Korea Not Attractive to Labor-intensive Firms
An increasing number of non-Chinese companies in China are relocating to Southeast Asia with labor costs rising in China. Under the circumstances, many South Korean companies are also moving from China to Southeast Asia instead of their home country.
In a survey conducted in the third quarter of this year by the Korea Institute for Industrial Economics and Trade, the Korea Chamber of Commerce and Industry and the Korea Chamber of Commerce in China, 14.1 percent of South Korean companies in China mentioned labor costs as their biggest difficulty while the ratio stood at 6.1 percent in the previous quarter. In the Q3 survey, the ratios of the decline in local demand (29.1 percent) and sluggish exports (19.7 percent) attributable to COVID-19 fell from the preceding quarter.
Even so, the number of cases of reshoring to South Korea is hardly increasing. According to the Ministry of Economy and Finance and the Ministry of Trade, Industry and Energy, only 77 companies did so between 2014 and July this year and only 44 out of them are currently running their factories in South Korea.
On the other hand, more and more South Korean companies are doing business in Southeast Asia with global companies that have relocated to the region. Especially, Vietnam, where labor costs are one-third compared to China, is emerging rapidly. Google and Microsoft are already producing their products there, many global companies are following suit, and South Korean partner suppliers are heading towards the country from China.
“The average monthly wage of manufacturing workers was US$3,499 in South Korea, US$2,685 in Japan and US$5,526 in Germany in 2018,” the National Assembly Research Service explained, adding, “In other words, the labor costs in South Korea are not low and it is not an attractive destination for labor-intensive companies.”