Small firms eyeing Gaeseong

Anticipating lower wage costs and fewer cultural misunderstandings, South Korean small businesses are eagerly examining investment possibilities in the new industrial complex that is to be built in Gaeseong, North Korea. Ground-breaking for the complex was held June 30.
“We are not concerned about wage level,” a source at Woohan Ceric, a plastic goods manufacturer, said Wednesday. “We are willing to invest in the Gaeseong complex even if we have to pay $10 more a month to North Korean workers than what we paid in China or Southeast Asia.” The company entered the Chinese market because South Korea’s wage level was too high, but ran into discouraging cultural barriers in China, the source said.
Se-Green, a manufacturer of socks, said it was interested in opening a plant in Gaeseong. “We have factories overseas, but there are difficulties in communicating with a foreign work force,” a Se-Green manager said. “We believe such problems are unlikely in Gaeseong.”
The Small Business Corporation recently surveyed 320 member firms, mostly producing textiles, shoes and metal goods. More than 59 percent of the companies said that a high-quality, low-cost work force in Gaeseong was the most attractive factor. About 24 percent also cited proximity as an advantage. The companies were willing to pay, on average, $67 a month to North Korean workers, close to what the two Koreas have agreed on ― $65 a month.
Most small companies want to open their own factories in Gaeseong, rather than form joint ventures with other firms. On average, they planned to invest 1.7 billion won ($1.4 million) for an average of 2,848 pyeong (2.3 acres) of land.
While South Korean small businesses are optimistic about the quality and cost of the North Korean work force, they are seeking other ways to cut costs. More than 58 percent of the polled firms said they did not want to pay for putting in infrastructure such as electricity and communications. Small companies hoped to pay about 125,000 won per pyeong of land in Gaeseong, not counting government subsidies, far below than 300,000 won currently estimated.
“Many small firms expect government support,” Dong Myeong-han, of the Small Business Corporation, said. “If the land price goes over 200,000 won per 1 pyeong, it will be difficult to attract investors.”
South Korea’s large businesses are more reserved, even skeptical, about the new complex. “Because the Gaeseong industrial complex is designed to house groups of small factories, a large firm hardly sees a good business opportunity there,” said Lee Jong-geun, a manager of LG International. “Construction of infrastructure there would probably be the only possible chance for participation by large firms.”

by Jeong Yong-soo