IT Companies' 'Labor Cost Burden' Dilemma

[Asia Economy Reporter Kang Nahum] Domestic IT companies are caught in a dilemma between rising labor costs and declining operating profits. The industry is shifting its labor cost strategy towards increasing actual wages by changing working hours and work styles instead of raising salaries.

According to the industry on the 6th, Kakao spent 419.9 billion KRW on labor costs in the first quarter of this year, a 43% increase compared to the same period last year. Kakao's subsidiary Kakao Games spent 46.4 billion KRW on labor costs in the first quarter, which is a staggering 86.1% increase compared to 25.5 billion KRW in the first quarter of last year.

Naver also faced a heavy burden from labor costs. Naver spent 381.2 billion KRW on labor costs in the first quarter, a 15.2% increase compared to the same period last year. Major game companies such as NC, Nexon, and Netmarble, which have yet to announce their earnings, are in a similar situation. As it has become difficult to recruit developers, labor costs have surged, and even the annual salaries of general office workers have risen, increasing fixed costs to the extent that it negatively affects performance.

Concerns about strategies to reduce labor costs are also deepening. Namseon Kim, Naver's Chief Financial Officer (CFO), stated during the first-quarter earnings conference call that "this year, we will control labor costs to pre-COVID-19 levels."

However, in the severe developer recruitment shortage, it is impossible to arbitrarily reduce the salaries of existing developers. Accordingly, there are also moves to strengthen welfare instead of raising wages. Naver has introduced a new work system called ‘Connected Work,’ allowing employees to choose between coming to the office three days a week or working fully remotely. NHN Cloud is implementing a four-day work-from-home system. Kakao is reportedly planning to extend remote work until June and then announce a new work system.

The industry expects the flexibilization of work systems in the IT sector to continue. In line with this, there are forecasts that new work systems such as the four-day workweek will be rapidly introduced in domestic companies due to labor cost issues. Ilseon Oh, director of the Korea CXO Research Institute, said, "A social atmosphere that values work-life balance (WLB) has already been formed, and even if salaries are set low, companies can increase employee satisfaction by granting more private time, making it a new strategy for companies to reduce labor costs."

This content was produced with the assistance of AI translation services.