Korean companies should aim for Southeast Asian countries as alternative investment destinations to replace China after Covid-19, according to a report published on Friday (July 10).
The report, by the Korea International Trade Association (KITA), said that Korean companies should focus on ASEAN countries as rising wages and intensifying trade disputes between the US and China are driving them out of China. The current Covid-19 situation also showed the importance of stable supply chain other than China.
Korea’s investment in ASEAN has increased by 8.9% on annual average over the past nine years. Investments in Vietnam amounted to $4.47 billion, the largest among ASEAN countries, followed by Singapore and Indonesia. The return on investment (ROI) in ASEAN countries by Korean companies also appealed to Korean investors as it showed better numbers than China. The ROI in ASEAN by Korean companies was 8.5% in 2014, only one-third of China’s 24.6%, but it increased to 12.4% in 2018 over China’s 9.4%.
KITA assessed the comparative advantage by categorizing five ASEAN countries: Malaysia, Vietnam, Indonesia, Thailand, Philippines; and China’s investment environment in economic, political, and social aspects.
On the economic aspect, Vietnam was found to be on par with China. Although China excelled in market size and purchasing power, its high production costs made it uncompetitive. Vietnam showed the highest production efficiency among the five ASEAN countries as it scored highest in the industrial output index growth rate and the manufacturing wage level.
In terms of policy, Malaysia scored the highest on government policy and investment and trade systems. Chinese trade barriers were found to be higher than in five ASEAN countries.
On the social side, Malaysia and Thailand, which have strengths in industrial infrastructure and start-up environments, were evaluated to be on par with China, which has excellent human capital.
“Companies that are seeking low wages overseas need to consider the investment to ASEAN countries,” Euiyoon Cho, KITA researcher said. (Reporting by Hyewon Chang)