Foreign manufacturers are leaving Korea in a situation where every job is vital. An increasing number of foreign manufacturers are closing plants in Korea to cut costs because labor expenses are high here.
Foreign companies took as much as US$1 billion (US$1=W1,183) abroad when they sold their plants or stakes in the first half of this year. Retrieved investment reached $7 billion in 2008, more than 80 percent of the foreign direct investment of $8.3 billion in the same year. By contrast, foreign direct investment in plants or corporate stakes in Korea amounted to only $2.6 billion during the first half of this year, down $1.4 billion from the first half of 2008.
Why are they leaving? The aftereffects of the global financial crisis are one reason, but experts put the chief blame on militant unions, red tape and lack of incentives. Unlike the Roh Moo-hyun administration, which was apparently against foreign investors, the current government claims to be business-friendly. But direct investment, including building of plants in Korea, has shrunk, and a growing number of foreign companies are leaving.
◆ Belligerent Unions
Hardline unions are posing a decisive hurdle to foreign investment. The general strike by the union of the moribund SUV maker Ssangyong Motor, which lasted 76 days from May 22, dealt a severe blow to the country's overall credit standing.
Korea ranked 19th this year, down six notches on-year, in the World Economic Forum's Global Competitiveness Report because it had received very low points in the labor category due to the Ssangyong strike, which took place at the time of the survey.
In a survey of 281 executives of foreign corporations conducted by the Korea Trade-Investment Promotion Agency last year, the largest portion or 26.7 percent of respondents cited improved labor relations as a condition for inducing more investment.
◆ Weak Incentives
A support policy for foreign firms' R&D centers, which came to an end in late March, graphically shows how stingy the Korean government is toward foreign firms. The policy, which was introduced in 2004, promised to give W50 million per staffer if a foreign firm set up an R&D center and employed Korean research staff.
Over the past five years, the government spent W11.8 billion persuading 27 leading foreign firms, such as Google, Dupont, GE and Health Care, to build R&D centers here. As a result, a total of 693 Korean researchers, including 294 masters and doctoral degree holders, are currently working at these foreign R&D centers.
A Ministry of Knowledge Economy official said, "We decided to end the support program because there was criticism about reverse discrimination against domestic enterprises and the program focusing on personnel expenses was considered problematic."
Other cash grant programs are also ineffectively operated. In the five years since 2004, only four foreign firms benefited from them, with a mere W23.7 billion doled out. Such cash incentive programs are widely used in the U.S and Europe. But while European countries pay out 20 to 50 percent of foreign firms' investment in cash grants, Korea pays out a mere 10 percent of investment -- and that is based on harsh criteria.