Militant S Korean unions disturb foreign investors

Reuters, Taipei Times, Friday 12 September 2003, Page 10

LABOR WOES: The image of a country of cheap, reliable, educated workers has been damaged by long-running and often quite violent worker unrest

One recent summer evening, Michael Chang, a Taiwanese executive at a brokerage in South Korea, had a harder time than usual getting out of the office.

It was not the workload keeping the 39-year-old president of KGI Securities Co at his desk, but a human wall of angry, unionized workers pinning Chang in his sixth-floor office.

A shaken Chang made an emergency exodus close to midnight, flanked by police and in the glare of media cameras, serving up a graphic example of labor tension in South Korea, once a top target for foreign investors seeking cheap, reliable workers.

The brokerage, taken over three years ago by Taiwan’s KGI International Holdings, had been attempting to shut loss-making branches in the face of union opposition.

Number one, two, three concerns of foreign chief executives and investors is the labor union problem in South Korea, said Dominic Barton, the head of McKinsey & Company in Seoul.

Roh In-ki, a KGI manager and colleague of Chang, said the company badly needed restructuring to remain healthy.

KGI is feeling a dire need to reform itself to create stable profit schemes, but labor opposition has been disrupting the timely restructuring, Roh said.

Industrial unrest has a direct impact on the economy, Asia’s fourth largest, by regularly hampering operations of major industries, such as cars, chemicals and distribution. It has also deterred investors.

This month, 30,000 truck drivers called off a two-week strike after the government agreed to hold more talks on improving working conditions. The truckers had been demanding higher freight rates and recognition of their union. The stoppage cost companies more than $600 million in delayed shipments.

Hyundai Motor Co recently caved in to union demands for an 8.6 percent wage rise and other benefits to end 47 days of strikes, which cost the country’s largest car maker US$1.2 billion in lost output. Hyundai had to also pledge not to lay off workers without their consent.

South Korean unions say they push for more benefits because the social safety net is not as comprehensive as in other industrialized countries.

They also point out that labor costs account for only 10 percent of total production costs and many big companies are still capable of paying high salaries.

But analysts say data supports the view that industrial unrest is putting off overseas investors looking to pump cash into Asia, compounding the effect of a sluggish economy and worries over North Korea’s nuclear aims.

Foreign direct investment (FDI) in South Korea has been on a sharp downswing since hitting a record US$15.54 billion in 1999.

Last year, FDI totalled US$9.10 billion, down almost a fifth from the previous year. The labor-intensive manufacturing sector drew only US$2.4 billion last year, versus US$7.1 billion in 1999.

Escalating labor disputes and steep wage hikes have accelerated the exit of manufacturers from Korea, which is reaching a dangerous level, said Kim Jae-yun, an economist at Samsung Economic Research Institute.

It is likely to have a considerable impact on unemployment and growth potential, Kim said.

In stark contrast, China has been doing well. FDI in China ballooned to US$82.77 billion last year, up 19.6 percent from the previous year, extending strong growth.

When I visited government officials in China with queries on investment plans, they even said the government would help downsize the company, if I need to in the future, said a South Korean businessman, who asked not to be identified.

Moreover, average monthly wages for a manufacturing worker in China are only US$98, compared with US$1,319 in South Korea in 2001, according to data from the Bank of Korea, the central bank.

Concern about labor strife has deepened since President Roh Moo-hyun took office in February on the back of strong support from blue-collar workers and a reform-minded younger generation.

Analysts say the new center-left government has since given too much ground to labor, and Roh, a former labor lawyer, has at times intervened in disputes to ensure union demands are met.

The government must rethink whether its labor policy is economically rational, Kim said.

Meanwhile, foreign companies at times feel they are being pushed into a corner.

A local unit of the world’s largest food group, Nestle SA, locked out staff at its Seoul headquarters on Aug. 25 after two months of labor action. It said a string of wage increases had pushed coffee production costs in South Korea above those in Germany.

Elsewhere, US fiberglass maker Owens Corning narrowly averted closing its factory in the south of the country after a 20-day lockout triggered by labor unrest. Unions accepted a last-minute compromise on working hours and bonuses.