64 SK companies eyeing biz opportunities in North Korea

64 SK companies eyeing biz opportunities in North Korea. February. 16, 2012 08:18. sukim@donga.com parky@donga.com.

Despite increasing expectations of a business opening after the death of North Korean leader Kim Jong Il, South Korean companies are cautious of inter-Korean economic cooperation. This is because sanctions on Pyongyang imposed by Seoul on May 24, 2010, in the wake of the North’s attack on the South Korean naval vessel Cheonan remain valid and sour relations between North Korea and the U.S.

Major South Korean conglomerates, however, are known to be reviewing a wide range of inter-Korean economic projects.

According to a survey of 526 South Korean companies that are among the South`s top 600 in sales, which was conducted by The Dong-A Ilbo and the (South) Korea Chamber of Commerce and Industry, just 12.2 percent or 64 companies said opportunities to conduct inter-Korean businesses, including investment in and advances into the North Korean market, will increase after Kim`s death. By contrast, 25.1 percent said such opportunities will decline and 62.7 percent predicted no change. The surveyed companies included public and financial companies.

In the same vein, 32.9 percent said North Korea risk will grow while a meager 2.9 percent said otherwise. Lee Yong-cheol, in charge of inter-Korean economic cooperation at the (South Korean) Knowledge Economy Ministry, said, “Quite a number of companies are doing business with the U.S. So they will find it difficult to do business with North Korea given lack of improvement in relations between North Korea and the U.S.”

Nevertheless, 33.3 percent of South Korea`s top 30 companies in sales said business with North Korea will flourish, while 16.7 percent said inter-Korean trade will decline. This means large South Korean corporations have positive prospects for inter-Korean economic cooperation. This is in stark contrast to the results of a survey of the top 300 companies conducted by the commerce chamber in August 2010. Just 4.3 percent of the companies that responded to the study (234) said they will engage in business with the North should conditions for inter-Korean cooperation improve.

In a related move, the South Korean companies such as POSCO, SK and Daewoo Shipbuilding & Marine Engineering are conducting feasibility tests for entering the North’s Hwanggeumpyong and Rason special economic districts. The two areas are being jointly developed by the North and China. POSCO has been more active, having begun construction on a logistics center in Hunchun, a Chinese city bordering North Korea.

A well-informed source on North Korea said, “Based in Hunchun, POSCO is planning to advance into inland areas of North Korea if the North opens up its economy.” South Korea`s top steel maker is known to be reviewing securing iron ore in Musan County and building a steel mill in Kimchaek, an industrial city in North Hamgyong Province, based on cheap labor at the same time.

Daewoo is seeking to set up a repair shipyard in Hwanggeumpyong, an island in the Yalu River. SK is also known to have employed experts on the North Korean economy to review doing business in Hwanggeumpyong.

The Chinese government is known to have got North Korea’s agreement on establishing joint ventures with South Korean companies in the district. South Korean companies are also positive on setting up joint ventures with China since this will reduce North Korea risk. Unlike the Kaesong inter-Korean industrial complex, whose operations were suspended due to North Korea`s nuclear tests and sinking of the Cheonan, North Korea cannot hold sway over South Korean-Chinese joint ventures, experts said.

Certain large companies in South Korea are seeking to enter North Korea behind the scenes because the opening of the North Korean market will provide them a number of business opportunities, including infrastructure construction.

Along with a cheap labor force who speak Korean, proximity to the Chinese market is another business attraction of North Korea. In the Dong-A survey, the top 600 companies cited reduction of logistics costs (32.8 percent), cheap labor (29.7 percent), and a bridgehead to the Chinese market (20.3 percent) as benefits of doing business with North Korea.