South Korea Must Improve International Competitiveness

The local manufacturing industry is faced with mounting challenges due to higher wages, relatively low productivity and the stronger local currency. Thus, a growing number of firms have relocated their production lines to such places as China and Southeast Asia. Their overseas rush started in the early 1990s in a bid to exploit cheap labor and explore new markets.

Samsung Electronics, the world’s largest memory chip manufacturer, is no exception. Around 2000, the company moved its simple assembly lines for home appliances and computers to China and other overseas locations. It is also operating cell phone assembly lines in China, India and Brazil under its ambitious globalization strategy. However, it has so far maintained its core production facilities for mobile phones, liquid crystal displays (LCDs) and semiconductors in South Korea.

A recent media report prompted a speculation that Samsung would move its mobile phone production base to Vietnam next year, although the nation’s top electronics maker denied it. Samsung just said that it will continue to strengthen its manufacturing complex in Gumi, North Gyeongsang Province, by investing more in facilities and increasing its manpower. The world’s third largest cell phone maker only added that it is considering setting up another overseas plant, saying that one of the candidate locations could be Vietnam.

Industry experts point out that Samsung has found it increasingly difficult to make competitive products in South Korea due to soaring production costs, especially higher wages, although it intends to maintain its Gumi complex. Gumi is often called the Mecca for cell phone production in South Korea. It seems inevitable that Samsung will follow in the footsteps of the world’s top handset maker Nokia and the No. 2 Motorola, which have already globalized their production bases. Samsung is apparently taking the due course in its struggle to make cheaper cell phones with better quality so that it can survive in the ever-intensifying global competition.

Hyundai Motor, the nation’s largest carmaker, plans to invest about 1.2 trillion won in the Czech Republic by the end of next year to build a car assembly factory with an annual production capacity of 300,000. Hyundai and Samsung are among many businesses vying to move their assembly lines abroad.

The relocation of production facilities overseas means an expansion in domestic firms’ direct investment in foreign countries. However, it is feared to bring about a vicious circle of job losses, declining consumption and production, and sluggish economic growth in South Korea.

Policymakers, businessmen and workers will have to work together to make South Korea a better place to do business and to improve its international competitiveness. It is urgent for the country to speed up deregulation, expand social infrastructure, develop technologies and create jobs in a bid to minimize the negative effects of the production base relocation.