The Importance of Foreign Direct Investment (FDI): Focusing on Non-Current Assets and the Case of Samsung Electronics

When examining the asset section of a balance sheet, non-current assets can be divided into tangible and intangible assets. Tangible assets (PP&E: Property, Plant, and Equipment) are physical assets expected to be used for more than one accounting period, retained for purposes such as producing or providing goods and services, leasing to others, or administrative activities.

Types of tangible assets include:

1. Land

2. Buildings

3. Structures

4. Machinery and equipment

5. Other assets (e.g., vehicles, ships, fixtures, tools, and assets under construction).

With over a quarter of Korean companies rooted in manufacturing and a trade dependency ratio (exports and imports compared to GNI) of 100.6% as of 2022—significantly higher than the US (35.7%), France (85.7%), and the UK (91.3%)—manufacturing remains a cornerstone of the Korean economy. Among Korea's top five conglomerates, key businesses include electronics, automotive, and petrochemical manufacturing. This analysis focuses on Samsung Electronics, Korea's largest company, and its historical establishment of production facilities in relation to its non-current assets.

Samsung Electronics: A Case Study

As per Samsung Electronics’ 55th business report (2023), the company’s total assets amount to approx. USD 312.48bn (KRW 455.91tn), with non-current assets constituting 57% (approx. USD 178.17bn; KRW 259.97tn). Tangible assets account for 72% (approx. USD 128.37bn; KRW 187.26tn) of the non-current assets. Within tangible assets, machinery dominates nearly half (approx. USD 57.09bn; KRW 83.31tn), followed by assets under construction (approx. USD 32.03bn; KRW 46.72tn), buildings and structures (approx. USD 29.63bn; KRW 43.24tn), and land (approx. USD 6.85bn; KRW 10tn)). Tangible assets primarily underpin the establishment of manufacturing and research facilities, constituting approximately 41% of total assets.

Samsung’s global expansion illustrates its strategic investments in manufacturing facilities abroad. Starting in 1978, Samsung established Samsung Electronics America, Inc. (SEA) in New Jersey as a local sales subsidiary. By the 1990s and early 2000s, Samsung actively invested in China to lower production costs and target domestic and export markets.

Key facilities in China include:

• Tianjin Samsung Electronics Co., Ltd. (1993): TV and monitor production

• Suzhou Samsung Electronics Co., Ltd. (1995): Home appliance production

• Samsung Electronics Suzhou Computer Co., Ltd. (2002): Electronics production and R&D

• Samsung (China) Semiconductor Co., Ltd. (2012): Semiconductor production

  
  

Beyond China, Samsung has expanded production facilities across Asia, including Indonesia, India, and Vietnam:

• Samsung India Electronics Private Ltd. (1995): Electronics production and sales

• Samsung Electronics Vietnam Co., Ltd. (2008): Electronics production

• Samsung Electronics HCMC CE Complex Co., Ltd. (2015): Electronics production and sales

In North America and Europe, Samsung has similarly established significant production and sales facilities, such as Samsung Austin Semiconductor LLC. (SAS) in Texas (1996) and Samsung Electronics Poland Manufacturing SP.Zo.o (2010). Notably, Samsung is constructing a semiconductor fab in Taylor, Texas, investing approx. USD 15.08bn (KRW 22tn) across two advanced facilities for 5nm chips.

Implications for Samsung’s Future FDI

Given Samsung’s domestic manufacturing clusters (e.g., in Suwon and Pyeongtaek), similar expansions in North America are anticipated, particularly in Texas, unless other states provide substantial incentives or compelling justifications (e.g., leveraging influence with Washington). However, due to the unique demands of the semiconductor industry—such as the necessity for mega-sized investments to establish facilities, along with significant power and skilled labor requirements—other states may position themselves as attractive destinations for hosting R&D centers, innovation hubs, and incubation or acceleration initiatives for Samsung's other business areas, including AI, consumer electronics production, and life sciences.

EK Global’s Role

As a consulting firm specializing in supporting Korean companies' FDI through partnerships with foreign government agencies, EK Global has analyzed Samsung Electronics’ global footprint to provide insights into its "overseas facility establishment." This case study underscores the strategic value of tangible assets in fostering global competitiveness.

References:

• Electronic Disclosure System, Samsung Electronics Business Report (2023.12), March 12, 2024, DART

• Park Jung-min, Kim Choon-kwang, Lee Jae-eun, “A Historical Review of Samsung Electronics’ Internationalization: A Latecomer Catch-Up Model,” April 2018