TGVN. More than 10 Korean companies in China are not interested in returning to Korea due to high domestic labor costs. Instead, Southeast Asia, especially Vietnam, is chosen as the ideal destination.
According to Bloomberg , the Covid-19 translation and the US-China trade war have caused Korean businesses to worry about the over-reliance on supply chains in China. Therefore, the government of this country is trying to support businesses to return home but are facing many challenges.
According to the Korea Institute of Industrial Economics and Trade, only about 80 out of the thousands of companies affiliated with China announced that they would return their production lines to the country. Even after the Korean government extended its subsidy policy back to the IT and services industries earlier this year, the attractiveness did not seem to increase much.
This means that Korea is missing out on opportunities to bring jobs home, strengthen supply chains during a pandemic and maintain a competitive edge in production. Instead, statistics show that Korean businesses seek to move factories to Southeast Asia, especially Vietnam.
Researcher Bae Ho-young of the Federation of Small and Medium Enterprises (Seoul, Korea) said that the barriers in Korea are “too high”. This is due to the rigid labor market, the high cost of labor, and complex environmental regulations, he said.
According to a Bae survey from June to July 2020, more than 10 Korean companies in China are not interested in returning. South Korean President Moon Jae-in is still pushing to increase minimum wages, reduce working hours and increase hiring. However, this policy was criticized by many people for causing business costs to increase.
Higher minimum wages, shorter working hours and increased hiring regulations are all factors that increase the cost of doing business in Korea.
The average monthly salary of factory workers in Korea is $ 3,405 in 2019, according to data from the International Labor Organization (ILO). This figure is 13 times higher than the figure of Vietnam in 2018 and 4 times higher than that of China in 2016.
“Korea is still an expensive production site, especially for exports,” said Sung Won Sohn, professor of economics at Loyola Marymount University. “During the pandemic, Korean companies must stay in China or Southeast Asia to maintain a competitive advantage and preserve market share globally.”
According to the Export-Import Bank of Korea, since 2000, 23,492 Korean companies have established operations in China. This number only peaked in China in 2006 and has fallen by nearly 500 per year since 2018.
Samsung Electronics is one of the major Korean companies that is increasing its presence in Southeast Asia and other regions, while reducing production in China. The group expands smartphone manufacturing plants in Vietnam and India, and closes some lines of consumer equipment in China.
Hyundai Motor is also increasing production in Vietnam and stopping production lines in Beijing.
“Smaller businesses tend to go to the countries where the big company went,” said Bill Lee, an analyst at Samil PricewaterhouseCoopers. He helped many suppliers for Samsung and Hyundai liquidate their assets in China before moving production out of the country.