The Impact Of Chinese Labor Cost Rise On Management Condition Of Korean Enterprises And The Coping Strategy

Since the reform and opening up, China has attracting advanced foreign technology and large scale capital with cheap and abundant labor. Today, China is already an economic power. However, along with the sharply rising in labor costs in China, China’s local enterprises are deteriorating considerably including foreign funded enterprises in China. Rising labor costs in China are resulted from combined backgrounds such as social, economic and political system. First, the social background, based on the’Earlier Rich Theory’ in the background of the reform and opening up, China has achieved rapid economic growth. On the other hand, unequal income and the excessive gap between the rich and the poor is a serious problem Chinese society for the time being. Second, the economic background, since the global financial crisis, because of the changes in the external economic environment, the drawbacks of China’s economic growth model relies on exports and investment had surfaced. Therefore, Chinese government emphasizes on boosting domestic demand, establishing harmonious labor relations as well as improving the resident’s income and promoting distribution of income justly during12th Five Year Planning period. Third, political and institutional background, President Hu Jintao stressed the development of labor law; therefore, Chinese government enacted labor law and the labor regulations also have improved gradually. The new labor laws greater emphasis on Corporate Social Responsibility and the protection of fundamental right sand interests of workers. Under this comprehensive background, the minimum wage and welfare costs have sharply increasing recently in China, and labor cost rising will also be continued for a while.This paper is to make Korean enterprises relieve problems resulting from rising labor costs and come up with an effective counter plan, through providing valuable suggestion and guiding future management direction.In this study, Korean enterprises are divided into theses two different types of enterprises,’labor-cost saving’ and ’market pioneering’, depending on the FDI motive theory, and make a comparative study on the impact of rising labor costs on management condition between them. The results of this article are:first, through case analysis, we tested the following theory. Rising labor cost is a challenge for ’labor cost saving’ type enterprises, however, it is an opportunity to expand domestic demand for ’market pioneer’ type. Second, we found that they have in common but there are difference in the impact or rising labor costs and their coping strategy. The difference in three aspects:the state of capital, investment intentions, and coping strategies. On the other hand, they have in common as follows:all of them are more focused on the Chinese domestic market; indirect costs have increased; human resources management has become difficult. Third, because the internal situation of each enterprise is not the same, so Korean enterprises must consider their own circumstances, formulate and adopt appropriate measures. The ’labor cost-saving’ type enterprises should take piece work wage system and adjust human resource management system. On the other hand,’market pioneering’ type enterprises should push forward the localization strategy and strengthen employee education as well as improve the salary structure. But also establish a good brand image. Finally, all of Korean enterprises must practice ethical management and social responsibility as well as contribute to social development.The innovation points of this study are:first, this study increased ’market pioneering’ type cases based on the general research of ’labor cost saving’ type, so this extend single and one-side scope and object of study. Second, this study improved the quality and the credibility of research conclusion by adopting a multiple case study method. This study selected four heterogeneous cases of Korean enterprises, and made comparative analysis in three steps, then analyzed the common features and differences between each case, but also the consistency and heterogeneity between two different types of enterprises.