang Ming Lastly the Korean government plans to support its national shipping industry by implementing new policies including financial assistance

These shipping nationsrsquo supports for their shipping industry can be explained by strategic trade theory which is that the governmentrsquos support in an oligopolistic and game-theoretic situation changes the gamersquos equilibrium Fig 5 illustrates the details of the strategic trade policy The yellow circles indicate the dominant strategies of leading liner A and the green triangles reflect those of follower liner B The equilibrium before adding the governmentrsquos support is that liner A earns $5 billion and liner B does not invest and therefore earns no gain However if liner Brsquos government promises its support the game changes and the resulting equilibrium is that liner A abandons investing and liner B invests and earns $6 billion including $1 billion in government support This government support can lead to a vicious cycle of excess competition in the container shipping market

Until now our discussion has focused on the horizontal aspect of industrial policy in the shipping industry As emphasized by Stiglitz (2013 13) and our own results the government should implement industrial policy measures to ensure the efficient movement of goods between countries However concrete policies to achieve this goal could have an additional vertical nature across economies


130 Fig 5 Shipping as a Strategic Industry

Source Modified Table 1 of Krugman (1987)

Fig 6 illustrates an example of vertical shipping industrial policy following recommen-

dations for the Korean shipping industry (Ko Byoung-Wook et al 2020) The problems and corresponding policy measures were derived from in-depth interviews with industry experts policymakers and related financiers

Fig 6 Recommendations for Integrated Shipping Industrial Policy in Korea

Source Ko Byoung-Wook et al (2020)


131 6 Conclusions

Many economists agree that governments should create infrastructure and implement effective supply chain logistics to ensure the efficient movement of goods according to Stiglitzrsquos hypothesis However the question of whether a national carrier is necessary to provide these services has been controversial This study answers this question using the case of Hanjin Shippingrsquos collapse as a natural experiment According to the empirical results based on time-series analyses (including a state-space model) a significant nationality effect occurred due to price discrimination with substitutability changes in Korearsquos and Chinarsquos container shipping markets especially relative to that of Japan This purported nationality effect can be explained from the perspective of an extended home market effect which first appeared in the economic literature as Linderrsquos hypothesis Based on this nationality effect it is necessary for governments to implement shipping industrial policies in open economies This policy recommendation differs substantially from the existing literature which emphasizes the importance of enhancing competitionmdashespecially in developing countriesmdashand focuses on the number of competing carriers not on carriersrsquo nationalities If the assertion about a national carrier is accepted the policy agenda should next involve ways to implement these policies (Ko Byoung-Wook et al 2020)

In summary new policies for the shipping industry are needed both as horizontal industrial policy and vertical industrial policy Additionally this study demonstrates that time-series analysis (including a state-space model) is an appropriate method to monitor the behavior of market participants such as container shipping companies that may act collectively as an implicit price cartel

Several important topics can be addressed by future research The first involves designing shipping industrial policies for developing countries Various studies including this one find that competition in the container shipping market should be increased to improve international transport services and reduce freight rates However ways to increase competition remain to be determined One alternativemdashas suggested by Fink Mattoo and Neagu (2002)mdashis to give foreign consumers the right to challenge shipping linesrsquo anticompetitive practices in the national courts of the countries of origin of these shipping lines Furthermore establishing a national or regional carrier could be an effective alternative policy especially for small and medium-sized open and developing economies However incumbent carriers and their countries may not prefer the latter alternative in the current concentrated oligopolistic and global container shipping market Joint ventures or similar agreements between developed and developing shipping countries could thus offer strong plausible alternatives

The second future research topic involves seeking improved global governance for the container shipping market The European Union abolished shipping conferencesrsquo block exemptions under competition law in October 2008 leading to enhanced competition However this policy also invoked several large mergers and acquisitions and an increase in strategic alliances leading the global container shipping industry to become so oligopolistic that the abuse of the resulting market power has become a cause for concern The abolishment of shipping conferences could be attributed to this unintended outcome Therefore this tendency toward concentration should be investigated and discussed especially for the promotion of sufficient diversity in the container shipping market Regarding these two topics discussing the establishment of a World Maritime Committee under the United Nationsrsquo UN Conference on Trade and Development or International Maritime Organi-zation would be appropriate This committee could be expected to be similar to the United Statesrsquo Federal Maritime Committee in structure and function The first task of this World


132 Maritime Committee should be to design and implement harmonious shipping industrial policies and the second task should be to seek alternative global governance

The third future topic involves empirical research as this study lacks explanatory power when analyzing the change in container freight rates For example researchers can use route-specific variables such as the utilization ratio and micro data such as specific freight rates for a commodity or a shipment This improvement in the scope of the data would help more rigorously test the nationality hypothesis

The last not the least future research topic is the mechanism of freight rate determination As an outsider to the actual container shipping markets the researchers cannot observe the negotiation process between container liners and shippers for determining the freight rates Owing to this difficulty of assessing the rationality of the determination of freight rate this study has a limit on evaluating the nationality effect Therefore this line of research on the freight rate determination method will contribute to examining the nationality effect in container shipping markets

Acknowledgements The author would like to thank Dr Kwang-Soo Kil Prof Kwanho Shin Prof Cheolbeom

Park Prof Jaehyon Nahm Prof Kyuho Kang and Prof Moonsung Kang for their helpful comments and advice The author is also grateful to the three anonymous reviewers for their comments and suggestions All of their recommendations have substantially improved the study This research did not receive any specific grant from funding agencies in the public commercial or not-for-profit sectors

References

Alphaliner (2017) Monthly Monitor (July) Paris Author

Asturias J and S Petty (2013) Endogenous Transportation Costs (SSRN Database) Available

from httpsssrncom abstract=3195499

Bertho F I Borchert and A Mattoo (2014) The Trade-Reducing Effects of Restrictions on Liner

Shipping (Policy Research Working Paper 6921) Washington DC World Bank 1-36

Cheng W and X Yang (2004) ldquoInframarginal Analysis of Division of Labor A Surveyrdquo Journal

of Economic Behavior amp Organization 55 137-174

Clark X D Dollar and A Micco (2004) ldquoPort Efficiency Maritime Transport Costs and Bilateral

Traderdquo Journal of Development Economics 75 417-450

De Oliveira G F (2014) ldquoDeterminants of European Freight Rates The Role of Market Power

and Trade Imbalancerdquo Transportation Research Part E 62 23-33

Fink C A Mattoo and I C Neagu (2002) ldquoTrade in International Maritime Services How Much

Does Policy Matterrdquo The World Bank Economic Review 16(1) 81-108

Francois J F and I Wooton (2001) ldquoTrade in International Transport Services The Role of

Competitionrdquo Review of International Economics 9(2) 249-261

Haralambides L E (2004 March 5-6) ldquoDeterminants of Price and Price Stability in Liner

Shippingrdquo Workshop on The Industrial Organization of Shipping and Ports National

University of Singapore Singapore

Hummels D (2001) Toward a Geography of Trade Costs (SSRN Database) Available from

httpspapersssrncom sol3paperscfmabstract_id=160533


133 Hummels D V Lugovskyy and A Skiba (2009) ldquoThe Trade Reducing Effects of Market Power

in International Shippingrdquo Journal of Development Economics 89 84-97

Institute of Shipping and Economics Logistics (ISL) (2017) Shipping Statistics Yearbook 2016

Bremen Germany Institute of Shipping and Economics Logistics

Kim Chang-Jin and C Nelson (1999) State-Space Models with Regime Switching Classical and

Gibbs-Sampling Approaches with Applications Cambridge MA The MIT Press

Kleinert J and J Spies (2011) Endogenous Transport Costs in International Trade (IAW-

Discussion Papers 74) Geneva Switzerland World Trade Organization

Ko Byoung-Wook Ju-Hyeoun Kim Young-Jae Choi Kwang-Soo Kil and Gun-Woo Lee (2020)

ldquoEnhancing the Competitiveness of Korearsquos Container Shipping Industry through Structural

Improvementsrdquo Maritime Policy and Management 47(1) 57-72

Korea Shipownersrsquo Association (2007) 60 Yearsrsquo History of Korea Shipping Seoul Korea

Shipownersrsquo Association

Krugman P (1980) ldquoScale Economies Product Differentiation and the Pattern of Traderdquo

American Economic Review 70 950-959

Krugman P (1987) ldquoIs Free Trade Passerdquo The Journal of Economic Perspectives 1(2) 131-144

Krugman P (1995) ldquoIncreasing Returns Imperfect Competition and the Positive Theory of

International Traderdquo In G M Grossman and K Rogoff (Eds) Handbook of International

Economics (Vol 3) New York NY Elsevier 1243-1277

Lam J S L and H N Wong (2018) ldquoAnalysing Business Models of Liner Shipping Companiesrdquo

International Journal of Shipping and Transport Logistics 10(2) 237-256

Lerner A P (1934) ldquoThe Concept of Monopoly and the Measurement of Monopoly Powerrdquo

Review of Economic Studies 1 157-175

Li Z and B Dong (2020) ldquoA Game Theory Analysis of Chinarsquos Maritime Cross-Border

Insolvency Policy from the Perspective of Hanjin Shippingrsquos Bankruptcy Caserdquo Maritime

Policy and Management forthcoming

Limao N and A Venables (2001) ldquoInfrastructure Geographical Disadvantage Transport Costs

and Traderdquo The World Bank Economic Review 15(3) 451-479

Linder S B (1961) An Essay on Trade and Transformation New York NY John Wiley amp Sons

Munim Z H and H J Schramm (2016) ldquoForecasting Container Shipping Freight Rates for the

Far East ndash Northern Europe Trade Lanerdquo Maritime Economics and Logistics 19(1) 106-125

Pigou A (1920) The Economics of Welfare London Palgrave Macmillan

Shin Sung-Ho Paul Tae-Woo Lee and Sung-Woo Lee (2019) ldquoLessons from Bankruptcy of

Hanjin Shipping Company in Charteringrdquo Maritime Policy and Management 46(2) 136-

155

Sjostrom W (1992) ldquoPrice Discrimination by Shipping Conferencesrdquo Logistics and Transportation

Review 28(2) 207-216

Smith A (1776) An Inquiry into the Nature and Causes of the Wealth of Nations London

Elecbook Classics

Song Dong-Wook Young-Joon Seo and Dong-Wook Kwak (2019) ldquoLearning from Hanjin

Shippingrsquos failure A Holistic Interpretation on its Causes and Reasonsrdquo Transport Policy 82

77-87

Stiglitz J E (2013) ldquoForewordrdquo In J E Stiglitz and J Y Lin (Eds) The Industrial Policy

Revolution I The Role of Government Beyond Ideology Barcelona Spain International

Economic Association 11-15

Varian H R (1992) Microeconomic Analysis New York NY WW Norton amp Company Inc


134 Wilmsmeier G and J Hoffmann (2008) ldquoLiner Shipping Connectivity and Port Infrastructure as

Determinants of Freight Rates in the Caribbeanrdquo Maritime Economics and Logistics 10 130-

151

Wooldridge J M (2016) Introductory Econometrics A Modern Approach Boston MA Cengage

Learning

World Bank (2020) World Development Indicators Data Bank Available from httpsdatabank

worldbankorghomeaspx (accessed January 1 2020)

WTO (2017) World Trade Statistical Review 2016 Geneva Switzerland Author

Yang X (2003) Economic Development and the Division of Labor Hoboken NJ Blackwell

Publishing

Yun Min-Hyun (2019) Hardship and Challenge of Korean Shipping Mokpo Korea Jung-Woo

Publication

wwwnewktraorg

135

JKT 24(6)

Can Traditional Industry Firms Be Born Global Case Study with a Focus on

Chinese and Korean Firms

Qingsong Kang College of Business Administration Huaqiao University China

Ki-Chang Yoon Department of Business Administration Kunsan National University South Korea

Joshua Parkdagger SolBridge International School of Business Woosong University South Korea

Abstract Purpose ndash This study investigates whether the internationalization process of traditional industry firms can be categorized as born global early internationalization or gradual internationalization and examines what factors promote internationalization in traditional industries using a case study of two firms one each in China and Korea Designmethodology ndash This study elects to use case study methodology to determine the ldquohowrdquo and ldquowhyrdquo of internationalization process of traditional industry firms Taking into consideration that factors that impact the internationalization process of firms are diverse and unclear in terms of causality this study utilizes exploratory case study methodology This research performs a comparative two-case study of two firms in traditional industries one each in China and Korea to examine similarities and differences of study subjects in order to improve the validity and suitability of research results Findings ndash The findings of this research are as follows First traditional industries are more likely go through early and rapid internationalization rather than being born global born globals are far more likely to appear in high tech industries Second the internationalization process of companies that go through early and rapid internationalization differs from what is indicated by traditional interna-tionalization theories and are not limited by factors like psychological distance and lack of experien-tial knowledge Third international entrepreneurship international market orientation and imitation and learning are important internal driving factors for early and rapid internationalization Fourth conditions within the domestic market policy support from the government and pilot effect from industry leaders are external driving factors for early and rapid internationalization Originalityvalue ndash This study shows that the internationalization process of traditional industry firms is more likely to be early and rapid internationalization rather than being born global and suggests answers to why this may be the case In addition through an examination of case studies it reveals that the internationalization process of traditional industry firms that undergo early and rapid internationalization is different from traditional internationalization theory in that they are not limi-ted by the lack of psychological proximity and empirical knowledge and are driven by international entrepreneurship international market orientation imitation and learning competitive pressure within the domestic market governmentrsquos policy support and the pilot effect of industry leaders Therefore this study contributes to literature by expanding the scope of application of born global theory to traditional industries making born global theory more generalizable and identifying driving factors to internationalization of traditional industry firms

Keywords Born Global Driving Factors Early and Rapid Internationalization Traditional Industry JEL Classifications F20 F23 L26 M16

dagger Corresponding author joshuaparksolbridgeackr




ISSN 1229-828X


136

1 Introduction

The internationalization process has been considered a slow gradual step-by-step process according to traditional internationalization theory (Casillas and Moreno-Meneacutendez 2014) This is because companies face numerous difficulties when entering foreign markets such as uncertainties in the international market foreign expenses due to institutional and cultural differences and lack of knowledge and experience in overseas markets (Kang 2015) It takes time to overcome the lack of institutional market knowledge (language laws and regulations etc) and business knowledge (Eriksson et al 1997) Because learning and commitment both take time the process of internationalization of enterprises and companies is considered to be gradual and phased (Johanson and Wiedersheim-Paul 1975)

However from the 1980s companies that skipped through the domestic growth phase and proceeded right into the internationalization phase from nascency began to appear Oviatt and McDougall (1994) referred to them as ldquoInternational New Venturerdquo and Knight and Cavusgil (1996) referred to them as ldquoBorn Globalrdquo While young companies that undergo early and rapid internationalization lack both resources and experience they appear to overcome such deficiencies by leveraging unique capabilities and strengths ndash a high degree of entrepreneurial orientation persistence innovation and differentiated offerings (Cavusgil and Knight 2015) These companies are founded by entrepreneurs with extensive experience in internationalization (Coviello 2006) which diminishes the psy-chological distance and external inferiority emphasized by traditional internationalization theories (Autio 2005 Chetty and Campbell-Hunt 2004) enabling the firm to achieve rapid internationalization without having to go through a gradual learning process or experience accumulation process

Many scholars point to international entrepreneurship as the key driving factor to making a firm born global (Cavusgil and Knight 2015 Oviatt and McDougall 1994 Reuber et al 2018) A distinguishing feature of a born global firm is that its origins and fundamental orientation are strongly international Consistent with the globalization paradigm founders of born global firms explicitly or implicitly view the world as their marketplace (Cavusgil and Knight 2015) They discover enact evaluate and exploit opportunities across national borders to create future goods and services (Oviatt and McDougall 2005) and are especially adept at allocating their resources under asset parsimony (Cavusgil and Knight 2015)

Furthermore they recognize that rapidly changing environments can render market knowledge obsolete and increase risk (Forsgren 2002) Empirical knowledge has a dimi-nishing role in internationalization decisions due to increasingly rapid changes of the global market and growing collaboration among firms (Lyles et al 2014) Furthermore the lack of empirical knowledge can be supplemented through channels other than a gradual learning process such as interacting and collaborating with foreign firms and partners within onersquos own country as Chinese firms have done (Lyles et al 2014) Non-empirical learning such as learning through imitation or mergers or searching and scanning for new information could drive the internationalization process

Many scholars assert that born globals appear only in high-tech industries (Cavusgil and Knight 2015 Crick and Jones 2000 Freeman et al 2010) This is because high-tech firms are usually established by individuals who are highly educated or educated overseas and can respond more sensitively to the application of new information technologies and the changes in technological environments However it is possible have born globals in mature or traditional industries (Dickramasekra and Bamberry 2001 Eurofound 2012 McAuley

Can Traditional Industry Firms Be Born Global Case Study with a Focus on Chinese and Korean Firms

137 1999) For example the European Union found large numbers of born global enterprises operating in the wholesale and retail trade professional scientific and technical fields basic manufacturing and information and communications industries (Eurofound 2012) The geographical characteristic of Europe being comprised of many countries with small populations and correspondingly small domestic markets is a driving factor that promotes the emergence of born global firms (Madsen and Servais 1997)

This study explores the view that the rationale behind born global theory could be applied to the internationalization process of enterprises that are latecomers (Lyles et al 2014) or are in traditional industries In this study we apply born global theory on firms in traditional industries running a case study of two firms one each in China and Korea to answer the following two research questions First what process of internationalization do enterprises in traditional industries follow Born global early internationalization or gradual internationa-lization Second what are the driving factors that stimulate internationalization for firms in traditional industries

This study is unique in that while the vast majority of research on born globals have focused on high-tech industries this study seeks to provide new insights into the internationalization process of firms in traditional industries Furthermore this study expands the field of appli-cation of born global theory to traditional industries which is meaningful in adding diversity to subjects for born global research as pointed out by Cavusgil and Knight (2015) and can help make born global theory more generalizable

2 Theoretical Background and Conceptual Framework

21 Conceptual Definition Oviatt and McDougall (1994) defined international new ventures as ldquobusiness organi-

zations that from inception seek to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countriesrdquo

Studies that followed have focused on quantitative conceptualization of born global firms with Knight and Cavusgil (19962004) defining born global firms to be companies whose export sales exceed 25 and begin product exports within the first three years of inception Similarly Nummela et al (2014) defined born global firms as ldquofirms that began international operations within the first 3 years of inception which account for more than 25 of turnover There are also other definitions Chetty and Campbell-Hunt (2004) supported the standard of 75 product export share and globalized within two years of inception Zhou et al (2007) supported the standard of exporting within the first three years of inception and exports having at least a 10 share

International entrepreneurship literature provides active but inconclusive discussion on the appropriate definition of a born global firm being unable to agree on a common opera-tionalization of the concept (Nummela et al 2014) For instance because the share of born global firms increase where domestic markets are small (Madsen and Servais 1997) it is argued that a 25 export share is too low for Europe (Kuivalainen et al 2007) It is further argued that in the process of conceptualizing born global firms we should not limit our standards to just the speed of internationalization and export share considering further dimensions such as geographical distribution (Kuivalainen et al 2007 Oviatt and McDougall 1994)

Examination of existing literature shows that the frequently adopted quantitative standards


138 for born global firms are as follows First they begin exporting within the first three years of inception Second their export shares exceed 25 (eg Andersson and Wictor 2003 Madsen et al 2000 Nummela et al 2014 Zhang et al 2009) Knight and Cavusgilrsquos (19962004) definition of born global firms leaves some room for argument because it does not address the period at which a firmrsquos overseas sales began Therefore we apply the definition provided by Nummela et al (2014) and define born global firms to be ldquofirms that began international operations within the first 3 years of inception which account for more than 25 of turnoverrdquo This operationalization does a good job of differentiating born global firms from other internationalizing SMEs (Nummela et al 2014)

On the other hand there is no generally accepted definition of early internationalization (Naudeacute and Rossouw 2010) For this study we refer to the definition by Naudeacute and Rossouw (2010) and define early or rapid internationalization to describe firms that start to export within three years of establishment or establishes a foreign presence within that period (eg through outward foreign direct investment) And according to existing literature early and rapid internationalization exhibits the following characteristics First they do not follow a gradual internationalization process skipping certain steps to enter into internationalization stages that are higher in difficulty and risk levels (Buckley et al 1988 Dicken 1998) Second the time it takes from inception to the first step of internalization is very short or it enters the international market immediately after inception (Cavusgil and Knight 2015 Oviatt and McDougall 1994) Third it does not follow the principle of first entering into the inter-national market into an arena that is psychologically more proximate before entering areas that are psychologically more distant (Chetty and Campbell-Hunt 2004 Madsen and Servais 1997)

22 Driving Factors to Internationalization 221 Corporate Internal Factors The success of born global firms in overseas markets is largely due to their internal skills

(Knight and Cavusgil 2004) Such skills include characteristics like strong market orientation international marketing capabilities and adaptability to changing conditions abroad (Cavusgil and Knight 2015) While born global firms should not be able to compete with larger traditional exporters due to resource limitations born global firms are able to succeed by having superior international learning capability international networking capability and international experience than most traditional exporters (Zhang et al 2009) These entre-preneurs approach their entry into the international market as a golden opportunity for development as opposed to uncertain adventurous behavior and appear especially adept at allocating their resources under asset parsimony (Cavusgil and Knight 2015)

Enterprises that undergo early internationalization do so because they possess a unique entrepreneurial mindset (Knight and Cavusgil 1996 Shin 2014) Entrepreneurship and mar-ket orientation are closely linked with global reasons high levels of overseas market orienta-tion and international entrepreneurship being important drivers of rapid internationali-zation of firms (Weerawardena 2003 Weerawardena et al 2007) They discover enact evaluate and exploit opportunities across national borders to create future goods and services (Oviatt and McDougall 2005) They search not only for foreign market opportunities but also for tangible and intangible resources and combine them in novel innovative ways (Knight and Liesch 2016) Therefore innovativeness pro-activeness and risk-taking behaviors are the dimensions usually studied with respect to international outcomes (Reuber et al 2018)


139 The diversity and depth of previous international activities as sources of experiential lear-

ning affect the speed of the internationalization process (Casillas and Moreno-Meneacutendez 2014) Born globals utilize entrepreneursrsquo overseas experience academic and working exper-ience etc to reduce the psychological distance risk and uncertainty of entering overseas markets and reduce the empirical learning process Contrary to this traditional interna-tionalized firms gradually accumulate international experience alongside company growth (Chetty and Campbell-Hunt 2004 Zhang et al 2009) In addition the lack of empirical knowledge can be supplemented by inward international experience For example Chinese firms are known to acquire international knowledge by interacting and collaborating with foreign firms and partners that have invested in their domestic market (Lyles et al 2014)

In todayrsquos economy access to network resources matters to any firm young and old small and large (Verbeke and Ciravegna 2018) In other words building and maintaining an efficient international network is an important driving factor to promote corporate globalization (Chetty and Campbell-Hunt 2004 Weerawardena et al 2007) Social networks offer the following three advantages First knowledge of foreign market opportunities second advice and experiential learning and third referral trust and solidarity by a third party (Zhou et al 2007) These advantages can help internationalizing firms overcome the resource limitations that frequently constrain an SMErsquos international expansion (Lu and Beamish 2001) establish legitimacy and credibility and facilitate the development of new capabilities for international expansion with lower risks (Zaheer 1995 Zaheer and Mosakowski 1997)

222 Corporate External Factors Born global phenomenon appears far more frequently in high-tech industries or industries

with rapid technological changes (Crick and Jones 2000 Freeman et al 2010) High-tech companies are usually established by owners who are highly educated or educated overseas and are more sensitive to changes in the technological environment (eg new information and communication technologies) than enterprises in traditional industries Furthermore entrepreneurs with overseas experience can reap unique benefits via methods such as cap-turing market opportunities through overseas networks and acquiring technical information

Export attempts by indigenous Chinese firms often originate from challenging or adverse domestic conditions (Naudeacute and Rossouw 2010) In other words the size of domestic mar-ket domestic competitive pressure and government regulations affect the internationaliza-tion process of companies (Alon and Lerner 2008 Fan and Phan 2007 Naudeacute and Rossouw 2010 Shin 2014) For example the reason why born global phenomenon occurs frequently in European states is because their countries have small territories and limited domestic market making it more likely for companies to look outside their borders (Chen et al 2009) Thus companies in industries with low barriers of entry and face high levels of competitions are likely to seek greater market share through internationalization (Alon and Lerner 2008)

Networks and social capital depend on proximity and interaction between entrepreneurs Thus one would expect that entrepreneurs in areas characterized by a high degree of agglo-meration such as in cities might more readily consider internationalization The agglome-ration of economic activity allows firms to benefit from clustering and enjoying spillover effects from the proximity to other firms (Naudeacute and Rossouw 2010) Small and medium sized enterprises imitate the internationalization modes of their peers in their network which implies that the imitation of others can initially serve as a presumably convenient low-risk shortcut to a planned or experience-driven internationalization process (Oehme and Bort


