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A manufacturing exodus (KOR)

May 09,2019
CHANG CHUNG-HOON
The author is a deputy editor of industry 2 team of the JoongAng Ilbo.

LG Electronics is to shift mobile manufacturing currently undertaken at Pyeongtaek to Vietnam in July. A total of 700 workers at the factory will be relocated to appliance factories in Changwon, South Gyeongsang, and other areas. Mobile phones are a key contributor to IT in Korea and are a major export. Though Samsung Electronics and LG Electronics sell more than 350 million phones in the global market, less than 10 percent are manufactured in Korea. Samsung relocated production to other countries years ago, except for some lines in Gumi, North Gyeongsang. In the meantime, jobs at mobile phone factories decreased by 10,000 in Korea, and more than 200,000 jobs are created overseas.

Is the problem limited to mobile phones? Unfortunately, other major exports — such as ethylene, cold rolled coils and spandex — are now being made overseas. SK, Lotte, Posco and Hyosung are all making large investments abroad. When large corporations go overseas, small- and medium-sized companies also follow. According to the Export-Import Bank of Korea, domestic investments by large corporations and small- and medium-sized companies continue to decrease, while their overseas investments are constantly growing. The manufacturing exodus, or hollowing out, is not news, but it is more serious as major industries are joining.

As companies make little domestic investment, economic growth engine is cooling and jobs are shrinking. Operation rates of factories in major industrial complexes are at the 70 percent level, and the operation rate of factories in the capital are is 60 percent. Since December, the number of employees in the manufacturing sector decreased by more than 100,000 over four consecutive months. A source in the Ansan Industrial Complex said that only small companies remain in the complex. Kotra announced that there are 5,781 Korean manufacturers operating abroad as of 2016, creating 2.59 million jobs. In a simple calculation, there are five times more jobs overseas than the total number of youth unemployment in Korea, which is 470,000.

In any country, decline of manufacturing aggravates a sluggish economy and increases the risk of a slump. As Korea lives on exports, domestic factories need to be protected for the economy and jobs. The government advocates nurturing innovative industries and manufacturing start-ups, but not much has been accomplished. If regulations continue to interfere with investment, unchecked labor unions prevail and anti-market policies are maintained, export industries may be lost.

JoongAng Ilbo, May 8, Page 29