SEOUL, Jul. 25 (Korea Bizwire) — A number of local companies that operated factories situated in the Kaesong Industrial Complex are relocating to Vietnam and other countries after being unable to deal with rising labor costs.
According to the association of companies that has production facilities in Kaesong, of the 123 companies that operated factories in the North Korean city until 2016 when the industrial complex shut down, 30 had established factories in Vietnam and elsewhere.
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Young Inner Foam, a producer of undergarments, said that it was building its second factory in the vicinity of Ho Chi Minh, Vietnam with the goal of having it operating at full production capacity by May of next year.
The company withdrew from Kaesong in February of 2016 and started up a small factory in South Korea. But when it was unable to meet the unit price expected by its clients, Young Inner Foam set up a factory in Ho Chi Minh three months later.
Lee Jong-deok, the CEO of Young Inner Foam, said that the difference in labor costs between South Korea and Vietnam is significant.
“In Vietnam, the monthly labor cost per person for next year is only $270, but in Korea, the same labor would cost $1,600 with next year’s minimum wage hike taken into effect,” Lee noted.
Had the company stayed in the Kaesong complex, wage costs would have been much higher than in Vietnam, but Lee says he prefers to work in Kaesong because the products would be “made in Korea” and the proximity of the complex to South Korea would be helpful in terms of logistics.
Jean producer DMF echoes such sentiment. Having invested 11 billion won in a Kaesong factory that had 700 employees, it started producing jeans in February of 2009.
When the complex halted operations, the company returned to South Korea after finding itself in the red. After considering setting up a factory in Korea, the company founded a factory in Hanoi, Vietnam with a staff of 350 employees.
Choi Dong-jin, the CEO of DMF, said that it is hard to survive as a manufacturing company in Korea. “There is no one willing to work and labor costs are expensive,” said Choi, who said he was awaiting the re-opening of the Kaesong Industrial Complex.
Data shows that 60 percent of companies that were previously based in Kaesong were in labor intensive industries such as textiles and sewing, which is why these enterprises had no choice but to look for other regions where labor costs are low.
Companies now say that the recent minimum wage hike has made it difficult for them to make ends meet, and as such, large corporate clients should lower the unit prices of products that these companies are expected to supply.
In addition, companies stated that a differentiation of salary based on the worker’s age and region of employment could be one solution.
H. S. Seo (email@example.com)