Given profit size, conglomerates employ very few

A study by Statistics Korea has confirmed that while conglomerates employ relatively few, they generate enormous profits.

According to the statistics agency’s report released Thursday, the revenue of all for-profit companies in 2017 increased 7.7 percent from the previous year to 4,760 trillion won ($4.24 trillion), up from 4,419 trillion won in 2016. It was the largest revenue recorded since the data was first compiled in 2010.

The operating profits of these companies amounted to 291 trillion won, up 23.5 percent.

The number of for-profit companies increased 6.2 percent from the previous year to 666,163, while the number of people working at these companies was over 10 million, up 2.3 percent.

However, the profits were mostly taken by the leading conglomerates.

While the conglomerates, defined by the Fair Trade Commission (FTC) as business groups whose assets total more than 10 trillion won, accounted for only 0.3 percent of all for-profit companies, they accounted 48 percent, or 2,285 trillion won, of the total revenue and 61 percent, or 177 trillion, won of the operating profit. These companies made 55.7 percent of total operating profit in 2016.

Revenue for these companies was up 7.4 percent compared to the previous year, while operating profit surged 35.4 percent.

SMEs, which account for 99.1 percent of all for-profit companies, also enjoyed growth in revenue as a group. That figure increased 9.1 percent from the previous year to 1,804 trillion won, accounting for 37.9 percent of all revenue made. Operating profit for SMEs grew more slowly than the operating profit of conglomerates, up 8.3 percent to 73 trillion won. That is a quarter of the total amount.

Medium-sized companies, which are in between conglomerates and SMEs and have fewer than 300 employees, accounted for 14.1 percent of revenue and 13.9 percent of operating profit.

Despite generating the most revenue and more than half of the total operating profit, conglomerates made the smallest employment contribution. The total number of people working at conglomerates amounted to two million, which was 20.4 percent of the total employed at for-profit companies. A total of 67.2 percent, or 6.75 million, worked in SMEs, while medium-sized companies accounted for 12.5 percent, or 1.25 million. This meant that nearly 80 percent, or eight out of every 10 employed, worked at smaller companies.

Local conglomerates have been called out over the years for their lack of hiring relative to their earnings. Every administration, even the Moon Jae-in administration, has pressured conglomerates to increase the number of hires.

The industry experiencing the sharpest declines was food and lodging, where operating profit fell 40.2 percent to 641 billion won, a sharp drop from the 1.7 trillion won recorded in 2016.

“The operating profits of the lodging and restaurant companies have shrunk as last year there was a significant decline in foreign tourists, including Chinese tourists,” said Park Jin-woo, head of the administrative data management division at Statistics Korea. “Also, the decline was, in part, the result of prosperity in the hotel business in 2016.”

The biggest increases were reported in the real estate business. Despite the clampdown by the Moon Jae-in government, the real estate market has been recovering rapidly. As a result, the industry saw its revenue increase 21.3 percent to 121.1 trillion won, while its operating profit was up 22.2 percent to 11.2 trillion won.

The manufacturing industry, home to many of the conglomerates, has also enjoyed strong performances, with revenue up 9.1 percent to 1,678.9 trillion won, accounting for 38.5 percent of all revenue made. Operating profit surged 38.4 percent to 140.2 trillion won, accounting for 48.2 percent of all operating profit last year.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]