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Hyundai-Kia Motors has invested some W2-3 trillion (US$1=W950) annually since 2003 in building new plants abroad and is to spend more than W10 trillion on new production lines or expansion in the U.S. states of Alabama and Georgia, in Slovakia, the Czech Republic and China, by 2009. But over the same period, it plans almost no investment here except for research and development of new cars. The story is the same with employment. The group¡¯s overseas recruitment skyrocketed 83.5 percent over the last four years, but at home the figure stood at a mere 5.3 percent.
Samsung Electronics¡¯ factory in Suwon, dubbed the Mecca of the nation¡¯s electronics industry, may be closed in three or four years as production lines for major home appliances such as refrigerators, washing machines and microwave ovens have been moving overseas since 2000. Samsung¡¯s TV production line for domestic demand is still here, producing 1.5 million units a year, but the company is reviewing whether to move that line overseas too.
If Korea¡¯s biggest conglomerates are effectively bailing out of the country, jobs will go and the domestic manufacturing shrink to the point of deindustrialization. ¡°It¡¯s only natural. Korean companies suffer from high salaries, labor disputes and anti-corporate sentiment here,¡± says Lee Seung-chul, the head of economic research at the Federation of Korean Industries (FKI). ¡°The link between overseas production lines and domestic industries is being severed.¡±
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An employee works at a Samsung Electronics plant in Tianjin, China
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¡ß Overseas Investment
Flagship conglomerates are announcing new large-scale overseas investment projects almost every day. The nation¡¯s largest steelmaker POSCO is to invest US$12 billion in building an integrated steel mill in the Indian state of Orissa. Big corporations here spent $2.87 billion on overseas investment in the first half of this year, a whopping 90 percent increase from $1.51 billion a year ago, according to the Finance Ministry. The trend is to continue in the latter half of this year, with their investment abroad exceeding $5 billion this year, a record high.
At the same time, they are barely maintaining the status quo in investment here. The 200 largest domestic corporations invested only W21.9302 trillion in Korea in the first half of this year, a mere 6.2 percent up from last year, the Ministry of Commerce, Industry and Energy said. Their investment in facilities to make new products declined 10.3 percent to W6.6181 trillion on-year.
¡ß The Lost Link
There were times in the mid-90s and the early 2000s when overseas investment rose sharply for several years, but the pattern then was that initial materials or intermediate goods were produced here and overseas production lines with their lower labor cost assembled them and exported finished products. It was a win-win situation for domestic and overseas production lines. Now companies are moving integrated production lines abroad. Cases in point are Hynix Semiconductor¡¯s factory in Wuxi, China, Hyundai-Kia Motors¡¯ plants in the U.S. and the overseas production lines of Samsung Electronics and LG Electronics.
In the new order, suppliers move abroad, too, and in many cases intermediate goods are also supplied in the countries where the firms operate. As a result, related industries here no longer benefit from overseas investment. ¡°Overseas production lines will become the core of some business sectors in the future,¡± says Bae Sang-kun, a senior economist with the Korea Economic Research Institute.
¡ß Employment
Korea¡¯s second largest appliance maker LG Electronics had 62,600 employees across the world as of late last year. The number of foreign workers stood at 34.600, 3,000 more than in Korea; they have outnumbered their Korean counterparts since 2002. In 2003, the number of foreign workers surged a whopping 8,000 in a single year. LG hired 2,400 new foreign workers in Russia, Poland and Mexico. For Hyundai Motor, the number of foreign workers surged 63 percent from 6,000 in 2003 to 9,800 in late June this year, compare that to the 6 percent rise in domestic jobs with the company during the same period. POSCO also hired more overseas than local employees in 2004 and 2005, when the ratio was 800:450 and 900:400.
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Workers at the Samsung Electronics plant in Galanta, Slovakia put together LCD monitors.
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Businesses say overseas investment is inevitable if they are to conquer global markets and secure a competitive edge. They regularly cite red tape, anti-business sentiment, dispute-ridden labor relations and high labor cost. The problem is that the exodus has just begun. Lee Woo-kwang, a senior researcher with the Samsung Economic Research Institute, says Japan saw businesses move their plants overseas since the Plaza Accord was signed in 1985 -- an agreement between France, West Germany, Japan, the U.S. and the U.K. to devalue the U.S. dollar in relation to the yen and Deutsche Mark by intervening in currency markets. Lee added Korea could face an even more serious business drain since it has a smaller market and is less capable of self-supplying intermediate materials than Japan.
(englishnews@chosun.com )
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