Senior Samsung executives in Korea yesterday said the British government was told more than five months ago that further investment at Wynyard Park, between Stockton and Hartlepool, was not viable. The group blamed the weakening business climate, as well as the declining credit of Korean companies with international lenders.
The project is the second phase of a two- part investment which was greeted as a "wonderful opportunity" by Michael Heseltine, then president of the Board of Trade, when it was annouced in October 1994. Mr Heseltine said the project was "as significant as the early wave of large-scale Japanese investments" in the UK.
Samsung Europe said pounds 130m had been spent on a training centre and on factories producing microwave ovens and colour monitors, which between them employ 900 people. The Korean giant also has a factory at nearby Billingham making television sets. But the centrepiece of the scheme, a plant making semiconductors, personal computers and fax machines and employing 2,000, has been postponed indefinitely. Samsung executives in Korea said the additional investment would have been $1.4bn (pounds 875m), though a spokesman for the company's European operations insisted the whole site was estimated to cost pounds 450m.
The group said the collapse in the value of the Korean won and a world- wide loss of trust in the creditworthiness of the country's firms after a wave of bankruptcies made it difficult to raise the money needed for the investment. Samsung has also been hit by a plunge in computer chip prices in a market plagued by worldwide overproduction.
"When we first proposed this, things looked very rosy," said Moon Dong Shik, Samsung's executive of globalisation. "All of a sudden came this oversupply. We could build the factory, but that would be a crazy decision. It would be very dishonest and we would deceive a lot of people by saying that we were going to invest that."
In theory, plans for the plant could be revived if the Korean economy improves and semiconductor prices go up. "If we made an investment of semiconductors in Europe it would always be in the UK," said Mr Moon. "But we don't have a very optimistic prospect for the next two or three years."
The Department of Trade and Industry last night confirmed it had been given advance warning of Samsung's deliberations. A spokesman said the DTI had been "kept informed that Samsung were reviewing their North-east project". But the spokesman said: "We have not received today's announcements from Samsung."
The spokesman said the DTI had not revealed the threat to the investment before now because to do so would have been "commercially confidential". Peter Mandelson, the local MP and Minister Without Portfolio, was travelling abroad yesterday and could not be contacted for comment.
The news was greeted with surprise on Teesside, where the second phase of the investment was seen as the key to bringing in further Korean components makers. Already three other Korean firms have set up as suppliers to Samsung nearby.
Dave Wood from the Tees Valley Development Company, a council-backed organisation promoting inward investment, said: "I suppose it doesn't come as a total shock, given the drop in the world-wide semiconductor market. But it is surprising that they told the Government and the news did not get to us."
The scale of Government grants for the project has never been disclosed, though the aid package was structured in phases as the different stages of the investment were completed. Local authorities were offering a further pounds 5m of grants to Samsung, provided the group gave permanent jobs to unemployed workers.
Mr Wood said the creation of a further 2,000 jobs was central to the drive to reduce unemployment in the Tees Valley, which stands at more than 9 per cent and almost double the national average.
Samsung's decision is even more surprising given that three days ago Chegill Shin, chief executive of Samsung Europe, issued a statement saying the conglomerate remained "fully committed" to all its overseas operations, including Wynyard Park. Two months ago Samsung further demonstrated its commitment by announcing another pounds 5m investment at Wynyard Park to extend microwave production capacity. It has boosted production from an expected 740,000 this year to more than 1 million ovens in 1998.
One council official on Teesside said confusion surrounded the future of the project. "Our biggest problem is getting information out of Samsung. Relations are cordial, but they are peculiarly secretive. It's almost impossible to get anything out of them about their plans."
The comments follow Samsung's announcement last week of an unprecedented restructuring programme, involving a 30 per cent cut in investment, reductions in executive pay, the merging of departments and the sale or closure of unprofitable businesses.
"It's a matter of survival," said Hwang Young Key, senior managing director and chief of staff in Samsung's finance group yesterday. "The problem with corporate Korea overall is high growth based on high leverage. This formula worked successfully in the Sixties, Seventies and Eighties, but in the Nineties we should have realised earlier that it will not be able to deliver success in the 21st century."
Yesterday a spokesman for another conglomerate, Daewoo, said operations at the company's VCR factory in Antrim, Northern Ireland, would be reviewed as part of a world-wide assessment of company operations. Hyundai was also reported this week to have delayed investment in a pounds 3bn semiconductor plant in Dunfermline, Scotland. Of the four big Korean conglomerates, only LG, which has a pounds 4.5bn project in South Wales, insists that its investments in Britain will not be affected.
Diplomats in Seoul are waiting nervously for the outcome of negotiations between the South Korean government and the IMF over the terms of the bail-out. On Thursday, the Korean finance minister, Lim Chang Yuel, acknowledged that the $20bn which Seoul initially requested would not be enough to cover short-term debts.