Korea Becomes Medicine Sales Base
Global pharmaceutical companies are shutting down their production plants in South Korea one after another, causing concerns that South Korea is being turned into a "medicine sales base" for them.
Global drug companies sell drugs worth hundreds of billions of won in the domestic market every year. But they are planning to shut down domestic production systems amid a rise in labor costs. Critics say that they are avoiding their responsibility after earning huge profits.
According to industry sources on August 2, Janssen Korea Ltd., a pharmaceutical subsidiary of Johnson & Johnson Inc., recently announced that it will completely stop operation of the Hyangnam plant by 2021, which was established in Hwaseong, Gyeonggi Province, in 1983. The plant’s official shutdown is slated for 2021 but a domestic pharmaceutical firm is highly likely to acquire it by the end of next year. An official from Janssen Korea said, “We were told by the global headquarters to run the Hyangnam plant just for the next three years. Janssen will also continue to make every effort to advance the South Korean pharmaceutical market in the future.”
Bayer Korea Ltd. announced in May last year to completely close down its contrast medium production plant in Anseong, Gyeonggi Province, and has since begun to take steps for withdrawal. The Anseong plant, which was opened in 1967, has been included as a subsidiary after the headquarters took over contrast medium producer Schering AG in 2006. Bayer Korea was planning to stop operation of the plant in June this year. However, the company has extended the deadline to the end of the year as it has failed to find a buyer.
Global drug companies’ move to shut down their production plants in South Korea started two decades ago when Bayer Korea closed down its Namyangju plant in 1999. Novartis Korea Ltd. shut down its plant in Ansan in 2002, while Lilly Korea Ltd. closed down its plant in Hwaseong in 2005. Other companies followed suit, including Pfizer Pharmaceuticals Korea Ltd. (2006), Roche Korea Co. (2008), BoehringerIngelheim Korea Ltd. (2009) and MSD Korea Ltd. (2009). These companies shifted their production plants from South Korea to Southeast Asia and China. A total of 16 manufacturing plants of global drug makers in South Korea have been closed over the past two decades. Only three firms – Johnson & Johnson Korea Ltd., Janssen Vaccine Ltd. and Korea Otsuka Pharmaceutical Co. – haven’t officially announced their plans to withdraw domestic production.
The domestic pharmaceutical industry gives a cold stare at the withdrawal of global drug producers, which received enormous tax benefits and financial support from the government in establishing their plants. It points out that their move to close manufacturing facilities in South Korea simply because of worsening profitability due to higher labor costs runs counter to their initial cause of fulfilling social responsibility in the domestic pharmaceutical market, though they are taking hundreds of billions of won of sales and dividends in South Korea every year.
According to the Financial Supervisory Service, the combined sales of South Korean subsidiaries from 35 global pharmaceutical firms which handed in audit reports last year, including November of fiscal year, came to 5.65 trillion won (US$5 billion). Their sales increased 2.9 percent from a year earlier, while their net profits surged a whopping 129.3 percent. The industry estimates that the sales of South Korean subsidiaries from global drug makers at over 7 trillion won (US$6.2 billion) last year, including limited liability companies which are not required to open their audit reports. The amount of global drug producers’ social responsibility activities stood at 25.9 billion won (US$22.94 million) last year, only 0.48 percent of the total sales.