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First Profit for Top 5 Companies in the Kaesung Industrial Complex

19 are Still in a Deficit?
Kim Yong Hun  |  2007-08-09 17:13
Results from recent surveys conducted by the Korea Federation of Small and Medium Business’ regarding South Korean companies in the Kaesung Industrial Complex show that among the 24 companies, just five companies recorded a profit for the first time in 3 years.

Kaesung Industrial Complex Committee of Enterprises said, “Recently, companies that have finished investment from the last 3 years have started to make profit”. They predicted, “From now on, Kaesung Industrial Complex businesses will start to be resilient.”

Following, the committee added, “It is expected that as the five companies start to collect their investments funds, there will be an increase in companies that experience net profit.”

However, there are also criticisms that premature optimistic hope could bring a reserve effect. Currently, the remaining 19 companies (80%) are still seeing a loss and considering the technical learning ability of the North Korea laborers and low productivity of companies, it is too early to be optimistic of the Kaesung Industrial Complex businesses.

Experts especially worry that reflecting the fact that the Kaesung Industrial Complex is proceeding successfully, it can send a negative sign to the North.

“Premature Hopes Can Bring Failure to the Kaesung Industrial Complex Business.”

Dong Yong-seung, director of Economic Security Department of Samsung Economic Research Institute, gave a positive evaluation in a phone conversation with DailyNK and said, “The break-even point for ordinary companies is 5 years, but the fact that the Kaesung Industrial Complex businesses saw a net profit in 3 years means that the businesses are that successful.”

However, Mr. Dong also said, “If it looks to North Korea that the Kaesung Industrial Complex is going too well, a flawed message can be sent and problems can occur. To solve such problems, there needs to be a definite principle kept about direct payment of wages and wage increase that was agreed between the South and the North.”

Kaesung Industrial Complex Committee of Enterprises’ chief Lee Im Dong pointed to the fact that, “Due to the results from the survey, there may be a misunderstanding to the North that the Kaesung Industrial Complex’ situation is the ideal place. Although a problem of manpower supply and demand, laborers’ ability problems and other problems are piled, but North Korean staffs of Kaesung complex can be content with the result of that research and intent to stay in this state.”

Chairman Lee especially added that, “Extreme optimism towards the Kasung Industrial Complex will only add to the desire to form a union to increase the North’s wages and completion fee and cause an overall negative effect to the Kaesung Industrial Complex business.”

North Korea actually ignored the labor regulations of the Kaesung Industrial Complex that stated, “You cannot raise wages to exceed 5% from the previous year” and demanded a 15% wage increase to South Korean companies last month. North Korea claimed that it would refuse overtime work and special work from the 1st if this was not accepted but the South and the North conclusively agreed to a 5% increase at the start of the month.

"Kaesung Industrial Complex optimism can cause failure to businesses"

As a result of a survey, aside from 5 companies that have converted to a profit, 19 companies are still in a loss and the average productivities of these companies are lower than the productivity of domestic factories at a 53.7%.

From one side, the criticism is that the low productivity with the problem of Northern laborers learning technical skills is the key to solving the Kaesung Industrial Complex business.

Kim Kyu Chul, Representative of the North-South Forum had asserted previously that most of the Kaesung Industrial Complex businesses have been experiencing financial difficulty. He says, “The fact that most businesses are still experiencing a loss must be paid attention to.”

Representative Kim said, “Among the 5 companies that made net profit, 3 companies made 200mn won (USD215,000) and the remaining 2 companies made a lower profit. Compared to the tens of millions of invested funds, the net profit is at an unnoticeable level and thus, although there is a symbolic significance it is premature to say that there is actual administrative profit.”

He especially asserted that, “Aside from companies related to fiber and clothing, most companies in electronics and telecommunication parts production have been experiencing a loss. To state that it is a success just because a minority of companies experienced a net profit can actually obstruct the course of the Kaesung Industrial Complex business.”

He also added, “The fact that 19 Kaesung Industrial Complex companies have plans to additionally invest means that rather than a positive sign that the business running well, it is to secure a plot for ordinary investment plans. Even though a company is having a difficult time administrating, it obtains factory plot to prepare for additional investments.”

There is also the point that there is a weak incentive for Northern laborers to want to work.

Chief of the Committee Lee said, “The speed of learning skills thus the laborers’ development speed is slow and because there is no economic incentive to work hard like democratic societies, the productivity is low compared to domestic companies.”

He added, “The result that 19 companies will continue to invest does not mean that the business is running well. Because the speed of reforming business environments is heading in a positive direction, companies have been investing and in the future, technical problems and customs clearance will need to be solved”.
 
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