Success Perils Pusan’s Title of Sneaker Capital

Rising costs have been sneaking up on the world’s sneaker capital, where hundreds of long-profitable footwear firms are being forced to diversify or die.

Businessmen and economists in Pusan, South Korea’s second largest city, say many companies have either closed factories or been pushed to the brink of bankruptcy in the past year, while more than 20,000 workers have been laid off.

The problems are simply that South Korea’s money is getting too strong and its labor costs too high.

“The impact of the rising won has been acute in Pusan because the city relies too much on footwear production and other labor-intensive industries,” said Lee Jung-ho, research department manager at the Pusan Chamber of Commerce.

Korea’s Main Seaport

Pusan, with its 3.7 million population, has long been South Korea’s main seaport, handling 90% of the country’s containerized exports. For years it has been growing as a footwear center too.

Despite the recent disappearance of 74 companies, Pusan still has about 500 factories producing 500 million pairs of shoes for Reebok, Nike, LA Gear, Adidas, Puma and other sneaker and athletic shoe companies each year. More than 90% of them are exported, most to the lucrative U.S. market.

But the years of fat profits appear over. The Korea Footwear Exporters Assn. said a 30% leap in the won’s value since the beginning of 1987 and successive double-digit wage hikes mean that Pusan footwear makers must raise export prices, move their production to poorer countries or go out of business.

“Our country’s flagging exports are bound to affect port activities, but the real worry is in the footwear factories which employ about a third of Pusan’s 420,000 work force and account for 40% of its exports of $8.5 billion a year,” the Chamber of Commerce’s Lee said.

He said about one in eight footwear companies closed down in 1988, and the industry had to shed about 15% of its 150,000-strong work force.

Shoe manufacturers said they had to agree to an average 14.5% wage hike last year and a 16.2% rise this year to avoid the repetition of 1987 strikes that paralyzed manufacturing for more than a month.

Pressures by U.S.

“Against this backdrop, more small companies will have to go if the won continues to rise,” Lee said.

Local banker Choi Taek-hum said Pusan could lose its status as the world’s sneaker capital because the South Korean government had given in to U.S. pressure to revalue the won under threat of trade sanctions.

The U.S. Treasury Department recently said South Korea was continuing to manipulate its exchange rate against the dollar to gain unfair competitive advantages in international trade.

Later, Washington included South Korea on a list of countries maintaining trade barriers, an indication that South Korea could well figure on a U.S. hit list to be released later this month that will threaten trade retaliation.

“Our country would eventually have to focus on higher tech and higher value-added industries, leaving labor-intensive industries like shoe manufacturing to China and Southeast Asian countries,” Choi said.

Pusan officials argue that, given local companies’ financial weakness, and more importantly, the lack of land to build new factories, the city finds it difficult to move up the technological ladder.

A city government spokesman said Pusan planned next year to launch a 4-year project to reclaim 910,000 square yards of land near the port to set up an industrial complex aimed at attracting high-tech industries.

“But a palpable shift in Pusan’s economy to high-tech industries cannot take place until after 1993, when the new complex is completed,” Lee said.

“In the meantime the Pusan economy must still depend largely on the footwear industry, which will have to concentrate on high quality shoes to remain in business,” he said.

Chun Kun-chol, a production supervisor at Daejin Chemical Co., said his firm went bankrupt last month because of the strength of the won and the company’s failure to win orders for expensive shoes.