The Hyundai Research Institute said in its report on May 12 that South Korean companies’ investment for making use of a low labor cost is concentrated on Vietnam, where the minimum wage is relatively low.
Specifically, Vietnam accounted for 62.6 percent of the investment for the purpose from 2014 to 2018 among China and the five emerging Asian economies of Vietnam, Indonesia, Malaysia, Myanmar and India. The ratio more than doubled from 30.1 percent of the period of 2009 to 2013. As of last year, the minimum wages in Ho Chi Minh City, Shanghai and Jakarta were US$172.8, US$365.6 and US$256.1, respectively.
South Korean companies’ direct investment in China fell 7.9 percent from US$19.1 billion to US$17.6 billion during the same five-year periods. In the meantime, their investment in Vietnam jumped from US$4.7 billion to US$10.8 billion.
The increasing investment in Vietnam is because companies investing in the country are showing a remarkable growth in sales. The sales of South Korean companies investing in China rose 11.3 percent from US$745.1 billion to US$829 billion during the five-year period while the sales of those investing in Vietnam soared 148.4 percent from US$47.3 billion to US$117.6 billion.
When it comes to China, the ratio of investment for local market penetration is on the rise. Specifically, the ratio of the investment to that end rose from 57.9 percent to 74.3 percent of the total investment in China. On the other hand, the ratio of the investment for wage utilization dropped from 11.1 percent to 3.9 percent with China’s minimum wage on the rise.
Large corporations led the investment in China whereas small and medium-sized enterprises (SMEs) led the investment in the other Asian countries. For the past five years, large South Korean companies accounted for 81 percent of the investment in China, while smaller firms took up 17.2 percent. During the same period, the ratio of large corporations’ investment in the Asian countries fell from 82.8 percent to 68.1 percent whereas that of SMEs went up from 15.4 percent to 27.6 percent. The investment in China and the emerging economies was led by manufacturers such as electronic component manufacturers and automakers.