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Korea's Overseas Manufacturing Investment Surge
November 5, 2004
Koreans invested $3.03 billion in overseas manufacturing industries during the first eight months of this year, up 75 percent from the same period a year earlier, the Ministry of Finance and Economy said on October 16. The figure marks a turnaround for Korea's interest in the global manufacturing sector, which suffered a slight downturn during the previous two years after peaking at $4.64 billion in 2001. In 2002 and 2003, figures were $3 billion and $3.17 billion, respectively.
This year's amount was also nearly double the $1.64 billion that foreigners invested in Korea's manufacturing sector during the first half of this year. The amount was up 43.5 percent year-on-year but still pales in comparison to the amount invested by Koreans abroad. Last year, foreigners invested $1.69 billion in the country's manufacturing industries.
Experts mainly attributed the ballooning volume of overseas investment by Korean companies to their growing need for cheap labor. "Pressed to cut costs against the backdrop of weak domestic demand, an increasing number of Korean corporations are seeking to become more competitive in the world market by moving their factories to countries like China and India where labor costs are lower," said one Finance Ministry official.
A hollowing out of the local manufacturing sector has become one of the government's main concerns in the face of China's rapid expansion, which has earned the giant neighbor a reputation as the world's factory. A huge consumer of raw materials needed to power its manufacturing sector, China is currently absorbing about a third of the world's steel output and the country's thirst for oil is often given as one of the reasons behind record crude prices.
But the ROK government also accepts the need to move assembly lines to cheaper locales outside the country. Following a recent visit to Vietnam and India, President Roh Moo-hyun stressed that local manufacturers will have to look abroad to slash costs and promote competitiveness. "The best way to do business is to do it in a business-friendly environment," said Roh.
Meanwhile, along with the manufacturing sector, investment in overseas real estate and service industries during the January-August period surged likewise by about 70 percent to $540 million.
Investment in wholesale and retail grew 38.7 percent to $850 million, but investment in overseas mining dropped to $240 million.