[Editorial] Companies With Overseas Plants Are Not Coming Back

A survey of 300 Korean manufacturing companies with overseas plants conducted by the Korean Chamber of Commerce and Industry (KCCI) showed that 95 percent of the respondents said that they did not want to return to Korea.

Only 1.7 percent answered they were considering a “U-turn.” Two-thirds of those polled are in China and said that they would not come back to Korea, despite the worsening investment environment in China.

Many of the companies said they would go to Vietnam or India if they ever moved somewhere else.

The outcome demonstrates the hollowing-out of the domestic manufacturing industry and the resulting concerns about job shortage.

Japanese manufacturing companies, especially those in state-of-the-art industries, have shown a clear tendency to return to Japan for several years. Sony relocated its video camera production facility from China to Japan, while Kenwood did the same with its portable mini disc player production lines in Malaysia.

It is said that what brought them back to Japan was a restoration of confidence in domestic production and strengthening of availability of state-of-the-art parts. This year’s facility investment growth in Japan is estimated to be 11.6 percent.

By contrast, Korea’s domestic manufacturing sector is showing signs of premature aging because of increasing overseas relocations that are adding to sluggish investment. The Korea Development Institute estimated this year’s facility investment growth would be about six percent.

The Ministry of Finance and Economy said an average of 1,500 small-to medium-sized companies have left the country every year since 1999. About 64 percent of companies located in the Masan free trade zone are considering overseas relocation of their plants or reducing production due to their weakening competitive edge in the global market.

As the manufacturing sector has failed to create decent jobs in the country, students are avoiding science and engineering, and the phenomenon of brain drain is increasing. According to the Swiss business school IMD, Korea’s “brain drain index,” which refers to a country’s retention of its scientists and engineers, dropped from 6.49 in 1997 to 4.70 in 2002. This means Korea’s brain drain situation is worse than that of the U.S.(8.96), Taiwan (7.08) and China (5.23).

Those polled by the KCCI said that they would consider returning to Korea if the government eased regulations and boosted flexibility of employment. The government should create an environment that allows the U-turn of manufacturing companies and talent before more of them leave the country.