Manufacturers Balk at Investments in Korea

According to recent reports from Korea, the U.S. is not alone in losing its industrial base. Once touted as an emerging world production leader, Korea is now suffering from many of the same economic development ailments as more established and developed economies.

I vividly remember working in South Korea on a series of automotive consulting projects during the 1980's. We feared at that time that Japanese and Western European auto manufacturers were going to topple the U.S. in building a production presence in Korea. Foreign direct investment grew markedly in Korea in the 1980's, leveled during the 1990's and now appears to be receding as more Korean manufacturers seek out production platforms on all continents, but especially North America, which remains the world's largest and most integrated industrial market.

Here is the current word from Korean officials. Unless the domestic manufacturing sector introduces innovation and solves its chronic labor woes, Korea's attractiveness as an investment destination will be rendered obsolete by other countries with lower labor costs, said a report by the Samsung Economic Research Institute (SERI) that will be published next week.

SERI notes that manufacturing companies, both domestic and foreign, are leaving the country at a fast rate in order to set up bases in neighboring countries with a cheaper workforce.

There were 1,800 cases of overseas investment by Korean manufacturing companies last year, nearly double the 1,000 instances seen in 1994, according to SERI. The increase in investment overseas is coming at the expense of domestic investment, said the research institute.

SERI estimated that the ratio of domestic to foreign investment by Korean companies in 2001 reached 10 percent, meaning of every 10 investments made, only 1 out of 10 was carried out in Korea, with the remainder going to other countries.

In addition, foreigners are also opting for other markets. Foreign direct investment declined sharply to $2.4 billion last year from a peak of $7.1 billion in 1999, said the report.

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