South Korea Experiences Growing Pains As Its Workers Strike for Bigger Slice of Prosperity [WSJ]
By HENNY SENDER
August 14, 2006; Page A2
SEOUL, South Korea -- Summertime in South Korea is time for striking workers to take to the streets.
Toward the end of July, construction workers, seeking higher wages and better working conditions, ended a nine-day seizure of steelmaker Posco. A few days later, workers at Hyundai Motor Co., the country's largest auto maker in terms of sales and production, finally voted to accept a wage package after a month of unrest.
Workers at the local unit of General Motors Corp., the third-largest vehicle maker here, rejected a tentative agreement over pay. And last week, workers at Ssangyong Motor Co., Korea's fifth-largest auto maker, said they will stage a strike starting today, unless the company withdraws a plan for layoffs.
With so much production capacity idled by strikes, Korean auto exports dropped 32% last month, according to data from J.P. Morgan Securities. Hyundai, where 44,000 production workers were on strike, estimates its losses from the walkout at more than $1 billion, which will hurt the company's third-quarter results.
Labor conflicts have become a ritual in South Korea, where workers typically demand -- and in the past usually have received -- a bigger share of the country's prosperity. Though economists expect such conflicts to accelerate, future job actions aren't expected to bring workers significant gains. Korean companies say they no longer can afford to pay up.
After years of enjoying the benefits of globalization, Korea is the latest country to experience its downside. The nation, whose wealth is built on the awesome export performance of such powerhouses as Hyundai, Samsung Electronics and LG Electronics, has been a poster child for how globalization can improve a country's fortunes. Korea also is feeling some of the worrisome symptoms of globalization, particularly growing income disparity.
While most workers feel their wages are stagnating, they also know that recently their country has produced the world's greatest increase in millionaires, on a per capita basis. "Everyone is grappling with the invisible divide that comes with prosperity on the global economic stage," says Sun Bae Kim, managing director in charge of economic research at Goldman Sachs Group in Hong Kong.
A decade ago, few economists expected Korea would be holding its own as one of the world's biggest economies. Many thought it would backslide. Many economists considered the country, with a population of just more than 48 million, too small to produce global industrial giants. And they figured its exporters would be squeezed between China's low-cost manufacturers on the low end of the value chain and Japan's leading-edge factories on the high end. Korea overcame those obstacles and today ranks as the world's 10th-largest economy, just behind Canada and ahead of Brazil.
For the past decade, that growth has been good for Korean workers. They have enjoyed big pay raises -- frequently in the double-digit percentages -- strong benefits and job security. Auto workers at Hyundai, for example, typically earn the equivalent of about $50,000 a year, a relatively high income by international standards.
Now, Korean employers argue that they can't continue to give workers big pay packages. Korean companies have been hurt by a combination of rising costs, falling productivity and a currency that keeps gaining in value against both the dollar and the Japanese yen, putting Korean companies at a competitive disadvantage on global markets.
Because Japanese auto workers are more productive than their Korean counterparts, they may be cheaper in terms of labor cost per vehicle.
[Feeling Squeezed]
In an effort to cut costs and move closer to their markets, Korean manufacturers have been locating more operations abroad. Posco, for example, is in talks on a planned $8 billion to $10 billion investment in a steel-production complex in eastern India, which would be by far India's largest foreign-invested project. Hyundai plans to have production capacity in India rivaling that back home.
Everywhere they go, Koreans are building cutting-edge plants. Samsung has dozens of factories in China. Even second-tier companies are doing more abroad.
Consider Mando, a Korean car-parts company that sells 70% of its output to Hyundai. Mando has many operations in China. It has followed Hyundai to India. Last year, the company opened a research-and-development center near New Delhi to lead its world-wide R&D efforts.
"Indian engineers are not only cheaper than Korean engineers, but they frequently are better," says Sang Soo Oh, Mando's chief executive officer, who plans to expand the Indian facility.
Last year, Mando opened a factory in Alabama, close to Hyundai's new $1 billion plant. Its top customers include not only Hyundai but General Motors. Now Mando is planning an aggressive expansion of its operations in Russia to take advantage of the consumption boom financed by Russia's oil wealth. The company also may use its Chinese base to export to Russia and may use India as a platform for exports to Europe.
As the fortunes of Korean companies become less dependent on their home county, Korean labor will have even less leverage, whatever tactics unions employ. "The manufacturing contraction at home is the price that they pay for globalization," says Goldman Sachs's Mr. Kim. |
