Regional Industry Oulook Bleak

Gyeonggi Province’s Banwol and Shiwha Industrial Complex is home to the largest number of small- and medium-sized manufacturing companies in Korea. But these days, when the clock passes six in the afternoon, the complex becomes deserted. This is because the amount of orders has dropped, and many manufacturers have given up on operating their plants late due to expensive labor costs.

Owners of these small- and medium-sized companies said that they would have been busy operating their plants until late at night, if things hadn’t changed.

The “H,” a plate ware manufacturer in the Shiwha complex, stopped its night time operations this month. It also had to let go its 20 part-time workers. The remaining workers complained, saying that each had to play the role of 10 people due to the heavy amount of work.

The company’s initial sales goal for this year was five billion won, but that has long since become an unreachable dream. Among the workers in the complex, any company, capable of paying their workers on time is considered a successful company.

The owner of the “H” said that the problem is not only because the number of orders has dropped 30 percent in the second half of this year, but also because the company has had to cut its labor costs. He sighed, saying that the company’s fixed costs, such as materials or resources, have risen so much that paying for anything else like technology development is almost impossible right now.

“While the level of the unit costs of supply that vendors receive has remained the same over the past few years, the interest rate has only kept increasing, which is devastating for us. But I am still being told that the economy is recovering. Do you know how angry that makes me?” said the owner of an automotive part manufacturer.

The traffic inside the complex has become quiet as well due to increases in oil prices. Here and there, one can see brochures for recruiting or discounts on a bill. “There are increasing numbers of company owners who visit here to get dishonored bill loans,” according to the Korea Federation of Small and Medium Business.

The real estate trade has frozen. There were a few trades last year, but now even offers are nowhere to be found since no one is buying.

“I haven’t had a single offer for the past four or five months,” said a real estate agent in the Banwol Industrial Complex.

A Bleak Situation—

The situation doesn’t look better in other metropolitan areas.

Mr. Heo (46), who runs an electronic product company in Hwaseong, Gyeonggi Province felt hopelessness while looking at his company’s balance sheet. His company’s material prices have increased by 70 to 100 percent compared to the previous year, but the unit cost of supply has only risen by 10 percent. If the current situation continues, a net loss for this term will be inevitable. Besides, his company has 40 other manufacturers to compete with.

“The shortage of manpower and the ever-increasing price of raw materials are getting beyond my ability. Everybody feels like giving up on everything and fleeing to India or Vietnam,” said Heo.

“Chinese products have taken a large share of the market,” Mr. Hong (47), running the “D” company in Suwon, Gyeonggi Province, said in distress. Hong’s company, a manufacturer of industrial products mainly used by plants, had to stop its exports this year due to the sudden drop in the foreign exchange rate. After the stagnation of domestic demand struck the company, the export route was also gone.

“Starting three or four year ago, Chinese products with a price half that of our products began to advance into the market. Those who need a large amount only look for Chinese products,” Hong complained.

Jae-Dong Yu jarrett@donga.com