140 2015) Clustering thus serves as a formative element to networking having a strong effect on a firmrsquos internationalization (Maitland et al 2005)

Furthermore lack of global experience managerial competence and professional expertise has posed critical bottlenecks for many emerging market multinational corporations (Luo and Tung 2007) But home country government support and favorable host country institutions may help latecomers overcome their lack of international experience In other words the capability implications associated with home government support and well-established host country institutions may offset the need to accumulate experiential knowledge about host countries (Lu et al 2014) In the case of Chinese firms home country government support not only acts as a financial incentive but also as an important contingency factor which compensates for emerging economy firmsrsquo competitive disadvan-tages and organizational deficiencies in terms of foreign entry (Lu et al 2014 Luo and Tung 2007) This is similar in the case of Korea where national or local government support in overseas marketing can stimulate internationalization by decreasing the burden and expenses of entering overseas markets (Shin 2014)

223 Conceptual Framework The prevalence of born global firms needs to be credited to the availability of non-tra-

ditional organizational assets such as proactive orientation dynamic capabilities and skillful strategy When a founder of an enterprise possesses such non-traditional organizational assets it can effectively drive early internationalization (Cavusgil and Knight 2015) That is international entrepreneurship (Cavusgil and Knight 2015 Knight and Liesch 2016 Oviatt and McDougall 2005 Reuber et al 2018 Shin 2014 Weerawardena et al 2007) inter-national experience (Casillas and Moreno-Meneacutendez 2014 Chetty and Campbell-Hunt 2004 Coviello 2006 Zhang et al 2009) international market orientation (Cavusgil and Knight 2015 Weerawardena 2003 Weerawardena et al 2007) imitation and learning (Forsgren 2002 Zhang et al 2009 Oehme and Bort 2015 Lyles et al 2014) networking (Chetty and Campbell-Hunt 2004 Lu and Beamish 2001 Weerawardena et al 2007 Zhang et al 2009 Zhou et al 2007) all contribute to making born global or early and rapid internationalization without phased internationalization possible

Small scale domestic markets and domestic market competitive pressures have been noted to be factors that stimulate enterprises to seek greater market share through internationa-lization (Alon and Lerner 2008 Fan and Phan 2007 Naudeacute and Rossouw 2010) Furthermore spillover effects from clustering (Maitland et al 2005 Naudeacute and Rossouw 2010) and inward international environment (Lyles et al 2014) allows enterprises to indirectly acquire international experience decreasing risk and uncertainty when entering overseas markets Governmental policy support helps fill deficiencies in international experience competitive disadvantages and organizational deficiencies of emerging economy firms (Lu et al 2014 Luo and Tung 2007) and helps drive internationalization by decreasing overseas marketing costs (Shin 2014)

We have thus explored driving factors to internationalization based on established theories on born globals This study seeks to examine case studies to determine whether the process of internationalization for traditional industry firms in China and Korea can be characterized as born global early and rapid internationalization or gradual internationalization (See Fig 1)


141 Fig 1 Conceptual Model of the Internationalization of Traditional Industry Firms

3 Research Design This study seeks to determine whether the internationalization of traditional industry firms

can be characterized as born global early and rapid internationalization or gradual internationalization and examines the causes for why they internationalize in such a manner The method of choice for research to examine ldquohowrdquo and ldquowhyrdquo as we seek to do here is through an examination of case studies (Yin 2009) We also take into consideration that factors that impact the internationalization process of firms are diverse and unclear in terms of causality therefore we implement exploratory case study methodology (Yin 2009) Exploratory case study method is superior when seeking to observe an objectrsquos developmental processes and underlying rules (Eisenhardt 1989) This research performs a comparative two-case study to examine similarities and differences of study subjects in order to improve the validity and suitability of research results (Yin 2009)

31 Case Selection The samples for this study are selected through theoretical sampling with samples being

typical and revelatory which is advantageous in terms of theory expansion and logic replication (Eisenhardt and Graebner 2007 Glaser and Strauss 1967 Siggelkow 2007 Yin 2009) First we select traditional industry firms in line with the purpose of this study Second we select firms that actively possess characteristics emphasized in born global theories such as international entrepreneurial spirit and international market orientation Third we select firms that begin internationalizing very early by exporting products or by establishing local offices or branches abroad and have an interesting mixture of both unexpected and obvious characteristics Fourth we select and compare firms from China and Korea to improve the validity and suitability of our research results

32 Introduction of Case Study Firms C Corp is a firm that specializes in the production of sports apparel and shoes in China It

was established in 1988 for the purpose of OEM product exports and supplying local Nike partner firms in China subsidiary materials for sports shoe manufacture However its export-


142 oriented development strategy failed due to reasons such as Chinarsquos planned economic system and the monopolization of export-import trade by state-owned enterprises and in 1991 it strategically pivoted to focus instead on the domestic market Meanwhile it exported a small amount of its products to Jordan registered its trademark in the 68-member countries of the Madrid Union in 1993 became the first in its industry to pass ISO9002 certification in 1995 and continued to prepare for expanding into overseas markets In the late 1990rsquos market competition in the sports apparel industry in China intensified and in 2000 Li Ning Co Ltd (hereafter ldquoLi Ningrdquo) Chinarsquos leading manufacturer of sports apparel entered the overseas market through sports marketing Similarly C Corp activated its internationali-zation strategy becoming the sponsors of the Greek National Basketball Team in 2004 then establishing its first overseas specialty store in Greece It then followed by sponsoring the Houston Rockets of the NBA in 2005 becoming listed in the Hong Kong Stock Exchange in 2009 established an RampD Center in cooperation with its US subsidiary in 2010 and accomplished rapid growth in both domestic and international markets Currently Cs products are sold in 90 countries around the world with total sales revenue of 3108 billion RMB (442 million USD) and net profit of 392 million RMB (558 million USD) in 2015 of which overseas sales revenue is 673 million RMB (957 million USD) accounting for 216 percent of total sales revenue (See Fig 2)

Fig 2 Development History of C Corp

K Corp is a small to mid-size enterprise that specializes in the production of environ-

mentally friendly detergents in Korea When it was first established in 2004 it developed home cleaning detergents and began its business as a door-to-door free cleaning service using its own detergents In 2006 they developed new environmentally friendly detergent products and successfully exported their new detergent products to the United States and EU markets In 2012 its brand product entered the Chinese market and gained huge popularity which spurred its expansion into other overseas markets such as Taiwan Malaysia and Vietnam from 2013 onwards Despite being in the big company centered and hyper-competitive home detergent industry K has strategically distinguished itself as a company that puts the environment and health first exporting its products to 18 countries around the world In 2018 K Corp achieved 2372 billion KRW (204 million USD) in sales and 232 billion KRW (199 million USD) in operating profit overseas sales revenue of 237 billion KRW (204 million USD) and overseas sales share of 10 building a reputation domestically and


143 internationally as a promising export-based SME (See Fig 3)

Fig 3 Development History of K Corp

33 Data Collection and Analysis Cases studies should collect data through various channels (Yin 2009) The data for this

study is composed of primary data and secondary data with primary data being collected through the following channels First an in-depth survey of the company founder using a semi-structured questionnaire was conducted the entire process being audio recorded then transcribed with consent Second field observation of the exhibition hall production line store etc was conducted to enhance intuitive insights and to supplement primary data Secondary data was collected by referring mainly to legally valid sources such as corporate annual reports company announcements company home page and video data (See Table 1)

Table 1 Data Source

Data Type Data Source C CorpData Size

K Corp Data Size

Primary data

In-depth interview Company founder 2 hours 25 hours

Field observation Exhibition hall Production line Factory discount store

About 1 hour About 1 hour

Internal data Company founder 1 copy 2 copies

Secondary data

Annual reports and Announcements

Company home page 10 copies 8 copies

Video data Secretary of the board 25 hours NA

Journal articles Academic journals and case banks

6 copies NA

News reports Financial magazines Internet

225 copies 90 copies


144 Researchers experienced in qualitative research reviewed and analyzed the collected data

Based on theoretical guidance the data collected following principles of circumstances causality interaction and structural relationship were induced abstracted and categorized to form five key categories international entrepreneurship international market orientation imitation and learning domestic market and government support Throughout this process researchers took steps to conduct continuous comparative analysis discussion and integration in order to minimize personal bias and one-sidedness of conclusions

34 Reliability and Validity Verification This study uses the 4 methods of verification for case studies as suggested by Yin (2009)mdash

construct validity internal validity external validity and reliabilitymdashfor reliability and validity verification (See Table 2)

Table 2 Reliability and Validity Verification Methods

Verification Items Verification Methods

Construct validity

Multiple sources of evidence

Data was collected through various channels such as in-depth interview field observation annual reports and announcement company homepage video data journal articles news reports etc

Triangular verification

Veracity and accuracy was confirmed through mutual verification between evidence from different channels for specific events or phenomenon

Internal validity

Pattern matching Research models and conclusions designed based on theoretical background were matching

Competitive interpretation

When interpreting the causes of a phenomenon various competing assumptions were fully considered

External validity

Theory guides single case study

A theoretical framework for analysis was established through a thorough review of existing literature and case analysis was conducted on its basis

Reliability Draft case study Before starting the research the research issues were evaluated and confirmed then detailed implementation plans were developed including method of data collection field survey program and method for data analysis

Database Data was classified based on collection channel type and content to build a database

Repetitive consistency

Researchers analyzed data independently and went through a process of continuous comparison and integration to resolve any inconsistent findings

4 Case Analysis

41 Analysis of the Internationalization Process While C Corp began exporting its products abroad within three years of inception export

volume was low far below the 25 overseas sales standard for born globals Furthermore


145 from 1991 to 2003 C Corp followed steps to compile resources and experience through a domestic development phase as emphasized by traditional internationalization theories before pursuing internationalization in earnest K Corp had export OEM sales to the United States from its early stages but export volume was insignificant And from 2004 to 2008 K Corp went through a phase of domestic market development before exporting its own brand name products to the US and Europe Therefore neither C nor K fit within the category of born globals

However an examination of C and Krsquos globalization processes reveals characteristics of early and rapid internationalization as iterated in established theories First both countries exported their products overseas within three years of inception (Cavusgil and Knight 2015 Oviatt and McDougall 1994) Second the overseas markets they made early entry into are markets with large sociocultural differences such as Europe and the US which is not in line with the general procession from near too far in terms of psychological distance (Madsen and Servais 1997 Chetty and Campbell-Hunt 2004) Third Crsquos products were being sold in 70 countries worldwide when they were listed in the Hong Kong Stock Exchange in 2009 while Krsquos products are currently being sold in 18 countries including the US Russia China Philippines Malaysia and Vietnam meaning that both companiesrsquo export markets are diverse in terms of geographical distribution (Kuivalainen et al 2007)

On the other hand C and K also exhibit different characteristics in the domestic deve-lopment phase C Corp supplements its shortcomings in resources and experience through stages of domestic development exactly as is emphasized in traditional internationalization theories This is because at the time of its incorporation China had poor infrastructure and the founder himself also had no international experience However while C did not have actual product exports during this process it is noteworthy that they were taking preparatory steps to enter overseas markets by registering their trademark internationally and receiving ISO9002 certification On the other hand Krsquos domestic development phase is not due to a lack of international experience The founder of K had diverse international credentials but held the belief that his product and quality must first achieve recognition within a red ocean domestic market in order to succeed in the international market It can thus be concluded that C and K are not born globals but are early and rapid internationalization firms

42 Analysis of Driving Factors for Internationalization 421 International Entrepreneurship The founder of C Corp was born in the mid 1950rsquos and has a high school diploma In the

late 1970rsquos despite ideological stigma and regulations imposed by the Chinese government on proprietors he used his background as a handcart driver to start his own transportation business Armed with industriousness and extraordinary business sense the founder eventually established around ten factories for manufacturing packaging materials con-struction materials slippers and so forth becoming a famous businessman in the region In 1988 the founder invested all of his assets into opening a shoe company that supplies subsidiary material for a local partner of Nike but faced a crisis when the firm decided to relocate its factories to another region As this was an era where China did not maintain a market economy system it was almost impossible for a private company like C Corp to export its goods or to attend trade exhibits The founder then looked at Nike and began to wonder why ordinary shoes could fetch higher prices just by placing a Nike brand on it And in doing so the founder was convinced that ldquowith the reform and opening of China an increasing number of multinational companies will enter the Chinese market and to survive


146 the resulting fierce market competition it is necessary to create an international brand like Nikerdquo He then proceeded to take steps to prepare to enter the international market In 1990 the companyrsquos name and registered trademark were changed from the rustic ldquoFeng Dengrdquo (meaning ldquorichness of abundancerdquo) to a name more appropriate for English-speaking countries In 1993 the company registered its trademark in the 68-member countries of Madrid Union And in 1995 it became the first in its industry to pass the ISO9002 cer-tification

The founder of K Corp was born in the early 1960rsquos and has a Masterrsquos Degree in polymer chemistry He graduated from university in the late 1990s and armed with good English skills he worked for a Korean branch of a British multinational company managing the importing of chemical products Working at a multinational company the founder attained familiarity with technologically superior chemical engineering products than those available in Korea leading him to resign in 1991 to establish a trading company to import and sell resins and other related products in Korea However the fast-growing trade company went through a series of defaults forcing it to file for bankruptcy in 1994 and the founder himself suffered from bad credit After suffering further difficulties running a door to door cleaning service in 1995 he established a company in the United States in 2000 to import and sell Korean IT products there When his credit was restored in 2004 he closed his business in the US and returned to Korea to establish a company specializing in detergent production based on his previous cleaning service business After establishing the company the founder continually participated in various exhibitions market development groups and buyer consultations domestically and internationally to promote his products as being uniquely eco-friendly and cultivated overseas sales channels

Summarizing the two firms the founder of C Corp displayed recognition for international brands and commitment to internationalization from inception despite poor institutional conditions and limited conceptual knowledge of the international market and made cor-responding resource investments to enter overseas markets K Corp founders international entrepreneurial spirit is apparent from his former adventurous experience of establishing and operating a company in the United States and from his pro-active behavior to pursue market opportunities across borders for his new firm by participating in various exhibitions

In summary while the founders of the two cases are similar in that they pursued business opportunities progressively across borders they also exhibit different characteristics The founder of C Corp is noteworthy for being able to overcome latecomer firm inferiority (institutional environment experience) and being adept at efficiently distributing limited resources The founder of K Corp is noteworthy for not giving up and continuing to pursue start-up opportunities across borders despite his business life being tumultuous

422 International Experience and Networking The founder of C Corp did not have direct international experience or overseas network

such as living abroad or working for a multinational company However he lived in an area with many Chinese expatriates and was able to access numerous expatriates and their capital when China opened up in the 1980rsquos Through that process he came to have a feel for the market and was able to take advantage of business opportunities earlier than others

The founder of K Corp had various international experiences including 3 years of work experience in a foreign firm 1 month of training at the firmrsquos US headquarters 4 years of experience in firm management in the US and business trips to China However these international experiences do not appear to have been an important driver of Krsquos early internationalization First K went through early internationalization but is not a born global


147 Second product exports to the United States at its inception are indirect exports through domestic buyers not direct exports indirect exporting is the most rudimentary stage of corporate internationalization that can be performed without any international experience Third exports of its own brand products to the United States and Europe were developed and done through new distribution channels such as online shopping and home shopping not by using any preexisting networks

Based on the observation of the two companies international experience does not seem to have much to do with the early internationalization of traditional industry firms Founder of C had zero international experience but achieved early internationalization and founder of K had abundant international experience but K Corp was not a born global Furthermore neither C nor K possessed relevant preexisting overseas networks

423 International Market Orientation C Corp is a publicly traded company in the Hong Kong Stock Exchange C Corp could

have chosen to be listed on the Chinese stock market and could actually have had its stock prices valued twice as much had it decided to do so However the reason why the founder insisted on Hong Kong was that he believed listing on the Hong Kong Stock Exchange a global capital market would improve the international image and internationalization of the company especially in the US market Crsquos strategic objectives for internationalization were as follows First trademark registration in one hundred countries Second products sold in one hundred countries Third achieve 10 billion RMB of overseas sales revenue (about $142 billion USD) To date C Corp has already registered trademarks in more than 160 countries Among these trademark registration in the United States was granted after 15 years repeatedly going through the process of application rejection and appeals due to concerns with trademark similarity Crsquos products are also currently sold in over 90 countries so the first and second strategic goals have already been achieved

The founder of K Corp focused on the domestic market in the early stages because he believed that his products and quality must be recognized in the highly competitive domestic market to succeed in the international market Based on his experience the believed that it would not be easy to export and sell Korean detergent products in the US market which is a chemical powerhouse1 Then as the companyrsquos technology improved developing eco-friendly detergent products and attaining recognition in the domestic market the founder began preparing to expand to overseas markets by utilizing channels like overseas exhi-bitions online shopping and home shopping In particular the founder discovered that export routes for Korean cosmetics popular in China and Southeast Asia could also be applied to eco-friendly detergents and actively utilized them Currently Krsquos products are sold in Chinas largest Internet shopping mall Taobao Amazon in the US and Qoo10 in Singapore And with the completion in 2019 of its fully automated second factory which possesses annual production capacity of 10000 tons the company was able to relieve the constraints on further expansion into the overseas market due to difficulties in meeting needs within the domestic market Krsquos strategic goal is to form a complementary sales structure by achieving a ratio of 30 online sales 30 offline sales and 30 overseas sales To this end K is currently using differentiated strategies for Chinese and Southeast Asian markets providing high-end eco-friendly detergents that are ldquopricey but satisfyingrdquo In

1 For example a famous Korean brand of household goods is considered to be knock-offs in the US market This is because consumers associate the brand to household electric appliances not to household products


148 developed countries such as the US and Europe K is actively cultivating those markets by combining export of its own brand name products with OEM or ODM exports that utilize its unique cleaning and disinfecting production technology Furthermore K Corp has the goal of being listed on KOSDAQ One of the reasons for this is that doing so would increase financial capacity making it easier to expand the scale of the company via mergers and acquisitions etc and could more easily access big buyers or partners in overseas markets who could cover their own local market

In summary the founder of C Corp showed clear international market orientation even in the early stages of establishment and growth This can be observed in his motivation behind starting the business international brand registration listing on the Hong Kong Stock Exchange and strategic target selection On the other hand while K did not clearly express international market orientation in the early stages due to its selection of domestic market-oriented strategy as its performance in the domestic market stabilized K became very active in overseas market-oriented resource investment In addition the founders of both com-panies understand stocks in terms of promoting internationalization of companies and thus exhibit global orientation and vision

424 Domestic Market In the late 1980s when C Corp was founded the market conditions for sportswear in

China could be characterized as ldquoBlue Oceanrdquo where professional basketball shoes were ra-rities In 1992 with Deng Xiaopingrsquos ldquoWhite Cat and Black Cat theoryrdquo the market economy system in China began to be established and in the late 1990s with WTO membership becoming more and more likely multinational companies rushed to invest in China Therefore sportswear market in China became grounds for fierce competition between foreign brands (eg Nike Adidas) and Chinese companies with competition growing even more intense as new local companies were established after 2000 (eg Erke Qiaodan Xtep 361deg) In the meantime Chinese companies such as C Corp indirectly acquired internation-alization experience and faced highly competitive pressure both of which acted as factors promoting internationalization of these companies

Krsquos internationalization was not driven by increasing competition or other developments within the domestic market At the time of K Corprsquos inception the Korean detergent market was already an oligopolistic market centered on large companies and Krsquos success was achieved through differentiated product strategies and free cleaning services in the niche market of eco-friendly products

In summary C Corp acquired international knowledge through competition and learning with foreign multinational corporations in the domestic market (ie inward international) while facing a significant amount of competition pressure within the domestic market These external facilitating factors influenced the internationalization of C Corp On the other hand Krsquos internationalization was promoted as part of its corporate growth strategy regardless of domestic market factors

425 Imitation and Learning As competition within the sportswear market in China overheated several forward-

thinking enterprises began to seek breakthroughs through internationalization For example in 2000 Lining the leader in sports apparel industry in China used sports marketing to successfully enter the overseas market and opened its first overseas specialty store Subsequently C Corp also sponsored the Greek national basketball team in 2004 opened the


149 first overseas specialty store and entered the overseas market In 2005 C Corp sponsored the Houston Rockets the club that the famous Chinese professional basketball player Yao Ming played for to become the first Chinese sports brand to enter the NBA Boosted by sports marketing and the ldquoYao Ming effectrdquo they grew quickly in both the domestic and overseas markets In 2006 C Corp achieved total sales of 624 million RMB ($ 888 million USD) overseas market sales of 305 million RMB ($434 million USD) and the share of overseas market sales accounted for 488

Contrarily while it is clear that organizational learning was an essential factor in the growth of K Corp it did not have a direct effect on its internationalization

In summary for C Corp the pilot effect of the industry leader was an internal facilitating factor and had a direct impact on its internationalization In addition C Corp reduced uncertainty from inexperience through imitating the industry leader in its initial overseas market entry method On the other hand for K Corp there is no existence of a pilot effect from the internationalization process of an industry leader nor a clear copy of internationali-zation process from other companies that they could refer to

426 Governmentrsquos Support Until 1992 China did not have a market economy employing somewhat a mixture of

planned economy and market economy principles Therefore there was no room for direct government-level support for start-up activities or exports However the geographical location of C Corp was in an area with high exposure to Chinese expatriates which caused the ideological leanings of local government officials to be more open and dynamic One of the reasons why C Corp was founded was that a high-ranking local government official at the time visited the founder himself and encouraged him to seize the opportunity to utilize the labor-intensive industry of ldquoAsian Tigersrdquo to establish an export-oriented firm The founder of C Corp recalls ldquoI had no idea what to do His visit made me realize this and further influenced my successrdquo In this way the local governmentrsquos policy guidance suggested a guideline for the development of internationalization to entrepreneurs who at that time had no internationalization experience and were not highly educated

K Corp actively participated in overseas exhibitions market development groups buyer consultations etc with various policy and financial support from organizations such as local governments of Korea Korea SMEs and Startups Agency KOTRA and trade associations Financial burdens for participating in overseas exhibitions were reduced by receiving almost 30 of the participation fee in support from related organizations and because they were involved in consultations organized by a government agency it was easy for them to establish a trust relationship with overseas buyers In addition K Corp received various information related to marketing buyers etc from related organizations to reduce uncertainty and risk when entering overseas markets

In summary C Corp rarely received direct government support in the initial entry into overseas markets This situation has now changed and the government is providing financial support for participating in international exhibitions On the other hand K has benefited from government support measures in the internationalization process as claimed by several studies in Korea (Shin 2014)

Overall the driving factors for early internationalization of case study companies and related evidence are as follows (Refer to Table 3)


150 Table 3 Driving Factors for Early Internationalization and Case Citation

Driving Factor

C Corp K Corp Test Results Case Citation Test Results Case Citation

International entrepreneurship

Supported ldquoWe must make an international brand like Nike in order to survive in fierce market competitionrdquoProactive resource investment for entry into overseas markets from early on

Supported Resigned from a multinational firm to establish a trading company Adventurously sought start-up opportunities across borders Attended a variety of exhibitions to develop overseas sales channels

International Experience

NA No relevant evidence available from interview process or from secondary sources

Not Supported

Not a born global although the founder has a variety of international experience

International network



International market orientation

Supported Decided to be listed in Hong Kong Stock Exchange in order to promote international image and to get an edge in internationalization Strategic goals reached register brand in 100 countries overseas sales income of 10 bil RMB ($142 bil USD)

Partially Supported

Strategic choice to focus on domestic market early on Active expansion into overseas market after products attain recognition in domestic market Strategic goals Attain mutually supplementary sales structure of 30 Online 30 Offline 30 Exports Goal to be listed in stock market to more easily access big buyers or partners overseas

Domestic market

Supported Company established to supply sports shoes subsidiary materials to Nikersquos partners Fierce competition between foreign (eg Nike Adidas) and Chinese firms Internationalization via sports marketing

Not Supported

Domestic market is big corporation centered oligopoly at time of inception Entry into overseas market is a strategic business choice irrelevant to competitive pressures in domestic market

Imitation and learning

Supported Sponsored Greek national basketball team sponsored NBA Houston Rockets Imitated industry leader (Lining) to decrease uncertainty from lack of experience


Governmentrsquos support

Partially Supported

No direct government support for business start-up or for export activities Advised by local officials to grasp the opportunity of labor-intensive industry of ldquoAsian Tigersrdquo to establish an export-oriented firm

Supported Received numerous policies financial support to actively attend overseas exhibitions etc Received variety of information from relevant organizations to decrease uncertainty and risks when entering overseas markets


