Capital and Job Outflows from Korea
Korean small and medium-sized enterprises (SMEs) considerably increased investments in foreign countries in the first half of this year. According to the Korea Export-Import Bank on October 10, the amount of foreign direct investments by Korean SMEs amounted to US$4.36 billion in the first six months of the year, hitting the highest level ever since 1980 when the Korean government began to record such statistics.
FDIs by Korean SMEs surged 228% during the five years from the first half of 2014 when the amount totaled US$1.33 billion. The growth rate is about four times higher than the 54.7% increase in the amount of foreign direct investments by all Korean companies and nationals. Korea’s foreign direct investment refers to the amount of money that flowed abroad to establish a new company in a foreign country or acquire a stake in a foreign company.
The spike in Korean SMEs’ overseas investment is fueling concerns that not only exports but domestic investment and employment will be negatively affected. If SMEs, which account for 87% of Korea’s total employment, prune domestic investment and employment, domestic jobs will disappear.
"Capital and job outflows have thus far been regarded as problems stemming only from large Korean companies and the Korean manufacturing industry. Yet actually, they are happening in the SME sector and the Korean service industry as well," said Kim Tae-ki, a professor at Dankook University. "A sharp increase in minimum wages and a reduction of working hours is a matter of survival for SMEs, which depend heavily on labor."