Bleaker Outlook

Manufacturing Sector Suffering Setback in Job Creation

The manufacturing sector has been the backbone of the nation's brilliant economic growth over the past four decades. Its overall output stood at 249 trillion won last year, accounting for 30 percent of the nation's gross domestic product (GDP) estimated at 818 trillion won. The problem is that the sector has been rapidly contracting since the fourth quarter of last year, hit hard by the global financial and economic crisis.

According to the Bank of Korea (BOK), the manufacturing sector showed negative growth of 9.2 percent in the October-December period of 2008. The figure represented the biggest contraction since the third quarter of 1998, when the sector shrank 10.5 percent following the Asian financial crisis. More surprising is that the setback of the manufacturing industry was far more acute than the overall economy, which contracted 3.4 percent year-on-year in the fourth quarter of last year.

The setback is bad news to jobseekers. The manufacturing sector was reported to employ 4.02 million workers as of December, down 2.4 percent from 4.12 million a year before. The figure stood at 4.29 million in 2004 but continued to fall to 4.23 million in 2005 and 4.16 million in 2006. More worrisome is that the figure is expected to drop below the 4-million mark in the January-March period, proving that manufacturing is losing its job creation capacity.

Thus, the loss of manufacturing jobs will certainly have an adverse impact on the economy. It is feared to create a vicious cycle of job cuts, falling consumption and production, sluggish investment, and an economic downturn. It might seem to be a luxury to worry about such a bad cycle in the face of the world's unprecedented crisis, but a further slump in the manufacturing sector will deal a more severe blow to the Korean economy, which is highly dependent on exports.

In particular, the sector has been shifting from a labor-intensive structure to capital-intensive one. And the increasing weight of information technology (IT) has not produced tangible results in creating more jobs. The nation's manufacturing industry has also been sandwiched between tech-savvy Japan and emerging economies such as China and India. The worldwide economic recession is threatening the survival of South Korea's manufacturing.

In fact, China is going all-out to catch up with Korea. The neighboring country is rapidly narrowing its technology gap to solidify its status as the factory of the world. Some analysts point out that China is taking advantage of the global crisis to edge out South Korea in the manufacturing sector through mergers and acquisitions (M&A) of companies.

The global M&A market shrank 30 percent last year in the aftermath of the financial and economic turmoil. But noteworthy is that China's M&A market was estimated to grow 44 percent to $159 billion. In particular, China's acquisition of foreign parts makers and telecommunication companies surged 64 percent. In this context, South Korea cannot wisely overcome the ongoing crisis without boosting the international competitiveness of the manufacturing sector. Policymakers and businessmen should leave no stone unturned to save sinking Korea Inc. before it's too late.