151

5 Discussion and Conclusion This study is unique in that unlike most existing literature that deal with high-tech

industries this study focused on traditional industry firms to conduct an exploratory case study to determine whether their internationalization can be better characterized as born global or early and rapid internationalization and to determine the driving factors for their internationalization We derive the following conclusions after conducting a two-case study on firms from China and Korea

First traditional industry firms are more likely to go through early and rapid internationa-lization than being born global with the born global phenomenon appearing more frequently in high-tech industry as pointed out by Crick and Jones (2000) Fernhaber et al (2007) and Freeman et al (2010) This is because traditional industry firms have an established domestic product market and the domestic market is more accessible and less uncertain than the overseas market making it more likely for them to focus on the domestic market during their growth phase On the other hand high-tech companies are often born global due to the lack of product value recognition or low demand within the domestic market due to the innovative yet unfamiliar high-tech characteristics of their products

Second the internationalization process undergone by traditional industry firms that go through early and rapid internationalization is different from traditional internationalization theory In traditional internationalization theory internationalization is viewed as a gradual step-by-step process due to the lack of psychological proximity and empirical knowledge (eg Uppsala model) But the internationalization of a firm that goes through early and rapid internationalization does not follow the principle of progressing from markets that are more proximate to less proximate psychological distance and the lack of empirical knowledge does not act as a major obstacle These companies acquire international knowledge through inward international experience (Lyles et al 2014) or non-empirical learning methods such as imitation and merger and acquisition within the domestic market And the developmental stage of such firms is significant in that through that stage they are able to enhances the possibility of success in overseas markets by supplementing scarce resources exploring op-portunities and improving product competitiveness in the fierce competition process within the domestic market

Third international entrepreneurship international market orientation and imitation and learning are important driving factors for early and rapid internationalization of traditional industry firms International entrepreneurship is associated with higher initiatives and lower international risk perception allowing entrepreneurs to pursue business opportunities across borders with high global thinking and vision without perceiving entry into the international market as too risky International market orientation is a form of expression for international entrepreneurship and it promotes the internationalization of companies by influencing the companiesrsquo international market-oriented strategy selection and specific resource investment In addition imitation and learning can lower the unfamiliarity and uncertainty of a com-panyrsquos overseas market and hasten the empirical learning process enabling companies to internationalize with minimum trial and error

Fourth competitive pressure within the domestic market and government policy support are external driving factors for early and rapid internationalization of traditional industry firms Although an examination of the two companies in our study showed different results realistically changes in the business environment such as competitive pressure in the do-mestic market rising labor costs and policy risks act as factors that drive a company to export or look to foreign investment And the pilot effect of the success of internationalization from


152 an industry leader can be a good motivation for the internationalization of other companies that are in wait-and-see mode A governmentrsquos policy financial support and provision of various marketing information can complement a companyrsquos lack of international experience and reduce uncertainty and risk when entering overseas markets making it easier for them to internationalize

This study shows that the internationalization process of traditional industry firms is more likely to be early and rapid internationalization rather than being born global and suggests answers to why this may be the case And it reveals that the internationalization process of traditional industry firms that undergo early and rapid internationalization is different from traditional internationalization theory in that they are not limited by the lack of psychological proximity and empirical knowledge and are driven by international entrepreneurship international market orientation imitation and learning competitive pressure within the domestic market governmentrsquos policy support and the pilot effect of industry leaders Therefore this study contributes to literature by expanding the scope of application of born global theory to traditional industries making born global theory more generalizable and identifying driving factors to internationalization of traditional industry firms

However this study is limited in its ability to discover additional factors that promote early internationalization and is unable to provide clear answers to the following issues due to the sample limitations inherent to case studies Therefore we provide the following suggestions as areas to pursue future research

First in existing literature experience in international activities (Casillas and Moreno-Meneacutendez 2014 Chetty and Campbell-Hunt 2004 Coviello 2006 Zhang et al 2009) and international networking (Chetty and Campbell-Hunt 2004 Lu and Beamish 2001 Weerawardena et al 2007 Zhang et al 2009 Zhou et al 2007) are seen as important driving factors of internationalization but this study reveals no evidence to support such ideas While international experience does not act as a barrier to internationalization it is possible to make the logical inference that it could have a positive effect on performance by reducing the trial and error of early internationalizationmdasha hypothesis we believe should be explored in future research Furthermore relevant international networking was absent in both cases considered in our study which should also be examined by future research

Second international market orientation was not clearly expressed for K Corp at the stage of inception as they chose a strategy centered on the domestic market Indeed as Korearsquos automobile home appliance and cosmetics industries have sufficient international competi-tiveness and Korean consumers are also demanding with products recognized in the Korean market often being successful in overseas markets this strategy selection can be considered reasonable However it can also be reasoned that traditional industry firms could also be born global if they were to select early on a business strategy aimed at the overseas market or if a founder studied abroad or possessed overseas networking as is the case with some high-tech firms

Third while companies examined in this study were selected via theoretical sampling according to research purposes there are limitations in reflecting recent changes in the Chinese business environment For example private entrepreneurship has become easier international trading is no longer monopolized by state-owned enterprises and there is government-level support for overseas exports However the domestic market has several disadvantages such as difficulty in building brand assets and entering distribution channels high volume of credit-based sales and high transaction costs On the other hand exports provide advantages such as easier collection of bills and less burdens from branding or distribution channels As such many Chinese companies in traditional industries now export


153 OEM products from their inception Therefore research on such companies would be meaningful and would contribute to enriching born global theory

Fourth while born globals have driven the process by which companies compete inter-nationally one problem facing born globals is how to achieve sustainable growth in the international market (Zahra et al 2005) For example there may be an inverted U-shaped association between internationalization speed and firm performance as argued by Mohr and Batsakis (2017) Therefore after a born global successfully enters the overseas market using a dual domesticoverseas strategy that devotes some resources to develop the domestic market could help the firm to hedge against risks and create additional synergy Future studies may provide an in-depth discussion on how to build such a mechanism

Therefore future research should seek to verify their research results and reach more generalizable conclusions by combining quantitative and qualitative studies and providing empirical analysis with large-scale samples as suggested by Cavusgil and Knight (2015)

Finally this study has limitations in the generalization of research results due to the sample limitations inherent in a two-case study Therefore future studies should pursue verification and generalization of research results through empirical analysis of multiple case studies or large-scale samples In addition there is a need to construct a more integrated model for early international processes through various approaches considering born global and non-born global firms especially in industries other than high-tech (Cavusgil and Knight 2015) and non-traditional organizational assets incorporating resource-based industrial-based and institutional-based views (Cavusgil and Knight 2015 Peng et al 2008 Weerawardena et al 2007)

References

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Entrepreneurship Monitorrdquo Cell 407 913-8842

Andersson S and G Wictor (2003) ldquoInnovative Internationalization in New Companies Born

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Autio E (2005) ldquoCreative Tension The Significance of Ben Oviattrsquos and Patricia McDougallrsquos

Article toward a Theory of International New Venturesrdquo Journal of International Business

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Buckley P J G D Newbold and J C Thurwell (1988) Foreign Direct Investment by Smaller UK

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Casillas J C and A M Moreno-Meneacutendez (2014) ldquoSpeed of the Internationalization Process The

Role of Diversity and Depth in Experiential Learningrdquo Journal of International Business

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Cavusgil S T and G Knight (2015) ldquoThe Born Global Firm An Entrepreneurial and Capabilities

Perspective on Early and Rapid Internationalizationrdquo Journal of International Business Studies

46(1) 3-16

Chen X Z H Hu and P Zhao (2009) ldquoCharacteristics and Driving Forces of Chinese Born Globals

Evidence from Comparative Studies of Four SMEs Casesrdquo China Soft Science Magazine (4)

125-139

Chetty S and C A Campbell-Hunt (2004) ldquoStrategic Approach to Internationalization A Traditional

Versus a Born-Global Approachrdquo Journal of International Marketing 12(1) 57-81

Coviello N E (2006) ldquoThe Network Dynamics of International New Venturesrdquo Journal of

International Business Studies 37(5) 713-731


154 Crick D and M V Jones (2000) ldquoSmall High-Technology Firms and International High-Technology

Marketsrdquo Journal of International Marketing 8(2) 63-85

Dicken P (1998) Global Shift The Internationalization of Economic Activity (3rd ed) London Paul

Chapman Publishing

Dickramasekra R and G Bamberry (2001) Born Globals within the Australian Wine Industry An

Exploratory Study (Working Paper No 1101) Bathurst Australia Charles Sturt University

Eisenhardt K M (1989) ldquoBuilding Theories from Case Study Researchrdquo Academy of Management

Review 14(4) 532-550

Eisenhardt K M and M E Graebner (2007) ldquoTheory Building from Cases Opportunities and

Challengesrdquo Academy of Management Journal 50(1) 25-32

Eriksson K J Johanson A Majkgaringrd and D D Sharma (1997) ldquoExperiential Knowledge and Cost

in the Internationalization Processrdquo Journal of International Business Studies 28(2) 337-360

Eurofound (2012) Born Global The Potential of Job Creation in New International Businesses

Luxembourg Publications Office of the European Union

Fan T and P Phan (2007) ldquoInternational New Ventures Revisiting the Influences behind the lsquoBorn-

Globalrsquo Firmrdquo Journal of International Business Studies 38(7) 1113-1131

Fernhaber S P McDougall and B Oviatt (2007) ldquoExploring the Role of Industry Structure in New

Venture Internationalizationrdquo Entrepreneurship Theory and Practice 31(4) 517-542

Forsgren M (2002) ldquoThe Concept of Learning in the Uppsala Internationalization Process Model A

Critical Viewrdquo International Business Review 11(3) 257-278

Freeman S K Hutchings M Lazaris and S Zyngier (2010) ldquoA Model of Rapid Knowledge

Development The Smaller Born-Global Firmrdquo International Business Review 19(1) 70-84

Glaser B and A Strauss (1967) The Discovery of Grounded Theory Strategies for Qualitative

Research London Wiedenfeld and Nicholson

Johanson J and F Wiedersheim-Paul (1975) ldquoThe Internationalization Process of the Firm - Four

Swedish Casesrdquo Journal of Management Studies 12(3) 305-322

Kang Q S (2015) ldquoStudy of Relationship between Knowledge Transfer Network and Performance

of MNCs with Interaction Model Based on Absorptive Capacity and Entry Moderdquo Journal of

International Trade (4) 46-55

Knight G A and S T Cavusgil (1996) ldquoThe Born Global Firm A Challenge to Traditional

Internationalization Theoryrdquo Advances in International Marketing 8(1) 11-26

Knight G A and S T Cavusgil (2004) ldquoInnovation Organizational Capabilities and the Born-

Global Firmrdquo Journal of International Business Studies 35(2) 124-141

Knight G A and P W Liesch (2016) ldquoInternationalization From Incremental to Born Globalrdquo

Journal of World Business 51(1) 93-102

Kuivalainen O S Sundqvist and P Servais (2007) ldquoFirmsrsquo Degree of Born-Globalness

International Entrepreneurial Orientation and Export Performancerdquo Journal of World Business

42(3) 253-267

Lu J W and P W Beamish (2001) ldquoThe Internationalization and Performance of SMEsrdquo Strategic

Management Journal 2(67) 565-586

Lu J X Liu M Wright and L Filatotchev (2014) ldquoInternational Experience and FDI Location

Choices of Chinese Firms The Moderating Effects of Home Country Government Support and

Host Country Institutionsrdquo Journal of International Business Studies 45(4) 428-449

Luo Y and R L Tung (2007) ldquoInternational Expansion of Emerging Market Enterprises A

Springboard Perspectiverdquo Journal of International Business Studies 38(4) 481-498

Lyles M D Li and H F Yan (2014) ldquoChinese Outward Foreign Direct Investment Performance

The Role of Learningrdquo Management and Organization Review 10(3) 411-437


155 Madsen T K E S Rasmussen and P Servais (2000) ldquoDifferences and Similarities between Born

Globals and Other Types of Exportersrdquo In A Yaprak and J Tutek (Eds) Globalization the

Multinational Firm and Emerging Economies Amsterdam JAIElsevier 247-265

Madsen T K and P Servais (1997) ldquoThe Internationalization of Born Globals An Evolutionary

Processrdquo International Business Review 6(6) 561-583

Maitland E E L Rose and S Nicholas (2005) ldquoHow Firms Grow Clustering as a Dynamic Model

of Internationalizationrdquo Journal of International Business Studies 36(4) 435-451

McAuley A (1999) ldquoEntrepreneurial Instant Exporters in the Scottish Arts and Crafts Sectorrdquo

Journal of International Marketing 7(4) 67-82

Mohr A and G Batsakis (2017) ldquoInternationalization Speed and Firm Performance A Study of the

Market-Seeking Expansion of Retail MNEsrdquo Management International Review 57(2) 153-

177

Naudeacute W and S Rossouw (2010) ldquoEarly International Entrepreneurship in China Extent and

Determinantsrdquo Journal of International Entrepreneurship 8(1) 87-111

Nummela N S Saarenketo P Jokela and S Loane (2014) ldquoStrategic Decision-Making of a Born

Global A Comparative Study from Three Small Open Economiesrdquo Management International

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Oehme M and S Bort (2015) ldquoSME Internationalization Modes in the German Biotechnology

Industry The Influence of Imitation Network Position and International Experiencerdquo Journal

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Oviatt B M and P P McDougall (1994) ldquoToward a Theory of International New Venturesrdquo Journal


Oviatt B M and P P McDougall (2005) ldquoThe Internationalization of Entrepreneurshiprdquo Journal


Peng M W D Y L Wang and Y Jiang (2008) ldquoAn Institution-based View of International Business

Strategy A Focus on Emerging Economiesrdquo Journal of International Business Studies 39(5)

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Reuber A R G A Knight P W Liesch and L X Zhou (2018) ldquoInternational Entrepreneurship

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Shin Y S (2014) ldquoA Case Study on Determinants of Rapid Globalization in Born-Global Firmsrdquo

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Verbeke A and L Ciravegna (2018) ldquoInternational Entrepreneurship Research versus International

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Weerawardena J G S Mort P W Liesch and G Knight (2007) ldquoConceptualizing Accelerated

Internationalization in the Born Global Firm A Dynamic Capabilities Perspectiverdquo Journal of

World Business 42(3) 294-306

Yin R K (2009) Case Study Research Design and Methods Thousand Oaks CA Sage

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Zaheer S (1995) ldquoOvercoming the Liability of Foreignnessrdquo Academy of Management Journal

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Zaheer S and E Mosakowski (1997) ldquoThe Dynamics of the Liability of Foreignness A Global Study


156 of Survival in Financial Servicesrdquo Strategic Management Journal 18(6) 439-464

Zahra S A J S Korri and J F Yu (2005) ldquoCognition and International Entrepreneurship

Implications for Research on International Opportunity Recognition and Exploitationrdquo

International Business Review 14(2) 129-146

Zhang M P Tansuhaj and J McCullough (2009) ldquoInternational Entrepreneurial Capability The

Measurement and a Comparison between Born Global Firms and Traditional Exporters in

Chinardquo Journal of International Entrepreneurship 7(4) 292-322

Zhou L X W P Wu and X M Luo (2007) ldquoInternationalization and the Performance of Born-

Global SMEs The Mediating Role of Social Networksrdquo Journal of International Business

Studies 38(4) 673-690

wwwnewktraorg

157

JKT 24(6)

The Impact of Export Insurance on Exports to ASEAN and India

The Experience of Korea

Koung-Rae Lee Korea Trade Insurance Corporation South Korea

Seo-Young Leedagger Department of International Trade Mokwon University South Korea

Abstract Purpose ndash This research empirically proves the extent to which export insurance promotes Korean exports to research object countries among New Southern countries The outcome of this research will present implications for the operations of export insurance for exports to these countries Designmethodology ndash For the empirical analysis the export equation was composed using a basic gravity model Based on this the determinants of Korearsquos exports to research object countries were analyzed In this study a panel unit root test and panel cointegration test were conducted As a result of the panel unit root test it was confirmed that the variables of the panel data are not belonging to I(0) but to I(1) As a result of the panel cointegration test it was established that there are long-term stable relationships among all variables Accordingly the gravity model was estimated using original data in order to reduce the information loss caused by the first difference in spite of individual data belonging to I(1) Findings ndash For the estimated results of panel OLS the estimated coefficient of short-term export insurance was 056-064 with statistically significant results at the significance level of 1 In addition for the analysis results of the random effect model the estimated coefficient of short-term export insurance was 059-064 with a statistically significant result at the 1 significance level This could indicate that Korean export insurance has positive influences on export promotion to New Southern countries Originalityvalue ndash The research implies that export insurance has a 41 to 47 multiplier effect in expanding exports to the New Southern countries for Korea This research has intensively analyzed the effects of export insurance on the promotion of exports to a selected area by a government foreign economic policy which is the originality and value of this paper

Keywords Export Credit Export Promotion Gravity Model New Southern Countries Short-term

Export Insurance JEL Classifications F13 F32 F40

1 Introduction The New Southern countries which include the 10 member nations of the Association of

Southeast Asian Nations (ASEAN) and India are evaluated as having high strategic value as a new growth engine of the global economy New Southern countries are rapidly emerging as a new ldquobig consumer marketrdquo due to rapid economic growth and improved income levels In particular the New Southern countries have established themselves as a large market with trade and investment of $1812 billion (share of 159 out of total trade) and $72 billion

dagger Corresponding author leesymokwonackr




ISSN 1229-828X


158 (144 out of total outbound investments) respectively In this regard one policy that has recently attracted much attention in Korea is the New Southern Policy which is said to be a new paradigm for foreign economic policy in Korea

The recent protectionism between the United States and China is not a fragmentary or temporary phenomenon but is likely to be prolonged in connection with the domestic political situations in both nations Accordingly Korea which is highly dependent on the US and Chinese markets needs to diversify its export markets in order to reduce external risks and establish a stable economic infrastructure In this situation Korea should exercise an active export expansion policy to the New Southern countries In addition the Korean government should provide various export promotion measures that can effectively support and revitalize exports to this region amid the rapidly changing trade environment One of these export support measures is export insurance

The Korean government needs to actively support exports to the New Southern countries by using the export insurance system Funatus (1986) presented the results of a study in which most OECD member countries actively used an export insurance system to protect exporters and promote exports In addition studies on the impact of export insurance on exports have been conducted steadily since the late 1990s to the present Export insurance was proven a part of trade policy for export promotion by many researchers such as Baltensperger and Herger (2009) Kim Sae-Young and Lee Seo-Young (2004) Lee Yune and Kim Hee-Kook and Polat and Yesilyaprak (2017)

A common feature of the previous studies is that the effect of export insurance was analyzed for exports to all countries However these findings can be said to be insufficient in analyzing the export promotion effect of export insurance In other words export insurance is widely used for high risk exports that is exports to countries with a high risk of non-payment Considering these points it is possible to derive accurate and reliable results by restricting the research on export insurance to specific regions and conducting research with strictly refined data about the concerned exports and the insured amounts It is necessary to present improvement measures appropriate to the characteristics of the region through studies of specific regions rather than through studies at the overall level in consideration of the fact that export insurance is a policy-operated system for exports to risky areas

Under this background in order to overcome the limitations of the existing studies this study aims to conduct empirical research by limiting the subject of research to New Southern countries that have recently attracted attention in Korea In other words the purpose of this study is to analyze how Korearsquos export insurance system affects exports to New Southern countries To this end this study attempts to conduct an empirical analysis using a gravity model The gravity model is recognized as the most suitable research model for analyzing the flow of regional and international trade (Helpman 2008)

Through the results of this empirical research it is possible to examine the significance and specific size of the impact of export insurance on exports to New Southern countries Therefore it can be determined whether export insurance makes a significant contribution to expanding the export market in New Southern countries This paper is expected to provide policy implications in terms of the importance of export insurance in increasing exports to a strategic overseas market In other words this research examines the effectiveness of export insurance in the promotion of exports to a strategic area for Korea whose development strategy is characterized as export-led growth This research attentively studies the effects of export insurance on an area of overseas market selected by the foreign economic policy of Korea

The structure of this paper is as follows Chapter II analyzes the theory and preceding studies on export insurance systems Chapter III designs the research model based on

The Impact of Export Insurance on Exports to ASEAN and India The Experience of Korea

159 previous research and explains the research methodology Chapter IV conducts an empirical analysis on how Korearsquos export insurance system affects exports to New Southern countries Chapter V summarizes the research results and suggests implications

2 Theoretical Background

21 The Export Insurance Scheme in Korea Export insurance is a risk-cover scheme that helps exporters develop and expand overseas

markets by hedging risks arising from commercial or political events Commercial risks refer to events in which overseas buyers fail to pay for goods or services supplied on credit terms due to financial difficulties such as insolvencies business closures cash flow problems and so on Commercial risks include a buyerrsquos refusal to or delay in taking delivery of supplies without cause The political risks are inclusive of all events other than commercial risks that prevent payments for international contracts Examples of political risks include war civil unrest expropriation rebellion riot and strikes (K-SURE 2019) Force majeure events are included in political risks

Export insurance provides risk-cover policies either for exporters that deliver supplies on credit terms or for financial institutions that extend financing to buyers based on the underlying international transactions The policies for the former appear in the way of supplierrsquos credit and policies for the latter are mostly provided in the way of buyerrsquos credit

The cover comes in different forms according to the period of credit in the underlying individual transactions Short-term insurance covers those transactions which have credit terms up to two years Medium and long-term insurance covers a period over two years By and large medium and long-term insurance is provided for transactions of capital goods that are mostly large and heavy tangible assets requiring two to three years to complete Because transactions of capital goods require large sums of money during the completion period financing from a financial institution is necessary for buyers in order to pay for the goods mostly in an installment plan during construction Exporters are paid until the time of delivery of the capital goods directly through the financing from the financial institution Medium and long-term insurance makes financings easy by securing the repayments of the borrowers who are the buyers of the capital goods

Short-term insurance is for goods such as consumer products light industry products and intermediate goods that are transacted with the payment terms of the Document against Payment Document against Acceptance and Telegraph Transfer Of course transactions with a Letter of Credit are covered by the short-term insurance program in case the issuing banks of the Letters of Credit have a low net worth or are located in countries where political risks are high Short-term insurance also functions as a way to finance overseas receivables by assigning the rights for the sums payable under the insurance policy to financial institutions (Lavelle 1994)

The export insurance regime is based on the Trade Insurance Act which mandates the Korea Trade Insurance Corporation (hereinafter reffered to lsquoK-SURErsquo) to operate the trade insurance system in Korea (Trade Insurance Act Article 37) K-SURE is an official export credit agency backed by the Korean government The purpose of the insurance system is to cover risks airing in connection with trade or other foreign transactions (Trade Insurance Act Article 1)

K-SURE provides the widest range of insurance programs including Short-Term Export Credit Insurance Medium and Long-Term Export Credit Insurance Export Credit


160 Guarantee and Foreign Exchange Risk Insurance An Export Credit Guarantee is provided to Korean exporters to finance the working capital for impending export transactions Foreign Exchange Risk Insurance covers losses on foreign currency transactions arising from the underlying exports

Short-Term Export Credit Insurance is a program which is applicable to three types of transactions with a maximum payment term of two years i) exports of goods that are produced processed or collected in Korea ii) exports of goods produced or processed by an overseas subsidiary of a domestic company or goods processed overseas by a third party assigned by Korean companies or iii) exports of goods imported for the purpose of export to a third country (K-SURE 2019) Most of the total insured amount comes from the exports of the first which are called lsquodirect exportsrsquo The other two transactions are occasionally insured by Korean exporters

Individual shipments of direct exports are insured either by the comprehensive policy or by a single Short-Term Export Credit Insurance program The comprehensive policy is issued as an open policy in which K-SURE and the exporter agree that the exporter should notify K-SURE of all shipments that match the listed transaction types in the open policy and that K-SURE covers the notified shipments without further underwriting processes A larger credit limit and a lowered insurance premium are allowed per each overseas buyer to the insured under the comprehensive policies Via the comprehensive policy the insurer can spread the risks by realization of the law of large numbers and the insured can expand into the overseas market without worrying about non-payment events A single policy is issued upon appli-cation from an exporter for each overseas buyer after being underwritten by K-SURE which considers the creditworthiness of the buyer the payment term the history of transactions between counterparties and so on

The coverage ratio of Short-Term Export Credit Insurance is usually 95 for each shipment of underlying transactions The average insured term falls around 120 days Short-Term Export Credit Insurance seems to be provided with premium rates that are adequate to cover the long-term operating costs and losses of the program according to the loss ratio of the program being less than 100 over the recent five years (K-SURE 2019) The loss ratio less than 100 confirms that Short-term Export Insurance is operating within the regime of the WTOrsquos subsidy regulations (Lee Koung-Rae 2019) Short-Term Export Credit Insurance for lsquodirect exportsrsquo is the flagship program with a two thirds share of the total underwriting volume of K-SURE

