Production units abroad earn more than exports

Korean companies’ production units overseas accounted for more revenue than exports in 2010, and the ratio is estimated to have widened last year, according to the Ministry of Knowledge Economy yesterday.

The latest statistics reaffirm the trend in Korean companies embracing overseas production to strengthen cost competitiveness.

The ministry said Korean firms’ portion of sales generated from overseas production compared to exports has reached 51.4 percent in 2010, up from 47.3 percent tallied in 2009 and 33.3 percent in 2008. The portion has been going up year by year as conglomerates add production facilities abroad. In 2005, the ratio was as low as 24.6 percent.

The Knowledge Economy Ministry said the growth in overseas production can be attributed to the sophistication of the Korean industry, which has shifted to heavy chemicals, in tandem with growing exports of components and plant equipment.

It also noted exports of consumer goods have slowed down since the 1990s while capital goods and raw materials are major drivers of exports.

The ratio of exports of consumer goods compared to overall exports slipped to 14.9 percent from 29.2 percent in 2001, but capital goods increased to 48.7 percent from 41.6 percent and raw materials grew to 36.3 percent from 29.1 percent over the same period.

In the case of capital goods, exports of automobile components jumped to $23 billion in 2011 from $2.22 billion in 2001 as Hyundai Motor and Kia Motors expanded overseas production plants worldwide.

The ministry said the growing overseas production doesn’t have a negative impact on overall exports, yet it raised concerns that if companies’ further increase in the number of overseas production plants, it could weaken the country’s export engine due to a reduced export-inducement effect coupled with growing export-substitution efforts.

By Kim Mi-ju [mijukim@joongang.co.kr]