[Choi Jun-young's Urban Pilgrimage] Attracting Manufacturing Industry, Social Infrastructure Is More Important

South Korea is a global manufacturing powerhouse. When naming the world's top five manufacturing countries, the United States, Japan, Germany, Korea, and China are the five nations included. Through rapid growth in manufacturing, South Korea has achieved an economy ranked within the top 10 worldwide and continues to record one of the highest manufacturing ratios globally. From 1980 to 2017, manufacturing contributed 30.4% to South Korea's economic growth over 37 years, and when including 'manufacturing-related service industries' such as transportation, wholesale and retail, and finance and insurance, the figure reaches 66.4%. The share of manufacturing in nominal gross domestic product (GDP) is about 30%, the highest in the world. There are 416,000 domestic manufacturing companies (according to the nationwide business survey), and manufacturing employment reached 4.04 million people (2016 survey, 19% of total industries). Although manufacturing has faced many difficulties in recent years, it remains the foundation of South Korea's economy. Manufacturing not only enables large-scale employment by hiring many unskilled workers but also pays relatively higher wages compared to other industries, significantly contributing to the formation and expansion of the middle class. In every country, the growth of manufacturing has brought about the expansion of the middle class and social stability, while the contraction and decline of manufacturing have caused job losses and widened disparities between classes and regions.

During development, industries were prioritized in areas with existing related facilities like Ulsan
New industries sometimes started in new locations due to political decisions, such as Yeosu Industrial Complex

South Korea's large-scale industrial complexes were created during the period from the 1960s to the 1980s under state-led planning. Under presidential directives, central government ministries and local governments moved in unison, and business owners and employees worked desperately to produce results in a remarkably short time unimaginable today. Even in this era of absolute power and a tightly coordinated administrative system, deciding which industry to place where was not easy and involved much controversy. Looking back now after a long time, all decisions may seem like natural outcomes made through rational and objective criteria, but that was not the case. How were industrial complexes created at that time?

The first factor is path dependency. If there were existing related facilities, those areas were given priority. The first planned industrial complex in South Korea was Ulsan. Today, Ulsan has grown into a world-class manufacturing city, but initially, it was a quiet fishing village. So why was this location chosen? Because there was an oil refinery plant that had been constructed but halted during the Japanese colonial period. The first oil refinery plant on the Korean Peninsula during the Japanese occupation was in Wonsan, followed by Ulsan. After liberation, construction was urgently needed but delayed due to the Korean War. Despite the war, Ulsan did not suffer direct war damage and functioned as a hub for importing and distributing fuel for the war. Due to this background, Ulsan began to be developed as the first industrial city. Once the oil refinery was established, it was logical for related petrochemical industries to follow, and the various water and power facilities formed during this process had the effect of attracting other industries.

Yeongdeungpo, Busan, and Incheon, where various industrial facilities were established during the Japanese colonial period, underwent a similar process. From the 1970s to the early and mid-1980s, these areas had advantages in workforce availability and transportation convenience and served as centers of industrial production. However, as production scales gradually expanded, they lacked the capacity for further expansion and gradually lost their status as industrial centers. New regions centered on the west coast emerged as industrial hubs.

The second factor is political decisions. When starting anew in places without existing facilities, locations that meet the necessary criteria for those facilities must be selected. Many assume these criteria are very strict and detailed, but often they are not as specific as expected. Ultimately, only a few candidate sites can be selected, and choosing among them inevitably becomes a policy or political decision. Such decisions might be expected to favor one's hometown or familiar regions, but that was not always the case. The Yeosu Industrial Complex is a representative example, where political decisions considering balanced development between Yeongnam and Honam regions led to its establishment in the mid-1960s and its growth into Asia's largest petrochemical industrial complex.

Many local governments want to attract large-scale industrial complexes, but industrial structures have changed
Companies prefer metropolitan areas with abundant human resources rather than moving following production sites

However, not all of these processes were successful. In the 1950s, fierce competition took place between Chungju and Naju over the construction of South Korea's first fertilizer plant, and ultimately, large-scale fertilizer plants were built in both locations. However, these facilities eventually closed as they showed limitations in change and growth contrary to initial expectations, and the regions fell behind in industrial development trends. Political and policy decisions can initiate new projects but do not guarantee their success.

Many local governments in rural areas facing significant changes such as population decline and aging desperately hope for the construction of large-scale industrial complexes and the relocation of manufacturing companies that create many jobs within their administrative districts. Although local governments make considerable efforts, the results are not evident. Due to changes in industrial structure and the formation of global supply chains that connect the world as one, companies find it difficult to make investment decisions easily.

Production costs, including labor costs in South Korea, are no longer cheap, and many considerations beyond costs have emerged. As the transition to high value-added industries progresses, securing highly skilled personnel has become more important than ever. Unlike in the past, these workers prefer to stay in metropolitan areas, including Seoul, rather than moving or residing near industrial sites. The decision by SK Hynix to establish a new production line in Yongin and Hyundai Heavy Industries' creation of design and R&D centers in Bundang are examples of this trend.

Choi Jun-young, Senior Advisor at Yulchon LLC

In this situation, attracting companies requires understanding and analyzing what companies need and whether the region can supply those needs. However, there is a stronger tendency to overcome problems through willpower rather than objectively facing reality. Yet, reality has changed. Social infrastructure is more important than physical infrastructure, and self-driven change has become crucial.