This blog post examines the expectations and concerns surrounding Netflix’s investment in Korea, calmly analyzing the impact of foreign investment on industrial competitiveness, employment, and leadership.

Netflix’s Investment in Korea and Korean Manufacturing Companies’ Foreign Investment

On April 24, 2023, Netflix CEO Ted Sarandos announced during a meeting with President Yoon Suk Yeol that the company would invest $2.5 billion in South Korea over the next four years. This represents a prime example of foreign corporate investment in Korea. Some critics responded to this announcement with negative views, arguing that foreign companies are dominating Korea’s production environment and that Korea is becoming a subcontractor for global corporations.
Meanwhile, the Biden administration in the United States highlighted that major South Korean global companies like Samsung Electronics, Hyundai Motor, and SK Hynix are investing a total of $100 billion in the U.S., emphasizing this as a success for the American economy. This represents foreign investment by Korean companies. Domestically, this too drew negative reactions, with views such as “Jobs that should be created domestically are leaking overseas” and “South Korean companies are suffering due to the U.S.-Korea relationship.”
Yet, examining these two cases together reveals something peculiar. Criticism arises when foreign companies invest in Korea, and claims of loss surface when Korean companies invest abroad. Corporate overseas investment is a subject of both economic debate and political contention in many countries. To get straight to the point, overseas investment involves complex intertwined gains and losses, making it difficult to simply divide into winners and losers. Therefore, understanding the specific characteristics of individual industries and the investment structure is essential.

How do the positions differ between the country receiving investment and the country where the investing headquarters is located?

First, it is necessary to examine the impact of corporate activities on the economy. A national economy operates on two pillars: households, which are the primary consumers, and companies, which handle production and investment. When corporate activity is robust, GDP increases, overall economic vitality rises, and jobs are created. Corporate revenue returns to workers in the form of wages, and profits accrue to shareholders. Thus, it is clear that corporate activity itself contributes to the economy.
Now, let’s consider the case of a U.S. company investing in Korea. If a U.S. company establishes a factory in Korea, production facilities are created there, increasing Korea’s GDP and invigorating economic activity. Employment rates also rise as workers must be hired to operate the factory. Sales generated by the factory are paid as wages to Korean workers. However, corporate profits are transferred to the U.S. headquarters, creating a point of differing interpretations.
Viewed very simply, compared to a situation with no investment at all, domestic investment by U.S. companies clearly benefits the Korean economy. However, compared to a scenario where a Korean company makes the same investment domestically, there is a relative disadvantage in that corporate profits are transferred overseas. That is, if interpreted as an American company preempting an investment that a Korean company could have sufficiently undertaken, a negative assessment is possible. Nevertheless, the investment itself fundamentally has a positive impact on the economy.
Now, let’s examine the situation from the perspective of the United States, where the company’s headquarters is located. The U.S. headquarters benefits because it can distribute profits generated by operating a factory in South Korea to its headquarters employees and shareholders. This is clearly a more favorable outcome than if the U.S. company had not invested at all. So, how does this compare to if the U.S. company had invested domestically?
When a U.S. company invests domestically, both U.S. GDP and employment increase. Conversely, when investing in Korea, these effects do not directly occur in the U.S. economy. Of course, the profits generated through investment do benefit the U.S. economy, but compared to choosing to invest domestically, there is a relative shortfall.
Ultimately, corporate investment provides benefits to the national economy through various channels, but when overseas investment occurs, those benefits are shared between the host country and the home country. While it is true that both the headquarters and the subsidiary gain profits, either side inevitably experiences a shortfall compared to investing domestically.
However, additional factors warrant consideration depending on the nature of individual investment cases. As mentioned earlier, when foreign firms invest domestically, it is crucial whether the industry could have grown sufficiently through domestic investment. If foreign firms enter an industry that could have developed through domestic investment, it can be interpreted as foreign firms occupying that space. In such cases, the larger share of profits going to foreign firms compared to if domestic firms had invested can be pointed out as a drawback.
Conversely, if foreign companies possess superior management capabilities and technological expertise compared to domestic firms, their entry could facilitate the transfer of management know-how and stimulate the competitiveness of domestic companies, yielding positive effects. However, if domestic companies are displaced by foreign firms or a foreign monopoly forms, the potential for greater harm to the nation as a whole also exists.

