Foreign Competition Pulls Plug on Domestic Manufacturers - US, NO! South Korea!

Seoul March 25, 2004; Lee In-yeol writing for the Chosun Ilbo reported that the microwave factory in Suwon, Gyeonggi Province will shut its doors at the end of this month. The company will move the headquarters of its microwave division to Sembilan, Malaysia, and close down its domestic production lines. The factory has been in operation for 25 years, starting in 1979. With only five days left before the factory pulls up stakes, about 100 employees are working the assembly lines. Yet these workers, too, will soon be scattered in all directions. Just as of 2000, the company had over 600 employees producing 5.5 million microwaves a year. Those jobs have now disappeared to Malaysia, Thailand and India. A Samsung official said, "The price war with competing firms like China's Galanz is really tough, and considering the need to reduce labor costs, we had no choice but to move the factory abroad."

The number of large factories that were the source of much employment is decreasing rapidly in Korea. An investigation by the Korea Industrial Complex Corporation revealed that in December 2003, there were 1617 large factories that employed more than 300 people, down 409 from the December 2001 total of 2026. This comes out to losing one factory every two days.

According to the National Statistical Office, the number of people employed in the manufacturing industry has decreased by 62,000 over the last two years -- from 4.257 million in 2001 to 4.205 million in 2003. When one considers, however, that at the same time, about 13,343 small factories (each one employing less than 50 peoples) have sprung up during the same time period, creating about 130,000~150,000 new jobs, this means about 200,000 jobs have been lost through the closure of large factories employing 50 or more.

Moreover, factories are folding one after the other because of the prolonged slump in domestic demand and the sudden jump in raw material prices. Kumkang Synthetic Fibers -- a mainstay in the industry -- announced Thursday that it suspended operations on all 15 of its polyester production lines at its plant in Gumi, North Gyeongsang Province, due to worsening business conditions. Daehan Synthetic Fibers, too, suspended operations of its polyester filament production line at its Ulsan plant due to increases in raw material costs, sluggish domestic demand and Chinese dumping.

The job loss is expected to accelerate even more as large firms that greatly affect employment move overseas. Recently, 10 LCD manufacturers -- including LG Chemicals, Kumho Electric, Nano Hi-tech and Komico -- decided to build factories in China. They will be moving into the BOE Technology Group-constructed 400,000 pyong LCD complex in Beijing. The trend is for small factories to plug the gaps left behind after the large factories move out.

Lee Ji-pyeong of the LG Economic Research Institute said, "From the perspective of cost-cutting and structural adjustment, we cannot prevent firms from moving their factories abroad, but if it occurs too quickly, it can cause employment insecurities and social problems... the only countermeasure is to greatly ease regulations and non-economic barriers like management-labor issues."