Local Regulations Hinder
The United States is accelerating its resurgence in the manufacturing sector. While the rivalry with China is one factor, there is also an awareness that maintaining a nation’s competitiveness requires establishing a supply chain based on manufacturing. On the other hand, as South Korea, a nation that emerged from devastation to establish itself as a manufacturing giant, advances further, there are growing indications of caution. Major manufacturing companies in South Korea are not only lacking in support but are also grappling with “self-sabotage,” according to remarks from economic organizations.
On Aug. 13, Woo Tae-hee, vice chairman of the Korea Chamber of Commerce and Industry, said, “In the case of semiconductors, each fab requires an investment of over 30 trillion won (US$22.52 billion), but South Korea is at a disadvantage due to the unique ‘Separation of Banking and Commerce’ regulations, which are not present in countries like the United States or the European Union.” He pointed out, “Competitors of Samsung Electronics, such as Google and Intel, are actively investing in strategic industries while leading financial institutions under their wings.” Additionally, Woo added that South Korea’s corporate tax competitiveness, which ranks only 34th globally as of last year, is another factor discouraging corporate investment.
The deeply rooted rigid labor culture in South Korean manufacturing has now emerged as a fundamental issue that is pushing companies backward. Lee Dong-geun, vice chairman of the Korea Enterprises Federation, stated, “While the Yoon Suk-yeol administration is pushing labor reform as a national agenda, legislation such as the Major Disasters and Safety Accidents Act and the so-called ‘Yellow Envelope Law’ have successively passed through the parliamentary threshold, severely dampening the investment sentiment of businesspeople.” He pointed out that these clauses are like toxic restraints on businesses.
There is also an argument that domestic-exclusive “Galapagos regulations” are becoming factors hindering the growth of manufacturing. Chairman Jung explained, “Despite the fact that our companies are only one-tenth the size of overseas competitors, they are designated as conglomerates and are entangled in various regulations, making it difficult for them to achieve significant growth.” Vice Chairman Woo also emphasized, “In the process of operating a ‘regulatory sandbox,’ we found that 9 out of 10 challenges were blocked by regulations unique to South Korea. It’s crucial for the government to provide urgent support in boldly dismantling regulations related to emerging industries.”
The proportion of the service sector in South Korea’s total exports, including medical services, content, and software, has remained stagnant at 15.9 percent for over 20 years as of last year. This figure is lower than competitive countries like the U.K. that shows 48.1 percent and the U.S. with 31.0 percent. It is also below the global average with 22.3 percent. This signifies that immediate support for the manufacturing sector is urgently needed for survival in addition to nurturing the service sector to enhance national competitiveness.