Company estimates strike-related losses at 640 billion won, exceeding first-quarter operating profit
Industry warns delivery delays could damage global client trust amid rising competition from Japan, India and Thailand
Samsung Biologics’ Songdo site in Yeonsu-gu, Incheon, on April 22, when the company’s labor union held its first collective action since the company’s founding. <Newsis>
[Insight Korea = Ahn Hye-wan]
Samsung Biologics is facing a possible labor strike on May 1, with the company estimating strike-related losses at 640 billion won. The figure exceeds Samsung Biologics’ operating profit of 580.8 billion won in the first quarter of this year. The bigger concern, however, is the potential damage to the company’s credibility in the global contract development and manufacturing organization, or CDMO, market.
According to pharmaceutical and biotech industry sources on April 27, the 21st Civil Division of the Incheon District Court partially accepted Samsung Biologics’ request for an injunction banning strike action on April 23. The court restricted industrial action only in final-stage processes that could directly lead to product deterioration or disposal, while recognizing the union’s right to strike in early-stage production processes such as cell culture.
Park Jae-sang, head of the Samsung Biologics Mutual Growth Labor Union, said, “The court’s partial acceptance only requires work in certain processes, so there will be no major difficulty in carrying out the strike.” He reaffirmed the union’s plan to proceed with the strike on May 1. Samsung Biologics plans to immediately appeal the decision.
The labor dispute at Samsung Biologics has escalated since wage and collective bargaining talks stalled after 13 rounds of negotiations from December last year to March this year. The key issues include wage increases, the criteria for calculating performance bonuses, and personnel and management rights. The union is demanding an average wage increase of 14 percent, performance bonuses equivalent to 20 percent of operating profit, a 30 million won encouragement payment per employee, and prior union consent when the company exercises major management and personnel rights.
The company, meanwhile, has proposed a total wage increase of 6.2 percent, performance bonuses equivalent to either 10 percent of operating profit or 20 percent of EVA — economic value added, which refers to operating profit after tax minus capital costs — an encouragement payment equal to 200 percent of wages, and higher shift allowances. Samsung Biologics has maintained that prior union consent on personnel and management decisions is unacceptable because it would infringe on management rights.
A breakdown in trust between labor and management, including disputes over changes to employment rules and the leak of internal personnel documents, has also been cited as a background factor in the conflict. The union argues that a fairer distribution of record earnings and the restoration of labor-management trust are the grounds for the strike.
On April 22, the union held its first-ever rally in front of the company’s headquarters in Songdo, Incheon, and formally declared a general strike on May 1.
The disagreement between the two sides does not stop there. They are also clashing over the company’s first-quarter earnings and the estimated scale of losses from a strike.
Samsung Biologics reported preliminary first-quarter sales of 1.2571 trillion won and operating profit of 580.8 billion won, marking a record quarterly performance. The union cites the results as grounds for expanding performance-based compensation. The company argues, however, that it faces additional investment burdens following its acquisition of a Rockville, Maryland, plant from GSK in March.
Regarding the potential losses from a strike, the company estimated around 640 billion won, taking into account penalties, cascading contract cancellations and the cost of securing alternative production sites. The union views the estimate as excessive and has suggested losses in the 300 billion won range.
“Once Trust Is Broken, Future Orders Become Uncertain” — K-CDMO Faces Test Amid Competition From Japan, India and Thailand
Industry officials are more concerned about the possibility that a strike could undermine the trust Samsung Biologics has built with global clients than about short-term financial losses. Biopharmaceutical production involves the continuous 24-hour cultivation and purification of living cells. If workforce disruptions are prolonged, production schedules could be delayed, disrupting delivery timelines for clients. Samsung Biologics’ cumulative order backlog stood at around 31 trillion won, or $21.4 billion, as of the end of the first quarter.
“CDMO is an industry in which production schedules and volumes are fixed in advance with clients, so if delivery deadlines are missed, penalties are imposed and clients may have no choice but to seek compensation for disruptions to clinical trials or sales schedules,” said Lee Seung-kyu, vice chairman of the Korea Biotechnology Industry Organization. “Once trust is broken, it becomes difficult to secure the next order. With competitors in Japan, India and Thailand expanding facility investments, Korea could lose market share.”
Securities analysts have reached a similar conclusion. Shinhan Securities said in a report, “Samsung Biologics’ strength lies in its ability to deliver difficult-to-produce biopharmaceuticals on time, without failure, at high quality and competitive prices.” The report added, “Labor union issues could shake these strengths and may lead clients to consider competitors in the United States and Europe.”
Domestic CDMO Cost Structure Could Also Be Shaken
Some experts say the issue is not limited to Samsung Biologics. Hong Ki-yong, professor of business administration at Incheon National University, said, “Changes in Samsung Biologics’ wage and performance bonus system are highly likely to trigger a domino effect across the domestic CDMO sector, including Lotte Biologics and Celltrion.” His assessment is that the cost structure of the overall K-CDMO industry could be shaken.
Hong also advised caution regarding the union’s demand for “performance bonuses equivalent to 20 percent of operating profit.”
“In January, the Supreme Court ruled in a Samsung Electronics case that management performance bonuses were not ordinary wages paid in exchange for labor, but rather had the nature of profit sharing,” he said. “In that context, it is difficult to view as reasonable a structure in which performance bonuses are taken in advance based on operating profit, which is calculated before deducting financial costs and other expenses.”
He added, “That logic would also mean that employees should share the burden when operating losses occur.” The point is that operating profit is a figure calculated before deducting interest costs and other expenses. If performance bonuses are taken in advance based on that figure, employees could also be expected to share responsibility if losses later occur.
“Biotech and semiconductors are classified as national strategic technology industries and receive tax credits of up to 30 to 40 percent of investment,” Hong said. “Excessively distributing operating profit boosted by state support to individuals is not consistent with the ‘S,’ or social dimension, of ESG.”
Regarding Samsung Biologics’ mid- to long-term plans, including the construction of a sixth plant, Hong warned, “If prolonged labor disputes damage financing conditions or corporate value, they could affect long-term decisions such as the start of construction on Plant 6.”
In response to these concerns, Samsung Biologics said, “Apart from the strike issue, we are continuing to communicate with clients.” The company added, “It is difficult to disclose specific details of those communications.”
The union defines the current dispute not simply as a wage fight but as a demand for structural change. At the rally on April 22, Park Jae-sang, the union leader, said, “This struggle is not about settling a few agenda items. It is a fight to change the decision-making structure.” He added, “Unless we change the structure in which the company decides and workers are forced to follow unilaterally, the same problems will continue to repeat.”
-This article was translated by ChatGPT. (이 기사는 챗GPT가 번역했습니다.)
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