Exodus of Small and Medium Size Companies

Scale of overseas investment of domestic small and medium size companies has exceeded that of large size companies for the first time in Korea since the first investment abroad.

In particular, the foreign exodus of small size companies that attached major importance to low value-added industries is expanding rapidly to high value-added industries such as electric, electronic, machinery, semi conductor, etc.

Experts are worrying that `becoming hollow` in the manufacturing industry may occur sooner than expected with uncontrollably quick foreign exodus of small size companies` production facilities.

Many small and medium size companies that advanced to the foreign market without sufficient feasibility study and strategy are facing difficulties, some of them even closing the business.

According to the Export-Import Bank of Korea on the 15th, the scale of investment abroad of small and medium size companies in the first half of the year is approximately 841 million dollars, which passed over investment of large size companies in the same period (728 million dollars). This is the first time that the amount of investment abroad of small and medium size companies is higher than that of large size companies.

Overseas investment of large size companies began to drop since 1998, 5.3 billion dollars at that time, falling significantly from 2001, 470 million dollars then. However, the investment abroad of small and medium size companies has increased a great deal since 2000.

In particular, the amount of investment abroad of manufacturing industry (650 million dollars) exceeds over twice as much as that of large size companies (300 million dollars).

The foreign exodus boom for small and medium size companies is expected to spread even more in the future.

The Korean Chamber of Commerce and Industry made a survey to 220 companies in March and about half of them responded (49.5%), `Foreign exodus of production facilities will be propelled within 5 years`and 40.7% said the factories will be moved to a foreign country within 10 years.

Doctor Kim Jae-yoon of Samsung Economy Research Center said, “The ratio of overseas investment scale in comparison with GDP for Korean companies showed the same rate as Japan already in 2000. He also added, “The national income of Korea is about one fourth of Japan. This has to be taken into consideration to prevent `hollowing` of corresponding industry due to early exodus of production facilities to foreign countries.”

eye@donga.com