More Small Manufacturers Move Overseas

  • By Jang Hyeong-tae, Lim Kyeong-eop

    August 15, 2018 08:22

    Smaller Korean manufacturers are packing up and heading overseas in growing numbers because they are unable or unwilling to pay wages and other mounting expenses here.

    According to the Export-Import Bank of Korea, overseas investment by Korean companies and individuals reached US$43.7 billion last year, the highest since the government began tallying statistics in 1980.

    The overseas investments of major businesses rose 38 percent over the last five years, from $25.6 billion in 2012 to $35.3 billion last year. But for small and mid-sized businesses it nearly tripled over the same period, and the proportion of them building factories abroad surged 60.3 percent to 1,884.

    A worker stands by a machine in a factory in Siheung, Gyeonggi Province on July 20.

    Smaller manufacturers blame surging wages and red tape. Back home, therefore, facility investment is declining sharply. According to the Korea Development Bank, domestic investment by major businesses rose from W147.4 trillion in 2015 to W168.5 trillion last year, but once the booming semiconductor and display industries are excluded it actually fell from W123 trillion to W110.6 trillion (US$1=W1,130).

    The trend is even more pronounced among small and mid-sized companies, where facility investment fell from W33.4 trillion in 2015 to W21.3 trillion last year. Since they account for 87 percent of employment in Korea, that has led to a sharp decline in available jobs.

    Lee Jeong-hee at Chungang University said, "Facility investment is planned 10 years ahead, so a decline means that more and more businesses expect bad times ahead."

    "The rising number of manufacturers relocating overseas poses the risk of triggering an acute job shortage two to four years in the future."

    There is a growing sense of crisis among manufacturers. The last straw for many was the minimum wage hike and the shorter working week. There are rumors of a mass exodus starting next year, when the minimum wage rises to W8,350 an hour and smaller firms must shorten their maximum working week to 52 hours. That will cost jobs. According to the OECD, small and mid-sized firms in Korea account for 87 percent of total jobs, much more than in the U.S. (41.33 percent), Japan (52.8 percent), the U.K. (53.08 percent) and France (63.3 percent).

    One small business owner said, "Who will provide jobs here when struggling businesses close down and those who can afford it move overseas?"

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