Drawing a U-turn is a tough jobLG Electronics has decided to relocate its two TV production lines in Gumi, North Gyeongsang, to Indonesia. One line manufactures high-end OLED TVs. The relocation decision has been made to cut costs.
The world is realigning manufacturing bases as a result of the Covid-19 pandemic. Companies are mulling exiting China after suffering setbacks after the virus originated from the country. The U.S. promises handsome rewards for reshoring companies. Japan announced to create a 2.7 trillion won ($2.18 billion) fund to back the reshoring of Japanese companies. European states have also begun to strengthen their own industrial power instead of relying on Chinese imports.
Global companies have already launched their relocation campaigns. Some have taken their bases home or to countries nearby China to spread the risks. Apple, which assembles most products in China, plans to move its iPhone or AirPod production lines to India and Vietnam.
With geographic proximity to China, Korea has the opportunity to host some of the relocation projects. President Moon Jae-in vowed to come up with a radical strategy to draw a U-turn from Korean companies and also high-tech investments from multinationals. However, as the loss of LG Electronics TV lines shows, Korea can hardly appeal. Last year, overseas investment by Korean companies hit a record high of $61.9 billion while their facility investment in Korea fell 7.6 percent.
Foreign investment also slumped 21 percent last year from a year ago. While foreign direct investment grew 6 percent on average for the members of the Organization for Economic Cooperation and Development, Korea’s fell by double digits. Rigid labor market, work hours, labor conflicts, multiple regulations, and anti-business policy pose as stumbling blocks.
The government is hoping the newfound recognition from the virus response may change this image. But it is seriously mistaken. Vietnam with a population twice as big as South Korea’s reported only 324 infected cases, one-thirtieth of South Korea’s. It has no deaths. Its labor cost is just one-twentieth or one-thirtieth of the levels in Korea. It is pretty much obvious which country a global company would choose.
Korea’s data and bio industries remain stifled under regulations. Ride-sharing platform Tada is going out of business due to a new law. The “god sent” opportunity could go wasted. Authorities must move fast to change the environment to be more business-friendly. The labor market has to become more flexible and regulations must be removed. Companies are already relocating. If the government stalls, it will lose companies to other countries.
JoongAng Ilbo, May 22, Page 30