You will be redirected back to your article in seconds
Skip to main content

Could North Korea Be the Next Low-Cost Sourcing Destination?

President Trump and North Korean leader Kim Jong-un met again this winter for another titanic clash of egos–but behind the scenes, certain manufacturers have been quietly eyeing up North Korea as the region’s next low-cost sourcing destination.

Talks about the denuclearization of North Korea and its potential reunification with the south are of profound historical significance–even if experts say the latter is still decades away. But the relatively insignificant step of lifting a few economic sanctions against North Korea is looking more likely. These sanctions were the main sticking point during a March summit in Hanoi between Trump and Kim. In a rare news conference, North Korean Foreign Minister Ri Yong Ho said they were seeking a “partial” lifting of sanctions that “hamper the civilian economy and the livelihood of our people.” He was largely alluding to the textiles category.

Ending a trade embargo on textiles would have an immediate impact on North Korea, opening it up to business and industry. The country’s textile industry was worth $725 million in 2016, a substantial proportion of its economy, and even with sanctions in place, apparel manufacturing employs a significant number of North Korean citizens in state-run factories around the country.

Despite the indisputable geopolitical risks involved with investing in North Korea, it is an attractive proposition for many manufacturers, particularly those whose end market is China, Japan or South Korea. Manufacturing in North Korea would allow them to follow the global trend for moving sourcing closer to end market, while making goods in one of the cheapest destinations on earth.

Related Stories

“We can’t deny that there is a major opportunity here,” says Gerhard Flatz, the managing director of KTC sportswear manufacturer in Guangdong. “North Korea is the East Africa of the future, but better placed, and it could play a significant role in Asian manufacturing, as brands urgently have to start relocating their sourcing.”

Wages are as low as half of what they are in China, and some have called North Korea more productive, alluding to workers making up to 30 percent more clothing each day than a Chinese worker, largely owed to long hours, harsh working conditions and indentured labour.

As China focuses on producing complicated, technical goods and labour shortages in other parts of Asia rise, North Korea could solve a number of regional problems. Some say the sourcing caravan’s migration toward North Korea would simply be a repetition of the industry’s move into Burma and Myanmar, where, the moment sanctions were lifted, manufacturing briefly boomed.

Ethically dubious as this all sounds, we are all far more likely to have already worn goods created in North Korea than we may realize. The border city of Dandong in China is an entrepôt for Chinese clothing manufacturers who send textiles to clandestine factories across the Yalu River in North Korea and label them “Made in China” upon their return. Manufacturers can save up to 75 percent of the production cost this way.

“The Chinese have been using North Korean labour in Dandong for years,” Flatz said. “From reports I have read labour is also transferred over the border. North Korean workers come into China, but are paid significantly lower wages than Chinese nationals, and live, from what I have read, in almost prison-like conditions.”

Less clandestine are factories found on the Korean border, where Seoul-based firms manufacture apparel goods at a much cheaper cost and label goods Made in South Korea. Hubs like these, however, have often fallen victim to political tension between two countries.

These existing structures–some legal, some not–suggest that any North Korean factories working openly with major international brands would be run by Chinese or South Korean manufacturers and would realistically become part of their supply chains at first. “I believe it will be the Chinese, not the South Koreans who will take advantage of North Korea,” Flatz said. “There’s already a four-lane highway going from China to North Korea, and we could easily see a spate of Chinese privately owned factories with North Korean government ties popping up.”

However, as well as the constant threat of political instability, most international brands would be wary of openly working with North Korean factories due to the stigma attached to a country where worker’s conditions have been openly likened to slave labour by human rights organizations.

A Human Rights Watch report published in 2017 claims the government systematically uses forced labour from ordinary citizens to sustain its economy and that while the men and unmarried women who are required to work at government-assigned enterprises are theoretically entitled to a salary, they usually are not compensated.

“The treatment of North Korean workers overseas falls short of international labour standards,” the report noted. “[There is] no right to freedom of association or expression, control by minders who limit freedom of movement and access to information from the outside world, long working hours and no right to refuse overtime.”

The only potential positive to this bleak reality is that the income from international manufacturing deals could give the North Korean government the impetus needed to improve factory conditions, as most Western brands will only work with factories that comply with international regulations.

Another solution to get past the stigma attached to the country is to rebrand all Korean goods with an umbrella ‘Made in Korea’ label–although this does feel like sweeping the issue of worker’s rights under the carpet. Equally, it would sully South Korea’s generally positive reputation for making high-quality goods.

This all remains entirely speculative and only time will tell if North Korean sanctions will be lifted any time soon. However, it is becoming increasingly likely that, either as part of a legal or illegal regional supply chain, or as an independent sourcing destination in its own right, North Korea could soon start playing a more visible role in Asian apparel manufacturing.