22 Literature Review Two methodologies have been used in the empirical research on export insurance the

export function model and gravity model Lee Seo-Young (2014) and Mah (20062010) conducted empirical analyses by applying the export supply function Research by Lee Yune and Kim Hee-Kook (2016) and Polat and Yesilyaprak (2017) conducted empirical analyses by applying the gravity model Each analysis method has advantages and disadvantages but the gravity model has been used more frequently in recent years

Mah (2006) examined whether or not export insurance provided by the Japanese govern-ment promoted exports The export supply function model was applied to the empirical analysis and the period of investigation (POI) for research was 1961 to 1999 Prior to the empirical analysis data stability tests were conducted The unit root tests showed that all concerned variables were integrated at order one and they were not cointegrated Empirical evidence using the first differenced data showed that export insurance did not have a significant effect on the exports of Japan Mah (2010) conducted an empirical analysis of the


161 impact of the British export insurance system on exports The analysis method was the same as that of Mah (2006) and the POI for the analysis was from 1980 to 2006 Empirical evidence using the first differenced data showed that export insurance did not have a significant effect on increasing the exports of Britain

Lee Seo-Young (2014) conducted an empirical analysis on the impact of Korearsquos export insurance system on export promotion to all countries This study divided the export insurance programs provided by K-SURE into two groups short-term insurance types and medium and long-term insurance types He conducted two analyses on each group The model applied to the empirical analysis was the export supply function model and the POI for the research was from 1992 to 2013 The empirical research evidenced that both the short-term and the medium and long-term export insurance had no contribution to promoting exports

Lee Yune and Kim Hee-Kook (2016) estimated the effect of Korearsquos short-term export insurance on exports using a panel gravity model The model by Head and Mayer (2014) was assumed and extended to include the performance of short-term export insurance coverage in Korea for a period of interest of 20 years from 1995 to 2014 The estimation results showed that there was strong evidence of the positive effect of short-term export insurance on export promotion The research proved that if Korearsquos short-term export insurance increased by 1 exports would increase by about 008 They argued that Korearsquos export insurance system was effective as a trade support tool

Polat and Yesilyaprak (2017) analyzed the effects of Turkeyrsquos export credit insurance on export performance The empirical analysis was conducted by setting a trade gravity equation for the years of 2000 to 2015 as the POI Empirical evidence using a different panel gravity model log-log OLS and a fixed effect model showed that the provision of export insurance by the government had a significant effect on increasing exports in Turkey According to the results of the study if the supply of export insurance increase by 1 exports can be expected to rise by 003-017 in Turkey

This study conducts an empirical analysis with the gravity model used in research by Lee Yune and Kim Hee-Kook (2016) Polat and Yesilyaprak (2017) In order to analyze the impact of export insurance on exports it is vital to accurately define data related to insured tran-sactions and the concerned exports In most studies the total insured amount was used as empirical analysis data along with the total amount of exports However in order to use the underwritten volume for analysis it is important to process and refine the data according to the purpose of the study That is because the insured volume of export insurance is inclusive of foreign transactions which are not directly related to exports the insured volume should be processed to exclude the amount that is not deeply related to domestic economic activities such as resale intermediary trade consignment sales and others Likewise exports should be matched with the respective insured transactions Only after refining the data can the promotion effect of export insurance be analyzed However in a study by Lee Yune and Kim Hee-Kook (2016) the data seemed not to be processed or refined in consideration to the raw data on the insured amount and the concerned exports If an empirical analysis were to be conducted without accurately defining and processing the data there may be errors in the analysis results entailing incorrect implications for export insurance

Since panel data used in the gravity model includes time series data empirical analysis should be conducted after confirming the stability of the panel data In a study by Polat and Yesilyaprak (2017) an empirical analysis was conducted without a stability test for the time series data used in the estimation model If the stability of time series data is not secured the reliability of the estimation results may be lower Accordingly this study fixes the problems of the stability of the panel data to contribute to academic development


162 In consideration of the nature of export credit insurance covering high-risk transactions

the effects of export insurance should be studied on specific areas regarded as a high risk or as a strategic area for expansion into an overseas market Otherwise the results of research on the effects may be averaged to a low level by combining both the insured amounts for exports to a risky area and for exports to marketable risk countries All previous studies on the effects of export insurance have been done on export promotion to all countries In this sense it could be said the previous literature has a lack of explanation of the effects of export insurance

3 The Model and Data

31 Research Model 311 Basic Theory for Model Setting A gravity model is most generally used to analyze determinants of exports at the national

level That is the gravity model is the main economic model used for empirical studies on trade among nations The gravity model was first adapted to international trade theories by Tinbergen (1962) The basic idea of the gravity model is based on a kind of formulated fact that the economic size and distance between countries is closely related to the trade flows between the countries Namely it is based on the estimation that the trade volume among countries is proportional to square of economic size and inverse-proportional to distances It can be mathematically expressed as follows

(1)

Here stands for trade size between the two countries is a proportional constant is

the GDP of country is the GDP of country and is the distance between and countries respectively Applying the natural logarithm to Equation (1) if it is rearranged as a model for quantitative analysis it can be the following equation (2)

13 13 13 13 (2)

Equation (2) is the process to decide the total trade of nations conducting domestic and

overseas economic activities and yet it does not explain the revealed comparative advantage in trade among the related countries stands for the total trades between both and countries and it is valid when partially contributing to an increase in the GDPs of both countries is a representative variable for country as an important measure to determine total trade The main merit of the gravity model is that the distance of both countries in trade plays a clear role

Since the 1980s there have been studies using gravity models In particular the gravity model has been the main model for analyzing trade between two units and it was established with theoretical evidence through studies by Anderson (1979) Anderson and van Wincoop (2003) Bergstrand (1989) Deardorff (1998) and Eaton and Kortum (2002) In addition to the main variables of the gravity model GDP and distance these studies included population trade cost whether to combine local economies whether to conclude FTAs customs foreign currency exchange rate and policy factors as descriptive factors As seen in these studies the gravity model is very useful for measuring the influences of various factors including GDP


163 and distance on trade flows However it is disadvantageous that the model can neither reflect the alternative effects between countries nor consider some factors which cannot be explained therefore it is necessary to be careful in interpreting the estimated results of the model

312 Research Model Setting In this study the gravity model was established for the determinants of exports between

New Southern countries and Korea For the analysis a basic gravity model was adopted to compose an export equation and the determinants of Korearsquos exports to New Southern countries were analyzed A gravity model is an efficient model for explaining a trade pattern of two of countries and for estimating trade volume yet the export equation is set by focusing on the exports between Korea and New Southern countries instead of the trade patterns between the countries Then adding the variable for short-tern export insurance to the export equation the analysis was conducted on the influence of short-term export insurance on exports to New Southern countries For the countries analyzed seven nations were selected as research objects among the 11 in the New Southern countries excluding Laos Myanmar Brunei and Cambodia because of the smaller trade amounts Hereafter the New Southern countries refer to the seven countries in this research for the purpose of convenience

The descriptive variables in the research model include the underwritten amount of the short-term export insurance program GDP population and distance to other countries The conclusion of FTAs with Korea was added as a dummy variable Export insurance or short-term export insurance in the research model refers to the Short-Term Export Credit Insurance of K-SURE Because of its sizable insured volume and the applicable transactions of the program Short-Term Export Credit Insurance can be a representative insurance program

In order to empirically review how much the short-term export insurance has contributed to Korearsquos export promotion to the New Southern countries the basic theoretical model is the following equation (3) For the model an empirical study was conducted using available data between 2000 and 2018

13 1313

13 (3) With the application of the log to Equation (3) it is converted to the log linear form of

Equation (4) The values of each variable in Equation (4) mean elasticity ie the effects of changes of each variable on the changes in Korean exports

13 1313

13 (4) In Equation (4) stands for Korearsquos annual export size to the New Southern countries

stands for Korea for New Southern countries and for the POI between 2000 and 2018 for 19 years

Here the estimated coefficient is a variable for export insurance and if exporting transactions are more insured with short-term export insurance risks are reduced resulting in increases in exports Therefore the estimated coefficient of export insurance is expected to be positive (+)


164 The estimated coefficients of and are variables showing the market sizes of other

countries and if the market size is bigger reflecting the income level and the population size of each country it is expected that Korean exports will increase to that market Accordingly the estimated coefficients of other countriesrsquo incomes and populations would be positive (+)

The estimated coefficient stands for the distance between the capital city of Seoul of Korea and those of other countries and if the distance is farther the cost of trade will be higher Because the distance will have a negative influence on the trade the estimated coefficient would be negative (-)

The estimated coefficient is the relative export price index showing the changes in exports according to the relationship of the export price indices of Korea and other countries If export prices increase for certain products produced in Korea the demand for the product will decrease in other countries If another countryrsquos consumer price increases for certain products produced there the demand for Korean products will increase Accordingly the estimated coefficient of the relative export price would be negative (-)

The estimated coefficient is whether an FTA was concluded between Korea and another country The conclusion of FTAs with other countries lowers the obstacles to trade creating a positive influence on exports Therefore the estimated coefficient would be positive (+) for exports

32 Data For the data used in this study panel data from 2000 to 2018 were used for the seven

countries after excluding Laos Myanmar Brunei and Cambodia because of their insufficient trade volumes Among the variables used in this analysis for export determinants data on export volume were provided by the Korea Trade Statistics Promotion Institute The exports used in this study are exports of goods or services which were supplied after being produced or processed or gathered in Korea ie lsquothe direct exportsrsquo The direct exports take a share of 85 of the total exports to the seven countries for the POI

The insured amount of export insurance was restricted to the underwritten amount of the Short-term Export Credit (General) program to focus on foreign transactions deeply related to domestic economic activities Out of the total underwritten volume of the Short-term Export Credit (General) program only the insured amount for the direct exports is con-sidered in after excluding underlying exports related to resale transactions intermediary trade and consignment exports Two-thirds of the total insured volume of K-SURE was underwritten for direct exports under the Short-term Export Credit (General) program The other programs in K-SURE were excluded for the same reason For example the insured amount for the Medium and long-term Export Credit Insurance program covers the export financing of the underlying contracts which considerably exceed the amount of the national content of the contract The underwriting amount of the Export Credit Guarantee is double the insured amount of the Short-term Export Credit (General) program

If any empirical research is conducted without processing and selecting data reflecting the features of each insurance program there may be errors in the statistical results and interpretations By the defining and refining the insured amount to match direct exports this research can draw a validated effect of export insurance on exports to a certain overseas market

Other nationsrsquo GDPs as income variable were collected from the national statistics portal system of the Statistics of Korea The relative export price index was calculated as the outcome of the Korean relative export price index divided by the other countriesrsquo consumer price indices The base year is 2010 for the price indices The related data were acquired from the


165 Statistics of Korea

For the distance variable the distance between Seoul and of the capital of the other country was measured In quantifying the distance variables there are some critical arguments among scholars The most general method is to measure the distance between capitals The related data were extracted from the website of wwwindocomdistance In order to show the effects of concluding FTAs the dummy variable was set at 0 before and 1 after the effective dates of the conclusions of FTAs The details of the variables are in Table 1

Table 1 Description of Analysis Data

Variables Variable Description Source ln(EX) Total export volume to exporting countries Korea Trade Statistics Promotion

Institute (KTSPI) ln(EXINS) Insured values of Short-Term Export Credit

Insurance for the research object countries (exporting countries)

K-SURE

ln(GDP) GDP of exporting countries Statistics Korea ln(POP) Population of exporting countries Statistics Korea ln(DIST) The distance between the capital city of Korea

and the capital cities of the exporting countrieswwwindocomdistance

RPI Relative Price Index (Korearsquos export price index consumer price index of exporting countries)

Statistics Korea

FTA Free Trade Agreement with Korea (dummy variable)

FTA Homepage

33 Methodology This study analyzes the impact of Korearsquos export insurance on exports to New Southern

countries That is it aims to empirically evidence how the Korean export insurance contri-butes to export promotion For this the research follows the features of panel analysis in utilizing data which reflect the characteristics of both cross-section data and time-series data (Park Hyun-Hee and Cho Sung-Je 2020) Accordingly the data used in this research are those such as time-series data by nation cross-section data on entire research object countries and the subjects of the analysis

Ahead of finding the main causal relations among variables included in the model it is necessary to analyze the long-term stationarity of the variables along with the suitability of the established model In this study a panel unit root test and panel cointegration test are conducted to confirm the stationarity of the data

Because of the existence of a unit-root in time-series data there may be a strong correlation between variables without the actual correlation resulting in a problem of spurious regres-sion Therefore it is necessary to conduct empirical analysis after checking the stationarity of the panel data as it includes a time-series In general a lsquounit rootrsquo is tested through an Augmented Dickey-Fuller (ADF) test and Phillips Perron (PP) However many scholars have recently pointed out that both ADF and PP unit-root tests cannot reject the null hypothesis lsquothere is no unit rootrsquo well Accordingly a new unit root test method is required to supplement the standard unit root test This study adopts the test methods suggested by Im Pesaran and Shin (2003) and Levin Lin and Chu (2002) to supplement the lack of a unit-root test


166 After conducting a unit root test a panel cointegration test was conducted in order to

confirm long-term stationarity and balance among the variables For the panel cointegration test because the Johansen integration test is highly recognized this research uses a Fisher-type cointegration test derived from the Johansen cointegration test

Based on these test results the empirical analysis will be done using panel OLS However if Equation (4) is empirically analyzed by simple panel OLS there is chance of bias from the national characteristics of each country Therefore this research additionally adopts varying coefficient models ie the random effects model and fixed effects model in order to more effectively analyze unobservable factors in the panel data

In addition a Hausman test was conducted to confirm which model had greater validity between the random effects and fixed effects models (Wooldridge 2008) The Hausman test is used to analyze correlation between independent variables and individual effect error terms in estimating which model is more suitable If there is correlation between the individual effect and independent variables the fixed effects model is chosen if there is no correlation the random effects model is selected (Kennedy 2003)

In this study Equation (4) is classified into two models for analysis Model I is without the dummy variable and Model II includes the dummy

4 Empirical Evidence

41 Basic Statistics Analysis Ahead of the empirical analysis the characteristics of the main variables were found and

the descriptive statistics are displayed in Table 2

Table 2 Basic Statistics of the Variables

Variables Average Standard Deviation

Minimum Value

Maximum Value

Number of Samples

ln(EX) 8623 0729 7157 10676 133 ln(EXINS) 6629 0759 6739 7980 133 ln(GDP) 5595 0959 3440 7911 133 ln(POP) 11286 1595 8301 14117 133 ln(DIST) 7797 0260 7392 8094 133 RPI 1093 0376 0516 2518 133 FTA 0586 0494 0000 1000 133

42 Panel Unit Root Test For verifying the stationarity of the data a panel unit-root test was done and the results are

seen in Table 3 In this study in order to reduce errors the unit root test has been performed with LLC (Levin Lin and Chu) IPS (Im Pesaran and Shin) ADF (Augmented Dickey-Fuller) and PP (Phillips-Perron) tests

The results of the unit root test show that the levels of the concerned variables are not stationary at any reasonable level of significance However in the case of the first difference by rejecting the null hypothesis lsquothere is unit rootrsquo it shows that there is stationarity in the first difference That is all the variables used in the analysis are tested as panel data in the series of I(1) not I(0)


167 Table 3 Results of the Panel Unit-root Test

Variables Level First Difference

Statistics Prob Value Statistics Prob Value ln(EX) Levin Lin and Chu t-test Im Pesaran and Shin W-stat ADF-Fisher Chi-square PP-Fisher Chi-square

-2461 -0566 17127 12384

0006 0285 0249 0574

-2652 -3783 39230 11354

0004 0000 0000 0000

ln(EXINS) Levin Lin and Chu t-test Im Pesaran and Shin W-stat ADF-Fisher Chi-square PP-Fisher Chi-square

-2928 -0502 13883 10379

0002 0307 0458 0734

-3797 -4055 41634 75533

0000 0000 0000 0000

ln(GDP) Levin Lin and Chu t-test Im Pesaran and Shin W-stat ADF-Fisher Chi-square PP-Fisher Chi-square

-4464 -0843 14987 58828

0000 0199 0379 0969

-2946 -2525 27550 51942

0001 0005 0016 0000

ln(POP) Levin Lin and Chu t-test Im Pesaran and Shin W-stat ADF-Fisher Chi-square PP-Fisher Chi-square

-0648 08585 15187 16256

0258 0804 0365 0298

-2547 -2179 35453 43862

0005 0014 0001 0000

RPI Levin Lin and Chu t-test Im Pesaran and Shin W-stat ADF-Fisher Chi-square PP-Fisher Chi-square

01178 23264 26974 25386

0546 0990 0999 0031

-3496 -6196 62334 20332

0000 0000 0000 0000

Notes 1 and mean significance at the 1 and 5 levels respectively 2 Probabilities for Fisher tests are computed by using an asymptotic Chi-square distribution

All other tests assume asymptotic normality 3 The Null hypothesis is that the panel unit root exists

43 Panel Cointegration Test If the variables of the panel data belong to I(1) a panel cointegration test is required to

confirm long-term stationarity and balance among the variables This study has conducted a Fisher-type integration test based on the Johansen cointegration test The results of the cointegration test arrayed in Table 4 show rejection of the null hypothesis that lsquothere is no cointegration relationrsquo Accordingly it was confirmed that there was long-term balanced relationship among the panel data That is it could be said that there is a long-term stable relationship among all the variables

If the panel data are unstable as a result of the panel unit-root test the difference data should be used to secure stationarity of the individual data and in this case there may be a problem of information loss in the data due to the use of the difference If there is a cointegration relationship in the panel data it means that there is long-term balance among the individual panel data and the empirical analysis can use the original data instead of the differenced data (Kim Shin-Jou 2017) Accordingly in this study in spite of the individual


168 data belonging to I(1) the original data were used in estimating the gravity model in order to decrease the information loss caused by the difference method

Table 4 Results of the Panel Cointegration Test

HypothesizedNo of CE(s)

Fisher Stat from trace test Prob Fisher Stat

from max-eigen test Prob

None 2535 0031 4377 0000 At most 1 9488 0000 9488 0000 At most 2 4219 0000 2312 0000 At most 3 5502 0000 1584 0000 At most 4 1283 0000 8513 0000 At most 5 6754 0000 6754 0000

Note The Null Hypothesis of the Fisher type Johansen test is no cointegration in trace and max-eigen 44 Model Estimation Since all variables show long-term stability a panel OLS (Ordinary Least Square) analysis

has been performed The estimated result of Equation (4) is arrayed in Table 5 Model I is the result of this analysis without the dummy variable and Model II is the result of analysis with the dummy variable

In the analysis of Model I statistically significant results were confirmed at the 1 sig-nificance level for those variables ie the distance to another country (DIST) relative export price (RPI) and the underwritten amount of short-term export insurance (EXINS) In Model II relative export price (RPI) conclusion of FTAs as a dummy variable and the underwritten amount of short-term export insurance (EXINS) had statistically significant results at the 1 significance level as well

To summarize the result of panel OLS analysis the distance to other countries relative export price conclusion of FTAs and short-term export insurance had influence on Korearsquos exports to the New Southern countries In particular the coefficient of the underwritten amount of short-term export insurance is about 058-064 which is statistically significant at the 1 level This means that Korean short-term export insurance has a positive influence on export promotion to New Southern countries

It was confirmed that the gravity model would be useful for analyzing Korearsquos export determinants through the results of panel OLS analysis However for the panel OLS analysis method there is a limitation in not comprehensively considering the individual characteristics and time characteristics which are merits of the panel data used in this study Therefore the analysis on the effects of Korean short-term export insurance on exports to New Southern countries has been conducted using a varying coefficient model ie the fixed effects and random effects models The analysis results are suggested in Table 6 which have been found through the random effects and fixed effects models

A Hausman test was conducted to verify which model provided greater validity between the random effects and fixed effects models If the null hypothesis of the Hausman test is rejected the fixed effects model is more valid However if the null hypothesis is not rejected the random effects model has greater validity As a result of the Hausman test the null hypothesis has not been rejected which confirms that the random effects model has greater validity Accordingly this study explains the analysis results based on the estimated results of random effects model


169 Table 5 Results of Panel OLS Estimation


Dependent Variable ln(EX)Model I Model II

Coefficient P-value Coefficient P-value Constant -8603

(5981)0000 -7046

(4907)0000

ln(EXINS) -0641

(10597)0000 -0586

(9835)0000

ln(GDP) -0023(0235)

0815 -0051(-0517)

0605

ln(POP) -0022(0532)

0595 -0048(1169)

0244

ln(DIST) -0494

(-2486) 0014 -0280

(-1413) 0160

RPI -0699

(-4818)0000 -0533

(-3661)0000

Dummy(FTA) - - -0339

(3677)0000

Adj R-squared 078 079No of Obs 133 133

Notes 1 Values within the parentheses below the estimated coefficients denote the calculated t-statistics 2 statistically significant at 1 level

Table 6 Estimation Results of the Fixed Effects and Random Effects Models


Dependent Variable ln(EX)Model Ⅰ Model II

Fixed Effect Random Effect Fixed Effect Random Effect Constant 20297

(3158)(9044

(8027)19171

(2990)(7046 (6436)

ln(EXINS) (0387

(4106)(0638

(13563)(0405

(4302)(0585

(12899) ln(GDP) (0986

(5376)(0062 (0793)

(1098

(5674)-0051

(-0678) ln(POP) -1745

(-2817)(0009 (0266)

-1706

(-2772)(0048 (1532)

ln(DIST) omitted -0562

(-3643)omitted -0280

(-1852) RPI (-0043

(-0306)-0661

(-6060)-0023

(-0164)-0533

(-4802) Dummy(FTA) - - -0158

(-1702)(0339 (4822)

Adj R-squared 088 078 089 079 No of Obs 133 133 133 133

Notes 1 Values within the parentheses below the estimated coefficients denote the calculated t-statistics 2 mean significance level at the 1 and 10 levels respectively

The empirical results of the random effects model can be explained as follows The esti-

mated coefficients for the incomes and populations of the countries were not statistically significant at any significance level in the analyses of Models I and II However in the analysis of Model I the distances between countries and export price index had statistically significant influences at the 1 significance level

Model II analysis also shows elasticity in distance between countries at -028 which is


170 statistically significant at the 10 significance level The relative export price coefficient is about -053 which is statistically significant at the 1 level The FTA variable used as a dummy also had statistically significant influence at the 1 significance level

Lastly the analysis result of the effects of short-term export insurance is summarized as follows In the analysis of Model I the estimated coefficient of underwritten amount of short-term export insurance is 0638 with a statistically significant result at the 1 level In Model II the coefficient is 0585 and statistically significant at the 1 level For the comprehensive analysis results of both Models I and II the estimated elasticity shows that a 1 increase in the supply of short-term export insurance increases exports between 059 and 064 to New Southern countries In other words the elasticity of the export insurance has a multiplier effect of 41 to 47 which is expressed by the ratio of the increased exports to the increased insured amount for the region

5 Summary and Conclusion This study analyzed the effect of Korean short-term export insurance on exports to the New

Southern region using a gravity model As for the research object countries empirical studies were conducted using POI data from 2000 to 2018 excluding Laos Myanmar Brunei and Cambodia because of the insignificant trade volumes

Before finding important causal relations between variables included in the gravity model the research analyzed long-term stationarity among the variables along with the suitability of the established model In order to verify the stationarity of the data a panel unit root test and panel cointegration were conducted It was confirmed that the variables of the panel data did not belong to I(0) but to I(1) according to the panel unit root test As a result of the panel cointegration test it was established that there were long-term stable relationships among all variables Accordingly the gravity model was estimated using original data in order to reduce the information loss caused by the first difference in spite of individual data belonging to I(1)

In summary of the estimated panel OLS the estimated coefficient of short-term export insurance was 0641 with a statistically significant result at the 1 level in the analysis of Model I In addition the estimated coefficient was 0586 with a statistically significant result at the 1 level in the Model II analysis

However for panel OLS analysis as a fixed coefficient model there was a limitation in not comprehensively considering individual and time characteristics which are merits of the panel data used in this study Therefore in this study additional empirical analysis was performed on the random effects and the fixed effects models corresponding to the coefficient of the variation model A Hausman test was conducted in order to verify which model had greater validity The random effects model was selected by the Hausman test

Based on the random effects model analysis the estimated coefficient of short-term export insurance was 0638 with a statistically significant result at the 1 level in the analysis of the Model I while the analysis of Model II had an estimated coefficient of 0585 with a statistically significant result at the 1 level For the comprehensive analysis of both models a 1 increase in short-term export insurance could increase exports to research object countries by 059 to 064 Accordingly this research empirically proves that export insurance promotes exports to the New Southern countries with a multiplier of 41 to 47 This outcome implies that export insurance plays an effective role as a part of the trade policy for export promotion In consideration of the premium level of the short-term export insurance of K-SURE as the insurance is provided without cost to the government of Korea this could be a measure of export promotion without a breach of the subsidies regulations of the WTO


