Every auto maker has regarded clustering and network strategy as important growth factors for decades. It has been one of the traditional OEM practices to internalize a company’s core parts production and vertically integrated value chains. In addition, suppliers have located near OEM and formed supplier parks similar to the recent clusters. Since the beginning of the 1990s, clustering has become one of the most critical growth factors of auto industry. Auto makers also have formed and expanded their networks by establishing wholly owned subsidiaries and forming strategic alliances and M&A. Globalization of automobile industry has pushed auto makers to expand their networks abroad establishing global networks in sales, production and R&D.

Global auto industry hub has moved from the United States to North East Asia since the 2008 financial crisis. Despite the severe restructuring that auto industries in North America and Europe experienced, Chinese auto industry has continued to grow. China became world’s largest player in both vehicle market and production base. Korean auto industry also overcame financial crisis in a short period of time and made the highest record in production and export performance in 2011. But Japanese auto industry has struggled negative effects of appreciated Yen and March earthquake in Japan as well as November flooding in Thailand.

Major Japanese OEM established clusters with their suppliers in Japan and abroad. As networking in cluster is very important as a shared growth strategy of OEM and suppliers, Japanese auto clusters have enhanced their innovation capabilities and production efficiencies through exchanging technology, knowledge and expertise with their domestic and foreign suppliers. Korean and Chinese OEMs have also formed clusters and expanded networking activity in various functional areas.

Based on our investigation on current network structure of auto industry in North East Asia, we find that almost every large auto companies invested in China and have continued to expand its production capacity and build state of the art R&D centers. The total number of auto industry clusters reached 75 in China, 21 in Japan and 11 in Korea as the end of 2010.

Since the 2008 financial crisis, Chinese auto makers have accelerated to acquire foreign OEMs and suppliers and constructed numerous assembly facilities, albeit small in scale, in developing economies. Korean and Jap anese auto makers have also started to expand existing global production and sales networks focusing on developing economies including China, Russia and Brazil. In accordance with the increasing direct investment of Korean and Japanese auto industry in China, vehicle and parts trade amongst three countries has continuously increased. Korea and Japan export luxury cars to China while importing auto parts from China. Most of the parts traded were in intra-firm trade.

In those business environments, we investigated clustering and networking structure of Korean auto industry by using Moran scatter plot and LISA (Local Indicator of Spatial Association). We also conducted a survey covering 49 suppliers. We found out that Korean auto clusters are geographically expanding along the west seashore and in South East area. Our survey shows that Korean auto parts suppliers regard adjacency of OEM as the most important factor for clustering. They have collaborated with nearby universities on R&D activities. They favor clustering as a strategy for reducing logistic cost, finding buyers and getting information. Korean auto suppliers prefer networking for stabilizing supply chain, acquiring business information, and fulfilling joint R&D. Korean auto suppliers identify lack of equal partnering of OEM as the most hindering factor in networking. They also indicate difficulties in joint R&D due to vertically integrated supply chains. Korean suppliers try to build partnership with Chinese and Japanese auto makers, but they have difficulty of finding a suitable partner.

Finally, we suggest 10 policy recommendations to facilitate network ing amongst Korea, Japan and China’s auto industry clusters under five thematic categories: 1) establishing new division of labor policy; 2) building supply chain data base of North Ease auto industry; 3) making supply hub of electronic parts; 4) running functional business roundtable of auto makers; and 5) launching joint R&D project amongst North East auto makers etc.