Korean firms move plants to 10 Asean countries

Korean exports to Southeast Asia jumped recently, but instead of showing the birth of a new market, it only adds evidence of the hollowing out of Korean manufacturing at home and a migration of production from China.

Big Korean companies like Samsung Electronics and LG Electronics and small companies making stuffed toys are establishing assembly lines in Southeast Asia instead of expanding existing plants in China, where wage and other costs are growing fast.

The result: Exports of raw materials and components to the 10 Association of Southeast Asian Nations (Asean) countries are growing fast from Korea, while shipments to China lose some luster.

“Demand for consumer goods is growing but the recent sharp rise in exports there is led by shipments of components and equipment to newly established production lines,” said Jung Young-hwa, director of the emerging market team at Korea Trade-Investment Promotion Agency (Kotra).

Korean exports to Asean grew faster than its global exports for six out of the past seven years and more than those to China for five years. Korea’s direct investment in the Asean nations jumped during the period to surpass that in China from 2009 on, government data shows.

The combined gross domestic product of the Asean countries is expected to reach some $2.53 trillion this year, a whopping 65 percent gain in five years, according to the International Monetary Fund.

Yet the average annual income of its 620 million people was far below $6,000 per head, the Asean’s official 2011 data shows, indicating huge growth potential as the bloc’s poor members strive to narrow the gap with richer neighbors.

“Asean will surely become an important market for exporters of consumer goods, but it’s far from that stage as of now,” said Lim Young-seok, senior research officer at the state-run Export-Import Bank of Korea in Seoul.

Samsung Electronics, the world’s largest producer of mobile phones, employs around 30,000 workers at its $700 million plant in Vietnam to turn out about 120 million phones per year, Yonhap reported.

Each phone is assembled with hundreds of components sourced from Korea, China and other countries, which in turn mark the sales as exports. The finished phone eventually is sold to another country, boosting Vietnam’s exports.

“Export data between certain countries can be misleading. Korean companies export a huge amount of oil products such as diesel to Singapore, but much of the shipments were for re-sale to countries nearby,” said Kim Hong-ju, a Korean government official in Singapore. Reuters