171 Therefore export insurance can be provided with more actively for exports to New

Southern countries Market expansion in the region would entail the diversification of the export market of Korea which is still concentrated in China and the United States Moreover in the sense that the export insurance is a measure of exporters to advance into a new risky market export insurance should be provided for exports to the four countries excluded from this research due to insufficient trade volumes

The contribution of this research lies in highlighting the role of export insurance for Korean exports to New Southern countries which are a strategic area of foreign economic policy for Korea This research intensively studied the role of export insurance for the selected countries which is different from existing studies

References

Anderson J E (1979) ldquoA Theoretical Foundation for the Gravity Equationrdquo American Economic

Review 69 106-116

Anderson J E and E van Wincoop (2003) ldquoGravity with Gravitas A Solution to the Border Puzzlerdquo

The American Economic Review 93(1) 170-192

Baltensperger E and H Nils (2009) ldquoExporting against Risk Theory and Evidence from Public

Export Insurance Schemes in OECD Countriesrdquo Open Economics Review 20(4) 545-563

httpsdoiort101007s11079-007-9076-y

Bergstrand J H (1989) ldquoThe Generalized Gravity Equation Monopolistic Competition and the

Factor-Proportions Theory in International Traderdquo The Review of Economics and Statistics

71(1) 143-153

Deardorff A (1998) ldquoDeterminants of Bilateral Trade Does Gravity Work in a Neoclassical

Worldrdquo In J A Frankel (Ed) The Regionalization of the World Economy Chicago IL

University of Chicago Press

Eaton J and S Kortum (2002) ldquoTechnology Geography and Traderdquo Econometrica 70(5) 1741-

1779

Head K and T Mayer (2014) ldquoGravity Equations Workhorse Toolkit and Cookbookrdquo In G

Gopinath E Helpman and K Rogoff (Eds) The Handbook of International Economics (Vol

4) Amsterdam Elsevier 131-195

Im Kyung-So M H Pesaran and Yong-Cheol Shin (2003) ldquoTesting for Unit-roots in Heterogeneous

Panelsrdquo Journal of Econometrics 115(1) 53-74 httpsdoiorg101016S0304-4076(03)000

92-7

Kim Sae-Young and Seo-Young Lee (2004) ldquoThe Effects of Korearsquos Export Insurance on Exports

an Application of Vector Autoregressive Modelrdquo Journal of Customs and Ttrade 5(3) 77-97

Kim Shin-Jou (2017) ldquoAn Analysis of the Effect of Real Exchange Rate and Exchange Rate

Volatility on Indian Export with Gravity Modelrdquo Journal of International Trade amp Commerce

13(1) 309-329 httpdxdoiorg1016980jitc131201702309

Korea Trade Insurance Corporation (K-SURE) (2019) General Terms of Short-Term Export

Insurance (Post-Shipment General Export Transaction) Available from httpswwwksure

orkrinfotermsdo (accessed June 21 2020)

Korea Trade Insurance Corporation (K-SURE) (2019) Report to Trade Industry Energy SMEs

Startups Committee in National Assembly for the 2019 Inspection and Investigation of State

Administration (K-Sure Report) Seoul Author 118

Lavelle J T (1994) ldquoIntroduction to Export Credit Insurancerdquo Proceedings of ELECTRO rsquo94

Electro94 International Electro rsquo94 Boston MA 103-112


172 Lee Koung-Rae (2019) ldquoStudy on the WTO Disputes over the Korean Shipbuilding Industry in

Relation to Export Creditrdquo Korea Trade Review 44(1) 129-142

Lee Seo-Young (2014) ldquoEffect of Export Insurance on Export Promotion in Korea Comparing the

Short-term Types and the Medium and Long-term Typesrdquo Journal of International Trade amp

Commerce 10(4) 1-14 httpdxdoiorg1016980jitc1042014081

Lee Yune and Hee-Kook Kim (2016) ldquoAn Analysis on the Effect of Short-term Export Insurance on

Export A Gravity Model Approachrdquo Journal of International Trade and Industry Studies

21(1) 67-85

Levin A C F Lin and C S J Chu (2002) ldquoUnit-root Tests in Panel Data Asymptotic and Finite-

sample Propertiesrdquo Journal of Econometrics 108(1) 1-24 httpsdoiorg101016S0304-

4076(01)00098-7

Mah J S (2006) ldquoThe Effect of Export Insurance Subsidy on Export Supply The Experience of

Japanrdquo Journal of Asian Economics 17 646-652

Mah J S (2010) ldquoExport Insurance and Export Supply The Experience of Britainrdquo Journal of

International Trade and Insurance 11(1) 3-20

Park Hyun-Hee and Sung-Je Cho (2020) ldquoDeterminants Influencing Agricultural Exports between

Korea and the New Southern Countriesrdquo Journal of International Trade amp Commerce 16(3)

245-258 httpdxdoiorg1016980jitc163202006245

Pedroni P (1999) ldquoCritical Values for Cointegration Tests in Heterogeneous Panels with Multiple

Regressorsrdquo Oxford Bulletin of Economics and Statistics 61(S1) 635-6701 httpsdoiorg

1011111468-00840610s1653

Pedroni P (2004) ldquoPanel Cointegration Asymptotic and Finite Sample Properties of Pooled Time

Series Tests with an Application to the PPP Hypothesisrdquo Econometric Theory 20(3) 597-625

Polat A and Y Mehmet (2017) ldquoExport Credit Insurance and Export Performance An Empirical

Gravity Analysis for Turkeyrdquo International Journal of Economics and Finance 9(8) 1-13

Tinbergen J (1962) ldquoShaping the World Economy Suggestions for an International Economic

Policyrdquo Thunderbird International Business Review 5(1) 27-30

Wooldridge J M (2008) Introductory Econometrics A Modern Approach (4th ed) Boston MA

Cengage Learning

wwwnewktraorg

173

JKT 24(6)

Empirical Analysis of Effect of Entrepreneurship on Export Performance Focusing on the

Mediated Effect of Technology Capability and Export Support Policy of Start-Ups

Se-Hwan Joo Department of International Trade Gyeongsang National University South Korea

Gun-Hoon Shindagger

Department of International Trade Gyeongsang National University South Korea

Abstract Purpose ndash This study aims to examine the effect of entrepreneurship of start-ups on export perfor-mance when the business closure rate is higher than business start-up rate in Korea Thus this study analyzes various factors for start-ups established within the past seven years and uses export per-formance as an indicator Prior to analysis of factors the study defines the concepts of start-up factors based on various studies Designmethodology ndash In order to analyze the export performance of startups this study conducted an empirical analysis using statistical analysis Theories were established based on previous studies and hypotheses and research models were designed based on the established theories Subsequently in order to verify the research hypothesis and research model factor analysis such as validity and reliability and structural equation modeling were analyzed Findings ndash As a result of analysis based on previous studies we found that there is a difference between theoretical and practical aspects Whereas previous studies showed that market orientation techno-logy orientation and social capital have a direct impact on export performance the present study analyzed that there is no such impact and that technology capabilities were important as a result of the unique traits of start-ups Originalityvalue ndash Existing studies have limitations in understanding the overall characteristics of a company by using market orientation technology orientation and social capital as individual inde-pendent variables In addition the existing researches have been analyzed in relation to corporate performance whereas this study has been limited to export performance so it can be regarded as different from other studies

Keywords Entrepreneurship Market Orientation Technology Orientation Social Capital Export

Performance JEL Classifications C12 F14 O53 P45

1 Introduction

11 Background and Purpose of Study Korea achieved USD 1 trillion in trade volume in 2018 of which exports accounted for

USD 600 billion and was the seventh nation in the world to do so after US Germany Japan Netherlands France and Japan However due to excessive competition GDP growth in 2018 was only 2 Fierce competition for limited resources and capital is increasing household

dagger Corresponding author gunhoon1gnuackr




ISSN 1229-828X


174 debt and economic problems including stagnation in jobs and income Currently Korearsquos export structure is highly dependent on the export by large corporations based on capital Therefore relying on existing growth models cannot overcome the economic growth and job creation limitations In 2016 the proportion of small and medium-sized enterprises (SMEs) in manufacturing is 989 and 11 for large companies In terms of the number of em-ployees SMEs accounted for 746 and large companies accounted for 254 (Oh Kyung-Hun 2018)

The US decided that job creation through start-ups was the key to sustainable growth of the local and national economies In 2011 the US announced the Startup America Initiative a policy friendly to the promotion of startups and corporate development (KITA 2019) Startup America Initiatives offers a wide range of support including expanding direct invest-ment in startups strengthening education and removing regulations and barriers Employ-ment policy in the US along with its start-up policy has been evaluated as successful and continuous economic growth has been possible with the Startup America Initiative in 2011 FAANG (Facebook Amazon Apple Netflix and Google) have led the US stock market while PULPS (Pinterest Uber Lyft Palantir Slack) have grown rapidly based on technology and capital

Since 2010 Korearsquos entry barrier to start-ups has been lowered through the growth of mobile platforms and the spread of crowdfunding And as start-up policies began to be aggressively supported to address the low growth and low employment era companies with innovative technologies and ideas were established However Korea is too dependent on the govern-mentrsquos start-up policy funding As a result brand value and technology are relatively weak compared to overseas startups (Jeon Hae-Yeong 2016)

Many studies in Korea have analyzed the factors of Korean startups and explain that they are not adequately responding to market changes due to various reasons such as lack of preparation resource acquisition failure and marketing failure

Therefore this study intends to understand the important variables and to derive key factors for Korean startups to enter overseas markets For the purpose of analysis this study aims to identify the causality among market orientation technology orientation the use of the export support system and export performance of start-ups analyze the factors for variables and derive the results based on the foregoing

12 Methodology of the Study Pursuant to the purpose of the study discussed above this study aims to analyze variables

related to the definition of startups market orientation of firms technology orientation of firms and the use of export support systems and the impact of each variable on export performance For the research analysis prior researches were used to operationally define research hypotheses and variables and empirical analysis was conducted for verification

Demographic characteristics and descriptive statistics were analyzed using empirical analy-sis and research hypotheses were verified and analyzed based on the validity reliability and correlation of each variable Surveys were distributed to startups for hypothesis testing and analysis and import-related startups were excluded to focus on export performance

Existing studies have set entrepreneurship market orientation and technology orientation as independent variables or conducted research using only one variable to analyze performance Therefore there was a limit to comprehensive analysis that considered the characteristics of startups Therefore in this study we used the upper concept of ldquoentrepreneurshiprdquo as a variable and the relative subconcepts of market orientation technology orientation and social capital as factors of the variable Existing studies focus on the relative performance of firms whereas this study is different from previous studies because it focuses on exports

Empirical Analysis of Effect of Entrepreneurship on Export Performance Focusing on the Mediated Effect of Technology Capability and Export Support Policy of Start-Ups

175

2 Theoretical Background and Hypothesis Setting

21 Definition of a Start-up According to Gartner Bird and Starr (1992) a start-up has the meaning of a founding of a

business and can be defined as a process by which an organization is created But because of the complexities in the meaning of ldquofounding of a businessrdquo it is difficult to establish a concrete and unified definition (Kuratko and Hodgetts 2007)

Scherer (1980) describes a start-up as a relatively small- to medium-sized company that can respond quickly to innovative changes Furthermore these companies can react quickly to changes in the market because of the short internal communication process (Dogson and Rothwell 1994)

Research by Gatigon and Xuereb (1997) describes a start-up as a new form of a technology oriented company that develops innovative technology and services to gain an edge over the competition and shares information and knowledge across diverse networks

Morries Kuratko and Covin (2010) describes founding as a new form of technological effort aiming to create opportunities for economical activity More than just establishment of a new company the term also refers to improvements within the organization of product technology manufacturing process or organizational structure (Kang Byung-Oh 2011)

Eric (2012) defines a start-up as a company that has the will to provide new products or innovative services in an uncertain market and companies falling into this category can be called a start-up regardless of size and form of the company

Articles 2 and 3 of the Enforcement Decree of Support for Small and Medium Enterprise Establishment Act provides that a newly established enterprise refers to a company that has begun operations within the last 7 years and does not include companies in certain hospi-tality restaurant or real estate businesses Start-up refers to a newly-starting enterprise either as a sole proprietorship or a corporation and is considered a start-up if there is potential for investment job creation or growth

According to Lee Seo-Han and Noh Seung-Hoon (2014) a start-up is a small group of project companies that are driven by innovative ideas to create high value based on uncertainty

Companies that have succeeded based on recent start-ups have high growth rates and potential based on innovative ideas and technologies As such it can be defined as a technology-intensive newly-established company with high potential

Although conceptual definition of a venture company and a start-up can seem similar a detailed look shows a difference in the way that the company is operated In case of a venture company research and development accounts for a large portion of the business operation Meanwhile a start-up chooses a business model of small-scale project form based on innovative technology or ideas As such start-ups focus on the awareness of a problem within an industry and solutions therefor

22 Entrepreneurship Research on entrepreneurship has have been conducted from various perspectives on

survival and growth based on the technological skills possessed by SMEs and venture companies in the process of their founding Entrepreneurship is defined as a different concept depending on the researcherrsquos inclination and the utilization of personal organizational and environmental factors (Morris and Paul 1987)

Gartner (1990) has two explanations for entrepreneurship Firstly it is a form of market-oriented value creation that focuses on customer information and secondly it is a


176 technology-oriented form of innovation development and creativity

Research by Covin and Slevin (1991) explains that the scope of activities of a company based on entrepreneurship depends on industry scope etc However innovativeness risk-taking and proactiveness are shared subconcepts comprising these

Proactiveness refers to the act of creating opportunities based on demand forecasting which is to collect information to create new value in the market

Innovativeness is the creation of new products or services through ideas and research and development in which creative and innovative activities are distinguished from competitors (Lumpkin and Dess 1996)

Risk-taking is an act of avoiding market uncertainty and is a companyrsquos act of lowering the probability of loss and failure through external information capital technology and human resources to invest resources in high-risk businesses

Based on the foregoing the present study seeks to utilize market orientation technology orientation and social capital as subfactors of entrepreneurship based on prior studies

221 Market Orientation Many companies try to enter overseas markets for sustainable growth and expansion of

their business areas (Lu and Beamish 2006) Companies growing on the basis of their own markets are expanding their markets overseas due to intensifying competition and lack of resources

Research by Armario Ruiz and Armario (2008) explains that limitations of domestic market growth due to increased uncertainty can lower risks by entering overseas markets As such from this point of view a company can become an important decision making company by creating an opportunity for sustainable growth and market diversification by entering overseas markets (Helpman Melitz and Yeaple 2004)

Therefore many companies want to enter overseas market based on market-oriented characteristics Market orientation refers to the act of rapidly responding to changes and collecting information more actively than competitors for competitive advantage and growth in a market in which competition is intensifying (Day 1994)

Kohil and Jawroski (1990) explains market orientation as analysis of information that reflects the demands of the consumers sharing the analyzed information among organiza-tions within the company and subsequently reacting to the market based on such infor-mation Furthermore market orientation is summarized into three concepts ldquoinformation creationrdquo ldquoinformation propagationrdquo and ldquoresponsivenessrdquo

Narver and Slater (1990) approached market orientation from the perspective of corporate culture and specifically explained the concept of customer orientation Customer orientation is the analysis of information that customers want in order to provide a high level of value which is explained as a factor influencing the long-term growth of a companyrsquos revenue

Research by Lee Hak-Sik Yoo Dong-Keun and Lee Yong-Ki (1996) defines market orien-tation as a way of thinking that incorporates the concepts of customer satisfaction customer value creation and value chains and that corporate activities should be centered on customers

Market orientation refers to activities that can secure a competitive advantage and realize high profitability by collecting and analyzing information sensitive to customersrsquo needs and competitorsrsquo changes in the market and sharing it with company members

222 Technology Orientation Technology orientation is a factor that secures a competitive advantage for survival in the


177 fierce competition and means improvement of products and services by acquiring and securing technology based on innovative ideas

According to Gatigon and Xuereb (1997) technology orientation is an investment in securing a relative advantage over competitors in uncertain markets and has a direct impact on corporate performance through innovative technology development

Jeong Pae and Zhou (2006) defines a technology orientation as a corporate culture that emphasizes new technology to acquire technology and is an activity that can secure competitive advantage and potential based on technologies that cannot be easily replicated by competitors

Talke Salomo and Kock (2011) explain that more technology oriented firms have a positive impact on technology capabilities The higher the technological advantage the more secure the original technology and the higher quality new products can be developed which directly improves the performance of the enterprise

Research by Kang Do-Kyu and Park Seong-Young (2007) explains that technology orientation is the ability to commercialize superior products and services in the process of developing or acquiring innovative technologies

Firms with high technology orientation seek to pursue technological superiority and secure original technology In addition research and development resources and systems are well established compared to competitors and provide high quality products and services that affect the performance of the company (Jeong Pae and Zhou 2006 Kim Chang-Soo and Yang Yong-Ik 2008 Talke Salomo and Kock 2011)

223 Social Capital Social capital refers to the actions of stakeholders involved in the network to increase the

efficiency of production activities The stronger the network of stakeholders the greater the level of knowledge and information that can be gained by increasing access to the knowledge and information required by the company (Alder and Kwon 2002)

Marino et al (2002) explains that the use of networks increases and diversifies to create innovation opportunities through knowledge and technology acquisition

Research by Mun Hye-Seon and Lee Sang-Myeong (2016) shows that small- and medium-sized venture companies which lack resources capital and capabilities are highly dependent on knowledge-based information on technology acquisition and utilization which is mainly utilized through networks

Social capital is the process of connecting corporate internal and external networks and creating new knowledge and resources for corporate management and performance (Kang Seok-Min and Kim Dae-Won 2014 Yli-Renko Autio and Sapienza 2001)

In this study the independent variable called entrepreneurship is used as a higher concept whereas the subconcepts of market orientation technology orientation and social capital are used as factors of independent variables

H1 Entrepreneurship will have a positive (+) effect on export performance H1-1 Market orientation will have a positive (+) effect on export performance H1-2 Technology orientation will have a positive (+) effect on export performance H1-3 Social capital will have a positive (+) effect on export performance

23 Technology Capabilities In this study the export capability of the startup is largely divided into the internal

capability of technology capability and the external capability of export support policy


178 Technology capability is a source of competitive advantage based on the resources and knowledge of a company and can create a sustainable competitive advantage

For companies with a liability of smallness it is important to have innovative internal capabilities in competition

Hamel (1990) argues that a companyrsquos competence is a different concept from physical assets which can be improved by utilizing internal and external resources and is an important core competency in creating competitive advantage and corporate performance (Lee Jae-Eun et al 2017)

In particular startups that wish to go abroad must bear the liability of foreignness and assets such as ideas and technology serve as important factors to overcome these disad-vantages (Autio Sapienza and Almeida 2000 Bloodgood Sapienza and Almeida 1996)

In case of developing by utilizing external knowledge of company innovation performance is better and technology commercialization is possible (Lausen and Slter 2006)

In order to strengthen the technology capabilities of a company market requirement manufacturing ability through technology willingness to satisfy future need through new technologies and new products ability to utilize competitive technologies to respond to unanticipated technology are important (Chung Yong-Woo Jung Hun-Joo Kim Byung-Gwi 2012)

As such this study establishes the hypothesis that entrepreneurship which is a higher concept to market orientation technology orientation and social capital will have an impact on the technology capability of a company

H2 Entrepreneurship will have a positive (+) impact on technology capabilities H2-1 Market orientation will have a positive (+) impact on technology capabilities H2-2 Technology orientation will have a positive (+) impact on technology capabilities H2-3 Social capital will have a positive (+) impact on technology capabilities

24 Utilizing Export Support Policies The Korean government actively supports export promotion through structural change

and export promotion policies for domestic startups and SMEs Nevertheless it is difficult to expect a steady increase in export volume due to sluggish exports of startups and SMEs The reason for this is the lack of resources and capacities due to poor capital structures similar redundancy in supporting projects and inefficiency in providing information

Nevertheless improving the use of support policies and providing relevant policy in-formation can improve a companyrsquos performance And in order to increase the utilization of the support policy the governmentrsquos active cooperation must be supported (Ahmed et al 2002)

Gencturk and Kotabe (2001) explained that the export support system is an important factor to enhance the performance of a company and there is a direct export system for the competitive advantage of the company and an indirect export system for the profitability of the company They compared the export performance of the two systems and proved that the direct export system is more useful in the position of the enterprise

The export support policy use has a positive effect on the strategic direction of enterprises and the efficiency of export business and is a strategic way to increase export performance (Park Kwang-Seo Kim In-Kown and Ahn Jong-Seok 2010)

Moon Sung-Wuk (2011) analyzed the effect of the use of government support policies on the performance of Korean manufacturing companies As a result it was analyzed that the use of external knowledge and the use of government support policies had a positive effect


179 A study analyzing the relationship between the use of startup export support policy and

export performance is not sufficient in Korea In particular there is a lack of research to explain the causal relationship between corporate characteristics and export support policies and to identify the path leading to performance

Therefore this study intends to measure export performance of a company by using export support policy as a parameter

H3 Entrepreneurship will have a positive (+) impact on utilization of export support

policies H3-1 Market orientation will have a positive (+) impact on utilization of export support

policies H3-2 Technology orientation will have a positive (+) impact on utilization of export support

policies H3-3 Social capital will have a positive (+) impact on utilization of export support policies

25 Export Performance Determining a companyrsquos export performance depends highly on financial and non-finan-

cial performance Financial performance is an objective figure that shows the actual status of export performance Non-financial performance is a subjective measure of corporate image corporate goals and market share among others

In Covin and Slevinrsquos (1991) study the performance of a start-up company is measured by the increase in sales sales growth rate and return on investment In general in analyzing export performance financial performance can be classified into non-financial performance In the case of financial performance the reliability is highly used because of the objectivity of data

In order to analyze export performance both objective and subjective indicators should be analyzed and integrated but objective indicators should be the basis of the analysis (Jang Dong-Kwan 2013)

Objective indicators reflect the present and cannot be used to predict for the future However non-financial performance indicators are important because they allow companies to explore success factors and predict future possibilities beyond current possibilities In addition the start-up business is difficult to expect immediate financial results as the com-pany operates on a project scale Therefore this study uses financial and non-financial performance in analyzing performance

H4 Technology capabilities will have a positive (+) impact on export performance H5 Utilization of export support policies will have a positive (+) impact on export

performance

3 Research Model and Operational Definition of Variables

31 Research Model This study is to analyze the causal relationship between startup orientation and export

performance of startups and established a research model as shown in Fig 1 in order to identify causality Entrepreneurship was selected as an independent variable with subfactors of market orientation technology orientation and social capital While selected factors are necessary for analyzing export performance it was also analyzed in previous studies that the


180 selected factors have direct impact on technology capability and utilization of export support policies As such technology capability and utilization of export support policies were selected as parameters

Fig 1 Research Model

32 Operational Definition of Variables 321 Entrepreneurship This study defines entrepreneurship as a multidimensional concept comprised of market

orientation technology orientation and social capital Market orientation is measured by six categories including grasp of market awareness and consumer needs market awareness and willingness to explore new markets among others (Jaworski and Kohli 1993 Kirca Jayachandran and Bearden 2005 Lee Sung-Ho Park Chan-Young and Kim Young-Kwan 2011 Mavondo and Farrell 2000 Yoo Eun-Sang 2015) Technology orientation is measured by six categories including willingness for technological innovation pursuit of product and service change by technological development level of technological development and willing-ness to cooperate in technological development among others (Ahn Ji-Yun and Park Kwang-Ho 2015 Gatignon and Xuereb 1997 Lee Eun-Ah and Seo Jung-Hae 2017 Murray Gao and Kotabe 2011 Zou Fand and Zhao 2003) Social capital was measured by three categories including dependence on external resources network formation and mutual cooperation reliability (Alder and Kown 2002 Lee Euna and Seo Jung-Hae 2017 Nahapiet and Ghoshal 1998)

322 Technology Capability In many previous studies technology capability is not only dependent on technology

orientation but capacity changes according to the cultural characteristics of the company And the higher the firmrsquos willingness to enter the overseas market the more often it relies on technological capabilities and the SMEs with innovative technologies can overcome disad-vantages Technology capability was measured by five items including potential for commer-cialization original technology and development personnel for patent RampD among others (Autio Sapienza and Almeida 2000 Filatotchev et al 2000 Han and Jeong 2013 Lee et al 2017)

323 Utilization of Export Support Export support utilization is the governmentrsquos support policy that domestic-oriented

companies use to advance into overseas markets The government is actively encouraging


181 companies to go abroad attracting companies concerned about survival in the fierce competition expected in the global market According to previous studies the smaller the size of the firm the more dependence on the export support system and the export promotion caused by the use of the export support system Export support utilization is measured in five categories including financial support export promotion consulting trade expositions and trade insurance among others (Cho Byung-Moon and Shin Hyun-Han 2019 Gencturk and Kotave 2001 Chun Dong-Suk 2018 Park Kwang-Seo Kim In-Kown and Ahn Jong-Seok 2010)

