German Engineering Giant Thyssen AG operates machine-tool plants worldwide to service the global automotive industry. Two years ago Thyssen established a joint venture between its machine-tool subsidiary Thyssen Production Systems and Hwacheon Machinery to capitalize on the growing East Asian market. In May 1997, TPS Korea opened a plant close to Hwacheon's in Kwangju's Hanam Industrial Park. TPS Korea's Executive Vice President Othard Hirsch explains why Korea and a joint venture are the keys to this market.

How would you define your business?

Ours are very specialized products, swathe and chip-cutting machines mainly for the automotive industry but also for the automotive sub-suppliers and other mass-production companies. The machines make motor blocks, cylinder heads, crank shafts, transmissions, all parts used in car manufacture.

What attracted you to invest in Korea?

After the decision was taken to go to East Asia, the next question was, 'where?' In making our decision, we had the following criteria. In the country of choice there had to be potential customers ; skilled people; suppliers, since we sub-contract the electrical parts; infrastructure; freedom of travel; good international connections by air and telecommunications; and local prices had to be competitive, a very important point. After due consideration, there weren't many countries left, only Korea and Japan, but cost-wise, Japan, was not so attractive.

How have your experiences been different from your expectations?

A lot of our people in Germany expected an easier start, but it has turned out to be more difficult because the use of Japanese machinery is so widespread. However, we did break in some areas. There's always two things you can do in our business: improve quality and price-competitiveness. Also, after-sales service must be available.

How does TPS Korea fit into the pattern of Thyssen's other foreign investment ventures?

It's TPS's strategy to do business internationally. Our ratio of exports to domestic sales is about 55:45. To keep this ratio we must have a base in other countries. Not only sales and after-sales service but also building machinery there to have a quick reaction time by being close to the customers, their engineers, having discussions as to what are the best solutions. It's also good for building contacts. Also, a process of restructuring left Thyssen five core businesses, one of which was TPS. Besides Germany, TPS manufactures in France, Great Britain, Hungary, Brazil and the USA, where Thyssen has just bought machine-tool maker Giddings and Lewis. So, TPS Korea fits well into the corporate global plan.

What is your assessment of the Korean capital goods market?

The market is now in a downturn, but it's one of the most important for us. We were affected by Kia Motors' financial crisis, but there other investments in the car industry. Growth is still high. The industry plans to expand production from two-and-a-half to four-and-a-half million units per year. At the same time Korean manufacturers are investing abroad, for example, Daewoo in Poland and Indonesia.

Why did you choose to a JV to enter the market?

For TPS this is our first JV and I think it was the right thing to do because it has several advantages. A JV partner already has knowledge of the market. The partner can assist in your selling effort; he knows people in the purchasing departments and has contacts: he can also help you get skilled personnel. In the case of Hwacheon they have some very good people in their plant. This has been good for us. As far as the customer is concerned, it's also psychologically better for a foreign company to have a Korean partner.

What are some of the difficulties of being in a JV?

When you make decisions, there always has to be two partners. If you want good relations, you can't make big decisions on your own. You have to consult, and sometimes it can take time. There are other areas, but we don't have a lot of problems. If we do, we talk.

What is the division of control between TPS and Hwacheon?

The division is 51 percent Thyssen and 49 percent Hwacheon. Thyssen's strategy is always to have more than 50 percent. We do have control but there are also safety factors built in. We have three members on the five-member board, but major decisions can only be made on a four-to-one basis. With regard to the operation, Thyssen controls the techniques and Hwacheon is partly responsible for quality because they are our manufacturer, doing the machining and making the sub-assemblies. We, TPS, put them together. Basically the responsibilities can't be completely separated but are always in a process of floating since our product requires joint responsibility at all times in order to guarantee excellence.

Does the JV agreement provide for dissolution or a takeover by one of the parties?

Yes, if it happens one partner is not abiding by the contract, say by building machine tools of his own to our design. If feel a dissolution clause must be in a contract like this in order to continue the operation if problems occur. We must be responsible to our customers.

To what extent does Thyssen attempt to bring its own corporate culture into the JV?

Thyssen has a lot of experience building special machines and flexible machining systems. To build them successfully, we want to organize the work and the technology as we do in Germany as much as possible. Other areas such a financing and general organization will be done the Korean way.

What is your approach to the staffing of senior operational positions by expatriates?

Thyssen's strategy is to put expatriates in key positions to teach their Korean assistants the techniques and eventually turn these jobs over to Koreans. We'd like the proposal department to be in Korean hands. Thyssen will retain some positions, however, to ensure quality.

When many JV operations are located one hour from Seoul, why did you choose Kwangju?

There are a lot of JVs outside Seoul, for example, those involving Bosch and Siemens. The location of our venture was chosen because of the favorable cost of land, the tax advantages by being in Hanam Park, and the fact Hwacheon has their operation there. That's probably the main reason. There are excellent traffic connections between Seoul and Kwangju. What is necessary is to have our sales and proposal departments in Seoul. Most of our clients have their purchasing departments in Seoul, plus the our engineers have to be in Ulsan one day and Pusan the next, and Seoul is a transportation hub.