Samsung abandons pounds 450m microchip investment in the North-east

Samsung, the biggest industrial conglomerate in South Korea, has postponed building the next phase of its pounds 450m electronics investment in North-east England as Korean corporations scramble to pull back from overseas expansion in the face of a crippling financial crisis. Richard Lloyd Parry in Seoul and Chris Godsmark in London report on Samsung's decision, which could cost some 2,000 jobs and further undermine confidence in the ability of Korean firms to deliver on their investment plans.

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.

Start your day with The Independent, sign up for daily news emails
Sport
The Queen and the letter sent to Charlie
football
Arts and Entertainment
Eurovision Song Contest 2015
EurovisionGoogle marks the 2015 show
News
Two lesbians hold hands at a gay pride parade.
peopleIrish journalist shares moving story on day of referendum
Arts and Entertainment
<p>
<b>Kathryn Williams</b>
</p>
<p>
When I was supporting Ray La Montagne I was six months pregnant. He had been touring for a year and he was exhausted and full of the cold. I was feeling motherly, so I would leave presents for him and his band: Tunnock's Tea Cakes, cold remedies and proper tea. Ray seemed painfully shy. He hardly spoke, hardly looked at you in the face. I felt like a dick speaking to him, but said "hi" every day. </p>
<p>
He was being courted by the same record company who had signed me and subsequently let me go, and I wanted him to know that there were people around who didn't want anything from him. At the Shepherds Bush Empire in London, on the last night of the tour, Ray stopped in his set to thank me for doing the support. He said I was a really good songwriter and people should buy my stuff. I was taken aback and felt emotionally overwhelmed. Later that year, just before I had my boy Louis, I was l asleep in bed with Radio 4 on when Louis moved around in my belly and woke me up. Ray was doing a session on the World Service. </p>
<p>
I really believe that Louis recognised the music from the tour, and when I gave birth to him at home I played Ray's record as something that he would recognise to come into the world with. </p>
booksKathryn Williams explores the works and influences of Sylvia Plath
News
Liz Kendall played a key role in the introduction of the smoking ban
newsLiz Kendall: profile
Life and Style
techPatent specifies 'anthropomorphic device' to control media devices
Voices
The PM proposed 'commonsense restrictions' on migrant benefits
voicesAndrew Grice: Prime Minister can talk 'one nation Conservatism' but putting it into action will be tougher
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?