Thousands of SMEs Moved Factories Overseas Last Year

  • By Gwak Rae-geon

    December 01, 2020 08:50

    Thousands of small and mid-sized Korean companies moved production overseas last year before the coronavirus epidemic struck.

    According to the Export-Import Bank of Korea, foreign direct investment by SMEs grew steadily from US$6.9 billion in 2016 to a record $15.4 billion in 2019.

    Over the same period, the number of branches Korean SMEs established abroad increased from 1,684 to 2,063. That means they were building more than 2,000 factories abroad every year.

    In the first six months of this year, their investment abroad still accounted for $6.1 billion, down around 20 percent on-year due to the epidemic but still brisk.

    The trend is nothing new. Factories have been moving to China and Vietnam for decades due to soaring costs here. They found it increasingly difficult to make a profit while wages rose and red tape remained obstructive.

    The Korea Trade-Investment Promotion Agency polled 1,028 SMEs last year, and only 4.2 percent said they considered downsizing their overseas operations.

    Asked why they were not moving back to Korea, 66.7 percent cited mounting production costs, 58.3 percent unfavorable labor conditions, 33.3 percent red tape, and 25 percent a shortage of workers as Koreans simply do not want to work for smaller companies.

    One business insider said, "The government should have drastically eased regulatory barriers and created favorable conditions but instead hiked the minimum wage and shortened the working week. At this rate, we will only see more and more small and mid-sized companies leaving Korea." 

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