UK Chamber of Commerce chides unions

Michael Reed, chairman of British Chamber of Commerce in Korea / Korea Times photo by Shim Hyun-chul

Chairman Michael Reed picks rising labor costs as big challenge

By Choi Kyong-ae

European business leaders in Korea have asked the government to take steps to handle rising labor costs to help attract direct foreign investment.

“Within the next few years, Korea needs to decide what to do amid higher social spending and an aging society with unions always pushing too much,” Michael Reed, chairman of the British Chamber of Commerce in Korea, said in a joint interview with reporters.

“There’s nothing else that the government is responsible for other than giving stimulus. Employees in Korea are no more expensive than in Germany.”

Korea today is like Germany in the late 1990s when rising labor costs were commonplace. If a country wants to be competitive in the global economy, salary increases only work for a limited time, said Reed, who also serves as trustee for the European Chamber of Commerce in Korea.

Reed, who heads Fidelity Worldwide Investment in Korea, took issue with the additional benefits here that other countries don’t receive. “If you look at total compensation for workers with European companies operating in Korea, such as bonuses, high pension costs and tuition fees, it is much higher than companies in Europe.”

His view was echoed by other executives from European business lobbies in Korea. They included the French Chamber of Commerce and Industry Chairman David-Pierre Jalicon and Italian Chamber of Commerce in Korea President Nicolas Piccato.

Jalicon said, “If you look at minimum wages aligned with efficiency, there is a contradiction between the country and the economy. Before, there was a need to raise salaries. Now we face a new era where salary increases should be limited.”

Acknowledging that Koreans are skilled workers, Jalicon said European companies are staying in Korea as long as growth persists. “As far as new companies that have yet to advance into Korea, they will study the competitiveness here. This needs to be addressed to attract FDIs.”

The European businessman said that foreign companies found it difficult to introduce a performance-based salary system because strikes have damaged companies’ reputations. There is lack of understanding that employees should also take some responsibility, they said.

Piccato warned that expensive labor costs could push multinational companies in Korea to reduce their production here and increase production in other Asian countries.

“Korean companies are moving their production facilities more to China, Southeast Asia and other countries. European companies are no slower if labor costs remain a major obstacle in Korea,” Piccato said.

The companies are looking at relative costs within these countries. If labor costs in China and Korea are rising fast, that’s an issue for them, Reed said.

In the European business lobbies’ joint survey on 93 European companies, 61 percent of respondents were pessimistic about rising labor costs.

Depending on policy changes, Korea’s position as a global FDI destination will likely have a noticeable change in the near future rather than maintaining a similar trend as of today. Six out of 10 European firms said Korea’s current position is moderate, according to the survey.