A worker works at a plant of Hyundai Motor in Asan, South Korea, January 27, 2016. /Kim Hong-Ji/File Photo Acquire Licensing Rights
SEOUL, Sept 1 () - South Korea's factory activity grew at a slower pace in August, as output contracted for the first time in 12 months and demand eased due to surging coronavirus infections across the region and continued supply chain disruptions.
The IHS Markit purchasing managers' index (PMI) for August stood at 51.2, falling from 53.0 in July but staying above the 50 threshold, which indicates expansion in activity, for an 11th straight month.
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A renewed rise in virus infections and severe, sustained supply chain disruptions, notably in the key semiconductor market, dampened operating conditions, said Usamah Bhatti, economist at IHS Markit.
That resulted in a contraction in output levels, while the resurgence in coronavirus across the wider region partially offset solid demand from key export markets such as the United States and Japan, Bhatti added.
Total new orders rose further last month, but at the softest pace in 10 months, while export orders growth also eased as the highly contagious Delta variant and related curbs dented global demand.
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Still, firms were seen raising staffing levels for another month in preparation of incoming orders in the second half of the year.
Meanwhile, the survey signalled further rises in average cost burdens at South Korean manufacturers on continued raw material shortages, which led to higher output prices.
Firms commonly noted that global shortages of raw materials and freight capacity, notably in the semiconductor market had led to weaker readings across the majority of indices, Bhatti said.
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The sub-index for future output, which indicates business confidence, rose to 61.2 in August from 59.5 in July, on hopes of a wider economic recovery from the pandemic and that supply chain bottlenecks would ease.South Korea has been a global manufacturing powerhouse for decades, with industries such as ICT, electronics, heavy machinery, ocean vessels, automotive, materials, and construction leading the way. But with increasing competition from other Asian countries and changing global demands, the manufacturing landscape in South Korea is shifting. In this article we set out to examine the trends and innovations facing manufacturing in South Korea in 2023, along with the opportunities and challenges that lie ahead.
According to Hannes Humala, Asian Insiders partner for South Korea, the main industries in South Korea are ICT, electronics, heavy industries, automotive, materials, and construction. These industries have been the backbone of the Korean economy and have dominated the country’s exports and retail market. However, the manufacturing base for some of these industries is shifting to other countries such as Vietnam, where labour costs are lower.
ICT and electronics are the biggest manufacturing products in Korea, with huge companies like Samsung and LG dominating the market. These companies have been able to diversify their manufacturing base outside of Korea, for example Samsung has established two major plants in Vietnam that now produce a third of the company’s global production.
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Heavy industries such as shipbuilding, offshore vessels, heavy equipment, and machinery have traditionally been strong in South Korea. Korean companies such as Hyundai Heavy Industries, Samsung Heavy Industries, and DSME are global top players in the industry. More recently the industry is moving towards manufacturing low emission vessels, floating wind farms, and specialised offshore vessels. The industry is also shifting towards a carbon-neutral drive.
Manufacturing in South Korea most definitely includes the automotive sector, with Hyundai and Kia the country’s largest players. Korean motor vehicles are now globally regarded as high quality, well-engineered products. However, labour unions are powerful in this sector, creating interesting challenges for managers and accountants.
Production of materials such as petrochemicals, semi-assembled goods, and industrial consumables is another significant contributor to the Korean economy. The major facilities in this sector are owned by the Korean conglomerates or larger global players. There is also a host of strong and profitable SMEs producing quality export products for B2B markets.
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The construction industry in South Korea has developed into a world-class operation following strong economic growth over recent years. Korean EPC companies are engaged in major residential, infrastructure, plant, and commercial projects both domestically and overseas. The industry is currently going through a contraction phase, but it is predicted to recover over 2023-25.
Looking ahead, there are some interesting trends and innovations to look out for in South Korean manufacturing. AI R&D is expected to gain support from government and VR is gaining traction in automotive and industrial design. The 5G digital transformation is expected to be a game-changer in shipbuilding. Hyundai Motors plans to invest USD51 billion by 2025 in electrification, autonomous driving, artificial intelligence, robotics, air taxis, and new energy.
However there are challenges facing manufacturing in South Korea. Labour costs are rising while capital investment into the manufacturing base is declining. Traditionally manufacturing in South Korea has been labour-intensive, high-volume production but the country is looking for ways to reduce labour costs in non-core areas while improving productivity in core areas. Looking abroad for investment is not as easy as it used to be, as there is an increasing number of attractive investment destinations rising nearby, in South East Asia.
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Despite the challenges, there remain many opportunities for manufacturing in South Korea. The country has been actively embracing the fourth industrial revolution to re-invent its manufacturing power for the future. Competition from other Asian countries is increasing, and the old form of manufacturing is losing its competitive value. However looking ahead, Korea still offers robust opportunities in manufacturing, and major companies will have the resources to make profitable investments in manufacturing in South Korea.
In conclusion, South Korea’s manufacturing sector faces both challenges and opportunities in 2023 and beyond. The country is going through fresh reinvention and is embracing new, disruptive technologies to remain competitive. For a no-obligation call to discuss Korean investment in manufacturing, please contact Jari Hietala, Managing Partner, jari.hietala(at)asiansiders.com or Hannes Humala, Korean Partner, Hannes.humala(at)
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