324 Export Performance Export performance should be focused on the startuprsquos business activities and the growth

structure should be analyzed to determine the cause of the increase in exports In order to derive export performance startups should be selected in consideration of the increase in exports and sales the number of exporting countries export items and market share In reality however this research was conducted without considering this part because there is a limit in selecting research subjects Export performance was measured in five categories including corporate sales growth export growth corporate image and quality taking into account both financial and non-financial performance (Covin and Slevin 1991 Chung Yong-Woo Jung Hun-Joo and Kim Byung-Gwi 2012 Jeong So-Won and Chang Jae-Eun 2015)

4 Empirical Analysis

41 Method of Analysis and Characteristic of Sample To analyze this study the research hypothesis was set based on the preceding studies and

the research model was designed based on the research hypothesis The survey questions consisted of the contents of previous studies The survey was distributed to a randomly selected sample of knowledge-based start-ups focusing on ideas and technology including manufacturing service and finance that were founded during a seven-year period from 2012 to 2019 The survey was conducted twice and the second survey was conducted following elimination of erroneous items in the first survey First and second survey together consisted of 677 copies and 142 were selected as a sample for empirical analysis excluding 53 with invalid values

Statistical analysis was performed to verify the sample Descriptive statistics feasibility and reliability analysis were verified with SPSS Statistics 250 Analysis of the structural model tested the hypothesis through AMOS 260 A four-step measurement process was performed on the collected samples as a measurement tool to verify the hypotheses and research models presented in this study

First a feasibility study was conducted The consistency of the metrics and explored the factors between them were verified Second was the reliability measurement through Cronbachrsquos α Reliability analysis confirmed that the concept to be analyzed was consistently and accurately measured by respondents Third was confirmatory factor analysis Confir-matory factor analysis was conducted to verify the unidimensionality of factors and to verify the relationship between latent and measured variables Finally the structural equation model was used to confirm the structural relationship between each factor and to verify the research hypothesis


182 Table 1 Basic Statistics of the Sample

Category Item Frequency Percentile Form of Company Manufacturing 51 367

Service 36 259 Trade 29 209 Others 23 165

Gender Male 90 647 Female 49 267

Exported Products Manufactured products 23 353 Petroleum Chemicals 04 29 Textiles Apparels 16 115 Food 11 79 Medical products 04 29 Automobiles and parts 11 79 Electrical and Electronics 29 209 Cosmetics 03 21 IT 36 259 Financial services 02 14

Export Experience Less than 2 years 14 101 Less than 3 years 14 101 Less than 4 years 14 101 Less than 5 years 35 252 5 years or more 62 446

Export Portion Less than 20-30 26 259 Less than 30-40 16 115 Less than 40-50 44 317 Less than 50-60 13 94 60 or more 30 216

42 Feasibility and Reliability Analysis Exploratory factor analysis and reliability analysis were conducted to verify the validity and

reliability of the variables Exploratory factor analysis aims to explore the relationships between variables when they are not established or theoretically organized Varimax was used for factor extraction and factor interpretation In the extracted factors a loading value of 04 or more and dispersion force of 05 or more are seen to be valid Bartlett of 005 or lower is seen to have correlation And KMO (Kaiser-Meyer-Olkin) of 05 or more is seen to be appropriate

As seen in Table 2 Bartlettrsquos significance probability is 0000 which means that the use of factor analysis is significant and common factors exist The KMO was 0835 which analyzed that the correlation between variables and the selection of variables were not a problem thereby securing feasibility for the research

Before testing the hypothesis reliability was analyzed to confirm that consistency between metrics was secured It is analyzed that the higher the consistency between items the higher the reliability The most widely used method for reliability analysis is to check the reliability using Cronbachrsquos α Cronbachrsquos α has a coefficient value from 0 to 1 and a value of 06 indicates reliability and 07 or higher indicates high reliability In the present study market


183 orientation had a value of 0876 technology orientation had a value of 0911 social capital had a value of 0878 technology capability had a value of 0892 export support utilization had a value of 0897 and export performance had a value of 0941 thus securing reliability of analysis results

Table 2 Exploratory Factor Analysis and Reliability Analysis

Concept Constituent Cronbach

Alpha Factor Variable Factor Load Commonality Unique

ValueDispersion

ExplanationEntrepreneurship Technology

orientation TO2 762 827 3629 11340 911 TO3 725 845TO4 709 769TO1 577 686

Market orientation

MO2 811 763 3673 11477 876 MO4 783 749MO1 743 635MO5 713 799MO3 693 695

Social Capital SC1 839 768 3827 11958 878 SC2 816 783SC4 780 823SC3 637 655

Technology Capability TC1 831 807 2646 8269 892 TC2 803 806TC3 778 709TC7 587 697TC5 527 742TC6 514 675

Export Support Policy ESP2 872 810 3712 7882 897 ESP4 849 803ESP3 769 799ESP5 690 768ESP1 627 643

Export Performance EP2 880 842 6588 20588 941 EP1 861 812EP3 824 790EP4 760 719EP5 728 644EP6 727 774EP8 688 683EP7 683 754

KMO 851

Bartlett ChindashSquare 5585622

df(p) 496 (000)


184 43 Confirmatory Factor Analysis The method used to verify the validity is factor analysis Factor analysis includes explora-

tory factor analysis and confirmatory factor analysis Exploratory factor analysis is conducted for the purpose of exploration in the absence of a theoretically established relationship Confirmatory factor analysis is used to identify factors by once again verifying the theory of previous studies In the present study exploratory factor analysis was first performed and confirmatory factor analysis was subsequently performed

Table 3 shows the results of the confirmatory factor analysis If the significance of the analytical result is p = 0000 the research hypothesis should be adopted In certain cases the resulting value of Chi-Square is unsuitable however this does not mean that it cannot be used because it is not suitable for confirmatory factor analysis The judgment can be made by referring to suitability index in comparison with other conditions If the CMIN DF is 2 or less it is suitable for the model If RMR is less than 005 GIF AGFI CFI IFI is 09 or more and RMSEA is less than 005 it is acceptable In the present study confirmatory factor analysis did not satisfy all conditions However since the criteria for determining the goodness-of-fit in structural equation models vary and are somewhat different for each researcher this study views that the minimum criteria were met

Table 3 Confirmatory Factor Analysis

Category Questions χ2 p CMIMDF RMR GFI AGFI CFI IFI RMSEA

Entrepreneurial Orientation

Market orientation

5 10309 000 2062 015 977 930 988 988 079

Technology orientation

5 18482 002 3696 025 959 876 977 978 126

Social Capital

5 46693 000 9939 055 885 654 912 913 229

Technology Capability 6 1861 000 931 014 994 972 100 100 000

Export Support Policy 5 10202 070 2040 030 977 932 989 990 078

Export Performance 9 183710 000 6804 047 779 632 881 881 184

44 Correlation Analysis Table 4 shows an analysis of correlation between the variables All of the p-values which

are significant probability were less than 001 and thus were statistically significant Although it is defined differently by researchers it can be said that a correlation coefficient is formed between 03 and 07 Generally the correlation is high when it is 07 or more In this study there is no problem in verifying the design of the research model because of the correlation between variables


185 Table 4 Correlation Analysis

Factor Market orientation


Social Capital

Technology Capability

Export Support Policy

Export Performance

Market orientation

1000


0596 1000

Social Capital 0362 0627 1000


0358 0525 0410 1000


0322 0464 0498 0322 1000

Export Performance

0363 0688 0573 0493 0565 1000

Note plt005 plt01 45 Verification of the Suitability of the Research Model Table 5 examines the suitability of the research model The present study uses CMINDF

RMR GFI AGFI CFI IFI RMSR to determine suitability but satisfies only some of the suitability standards In the context of structural equation models evaluation does not have certain rules However based on the judgment of the researcher objective judgment is used for factors somewhat lacking suitability therefore as long as the value is not erroneous or far lower than the standard value customarily used it may be used Therefore if the minimum level of suitability is met it can be judged that there is no problem in conducting the research

Table 5 Suitability of the Research Model

Concept Constituent

Reliability Factor Variable Factor Load

Standard Factor Load SE CR



TO2 884 844 082 107590 911 TO3 1036 923 088 11725TO4 1021 800 100 10197TO1 851 841 079 10725

Market orientation

MO2 737 735 069 10713 876 MO4 1000 831 - 0000MO1 531 595 065 8175MO5 1009 892 080 13931

MO3 767 758 069 11167 878 Social Capital SC1 963 777 075 12826

SC2 1005 807 073 13702SC4 100 905 - 000SC3 742 691 070 10643



Concept Constituent



Technology Capability TC1 1000 837 - 000 892 TC2 1112 881 090 12312 TC3 989 733 096 10330 TC7 775 739 066 11819 TC5 1267 732 112 11263 TC6 1000 713 - 000

Export Support Policy ESP2 1015 852 082 12312 897 ESP4 1091 823 092 11912 ESP3 1121 794 098 11380 ESP5 1000 800 - 000 ESP1 966 733 094 10281

Export Performance EP2 1037 892 067 15506 941 EP1 1000 843 - 000 EP3 1068 824 079 13511 EP4 1002 822 074 13463 EP5 947 763 079 11970 EP6 985 791 078 12641 EP8 920 779 073 12357 EP7 902 812 070 13186

Estimated Model Suitability ChindashSquare=207102 df=45CMINDF=3095 GFI=997 AGFI=827 CFI=980 RMR=098 RMSEA=048 IFI=847

46 Hypothesis Verification and Analysis Result Table 6 shows the results of verification of the research hypothesis This study com-

prehensively analyzes the impact of entrepreneurship on export performance As defined above a start-up is a newly founded company with innovative technology based on original ideas Previous studies have shown that market orientation technology orientation and social capital have a positive effect on export performance however of the three subfactors of independent variables in this studymdashmarket orientation technology orientation and social capitalmdashonly hypothesis 1-2 technology orientation has been found to have effect on export performance Remaining hypotheses 1-1 and 1-3 have been rejected As such the theoretical concept that market orientation and social capital subfactors of entrepreneurship has any direct effect on export performance has been judged to be lacking reliability as a result of analysis

Meanwhile hypothesis 1-2 on technology orientation can be viewed to well-reflect the characteristics of a startup When startups have realizable technology and differentiated products or services customers tend to directly seek the products and services to be produced by that company without regard to market demand or amount of capital and was analyzed to have direct impact on export performance

Hypothesis 2-1 on the relationship between market orientation and technology capability was rejected Startups which begin with an innovative idea and low capital have inherent


187 limitations in producing products which the consumers or the era demand As such these small- and medium-sized companies target niche markets and their market orientation was analyzed to not have any impact on technological capabilities Hypothesis 2-2 on the relationship between technological orientation and technological capability and hypothesis 2-3 on social capital and technological capabilities are adopted Since startups operate technology-intensive knowledge-based projects technology orientation have an impact on the technology capability and the method of company management Social capital was also analyzed to have an effect on technology capability this is because a company that is technology-intensive with low capital meets online or smartphone environments the company sees exponential growth Such growth of a startup results in growth in finance related industries and education resulting in increase of technology capability in the relevant field Moreover such exponential growth results in innovation in product or service resulting in significant invest in technology capability for the sake of international competitiveness As such a company founded with low capital or a small company seeking growth was analyzed to be focusing on technology it already possesses or social capital (finance cooperative research and research and development) instead of making an effort to obtain technology competitiveness based on market orientation

Hypothesis 3 on the relationship between startup orientation and the use of export support systems has been partially adopted Hypothesis 3-2 on the relationship between technology orientation and export support policy and hypothesis 3-3 on the relationship between social capital and export support policy has been adopted Improvements in technology and the use of external information technologies and networks have an impact on the use of export support policies Export support policies are necessary not only to small- and medium-sized companies but also to large-sized companies In particular companies struggle to deal with parts regarding export consulting such as finance insurance and customs and as such many companies rely on export support policies Due to changes in the international trade environment protectionism is on the rise seeking to protect domestic industries As policies increasing tariff can be criticized many nations are instead taking nontariff measures A prime example of a nontariff barrier is technical barriers to trade (TBT) which are barriers relating to technical regulations technical standards and conformity assessment From the perspective of an exporting company TBT increases risk while potentially leading to increased time costs and disputes and thus constitutes an important factor decreasing the competitiveness of a company It was analyzed that companies rely heavily on support as there is a limit to how much TBT a company can overcome on its own According to a 2020 press release by the Ministry of Trade Industry and Energy it conducted 120 cases of TBT negotiations resolving 50 cases on behalf of Korean companies Through such negotiations it succeeded in increasing exports while decreasing costs and in case of communications equipment exported to India there was a cost savings of KRW 48 billion for an export of KRW 140 billion

However hypothesis 3-1 on relationship between market orientation and export support policies was rejected As such the use of export support policies is analyzed to be related to the use of technology and external networks

Hypothesis 4 on technical capability and export performance was adopted In the present study the product design was considered as a technology capability in addition to technological innovativeness and access to products and services as it also has a positive impact on the consumerrsquos desire for said product or service Todayrsquos purchases no longer rely on advertisements on mass media newspaper and magazines as in the past Consumers search online for products they need and engage in purchasing based on customer reviews Moreover products and services that are not domestically available are available online


188 without restriction of time and space That is as long as the product or service produced by a company is aligned with the desires of a consumer and access to purchasing is easy the consumer has a willingness to purchase without regard to whether the company is located domestically or overseas Due to low capital most startups do not form offline stores and mostly conduct their business online Moreover based on the fact that it is difficult to maintain and grow the company based solely on domestic transactions the companies provide products and services overseas with online websites supporting multiple languages As such technology capability is analyzed to be an important factor of a startup having direct impact

Hypothesis 5 on export support policy utilization and export performance was adopted Export promotion finance trade exposition attendance support and trade insurance impact export increase In addition proactive use of internet e-commerce and smartphones which can be used with relatively low capital requires technical support and information on the relevant country and was thus analyzed to have an effect However given the fact that the international trade market is trending towards protectionism and considering the trade relations between the United States and China a deep reflection on export support policies is thought to be required in the future

Table 6 Research Hypothesis Verification

Hypothesis Route Route Parameters CR P Value Result

1-1 Market orientation rarr Export Performance

-197 -2218 027 Rejected

1-2 Technology orientation rarrExport Performance

451 4368 Adopted

1-3 Social Capital rarrExport Performance

112 1504 133 Rejected

2-1 Market orientation rarr Technology Capability

026 259 796 Rejected

2-2 Technology orientation rarr


340 3151 0002 Adopted

2-3 Social Capital rarr


146 2867 0042 Adopted

3-1 Market orientation rarr Export Support Policy

142 1113 226 Rejected

3-2 Technology orientation rarr Export Support Policy

144 2101 045 Adopted

3-3 Social Capital rarrExport Support Policy

414 4082 Adopted

4 Technology Capability rarrExport Performance

470 4048 041 Adopted

5 Export Support Policy rarrExport Performance

227 3503 Adopted

Note plt05 plt01


189

5 Conclusion

51 Summary of Research This study empirically analyzed the use of technology capability and export support policy

as a mediating effect in analyzing the effect of entrepreneurship on export performance for start-ups Relative lack of resources and capital has been a barrier to sustainable growth of startups Nevertheless the Korean government spares no support for start-ups and is making a lot of efforts to increase the start-up rate by utilizing various support policies Start-ups are concentrated in 40 cities around the world and Seoul is among the top 25 many have evaluated Korea to have significant potential for innovation and technological fusion

However more than 80 of the businesses are closed within three years after the start of business Even though the biggest attraction to founding a startup is the long-term growth and expansion using idea and technology based on low capital the focus on profitability has resulted in new businesses concentrated in wholesale and retail food services and hospitality sectors According to Statistics Korearsquos numbers from 2017 only 493 of companies survived for more than two years after establishment and only 28 of those survived for more than five years The survival rate can only be low since investments are made without full understanding of the startup ecosystem Moreover startups are more likely to succeed when targeting overseas markets in addition to domestic markets

Therefore this study focused on startups that are currently operating in order to consider the growth of startups and increase the survivability of more companies

The present study rejects Hypothesis 1 that market orientation technology orientation and social capital which were defined as subfactors of independent variables in this study influence export performance Therefore it was judged that the theoretical concept that firm orientation directly affects export performance was not reliable because it differed from the actual sample

Hypothesis 2 about the relationship between startup orientation and technology capability was adopted Since startups operate technology-intensive knowledge-based projects market orientation technology orientation and social capital all have an impact on technology capability As such it can be judged that entrepreneurship is focused on the improvement of technology capability

Hypothesis 3 on the relationship between startup orientation and the use of export support systems has been partially adopted

Hypothesis 4 on technical capability and export performance was adopted Due to the nature of start-ups it was determined that technology has a direct impact on the company

Hypothesis 5 on export support policy utilization and export performance was adopted but it was shown that the impact is not as significant compared to technology capability Export promotion finance trade exposition attendance support and trade insurance impact export increase however start-ups in the current era are able to produce profits with low capital using internet e-commerce and mobile phones and thus it was analyzed that technology capability has more impact on export increase compared with export support policy utilization for these companies compared to regular companies

As mentioned in the research results market orientation technology orientation and social capital which were theoretically established in the previous studies were analyzed to be somewhat differently related to export performance In particular analysis of consumer needs and market volatility were analyzed to not have any direct or indirect effect on export performance which is contrasted to previous studies that showed positive effect In defining the research hypothesis and the model such market orientation was expected to have an effect


190 on export performance but it is difficult to view such influence to be large A startup lacking capital is burdened by the cost of analyzing consumer needs and the market as such it uses crowdfunding to understand the willingness to purchase of consumers and produce the product once funding goal is reached Given the nature of startups early survival is paramount As it is possible to confirm the competitiveness of the product in the market through crowdfunding it is used as a means to reduce risk Moreover purchasers participating in such funding are not limited to Korea but also include consumers from overseas allowing the startup to understand which consumers from which countries made an investment As such in order to be a subject of crowdfunding technology capability and access to information of the relevant product or service were analyzed as more important factors than profit creation in the market

With respect to the utilization of internal and external information or technology given the nature of startups being reliant and operating on a small scale it was analyzed that startups had the tendency to collaborate on technology or share information with other startups or small- to medium-sized companies Moreover as startups lacked experience and knowledge regarding exports and suffer from higher uncertainties compared to ordinary companies startups were analyzed to proactively use support systems Startups are showing aggressive willingness to export through consulting lectures and collaborations on finance insurance and customs However they tend to take a passive position with respect to shipping and logistics While most startups outsource shipping of the product to freight forwarders or logistics companies such passive attitude towards shipping and logistics sometimes resulted in unexpected expenditures

52 Limitations of the Research and Future Agenda The present study was unable to consider the characteristics of products and services as

random sample were collected for research hypotheses and research model analysis For detailed analysis samples should be collected and analyzed by industry but there were limitations due to practical difficulties Moreover since the hypotheses and models of current startup export performance approached the theoretical concept based on previous studies it was able to be understood that there are practical differences As such the first survey was conducted to confirm the hypotheses and variables and hypotheses and variables with problems were eliminated or revised Even so it became known that the startup ecosystem is very diverse and generalization is difficult Although all companies may be similar in the beginning startups particularly reflect strictly the spirit and philosophy of the founder and there is a limitation in analysis through generalization Export performance also differs based on the sharing economy diversification of platforms and form of purchase and as such these factors must also be given ample consideration As such if future studies acknowledge the foregoing limitations more practical research results will follow thereby contributing to corporate management and policy establishment

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11(4) 32-55

The Korea Trade R

esearch Association Journal of K

orea Trade Volume 24 N

umber 6 2020

JKTThe Korea Trade


000-앞표지(임원)

001-목차

002-내지

01-(1-18) JKT_24-6-정진영

02-(19-36) JKT_24-6-박지문

03-(37-60) JKT_24-6-남은영

04-(61-81) JKT_24-6-김명석

05-(82-100) JKT_24-6-고보민

06-(101-114) JKT_24-6-전정원

07-(115-134) JKT_24-6-고병욱

08-(135-156) JKT_24-6-조슈아박

09-(157-172) JKT_24-6-이서영

10-(173-193) JKT_24-6- 주세환

99-뒷표지

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 FRA 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 GRE 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 HEB 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 HRV (Za stvaranje Adobe PDF dokumenata najpogodnijih za visokokvalitetni ispis prije tiskanja koristite ove postavke Stvoreni PDF dokumenti mogu se otvoriti Acrobat i Adobe Reader 50 i kasnijim verzijama) HUN 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 ITA 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 JPN ltFEFF9ad854c18cea306a30d730ea30d730ec30b951fa529b7528002000410064006f0062006500200050004400460020658766f8306e4f5c6210306b4f7f75283057307e305930023053306e8a2d5b9a30674f5c62103055308c305f0020005000440046002030d530a130a430eb306f3001004100630072006f0062006100740020304a30883073002000410064006f00620065002000520065006100640065007200200035002e003000204ee5964d3067958b304f30533068304c3067304d307e305930023053306e8a2d5b9a306b306f30d530a930f330c8306e57cb30818fbc307f304c5fc59808306730593002gt KOR ltFEFFc7740020c124c815c7440020c0acc6a9d558c5ec0020ace0d488c9c80020c2dcd5d80020c778c1c4c5d00020ac00c7a50020c801d569d55c002000410064006f0062006500200050004400460020bb38c11cb97c0020c791c131d569b2c8b2e4002e0020c774b807ac8c0020c791c131b41c00200050004400460020bb38c11cb2940020004100630072006f0062006100740020bc0f002000410064006f00620065002000520065006100640065007200200035002e00300020c774c0c1c5d0c11c0020c5f40020c2180020c788c2b5b2c8b2e4002egt LTH 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 LVI 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 NLD (Gebruik deze instellingen om Adobe PDF-documenten te maken die zijn geoptimaliseerd voor prepress-afdrukken van hoge kwaliteit De gemaakte PDF-documenten kunnen worden geopend met Acrobat en Adobe Reader 50 en hoger) NOR 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 POL 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 PTB ltFEFF005500740069006c0069007a006500200065007300730061007300200063006f006e00660069006700750072006100e700f50065007300200064006500200066006f0072006d00610020006100200063007200690061007200200064006f00630075006d0065006e0074006f0073002000410064006f0062006500200050004400460020006d00610069007300200061006400650071007500610064006f00730020007000610072006100200070007200e9002d0069006d0070007200650073007300f50065007300200064006500200061006c007400610020007100750061006c00690064006100640065002e0020004f007300200064006f00630075006d0065006e0074006f00730020005000440046002000630072006900610064006f007300200070006f00640065006d0020007300650072002000610062006500720074006f007300200063006f006d0020006f0020004100630072006f006200610074002000650020006f002000410064006f00620065002000520065006100640065007200200035002e0030002000650020007600650072007300f50065007300200070006f00730074006500720069006f007200650073002egt RUM ltFEFF005500740069006c0069007a00610163006900200061006300650073007400650020007300650074010300720069002000700065006e007400720075002000610020006300720065006100200064006f00630075006d0065006e00740065002000410064006f006200650020005000440046002000610064006500630076006100740065002000700065006e0074007200750020007400690070010300720069007200650061002000700072006500700072006500730073002000640065002000630061006c006900740061007400650020007300750070006500720069006f006100720103002e002000200044006f00630075006d0065006e00740065006c00650020005000440046002000630072006500610074006500200070006f00740020006600690020006400650073006300680069007300650020006300750020004100630072006f006200610074002c002000410064006f00620065002000520065006100640065007200200035002e00300020015f00690020007600650072007300690075006e0069006c006500200075006c0074006500720069006f006100720065002egt RUS 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 SKY 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 SLV 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 SUO 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 SVE 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 TUR ltFEFF005900fc006b00730065006b0020006b0061006c006900740065006c0069002000f6006e002000790061007a006401310072006d00610020006200610073006b013100730131006e006100200065006e0020006900790069002000750079006100620069006c006500630065006b002000410064006f006200650020005000440046002000620065006c00670065006c0065007200690020006f006c0075015f007400750072006d0061006b0020006900e70069006e00200062007500200061007900610072006c0061007201310020006b0075006c006c0061006e0131006e002e00200020004f006c0075015f0074007500720075006c0061006e0020005000440046002000620065006c00670065006c0065007200690020004100630072006f006200610074002000760065002000410064006f00620065002000520065006100640065007200200035002e003000200076006500200073006f006e0072006100730131006e00640061006b00690020007300fc007200fc006d006c00650072006c00650020006100e70131006c006100620069006c00690072002egt UKR 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 ENU (Use these settings to create Adobe PDF documents best suited for high-quality prepress printing Created PDF documents can be opened with Acrobat and Adobe Reader 50 and later) gtgt Namespace [ (Adobe) (Common) (10) ] OtherNamespaces [ ltlt AsReaderSpreads false CropImagesToFrames true ErrorControl WarnAndContinue FlattenerIgnoreSpreadOverrides false IncludeGuidesGrids false IncludeNonPrinting false IncludeSlug false Namespace [ (Adobe) (InDesign) (40) ] OmitPlacedBitmaps false OmitPlacedEPS false OmitPlacedPDF false SimulateOverprint Legacy gtgt ltlt AddBleedMarks false AddColorBars false AddCropMarks false AddPageInfo false AddRegMarks false ConvertColors ConvertToCMYK DestinationProfileName () DestinationProfileSelector DocumentCMYK Downsample16BitImages true FlattenerPreset ltlt PresetSelector MediumResolution gtgt FormElements false GenerateStructure false IncludeBookmarks false IncludeHyperlinks false IncludeInteractive false IncludeLayers false IncludeProfiles false MultimediaHandling UseObjectSettings Namespace [ (Adobe) (CreativeSuite) (20) ] PDFXOutputIntentProfileSelector DocumentCMYK PreserveEditing true UntaggedCMYKHandling LeaveUntagged UntaggedRGBHandling UseDocumentProfile UseDocumentBleed false gtgt ]gtgt setdistillerparamsltlt HWResolution [2400 2400] PageSize [612000 792000]gtgt setpagedevice

