The Daewoo legacy
Karol Chlipalski reviews the fast rise and hard fall of one of the country's most important foreign investors in the 1990s.
March 28, 1996, saw a momentous event in the economic history of Poland. On that day there was a flag-changing ceremony in front of the entry to Fabryka Samochodów Osobowych ("the Passenger Car Factory," or FSO). The orchestra played the national anthems of Poland and South Korea. On that day FSO, once a state-owned car plant, was transformed in Daewoo-FSO.
For the people of Poland, it was a symbolic milestone. Since 1951, the car factory in Żerań had produced a series of car models whose names were as familiar to Poles as Fiat, Renault and Volkswagen were familiar to western Europeans. It produced the Pobieda (Russian for "victory," it was also known as the "Warszawa"), later the Syrenka, the Fiat 126 and finally the Polonez, which was the most exclusive and luxurious personal vehicle produced in communist Poland. So when Daewoo came into the company with promises of turning the plant into a center of modern car manufacturing, the future couldn't have been brighter for the employees of FSO and the citizens of Warsaw, for whom the FSO was synonymous with the capital's industrial power.
The Daewoo Group had planned to conquer the European Union by operating from Poland and other central European countries. In Poland the company spent millions of dollars on an ad campaign aiming to arouse friendly emotions towards Korea by underlining the similarities between it and Poland, where 10 years earlier Korean products were completely unknown.
Today the Daewoo legacy consists of two car plants that have already gone bankrupt, while two others fight to survive. Many of the most valuable assets of the former empire already have new owners: the Daewoo Tower was recently purchased by American developer Apollo-Rida, and Daewoo TU, an insurance company, was recently taken over by a consortium of Polish companies. Only Daewoo Electronics in Pruszków is planning its further expansion. The Daewoo conquest of Europe never came to be.
Massive plans, massive investment
In 1996 the Daewoo Group declared it would invest $1.6 billion (zł. 6 billion) over six years, modernize the Polonez and start production of three Daewoo car models - the Lanos, Nubira and Leganza. The plant would produce 500,000 cars per year through 2001. At the same time, the Korean company signed an agreement ensuring the staff that there would be no lay-offs for three years and all benefits would be maintained. Klemens Ścierski, the minister of industry and trade, called the contract between FSO and the Daewoo Group "the contract of the century for the Polish car industry."
The takeover of FSO was not the only investment by the Korean group in Poland, though it was the largest. A few months earlier, the car factory in Lublin was taken over by the group. The Lublin plant was to produce the Daewoo Nexia, and in the future a delivery van model designed by Polish and Korean engineers. The Daewoo Group committed itself to investing $340 million (zł. 1.3 billion) into the project between then and 2000.
As Daewoo cars were supposed to become the most popular personal automobiles in the country, the company made a decision to create its own car insurance firm. TU Daewoo insured all the cars sold by the company's dealership network. BDK-Daewoo Leasing, a joint venture between Bank Depozytowo-Kredytowy and the group, financed and co-ordinated the leasing of cars produced in the Żerań and Lublin plants. Coordination of sales was to be done by another company created by the Koreans, Centrum Daewoo.
Besides car-related investments, the Daewoo Group had ambitions to be active in other branches of the Polish economy. At a press conference in Seoul in 1994, the head of the company announced his intention to produce 600,000 TV sets, 100,000 washing machines, 200,000 refrigerators and 200,000 car audio systems systems in central Europe annually as early as 1996. Daewoo Electronics bought a TV-set factory in Pruszków as well as Fonika, a loudspeaker producer in Łódź. Fonika was purchased from an another Korean group present in Poland, Kyungbang. Daewoo Fonika would be the first company belonging to the Daewoo Group to go bankrupt.
The power of the Korean conglomerate was supposed to be symbolized by its Polish headquarters, the Daewoo Tower, now known as the Warsaw Trade Tower. Measuring 208 meters with the fastest lifts in Europe, the building was to be "the symbol of Polish-Korean friendship, the symbol of modernity," as Jiwoo Jang, the head of the project, said during the cornerstone laying ceremony on June 6, 1996.
The end of the road
The Korean group did not see construction of the tower through to completion. The third largest Korean industrial group, which during prosperous times was generating 5 percent of the gross national product of South Korea and 10 percent of its exports, did not survive the southeast Asian financial crisis of 1998. In 1999 the group began a restructuring process.
The Warsaw Trade Tower was sold to U.S. developer Apollo-Rida in 2002 after three years of negotiations. The cost of the transaction was never revealed, but according to rumors among real estate professionals, the building went for well below the cost of construction, which amounted to $120 million (zł. 450 million).
The most valuable part of the Daewoo group in Poland was insurance company Daewoo TU, now transformed into Polskie Towarzystwo Ubezpieczeniowe, which specializes in transportation insurance. It was taken over by a consortium of Ciech, Polskie Towarzystwo Reasekuracyjne, Matrix.pl (an IT systems provider) and Investa. Currently Daewoo-FSO, whose shares in the insurance company were decreased from 87.4 percent to 2.65 percent by a decision of the Daewoo group's provisional management board, is trying to block the takeover in the courts.
The core business, Daewoo-FSO, which has the backing of the government, is desperately seeking a new strategic investor. The plant has attracted the interest of U.K.-based MG Rover, a relatively small car producer. MG Rover's interest in the Żerań car factory came after BMW withdrew from its strategic investment in the British concern, keeping the company's most valuable assets.
Daewoo-FSO still produces cars - the Matiz and Lanos models - and the company hopes to extend its rights to produce the cars. In 2002 it sold 39,000 units, meaning its success among consumers has fallen dramatically, something that becomes obvious when one compares last year's sales to 1998, when Daewoo reached the peak of its popularity, selling 180,000 units in one year.
By contrast, Daewoo Electronics' Pruszków factory is doing well, even though the massive investments anticipated in Seoul in 1994 were never realized. The Korean company has invested in total only $50 million (zł. 191 million) into the plant. Despite this fact, Daewoo Electronics Polska has become the third-largest TV set producer in Poland, and the company also belongs to the 10 largest exporters in Poland. In 2002 the Pruszków plant produced 1.8 million TV sets and its turnover amounted to zł. 840 million (E190 million). Of its total production, 57 percent is sold under brand names belonging to Daewoo, with the rest under the brands of other Japanese producers.
As the Polish economy moves forward, much of the legacy of Daewoo's investment into the country in the 1990s will be reformed and restructured as parts of other companies. Little will remain of the Korean group's vision for a cross-sector industrial conglomerate, but few people in the country will forget Daewoo. After the dust of the company's bankruptcy settles, it will remain as a sometimes positive, sometimes negative symbol of the early development of Poland's free market economy.
