South Korean Manufacturers Seek Cheap Labor, but Lack Productivity

In contrast, manufacturers operating in emerging markets were primarily low-cost, low-productivity firms, mainly exporting finished goods back to Korea. (image: KobizMedia/ Korea Bizwire)

SEOUL, April 4 (Korea Bizwire) – Recent data from the Korea Trade-Investment Promotion Agency (Kotra) reveals that 82 percent of local manufacturers are prioritizing seeking cheaper labor outside of the country, ultimately undermining their productivity. 

Based on the business performance of 1,474 South Korean manufacturers with overseas plants, 12.6 percent fell within Kotra’s “high-cost, high-productivity” category while only 3.8 percent were rated as “low-cost, high-productivity” firms – the most ideal business model.

The data indicates that reducing operating costs is still the major push that drives South Korean companies out of the country, according to officials, who fear that these businesses are more likely to continue relocating their production based on the changes in a country’s wage standards. 

Vietnam was the most popular destination among all manufacturers examined, chosen by 637 of the firms. The Southeast Asian country was followed by China (334), India (125), Mexico (61), Myanmar (50), and the Philippines (49). 

Ironically, however, the most profitable markets with low-cost and high-productivity were developed economies such as the U.S., Poland and Slovakia. At 54.2 percent, more than half of the firms operating in the U.S., for instance, were classified as high-productivity according to Kotra’s analysis; the country also had the highest percentage of companies classified as low-cost, high-productivity firms at 37.5 percent. 

A significant number of companies in this category were auto parts makers, supplying their final goods to the local market. 

In contrast, manufacturers operating in emerging markets were primarily low-cost, low-productivity firms, mainly exporting finished goods back to Korea. 

All 49 companies in the Philippines and 86.2 percent of the companies in Vietnam were classified as such. China also had a high percentage of 82.6 percent, although it had the highest number of low-cost, high-productivity companies at 15.

“Amid low economic growth and emerging protectionist movements, manufacturers must focus on profitability instead of production capacity,” said a Kotra official. “We’ll boost our support for overseas expansion, investment and M&As for our businesses to better thrive in high-profit economies.”

By Joseph Shin (jss539@koreabizwire.com)