ltlt ASCII85EncodePages false AllowTransparency false AutoPositionEPSFiles true AutoRotatePages None Binding Left CalGrayProfile (Dot Gain 20) CalRGBProfile (sRGB IEC61966-21) CalCMYKProfile (US Web Coated 050SWOP051 v2) sRGBProfile (sRGB IEC61966-21) CannotEmbedFontPolicy Error CompatibilityLevel 14 CompressObjects Tags CompressPages true ConvertImagesToIndexed true PassThroughJPEGImages true CreateJobTicket false DefaultRenderingIntent Default DetectBlends true DetectCurves 00000 ColorConversionStrategy CMYK DoThumbnails false EmbedAllFonts true EmbedOpenType false ParseICCProfilesInComments true EmbedJobOptions true DSCReportingLevel 0 EmitDSCWarnings false EndPage -1 ImageMemory 1048576 LockDistillerParams false MaxSubsetPct 100 Optimize true OPM 1 ParseDSCComments true ParseDSCCommentsForDocInfo true PreserveCopyPage true PreserveDICMYKValues true PreserveEPSInfo true PreserveFlatness true PreserveHalftoneInfo false PreserveOPIComments true PreserveOverprintSettings true StartPage 1 SubsetFonts true TransferFunctionInfo Apply UCRandBGInfo Preserve UsePrologue false ColorSettingsFile () AlwaysEmbed [ true ] NeverEmbed [ true ] AntiAliasColorImages false CropColorImages true ColorImageMinResolution 300 ColorImageMinResolutionPolicy OK DownsampleColorImages true ColorImageDownsampleType Bicubic ColorImageResolution 300 ColorImageDepth -1 ColorImageMinDownsampleDepth 1 ColorImageDownsampleThreshold 150000 EncodeColorImages true ColorImageFilter DCTEncode AutoFilterColorImages true ColorImageAutoFilterStrategy JPEG ColorACSImageDict ltlt QFactor 015 HSamples [1 1 1 1] VSamples [1 1 1 1] gtgt ColorImageDict ltlt QFactor 015 HSamples [1 1 1 1] VSamples [1 1 1 1] gtgt JPEG2000ColorACSImageDict ltlt TileWidth 256 TileHeight 256 Quality 30 gtgt JPEG2000ColorImageDict ltlt TileWidth 256 TileHeight 256 Quality 30 gtgt AntiAliasGrayImages false CropGrayImages true GrayImageMinResolution 300 GrayImageMinResolutionPolicy OK DownsampleGrayImages true GrayImageDownsampleType Bicubic GrayImageResolution 300 GrayImageDepth -1 GrayImageMinDownsampleDepth 2 GrayImageDownsampleThreshold 150000 EncodeGrayImages true GrayImageFilter DCTEncode AutoFilterGrayImages true GrayImageAutoFilterStrategy JPEG GrayACSImageDict ltlt QFactor 015 HSamples [1 1 1 1] VSamples [1 1 1 1] gtgt GrayImageDict ltlt QFactor 015 HSamples [1 1 1 1] VSamples [1 1 1 1] gtgt JPEG2000GrayACSImageDict ltlt TileWidth 256 TileHeight 256 Quality 30 gtgt JPEG2000GrayImageDict ltlt TileWidth 256 TileHeight 256 Quality 30 gtgt AntiAliasMonoImages false CropMonoImages true MonoImageMinResolution 1200 MonoImageMinResolutionPolicy OK DownsampleMonoImages true MonoImageDownsampleType Bicubic MonoImageResolution 1200 MonoImageDepth -1 MonoImageDownsampleThreshold 150000 EncodeMonoImages true MonoImageFilter CCITTFaxEncode MonoImageDict ltlt K -1 gtgt AllowPSXObjects false CheckCompliance [ None ] PDFX1aCheck false PDFX3Check false PDFXCompliantPDFOnly false PDFXNoTrimBoxError true PDFXTrimBoxToMediaBoxOffset [ 000000 000000 000000 000000 ] PDFXSetBleedBoxToMediaBox true PDFXBleedBoxToTrimBoxOffset [ 000000 000000 000000 000000 ] PDFXOutputIntentProfile () PDFXOutputConditionIdentifier () PDFXOutputCondition () PDFXRegistryName () PDFXTrapped False CreateJDFFile false Description ltlt ARA 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 BGR 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 CHS ltFEFF4f7f75288fd94e9b8bbe5b9a521b5efa7684002000410064006f006200650020005000440046002065876863900275284e8e9ad88d2891cf76845370524d53705237300260a853ef4ee54f7f75280020004100630072006f0062006100740020548c002000410064006f00620065002000520065006100640065007200200035002e003000204ee553ca66f49ad87248672c676562535f00521b5efa768400200050004400460020658768633002gt CHT ltFEFF4f7f752890194e9b8a2d7f6e5efa7acb7684002000410064006f006200650020005000440046002065874ef69069752865bc9ad854c18cea76845370524d5370523786557406300260a853ef4ee54f7f75280020004100630072006f0062006100740020548c002000410064006f00620065002000520065006100640065007200200035002e003000204ee553ca66f49ad87248672c4f86958b555f5df25efa7acb76840020005000440046002065874ef63002gt CZE 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 DAN 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 DEU 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 ESP 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 ETI ltFEFF004b00610073007500740061006700650020006e0065006900640020007300e4007400740065006900640020006b00760061006c006900740065006500740073006500200074007200fc006b006900650065006c007300650020007000720069006e00740069006d0069007300650020006a0061006f006b007300200073006f00620069006c0069006b0065002000410064006f006200650020005000440046002d0064006f006b0075006d0065006e00740069006400650020006c006f006f006d006900730065006b0073002e00200020004c006f006f0064007500640020005000440046002d0064006f006b0075006d0065006e00740065002000730061006100740065002000610076006100640061002000700072006f006700720061006d006d006900640065006700610020004100630072006f0062006100740020006e0069006e0067002000410064006f00620065002000520065006100640065007200200035002e00300020006a00610020007500750065006d006100740065002000760065007200730069006f006f006e00690064006500670061002e000d000agt FRA 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 GRE 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 HEB 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 HRV (Za stvaranje Adobe PDF dokumenata najpogodnijih za visokokvalitetni ispis prije tiskanja koristite ove postavke Stvoreni PDF dokumenti mogu se otvoriti Acrobat i Adobe Reader 50 i kasnijim verzijama) HUN ltFEFF004b0069007600e1006c00f30020006d0069006e0151007300e9006701710020006e0079006f006d00640061006900200065006c0151006b00e90073007a00ed007401510020006e0079006f006d00740061007400e100730068006f007a0020006c006500670069006e006b00e1006200620020006d0065006700660065006c0065006c0151002000410064006f00620065002000500044004600200064006f006b0075006d0065006e00740075006d006f006b0061007400200065007a0065006b006b0065006c0020006100200062006500e1006c006c00ed007400e10073006f006b006b0061006c0020006b00e90073007a00ed0074006800650074002e0020002000410020006c00e90074007200650068006f007a006f00740074002000500044004600200064006f006b0075006d0065006e00740075006d006f006b00200061007a0020004100630072006f006200610074002000e9007300200061007a002000410064006f00620065002000520065006100640065007200200035002e0030002c0020007600610067007900200061007a002000610074007400f3006c0020006b00e9007301510062006200690020007600650072007a006900f3006b006b0061006c0020006e00790069007400680061007400f3006b0020006d00650067002egt ITA 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 JPN ltFEFF9ad854c18cea306a30d730ea30d730ec30b951fa529b7528002000410064006f0062006500200050004400460020658766f8306e4f5c6210306b4f7f75283057307e305930023053306e8a2d5b9a30674f5c62103055308c305f0020005000440046002030d530a130a430eb306f3001004100630072006f0062006100740020304a30883073002000410064006f00620065002000520065006100640065007200200035002e003000204ee5964d3067958b304f30533068304c3067304d307e305930023053306e8a2d5b9a306b306f30d530a930f330c8306e57cb30818fbc307f304c5fc59808306730593002gt KOR ltFEFFc7740020c124c815c7440020c0acc6a9d558c5ec0020ace0d488c9c80020c2dcd5d80020c778c1c4c5d00020ac00c7a50020c801d569d55c002000410064006f0062006500200050004400460020bb38c11cb97c0020c791c131d569b2c8b2e4002e0020c774b807ac8c0020c791c131b41c00200050004400460020bb38c11cb2940020004100630072006f0062006100740020bc0f002000410064006f00620065002000520065006100640065007200200035002e00300020c774c0c1c5d0c11c0020c5f40020c2180020c788c2b5b2c8b2e4002egt LTH 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 LVI 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 NLD (Gebruik deze instellingen om Adobe PDF-documenten te maken die zijn geoptimaliseerd voor prepress-afdrukken van hoge kwaliteit De gemaakte PDF-documenten kunnen worden geopend met Acrobat en Adobe Reader 50 en hoger) NOR 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 POL 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 PTB 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 RUM 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 RUS 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 SKY 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 SLV 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 SUO 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 SVE ltFEFF0041006e007600e4006e00640020006400650020006800e4007200200069006e0073007400e4006c006c006e0069006e006700610072006e00610020006f006d002000640075002000760069006c006c00200073006b006100700061002000410064006f006200650020005000440046002d0064006f006b0075006d0065006e007400200073006f006d002000e400720020006c00e4006d0070006c0069006700610020006600f60072002000700072006500700072006500730073002d007500740073006b00720069006600740020006d006500640020006800f600670020006b00760061006c0069007400650074002e002000200053006b006100700061006400650020005000440046002d0064006f006b0075006d0065006e00740020006b0061006e002000f600700070006e00610073002000690020004100630072006f0062006100740020006f00630068002000410064006f00620065002000520065006100640065007200200035002e00300020006f00630068002000730065006e006100720065002egt TUR 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 UKR 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 ENU (Use these settings to create Adobe PDF documents best suited for high-quality prepress printing Created PDF documents can be opened with Acrobat and Adobe Reader 50 and later) gtgt Namespace [ (Adobe) (Common) (10) ] OtherNamespaces [ ltlt AsReaderSpreads false CropImagesToFrames true ErrorControl WarnAndContinue FlattenerIgnoreSpreadOverrides false IncludeGuidesGrids false IncludeNonPrinting false IncludeSlug false Namespace [ (Adobe) (InDesign) (40) ] OmitPlacedBitmaps false OmitPlacedEPS false OmitPlacedPDF false SimulateOverprint Legacy gtgt ltlt AddBleedMarks false AddColorBars false AddCropMarks false AddPageInfo false AddRegMarks false ConvertColors ConvertToCMYK DestinationProfileName () DestinationProfileSelector DocumentCMYK Downsample16BitImages true FlattenerPreset ltlt PresetSelector MediumResolution gtgt FormElements false GenerateStructure false IncludeBookmarks false IncludeHyperlinks false IncludeInteractive false IncludeLayers false IncludeProfiles false MultimediaHandling UseObjectSettings Namespace [ (Adobe) (CreativeSuite) (20) ] PDFXOutputIntentProfileSelector DocumentCMYK PreserveEditing true UntaggedCMYKHandling LeaveUntagged UntaggedRGBHandling UseDocumentProfile UseDocumentBleed false gtgt ]gtgt setdistillerparamsltlt HWResolution [2400 2400] PageSize [612000 792000]gtgt setpagedevice









Journal of Korea Trade purports to support

and encourage research in the area of

international economics international business

and foreign trade practices and laws The

Journal welcomes theoretical and empirical

papers in the broadly-defined international

trade issues and policy implications in the

context of Korea Trade


COEX Commercial Exhibition Center B52

513 Yeongdong-daero

Gangnam-gu Seoul 06164 South Korea

Tel +82-2-6000-5182 Fax +82-2-551-8465

E-mail ektranavercom

Homepage httpnewktraorg

PUBLISHER

Professor Hag-Min Kim


EDITOR-IN-CHIEF (until December 31 2020)

Professor Suk-Jae Park

Woosuk University Korea

ASSOCIATE EDITORS


Professor Seo-Young Lee

Mokwon University Korea

Professor Tae-Hwang Kim

Myongji University Korea


Professor In-Won Kang


MANAGING EDITOR (until December 31 2020)

Professor Yoon-Min Kim

Keimyung University Korea

Journal of Korea Trade

is indexed in

Social Science Citation Index (SSCI)

EBSCO

ProQuest

KCI

GoogleScholar

ISSN 1229-828X


Guidelines for authors can be found at

httpnewktraorg

JKT Vol 24 No 6

Published 31 October 2020






































Journal of

Korea Trade

ISSN 1229-828X


JKTThe Korea Trade



wwwnewktraorg

1

JKT 24(6)













ISSN 1229-828X




















i) TGDP

ii) WGDP

iii) σП

sum П13 П

iv) CovП П

sum П

13П П

13 П


П

П

(1)


announcement


σП















AR = R - R (2)

where







6


(3)

where








Model 1





Model 2
























1015 2159 553 3727


the event (39) (24) (58) (121)






Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Korea (n=180)

7 13 13 9 22 16 27 32 25 16

China (n=50)

5 1 1 4 6 10 7 7 3 6

Taiwan (n=94)

10 7 9 10 7 16 12 6 9 8

Total (n=324)

22 21 23 23 35 42 46 45 37 30











=sum AR





-5AR -0099 -0662 CAR(-11) 1105 3814

-4AR 0285 2208 CAR(-12) 1107 3444

-3AR 0272 1794 CAR(-13) 1168 3500

-2AR 0175 1084 CAR(-14) 0989 2859

-1AR 0344 2241 CAR(-15) 1038 2767

0AR 0368 2232 CAR(-51) 1738 4147

1AR 0393 2680 CAR(-52) 1741 3972

2AR 0003 0019 CAR(-53) 1801 4136

3AR 0060 0428 CAR(-54) 1622 3800

4AR -0179 -1217 CAR(-55) 1671 3805

5AR 0048 0330 CAR(-110) 1033 2198






First quartile

Third quartile

Sample size


1664 0540 7914 -2750 5911 324


0839 0810 0479 0530 1050 324


28024 28302 2238 27014 29261 324




First quartile

Third quartile

Sample size


4788 5416 1730 5298 5476 324


14692 14860 2140 13190 16180 324


47249 48978 18391 32283 60755 324


21919 17506 15699 10416 29908 324


1538 1233 1006 0954 1638 324




=sum AR


=sum AR




Mean(A) t-value


(A) - (B) t-value


0269 0353 1295 4176 -1026 -1248


0147 0164 1326 3926 -1179 -1233


0416 0442 1339 3829 -0923 -0921




Mean(A) t-value


(A) - (B) t-value


-0343 -0348 1292 3598 -1635 -1842


-0430 -0424 1371 3461 -1802 -1874


-0485 -0462 2243 4977 -2729 -2551


-0607 -0520 2274 4916 -2881 -2576


-0338 -0273 2287 5084 -2626 -2359


-1097 -0870 2240 5197 -3337 -3076


-1184 -0924 2320 5211 -3504 -3142


-0571 -0473 1361 2795 -1932 -1649













(-2699) -2596

(-2765) -2315 (-2402)


-0095(-0341)

0075 (0267)


3375(0324)

2297 (0216)


-0035(-0133)

-0085 (-0316)


-0699(-3110)

-0702 (-3066)


0006(0228)

0006 (0191)


0021(0578)

0011 (0309)


-0015(-0490)

-0018 (-0603)


0014(0028)

0164 (0317)








Uncertainty



-2135 (-2474)


-1380(-1931)


-4147 (-3113)





-2480 (-2619)

-1917 (-1999)


-0110(-0395)

0019 (0070)


3887(0373)

4472 (0426)


-0061(-0231)

-0186 (-0702)








Listed target dummy




-0093 (9477)

-0099 (2973)


1664(11552)

3569 (5069)


-0840(19388)

-0507 (3304)


5188(1357)

16095 (0823)


0247(3623)

0075 (0093)


(0000) 5507

(0000)2226


(0622) 5891

(0659)1029









References

















6) 815-870




17 142-152











1793





256












863


Finance 26(2) 521-537











Finance 33(4) 640-651



190-216




18 564




Review 88(3) 559-586







50(4) 718-728

wwwnewktraorg

19

JKT 24(6)




Jee-Moon Pakdagger











ISSN 1229-828X
















22 (Gibbs 2015)










































































31

4 Case Analysis






























References


Press




























228







44(3) 137-154






















94

















962





267


Review 2020(11) 99-107








Lloydrsquos Rep 563






Lloydrsquos Rep 116




Rep 116

wwwnewktraorg

37

JKT 24(6)















ISSN 1229-828X


































Foreign Investment





Government Behavior




Market Competition











































lowast (1)



(2)
























Control Variable


























D=α+δ1Z1+δ2Z2 +ɛ (7)






(8)

(9)




13



13 lowast

lowast















13 13 (12)



5065 0016 0113 006013 000213

001113 000002313 0025 0000067 00001 (13)



















10822 1012 1729 0551 lowast 0902 0242 0143$ 0279 lowast










0279 0040 6978 0000


0380 0090 4197 0000


0548 0107 5089 0000








11530 05836 03318 01173 02034 0015 lowast 0212







02120 01076 19694 0049


















Cities

Non-First tier and

Second-tier Cities

Variable Name


Cities


tier Cities




22 2



289 023



520 083



(100 million yuan)66986 4976



100917 1540 0230 4527




























References













Policy 35(1) 56-67



















Statistics 29(5) 1189-1232



Planning 50(2) 168-183



Economy 10 77-88


Economics 88(2) 323-354














149-155




60 Research 2 18-21







Economics 4 107-121




















Economy 10 3-12








amp T 2 12-20









Economy 11 64-72




wwwnewktraorg

61

JKT 24(6)


Export to China











ISSN 1229-828X





























Author Home Country

Foreign Country







Shoham et al (2006)

Jewish Israelis



Lee Je-Hong (2018)



Heilmann (2016)










Du et al (2017)























































Economic SOK Index





























Date Event
























Dependent variables


20151ndash20189


00273 02626 minus02426 01375


20151ndash20189


00018 05189 minus07190 03088


20151ndash20189


00433 03194 minus02137 01560


20151ndash20189


minus00068 10090 minus08984 04404




00519 01307 minus00133 00324


20151ndash20189



20151ndash20189


00326 03870 minus02060 01637


The Bank of Korea 1017696 1029 1008 04633








13

1313

131313 (1)




13131313

1313 (2)
















SOK index +

Policy minus


China CPI minus+




SOK Index

Political SOK

Economic SOK

Cultural SOK



01537 00312 00010 04886

Chinese CPI 00934 -00001 -00998 02520 00590VIF 102 103 101 128 100











Import from KOR (0497 (0369 (06045 -0193 (0123) (0138) (0129) (0181)


Policy -0019 -0644 -00132 (0581 (0046) (0182) (0049) (0329)

Chinese CPI -00412 -0331 -0028 -0035 (0030) (0122) (0029) (0224)

Constant (4179 33310 (2860 (3635 (2982) (12232) (2937) (22533)























77

Tabl

e 8 E

ffect

of S

OK

by A

nim

osity

on

Chin

ese I

mpo

rt fro

m K

orea

Dep

Var

iabl

es

Tota

l (H

2)

Tota

l (H

3)

Tota

l (H

4)

Cons

umer

go

ods

(H2a

)

Cons

umer

go

ods

(H3a

)

Cons

umer

G

oods

(H

4a)

Inte

r-m

edia

tes

(H2b

)

Inte

r-m

edia

tes

(H3b

)

Inte

r-m

edia

tes

(H4b

)

Raw

mat

eria

ls(H

2c)

Raw

mat

eria

ls(H

3c)

Raw

mat

eria

ls(H

4c)

Polit

ical a

nim

osity

minus0

042

(225

9

minus00

48(0

087

SOK

(025

2)

(095

7)(0

365)

(201

0)

Econ

omic

anim

osity

minus0

004

minus071

5(0

269

minus040

3

SOK

(0

2440

)

(083

6)(0

239)

(2

111)

Cultu

ral a

nim

osity

(0

106

(320

4minus0

096

9 minus0

515

SOK

(050

3)

(213

3)(0

445)

(3

865)

Impo

rt fro

m K

OR

minus02

02

0488

(057

0

minus0

011

(038

3

minus00

323

(029

4(0

574

(063

1

minus0

590

minus02

55minus0

102

(t-1)

(0

221)

(0

15)

(012

4)

(017

4)(0

169)

(018

9)(0

349)

(017

5)

(012

1)

(033

5)(0

251)

(020

8)

Chin

ese i

mpo

rt (0

287

(035

4

(035

9

(086

8minus0

366

minus15

37

(036

9(0

449

(0

413

minus09

39(0

422

(098

9gr

owth

(0

274)

(0

194)

(0

136)

(1

063)

(076

8)(0

689)

(041

3)(0

188)

(0

125)

(2

340)

(162

9)(1

056)

Polic

y (0

188

minus0

002

28

minus00

148

minus13

85

minus0

426

minus0

848

(015

7minus0

013

1 (0

0030

8 (0

870

(063

3(0

660

(009

76)

(006

41)

(004

63)

(034

5)(0

220)

(021

7)(0

144)

(006

48)

(004

40)

(071

5)(0

530)

(036

3)Ch

ines

e CPI

minus0

033

minus0

032

9 minus0

049

4 minus0

240

minus01

59minus0

436

(000

0minus0

017

9 minus0

029

8 minus0

123

minus01

13minus0

033

8(0

0547

) (0

0480

) (0

0308

) (0

207)

(016

3)(0

129)

(007

86)

(004

89)

(002

76)

(042

7)(0

374)

(023

3)Co

nsta

nt

(322

9 (3

349

(502

0 (2

406

1602

4366

minus00

532

(182

9 (3

056

1204

1163

(380

1(5

494)

(4

830)

(3

096)

(2

077)

(164

0)(1

299)

(789

4)(4

928)

(2

774)

(4

281)

(376

3)(2

341)

Tim

e Ye

s Ye

s Ye

s Ye

sYe

sYe

sYe

sYe

s Ye

s Ye

sYe

sYe

s

Obs

erva

tions

17

31

35

17

3135

1731

35

17

3135

R-sq

uare

d 08

86

0857

08

61

0726

0432

0454

0853

0890

09

10

0456

0146

0193

Not

e p

lt01

p

lt00

5

plt0

001

















References


107













186-195





































1-19








27(11) 925-929






Economy 23(5) 85-103







184-187





10291

82

JKT 24(6)

wwwnewktraorg


Bomin Kodagger










ISSN 1229-828X





























Updated Initiated

Updated Signed

Updated in Force
























































UN WEF

Human Development

Index

Gender Inequality

Index


Gap












FTA FTA Committees

Korea- Chile

FTA

Korea-Canada

FTA

Canada - Chile

FTA

Canada - Israel

FTA

































98









































wwwnewktraorg

101

JKT 24(6)












ISSN 1229-828X


102































3 The Arrangement

















110

























References




Practicum 46-49










July 30 2020)










27(4) 807-830


























wwwnewktraorg

115

JKT 24(6)













ISSN 1229-828X









Source Author




























1

1

(2)

where ε


(3) Thus


121

1 1 ⟹

(4)

The left-hand term





max



1 13 and 1

13

Therefore

1 1

⟹

||

||

(5)














(Unit $FEU)








EA-WC 09_12 to 08_16 2032 1749 2587 09_16 to 08_20 1885 1689 2002


EA-EC 09_12 to 08_16 3558 3142 4374 09_16 to 08_20 2934 2696 3179


EA-EU 09_12 to 08_16 1400 915 1756 09_16 to 08_20 1220 833 1409


EA-MED 09_12 to 08_16 1602 1009 1652 09_16 to 08_20 1469 828 1329







(1000 TEU) C(C100)S





where 0 ϕ 1 (6) (7) (8) (9)






