Domestic Companies Move Production Lines Abroad

The Japanese carmaker Honda is building a plant in Saitama Prefecture near Tokyo. It is the first time in 30 years that Honda, which runs most of its plants in North America, has built a plant in Japan. Other Japanese corporations, including Sony, Kenwood and Matsushita Electric Industrial Co. that have heavily invested in constructing facilities abroad are also moving their production facilities back home to Japan.

Meanwhile, domestic electronics manufacturer A recently decided to build a plant in India. India’s great market potential was a big factor in A’s decision, but low labor costs and the relatively low possibility of labor-management disputes were also important factors behind A’s decision.

A recent survey showed that none of the big companies operating in foreign countries are considering returning to Korea. Rather, about half of all big corporations with production facilities aboard plan to expand their overseas investments.

In a report titled “The current status of overseas investment by large enterprises and difficulties in operating abroad,” released yesterday, the Federation of Korean Industries (FKI) said that the above result came from a survey conducted on 491 companies that have establishments abroad out of the 700 biggest companies in terms of sales (except financial and insurance companies).

The FKI report said that 48.7 percent of the companies surveyed have a plan to expend overseas investment, and that the rest of the 51.3 percent of companies replied that they would maintain the current level. Not a single domestic company answered that it would come back to Korea.

The position of Korean companies sharply contrasts with that of their Japanese counterparts that are moving back to Japan, thanks to an improved business environment such as a recovery in domestic demand, strengthened competitiveness abroad following the weakened Japanese Yen, relaxation of restrictions by the Japanese government, and lowered labor costs.

Regarding the reasons cited by domestic companies surveyed as to why they expand overseas investment, 37.1 percent of the Korean companies said that they invest more in foreign countries because of sluggish domestic demand, followed by cheaper foreign labor costs (34.6 percent), more spacious land for plants (8.2 percent) and a relatively easier way to supply materials (5.9 percent).

When asked to name the less favorable business environment attributes in Korea compared to foreign countries, high labor costs, distribution costs, and land costs were mentioned most by Korean companies (45.8 percent), followed by the government’s strict regulation on land use, labor, and the environment (16.1 percent).

This means that even if it is becoming harder to operate in foreign countries they are currently in, they would rather increase investment there than returning to Korea to find a way out of difficulties.

FKI official Lee Byeong-uk noted, “Japan removed a series of regulations starting in early 2000 in order to get out of the long tunnel of economic recession,” and pointed out that the Korean government also should relax restrictions such as a ban to build a plant in the metropolitan area and encourage new investment to develop its future national growth engine.

abc@donga.com