Kyungbang plans to relocate jobs to Vietnam

Textile manufacturer Kyungbang is relocating part of its Gwangju production facility to Vietnam, becoming the first company to take countermeasures against rising labor costs following the Moon Jae-in government’s plan to increase the minimum wage next year.

The company’s decision to leave Korea due to the wage hike could spill over to other textile producers that rely heavily on a human workforce and are vulnerable to labor costs.

“The amount of basic hourly wage is so huge that we decided in a board of directors’ meeting to transfer a portion of the Gwangju factory to Vietnam,” said Kyungbang Chairman and CEO Kim Joon on Monday.

He added he had anticipated a minimum wage increase of up to 10 percent, but the government ended up raising it by 16.4 percent, a level he could no longer stand.

Established in 1919, the company, headquartered in Yeongdeungpo District, western Seoul, was the first company listed on the domestic stock market and first-generation textile manufacturer. It currently has two subsidiaries including the one based in Vietnam. Kyungbang is also responsible for running the Courtyard Marriott Hotel in Seoul Times Square.

Kyungbang operates factories in three locations in Korea. The one in Gwangju, known to be equipped with cutting-edge equipment, churns out cotton yarn and half of the current manufacturing volume will be relayed to Vietnam. It is unclear what the company will do with the workforce in the Gwangju facility.

Even though the relocation is expected to require a hefty budget of some 20 billion won ($17.9 million), the labor cost - as cheap as one 10th of costs in Korea - will make up for the expense. The average annual salary rise has stood at around 7 percent in the Southeast Asian country increasingly preferred as a production base by developed nations.

Kyungbang’s decision came just a few days after it was made public that Chonbang, another textile producer, was going through a major restructuring. Headquartered in Chungjeongno, central Seoul, the 82-year-old company is bracing to shut down three out of six manufacturing operations nationwide and lay off 600 employees out of a total of 1,200 amid accumulating losses. The base salary rise to go into effect next year also dealt a blow. The 16.4 percent increase in the minimum wage next year could cost the company 2.6 billion won extra in spending.

According to a recent survey of eight of its 12 members by the Spinners & Weaver Association of Korea, the average per-capita paycheck is expected to go up from the current 35 million won to 40 million won next year after the base salary hike. That will cause an accumulated operating loss of as much as 27 billion won.

The textile industry led the Korean economy during the 1970s when the country was undergoing rapid growth. But the industry’s share has waned in the past decades. Raw materials take up the largest portion of costs for textile production, at 65 percent, and labor fees come next at 20 percent. Electricity accounts for 10 percent.

It is likely textile manufacturers will also be hit by a rise in industrial electricity costs, widely predicted to be implemented next year at the earliest. They have to run factories around the clock due to the nature of the industry.

“Chonbang was quick to make such a decision,” said a spokesman at the Spinners & Weaver Association of Korea. “But it’s only a matter of time until others follow suit. The market situation shows no signs of getting better.”

BY SEO JI-EUN [seo.jieun@joongang.co.kr]