The Light and Shadow of Netflix’s Entry into Korea

If Netflix actively invests in South Korea, the content industry stands to gain clear benefits, at least in the short term, as this funding enables content production. Some express concerns that Korea might become merely a subcontractor for Netflix. However, just as South Korea’s major semiconductor companies import materials and components from Japan while maintaining a mutually respectful relationship based on price and quality, it is not always the case that larger companies unilaterally dominate smaller ones in contractual relationships.
Therefore, the key factor determining the relationship between Netflix and the Korean content industry is the competitiveness of Korean content. Korean content enjoys immense popularity globally, particularly in the populous Asian region. As the proportion of Korean content within Netflix’s overall library grows, the bargaining power of domestic production companies inevitably increases. Consequently, the scale of investment production companies can secure naturally expands.
Another crucial factor is Netflix’s monopoly power. Netflix currently dominates not only the Korean market but also the global OTT market as the leading player. To counter this, other global OTT platforms are also actively investing in Korean content. Indeed, in 2023, Disney+ released works like “Casino” and “Moving.” As global OTTs show greater interest in the Korean content market, domestic production companies gain the upper hand at the negotiating table and can secure contracts on more favorable terms.
However, domestic industries directly competing with Netflix will find it difficult to avoid impact. Domestic OTT platforms like Wavve and TVING struggle to match Netflix’s scale of investment. Domestic broadcasters and the film industry also face the burden of viewer attrition. As an environment enabling anytime, anywhere content consumption via OTT is established, broadcasters experience declining ratings, and cinema audiences also shift to OTT, impacting the film industry. As a result, while content production for Netflix may become more active, content production by broadcasters and film studios is likely to shrink. Thus, Netflix’s domestic investment in Korea presents a dual nature: both an opportunity and a crisis for the Korean cultural industry.

How should we view the overseas expansion of Korean manufacturing?

Then, how should we view the overseas expansion of large Korean manufacturers, which have already entered markets like China and Vietnam and are recently strengthening investments in the US? This interpretation also varies depending on whether we see it as choosing foreign markets despite having conditions for domestic investment, or whether we view domestic and overseas investments as separate decisions. In the former case, the lack of domestic investment strengthens negative assessments, while in the latter, securing new profit opportunities allows for positive evaluation.
Industries that do not require advanced manufacturing processes and can produce using low-cost labor often establish production bases in developing countries to reduce costs. Given Korea’s relatively high wage levels, this form of overseas investment is to some extent unavoidable. However, since jobs for low-skilled workers are also needed domestically, the government must continuously strive to maintain the employment base by attracting various types of domestic and foreign companies.
Another reason Korean companies invest in the US and Europe is to more effectively meet overseas demand by selling locally produced goods in those markets. Additionally, circumventing trade barriers or accessing subsidy benefits are significant objectives. While exporting domestically produced goods allows importing countries to apply various regulations, locally produced goods face relatively relaxed restrictions.
The Biden administration enacted the Inflation Reduction Act (IRA) in 2022, introducing subsidy systems like tax credits to attract advanced industries to the U.S. This created opportunities for Korean companies entering the U.S. market to reduce their tax burden. Of course, the issue remains that some regulations and subsidy systems are still designed to disadvantage foreign companies.
Therefore, rather than questioning Korean companies’ entry into the U.S. market itself, it is more reasonable to point out excessive U.S. regulations and the Korean government’s insufficient efforts to address them. Given the scale of investments made by Korean companies, it is necessary to request the U.S. government to resolve the difficulties encountered during this process. A more in-depth discussion is needed regarding the lack of clear progress in this area.
Many worldly affairs appear to have clear winners and losers on the surface, but in reality, mutual benefits often arise. International trade and corporate overseas investment are no exception. We must guard against interpreting overseas investment as simply a victory or defeat for one side, or categorically asserting that global corporations exploit workers. It is difficult to view Korean global manufacturing companies as exploiting American workers, for the same reason.
Notably, Korean corporate investment in the U.S. has continued steadily through both the Moon Jae-in and Yoon Suk-yeol administrations, and the Biden administration reported the combined total of investments from both periods. Yet, the investment during the Moon administration faced strong opposition from the People Power Party, then the opposition, while the investment under the Yoon administration is now facing strong opposition from the Democratic Party, the current opposition. This reveals an inconsistent attitude where the same economic issue is interpreted differently based on political affiliation.
Corporate overseas investment is a critical matter directly linked to corporate survival and competitiveness. Rather than using it as a tool for political strife, it is preferable to recognize that certain industries and groups may face relative disadvantages due to overseas investment and to design compensatory policies accordingly. Approaching it from this perspective, corporate overseas investment can become an object of coordination and management, rather than a source of conflict.