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North Korea experiences outsourcing explosion - Procurement Leaders Exclusive
North Korea may have reassumed its title as an international pariah after its recent nuclear tests reignited tensions on the Korean Peninsula, but that hasn't stopped an ever increasing number of European and Chinese companies looking to the country as an outsourcing location.
According to recent figures published in South Korea, North Korea experienced a massive increase in trade over the past 12 months - and its strategic importance could explain why China's condemnation of its nuclear programme has been far more muted than that expressed by the Obama administration and other leading nations on the UN Security Council.
North Korea's exports rose by 23% in 2008, while its imports increased by 32% as its trade hit a record $3.8bn.
And Paul Tjia, offshore sourcing consultant at Rotterdam-based GPI Consultancy, told Procurement Leaders that "ridiculous" wages and high quality production were behind North Korea's emergence as Asia's next outsourcing hot-spot.
"The country is trying to compete with a lot of established Asian nations so they're offering very low monthly wages - the lowest are around €30 a month, which is completely ridiculous from a European perspective, but that's how they're attracting foreign investment," said Tjia.
Such is North Korea's attractiveness that a huge amount of Chinese companies are looking to relocate their production away from the country's coastal regions - where labour costs have spiralled massively in the past 12 months - to its near-neighbour.
"Chinese companies that are located in the coastal areas are now facing higher and higher labour costs and they're now looking to relocate, not to countries like Vietnam, Laos or Cambodia, but to North Korea," he said.
"In reality there's so much trade going on between the two countries that China has no interest in creating any obstacles for the North Korean regime. I spoke to a Dutch entrepreneur in textiles and clothing who currently operates in China and North Korea and he's now expanding his operation in the country, and the company is not only doing it because of cost, it's doing it because the quality is also better.
"Those companies that are investing in North Korea are a little bit adventurous - you could compare them to those businesses that start to investigate China 30 years ago."
Procurement Tags - Corporate Social Responsibility, Global Sourcing, Outsourcing
Picture by www.kremlin.ru.
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