Companies retooling strategies as losses mount

Amid the outbreak of the new coronavirus, major Korean companies are revising their annual business plans to reduce losses and prepare long-term countermeasures. As the spread continues, the implementation of new trading strategies in major markets such as the United States and Europe as well as China, which accounts for 25 percent of exports, is inevitable.

“Korean companies should not only consider the slump in domestic demand but also prepare for the collapse of exports to the United States and Europe,” said Hong Sung-il, head of the economic policy team at the Korea Economic Research Institute.

Korean companies are facing multiple challenges. One is the shrinking consumption in the domestic market and another is shrinking exports to the overseas market. Production is also being disrupted, as factories are shutting down, as seen in the case of Hyundai Motor.

Industry insiders predict that it will be a challenge to achieve this year’s initial targets. Hyundai Motor proposed 7.536 million units earlier as its global market sales target for this year, but the coronavirus outbreak has made it unclear whether that target will be attainable.

While the initial sales target in the Chinese market was set at 730,000 units this year, Hyundai Motor Group insiders are considering lowering that target for the second half of this year, as its sales in China nose-dived 95 percent on-year in February.

“Although temporary business disruptions will be inevitable due to the influence of Covid-19,” Hyundai Motor Group Executive Vice Chairman, Chung Eui-sun, said, “we are fully prepared to overcome the crisis at hand as well as achieve early management stability in the future by establishing various contingency plans,” in his email to executives and employees of Hyundai Motor Group.

Samsung Electronics is focusing on minimizing losses. Its newest smartphone, the Galaxy S20, that was launched early this year has a disappointing sales record of only 70 to 80 percent the amount of its predecessor Galaxy S10, according to the telecommunication industry.

Stabilized production needs to be taken into account as well. Four cases were confirmed at a factory in Gumi, Samsung’s only smartphone production factory in Korea. While maintaining the production facilities, the company is adjusting its management strategy by taking precautions against the coronavirus.

Samsung Electronics factory in Vietnam, which produces half of its smartphones, is maintaining strict quarantine levels the same as Korean factories even though no confirmed cases of coronavirus have occurred. “We are making utmost efforts to minimize business disruptions,” a Samsung Electronics official said. Internally, the company is considering countermeasures against the demand for semiconductors in the Chinese market.

LG Group is working on a new management strategy, including for the recruitment process. LG Electronics, which held open recruitment last April, has yet to finalize this year’s open recruitment schedule. LG Chem and other companies were scheduled to post a recruiting announcement earlier this month but delayed doing so until after April.

LG Electronics is expected to revise its management strategy which initially sought to expand the market this year considering the growth in sales of TVs when large sports events are held such as the Olympics.

“The target revision is inevitable as we expect there won’t be an “Olympics effect,” and the smartphone market will shrink,” an LG Electronics official said.

SK Group is working on a contingency plan in the semiconductor and oil refining sectors.

SK Energy, Korea’s top refiner, will lower the operation rate of its crude oil refining plant to 85 percent due to reduced consumption following the spread of the new coronavirus.

The nature of the semiconductor and oil refining businesses make it hard to stop the operations even if there are confirmed cases within the factory. For this reason, it is currently operating alternative groups of employees in shifts in case of confirmed cases in the semiconductors and oil refinery plants.

In addition, SK Innovation prepared protective clothing for workers at its plant in Ulsan. “The success or failure of the plant’s operation depends on manpower operation,” an SK Group official said. “We are being extra careful to prevent infection.”

Large corporate groups with affiliates in the distribution and resort businesses are carrying out large-scale business restructuring.

Lotte Group Chairman Shin Dong-bin announced the close of a total of 200 stores in Korea this year, including department stores and large discount outlets with low profitability, in an interview with Japan’s Nihon Keizai Shimbun published on Thursday.

Many predict that Lotte Group’s flagship units will shift from retail to chemicals, as well as adjust their business plans for the second half of the year. As demand for the chemical business is also sluggish due to the coronavirus outbreak, Lotte Group is expected to continue to see lackluster results in the second half of the year.

Hanwha Group’s distribution and hospitality industries were directly hit by the coronavirus outbreak. Amid rumors that Hanwha Group will cut the base pay of executives and employees in the resort sector, which were found to be false an official said, “There is no decision on the base pay reduction, but as the number of customers decreased by half, it is true that we are considering a similar proposal.”

BY KANG KI-HUN AND JANG JOO-YOUNG [kim.yeonah@joongang.co.kr]