13

13

13

13 (10)



1 (11)


(6) (7-a) (8-a)




H where equiv prime

H equiv 1 01 0 1 13 13 1 01 0 1 13 13



125





13 (16)

(17)



13 exp (19)

exp (20)

4 Empirical Results





0966 0003 0974 0002 0966 0004 0991 0004

0023 0004 0016 0003 0013 0006 0019 0006

1000 0001 0999 0001 0999 0000 0999 0000

0004 0001 0003 0001 0001 0000 0001 0000

0023 0004 0014 0003 0051 0007 0038 0005

0002 0001 0003 0001 0000 0000 0001 0000





0947 0003 0957 0003 1071 0004 0924 0005

0029 0005 0022 0004 0018 0006 0008 0008

1000 0001 0999 0001 1000 0000 0999 0001

0004 0001 0003 0001 0001 0000 0002 0001

0031 0005 0021 0003 0041 0009 0077 0011

0002 0001 0003 0001 0000 0000 0001 0000






WC EC EU MED Korea

rsquos estimate

0023 0015 0013 0021

rsquos

t-value 5359 4597 2069 3531

rsquos

p-value 0000 0000 0041 0001


China rsquos

estimate 0028 0021 0023 0009

rsquos

t-value 5553 5214 2935 1089

rsquos

p-value 0000 0000 0004 0279







Korea and Japan

13322 359 120 213

China and Japan

13



































131 6 Conclusions











References
























































155


Review 28(2) 207-216


Elecbook Classics



77-87








151


Learning





Publishing


Publication

wwwnewktraorg

135

JKT 24(6)












ISSN 1229-828X


136

1 Introduction























































Table 1 Data Source


K Corp Data Size

Primary data





Secondary data





6 copies NA










Construct validity





Internal validity




External validity







4 Case Analysis












































Driving Factor







Not Supported







Partially Supported


Domestic market


Not Supported






Partially Supported




151



















References







Studies 36(1) 9-19





Studies 45(1) 85-101



46(1) 3-16



125-139









Chapman Publishing




Review 14(4) 532-550






























42(3) 253-267






















177





Review 54(4) 527-550










920-936







20-24



387-394







Publications


38(2) 341-363












Studies 38(4) 673-690

wwwnewktraorg

157

JKT 24(6)














ISSN 1229-828X








































(1)



13 13 13 13 (2)










13 1313



13 1313






















K-SURE




Statistics Korea


FTA Homepage
















Minimum Value

Maximum Value

Number of Samples









-2461 -0566 17127 12384

0006 0285 0249 0574

-2652 -3783 39230 11354

0004 0000 0000 0000


-2928 -0502 13883 10379

0002 0307 0458 0734

-3797 -4055 41634 75533

0000 0000 0000 0000


-4464 -0843 14987 58828

0000 0199 0379 0969

-2946 -2525 27550 51942

0001 0005 0016 0000


-0648 08585 15187 16256

0258 0804 0365 0298

-2547 -2179 35453 43862

0005 0014 0001 0000


01178 23264 26974 25386

0546 0990 0999 0031

-3496 -6196 62334 20332

0000 0000 0000 0000
























(5981)0000 -7046

(4907)0000

ln(EXINS) -0641

(10597)0000 -0586

(9835)0000

ln(GDP) -0023(0235)

0815 -0051(-0517)

0605

ln(POP) -0022(0532)

0595 -0048(1169)

0244

ln(DIST) -0494

(-2486) 0014 -0280

(-1413) 0160

RPI -0699

(-4818)0000 -0533

(-3661)0000


(3677)0000







(3158)(9044

(8027)19171

(2990)(7046 (6436)

ln(EXINS) (0387

(4106)(0638

(13563)(0405

(4302)(0585

(12899) ln(GDP) (0986

(5376)(0062 (0793)

(1098

(5674)-0051

(-0678) ln(POP) -1745

(-2817)(0009 (0266)

-1706

(-2772)(0048 (1532)


(-3643)omitted -0280

(-1852) RPI (-0043

(-0306)-0661

(-6060)-0023

(-0164)-0533

(-4802) Dummy(FTA) - - -0158

(-1702)(0339 (4822)



















References


Review 69 106-116





httpsdoiort101007s11079-007-9076-y



71(1) 143-153





1779






92-7






















21(1) 67-85



4076(01)00098-7










1011111468-00840610s1653








Cengage Learning

wwwnewktraorg

173

JKT 24(6)




Gun-Hoon Shindagger





1 Introduction







ISSN 1229-828X












175












































































performance







































ValueDispersion



Market orientation

MO2 811 763 3673 11477 876 MO4 783 749MO1 743 635MO5 713 799MO3 693 695





KMO 851


df(p) 496 (000)








Market orientation

5 10309 000 2062 015 977 930 988 988 079


5 18482 002 3696 025 959 876 977 978 126

Social Capital

5 46693 000 9939 055 885 654 912 913 229










Social Capital



Export Performance

Market orientation

1000


0596 1000



0358 0525 0410 1000


0322 0464 0498 0322 1000

Export Performance

0363 0688 0573 0493 0565 1000




Concept Constituent





TO2 884 844 082 107590 911 TO3 1036 923 088 11725TO4 1021 800 100 10197TO1 851 841 079 10725

Market orientation

MO2 737 735 069 10713 876 MO4 1000 831 - 0000MO1 531 595 065 8175MO5 1009 892 080 13931


SC2 1005 807 073 13702SC4 100 905 - 000SC3 742 691 070 10643



Concept Constituent






















-197 -2218 027 Rejected


451 4368 Adopted


112 1504 133 Rejected





340 3151 0002 Adopted



146 2867 0042 Adopted


142 1113 226 Rejected


144 2101 045 Adopted


414 4082 Adopted


470 4048 041 Adopted


227 3503 Adopted

Note plt05 plt01


189

5 Conclusion
















References



55(10) 831- 843















20(4) 61-76





37(5) 369-390




58(4) 37-52








1021










79-91



197





University





17









ChungAng University









37(2) 249-268



University











27(2) 131-150



Review 24(6) 43-62



11(2) 161-181







12(12) 203-215














25(2) 223-244



Business 38(1) 207-235















Korea



25








Journal 22 587-613




Sunchon University



11(4) 32-55

The Korea Trade R



umber 6 2020

JKTThe Korea Trade



001-목차

002-내지

01-(1-18) JKT_24-6-정진영

02-(19-36) JKT_24-6-박지문

03-(37-60) JKT_24-6-남은영

04-(61-81) JKT_24-6-김명석

05-(82-100) JKT_24-6-고보민

06-(101-114) JKT_24-6-전정원

07-(115-134) JKT_24-6-고병욱

08-(135-156) JKT_24-6-조슈아박

09-(157-172) JKT_24-6-이서영

10-(173-193) JKT_24-6- 주세환

99-뒷표지
















































Journal of

Korea Trade

ISSN 1229-828X


JKTThe Korea Trade



wwwnewktraorg

1

JKT 24(6)













ISSN 1229-828X




















i) TGDP

ii) WGDP

iii) σП

sum П13 П

iv) CovП П

sum П

13П П

13 П


П

П

(1)


announcement


σП















AR = R - R (2)

where







6


(3)

where








Model 1





Model 2
























1015 2159 553 3727


the event (39) (24) (58) (121)






Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Korea (n=180)

7 13 13 9 22 16 27 32 25 16

China (n=50)

5 1 1 4 6 10 7 7 3 6

Taiwan (n=94)

10 7 9 10 7 16 12 6 9 8

Total (n=324)

22 21 23 23 35 42 46 45 37 30











=sum AR





-5AR -0099 -0662 CAR(-11) 1105 3814

-4AR 0285 2208 CAR(-12) 1107 3444

-3AR 0272 1794 CAR(-13) 1168 3500

-2AR 0175 1084 CAR(-14) 0989 2859

-1AR 0344 2241 CAR(-15) 1038 2767

0AR 0368 2232 CAR(-51) 1738 4147

1AR 0393 2680 CAR(-52) 1741 3972

2AR 0003 0019 CAR(-53) 1801 4136

3AR 0060 0428 CAR(-54) 1622 3800

4AR -0179 -1217 CAR(-55) 1671 3805

5AR 0048 0330 CAR(-110) 1033 2198






First quartile

Third quartile

Sample size


1664 0540 7914 -2750 5911 324


0839 0810 0479 0530 1050 324


28024 28302 2238 27014 29261 324




First quartile

Third quartile

Sample size


4788 5416 1730 5298 5476 324


14692 14860 2140 13190 16180 324


47249 48978 18391 32283 60755 324


21919 17506 15699 10416 29908 324


1538 1233 1006 0954 1638 324




=sum AR


=sum AR




Mean(A) t-value


(A) - (B) t-value


0269 0353 1295 4176 -1026 -1248


0147 0164 1326 3926 -1179 -1233


0416 0442 1339 3829 -0923 -0921




Mean(A) t-value


(A) - (B) t-value


-0343 -0348 1292 3598 -1635 -1842


-0430 -0424 1371 3461 -1802 -1874


-0485 -0462 2243 4977 -2729 -2551


-0607 -0520 2274 4916 -2881 -2576


-0338 -0273 2287 5084 -2626 -2359


-1097 -0870 2240 5197 -3337 -3076


-1184 -0924 2320 5211 -3504 -3142


-0571 -0473 1361 2795 -1932 -1649













(-2699) -2596

(-2765) -2315 (-2402)


-0095(-0341)

0075 (0267)


3375(0324)

2297 (0216)


-0035(-0133)

-0085 (-0316)


-0699(-3110)

-0702 (-3066)


0006(0228)

0006 (0191)


0021(0578)

0011 (0309)


-0015(-0490)

-0018 (-0603)


0014(0028)

0164 (0317)








Uncertainty



-2135 (-2474)


-1380(-1931)


-4147 (-3113)





-2480 (-2619)

-1917 (-1999)


-0110(-0395)

0019 (0070)


3887(0373)

4472 (0426)


-0061(-0231)

-0186 (-0702)








Listed target dummy




-0093 (9477)

-0099 (2973)


1664(11552)

3569 (5069)


-0840(19388)

-0507 (3304)


5188(1357)

16095 (0823)


0247(3623)

0075 (0093)


(0000) 5507

(0000)2226


(0622) 5891

(0659)1029









References

















6) 815-870




17 142-152











1793





256












863


Finance 26(2) 521-537











Finance 33(4) 640-651



190-216




18 564




Review 88(3) 559-586







50(4) 718-728

wwwnewktraorg

19

JKT 24(6)




Jee-Moon Pakdagger











ISSN 1229-828X
















22 (Gibbs 2015)










































































31

4 Case Analysis






























References


Press




























228







44(3) 137-154






















94

















962





267


Review 2020(11) 99-107








Lloydrsquos Rep 563






Lloydrsquos Rep 116




Rep 116

wwwnewktraorg

37

JKT 24(6)















ISSN 1229-828X


































Foreign Investment





Government Behavior




Market Competition











































lowast (1)



(2)
























Control Variable


























D=α+δ1Z1+δ2Z2 +ɛ (7)






(8)

(9)




13



13 lowast

lowast















13 13 (12)



5065 0016 0113 006013 000213

001113 000002313 0025 0000067 00001 (13)



















10822 1012 1729 0551 lowast 0902 0242 0143$ 0279 lowast










0279 0040 6978 0000


0380 0090 4197 0000


0548 0107 5089 0000








11530 05836 03318 01173 02034 0015 lowast 0212







02120 01076 19694 0049


















Cities

Non-First tier and

Second-tier Cities

Variable Name


Cities


tier Cities




22 2



289 023



520 083



(100 million yuan)66986 4976



100917 1540 0230 4527




























References













Policy 35(1) 56-67



















Statistics 29(5) 1189-1232



Planning 50(2) 168-183



Economy 10 77-88


Economics 88(2) 323-354














149-155




60 Research 2 18-21







Economics 4 107-121




















Economy 10 3-12








amp T 2 12-20









Economy 11 64-72




wwwnewktraorg

61

JKT 24(6)


Export to China











ISSN 1229-828X





























Author Home Country

Foreign Country







Shoham et al (2006)

Jewish Israelis



Lee Je-Hong (2018)



Heilmann (2016)










Du et al (2017)























































Economic SOK Index





























Date Event
























Dependent variables


20151ndash20189


00273 02626 minus02426 01375


20151ndash20189


00018 05189 minus07190 03088


20151ndash20189


00433 03194 minus02137 01560


20151ndash20189


minus00068 10090 minus08984 04404




00519 01307 minus00133 00324


20151ndash20189



20151ndash20189


00326 03870 minus02060 01637


The Bank of Korea 1017696 1029 1008 04633








13

1313

131313 (1)




13131313

1313 (2)
















SOK index +

Policy minus


China CPI minus+




SOK Index

Political SOK

Economic SOK

Cultural SOK



01537 00312 00010 04886

Chinese CPI 00934 -00001 -00998 02520 00590VIF 102 103 101 128 100











Import from KOR (0497 (0369 (06045 -0193 (0123) (0138) (0129) (0181)


Policy -0019 -0644 -00132 (0581 (0046) (0182) (0049) (0329)

Chinese CPI -00412 -0331 -0028 -0035 (0030) (0122) (0029) (0224)

Constant (4179 33310 (2860 (3635 (2982) (12232) (2937) (22533)























77

Tabl

e 8 E

ffect

of S

OK

by A

nim

osity

on

Chin

ese I

mpo

rt fro

m K

orea

Dep

Var

iabl

es

Tota

l (H

2)

Tota

l (H

3)

Tota

l (H

4)

Cons

umer

go

ods

(H2a

)

Cons

umer

go

ods

(H3a

)

Cons

umer

G

oods

(H

4a)

Inte

r-m

edia

tes

(H2b

)

Inte

r-m

edia

tes

(H3b

)

Inte

r-m

edia

tes

(H4b

)

Raw

mat

eria

ls(H

2c)

Raw

mat

eria

ls(H

3c)

Raw

mat

eria

ls(H

4c)

Polit

ical a

nim

osity

minus0

042

(225

9

minus00

48(0

087

SOK

(025

2)

(095

7)(0

365)

(201

0)

Econ

omic

anim

osity

minus0

004

minus071

5(0

269

minus040

3

SOK

(0

2440

)

(083

6)(0

239)

(2

111)

Cultu

ral a

nim

osity

(0

106

(320

4minus0

096

9 minus0

515

SOK

(050

3)

(213

3)(0

445)

(3

865)

Impo

rt fro

m K

OR

minus02

02

0488

(057

0

minus0

011

(038

3

minus00

323

(029

4(0

574

(063

1

minus0

590

minus02

55minus0

102

(t-1)

(0

221)

(0

15)

(012

4)

(017

4)(0

169)

(018

9)(0

349)

(017

5)

(012

1)

(033

5)(0

251)

(020

8)

Chin

ese i

mpo

rt (0

287

(035

4

(035

9

(086

8minus0

366

minus15

37

(036

9(0

449

(0

413

minus09

39(0

422

(098

9gr

owth

(0

274)

(0

194)

(0

136)

(1

063)

(076

8)(0

689)

(041

3)(0

188)

(0

125)

(2

340)

(162

9)(1

056)

Polic

y (0

188

minus0

002

28

minus00

148

minus13

85

minus0

426

minus0

848

(015

7minus0

013

1 (0

0030

8 (0

870

(063

3(0

660

(009

76)

(006

41)

(004

63)

(034

5)(0

220)

(021

7)(0

144)

(006

48)

(004

40)

(071

5)(0

530)

(036

3)Ch

ines

e CPI

minus0

033

minus0

032

9 minus0

049

4 minus0

240

minus01

59minus0

436

(000

0minus0

017

9 minus0

029

8 minus0

123

minus01

13minus0

033

8(0

0547

) (0

0480

) (0

0308

) (0

207)

(016

3)(0

129)

(007

86)

(004

89)

(002

76)

(042

7)(0

374)

(023

3)Co

nsta

nt

(322

9 (3

349

(502

0 (2

406

1602

4366

minus00

532

(182

9 (3

056

1204

1163

(380

1(5

494)

(4

830)

(3

096)

(2

077)

(164

0)(1

299)

(789

4)(4

928)

(2

774)

(4

281)

(376

3)(2

341)

Tim

e Ye

s Ye

s Ye

s Ye

sYe

sYe

sYe

sYe

s Ye

s Ye

sYe

sYe

s

Obs

erva

tions

17

31

35

17

3135

1731

35

17

3135

R-sq

uare

d 08

86

0857

08

61

0726

0432

0454

0853

0890

09

10

0456

0146

0193

Not

e p

lt01

p

lt00

5

plt0

001

















References


107













186-195





































1-19








27(11) 925-929






Economy 23(5) 85-103







184-187





10291

82

JKT 24(6)

wwwnewktraorg


Bomin Kodagger










ISSN 1229-828X





























Updated Initiated

Updated Signed

Updated in Force
























































UN WEF

Human Development

Index

Gender Inequality

Index


Gap












FTA FTA Committees

Korea- Chile

FTA

Korea-Canada

FTA

Canada - Chile

FTA

Canada - Israel

FTA

































98









































wwwnewktraorg

101

JKT 24(6)












ISSN 1229-828X


102































3 The Arrangement

















110

























References




Practicum 46-49










July 30 2020)










27(4) 807-830


























wwwnewktraorg

115

JKT 24(6)













ISSN 1229-828X









Source Author




























1

1

(2)

where ε


(3) Thus


121

1 1 ⟹

(4)

The left-hand term





max



1 13 and 1

13

Therefore

1 1

⟹

||

||

(5)














(Unit $FEU)








EA-WC 09_12 to 08_16 2032 1749 2587 09_16 to 08_20 1885 1689 2002


EA-EC 09_12 to 08_16 3558 3142 4374 09_16 to 08_20 2934 2696 3179


EA-EU 09_12 to 08_16 1400 915 1756 09_16 to 08_20 1220 833 1409


EA-MED 09_12 to 08_16 1602 1009 1652 09_16 to 08_20 1469 828 1329







(1000 TEU) C(C100)S





where 0 ϕ 1 (6) (7) (8) (9)






13

13

13

13 (10)



1 (11)


(6) (7-a) (8-a)




H where equiv prime

H equiv 1 01 0 1 13 13 1 01 0 1 13 13



125





13 (16)

(17)



13 exp (19)

exp (20)

4 Empirical Results





0966 0003 0974 0002 0966 0004 0991 0004

0023 0004 0016 0003 0013 0006 0019 0006

1000 0001 0999 0001 0999 0000 0999 0000

0004 0001 0003 0001 0001 0000 0001 0000

0023 0004 0014 0003 0051 0007 0038 0005

0002 0001 0003 0001 0000 0000 0001 0000





0947 0003 0957 0003 1071 0004 0924 0005

0029 0005 0022 0004 0018 0006 0008 0008

1000 0001 0999 0001 1000 0000 0999 0001

0004 0001 0003 0001 0001 0000 0002 0001

0031 0005 0021 0003 0041 0009 0077 0011

0002 0001 0003 0001 0000 0000 0001 0000






WC EC EU MED Korea

rsquos estimate

0023 0015 0013 0021

rsquos

t-value 5359 4597 2069 3531

rsquos

p-value 0000 0000 0041 0001


China rsquos

estimate 0028 0021 0023 0009

rsquos

t-value 5553 5214 2935 1089

rsquos

p-value 0000 0000 0004 0279







Korea and Japan

13322 359 120 213

China and Japan

13



































131 6 Conclusions











References
























































155


Review 28(2) 207-216


Elecbook Classics



77-87








151


Learning





Publishing


Publication

wwwnewktraorg

135

JKT 24(6)












ISSN 1229-828X


136

1 Introduction























































Table 1 Data Source


K Corp Data Size

Primary data





Secondary data





6 copies NA










Construct validity





Internal validity




External validity







4 Case Analysis












































Driving Factor







Not Supported







Partially Supported


Domestic market


Not Supported






Partially Supported




151



















References







Studies 36(1) 9-19





Studies 45(1) 85-101



46(1) 3-16



125-139









Chapman Publishing




Review 14(4) 532-550






























42(3) 253-267






















177





Review 54(4) 527-550










920-936







20-24



387-394







Publications


38(2) 341-363












Studies 38(4) 673-690

wwwnewktraorg

157

JKT 24(6)














ISSN 1229-828X








































(1)



13 13 13 13 (2)










13 1313



13 1313






















K-SURE




Statistics Korea


FTA Homepage
















Minimum Value

Maximum Value

Number of Samples









-2461 -0566 17127 12384

0006 0285 0249 0574

-2652 -3783 39230 11354

0004 0000 0000 0000


-2928 -0502 13883 10379

0002 0307 0458 0734

-3797 -4055 41634 75533

0000 0000 0000 0000


-4464 -0843 14987 58828

0000 0199 0379 0969

-2946 -2525 27550 51942

0001 0005 0016 0000


-0648 08585 15187 16256

0258 0804 0365 0298

-2547 -2179 35453 43862

0005 0014 0001 0000


01178 23264 26974 25386

0546 0990 0999 0031

-3496 -6196 62334 20332

0000 0000 0000 0000
























(5981)0000 -7046

(4907)0000

ln(EXINS) -0641

(10597)0000 -0586

(9835)0000

ln(GDP) -0023(0235)

0815 -0051(-0517)

0605

ln(POP) -0022(0532)

0595 -0048(1169)

0244

ln(DIST) -0494

(-2486) 0014 -0280

(-1413) 0160

RPI -0699

(-4818)0000 -0533

(-3661)0000


(3677)0000







(3158)(9044

(8027)19171

(2990)(7046 (6436)

ln(EXINS) (0387

(4106)(0638

(13563)(0405

(4302)(0585

(12899) ln(GDP) (0986

(5376)(0062 (0793)

(1098

(5674)-0051

(-0678) ln(POP) -1745

(-2817)(0009 (0266)

-1706

(-2772)(0048 (1532)


(-3643)omitted -0280

(-1852) RPI (-0043

(-0306)-0661

(-6060)-0023

(-0164)-0533

(-4802) Dummy(FTA) - - -0158

(-1702)(0339 (4822)



















References


Review 69 106-116





httpsdoiort101007s11079-007-9076-y



71(1) 143-153





1779






92-7






















21(1) 67-85



4076(01)00098-7










1011111468-00840610s1653








Cengage Learning

wwwnewktraorg

173

JKT 24(6)




Gun-Hoon Shindagger





1 Introduction







ISSN 1229-828X












175












































































performance







































ValueDispersion



Market orientation

MO2 811 763 3673 11477 876 MO4 783 749MO1 743 635MO5 713 799MO3 693 695





KMO 851


df(p) 496 (000)








Market orientation

5 10309 000 2062 015 977 930 988 988 079


5 18482 002 3696 025 959 876 977 978 126

Social Capital

5 46693 000 9939 055 885 654 912 913 229










Social Capital



Export Performance

Market orientation

1000


0596 1000



0358 0525 0410 1000


0322 0464 0498 0322 1000

Export Performance

0363 0688 0573 0493 0565 1000




Concept Constituent





TO2 884 844 082 107590 911 TO3 1036 923 088 11725TO4 1021 800 100 10197TO1 851 841 079 10725

Market orientation

MO2 737 735 069 10713 876 MO4 1000 831 - 0000MO1 531 595 065 8175MO5 1009 892 080 13931


SC2 1005 807 073 13702SC4 100 905 - 000SC3 742 691 070 10643



Concept Constituent






















-197 -2218 027 Rejected


451 4368 Adopted


112 1504 133 Rejected





340 3151 0002 Adopted



146 2867 0042 Adopted


142 1113 226 Rejected


144 2101 045 Adopted


414 4082 Adopted


470 4048 041 Adopted


227 3503 Adopted

Note plt05 plt01


189

5 Conclusion
















References



55(10) 831- 843















20(4) 61-76





37(5) 369-390




58(4) 37-52








1021










79-91



197





University





17









ChungAng University









37(2) 249-268



University











27(2) 131-150



Review 24(6) 43-62



11(2) 161-181







12(12) 203-215














25(2) 223-244



Business 38(1) 207-235















Korea



25








Journal 22 587-613




Sunchon University



11(4) 32-55

The Korea Trade R



umber 6 2020

JKTThe Korea Trade



001-목차

002-내지

01-(1-18) JKT_24-6-정진영

02-(19-36) JKT_24-6-박지문

03-(37-60) JKT_24-6-남은영

04-(61-81) JKT_24-6-김명석

05-(82-100) JKT_24-6-고보민

06-(101-114) JKT_24-6-전정원

07-(115-134) JKT_24-6-고병욱

08-(135-156) JKT_24-6-조슈아박

09-(157-172) JKT_24-6-이서영

10-(173-193) JKT_24-6- 주세환

99-뒷표지











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