Large businesses to tackle major obstacles in 2012

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Large businesses to tackle major obstacles in 2012


It’s the start of a new year, and a plethora of major issues are slated to affect Korean industries this year, including the European debt crisis dragging the region’s economy down as well as leaving Korea’s domestic economy in a downturn during the first half of 2012.

The forecast of rocky financial markets, including volatile currency exchange rates, could lead to uncertain financing conditions for corporations, while 2012 being an election year could spark stronger government pressure to lower prices and other regulations as a way of winning votes.

And China’s economic conditions are expected to have a greater impact than ever as the country’s influence over Korean businesses grows.

“New government regulations, changes centered around global economics and subsequent changes in industry conditions as well as massive information increases will lead to greater uncertainty in business conditions,” said Lee Sung-youl, head of IBM Korea Global Business Services in a recent interview.

The Korea JoongAng Daily compiled experts’ outlooks on domestic industries’ business conditions for the new year, with paths diverging for leading industries such as electronics, automobiles, shipbuilding and steelmakers.

For Korea’s electronics industry, things are looking up in the New Year.


In 2012, the smartphone market is expected to grow by more than 30 percent worldwide, leading the mobile phone market in general to expand by 5 to 6 percent. However, companies such as Taiwan’s HTC and Canada’s Research In Motion face deteriorating performances, as both companies recently reported significant drops in profits.

Experts say this will set the stage for the ascendancy of traditional industry leaders such as Samsung Electronics, Nokia and LG Electronics. However, the release date of Apple’s iPhone 5 could make or break their fortune, as an early release would snatch demand from people upgrading their smartphones.

“Existing market leaders such as Samsung Electronics and LG Electronics will see a big jump in performances, although we’ll have to see when Apple’s new product comes out,” said Kim Sung-il, head of IT sector analysis at Kiwoom Securities.

As for tech components, 2011 was a difficult year with D-RAM semiconductor prices falling below cost of production, massive losses in liquid crystal display (LCDs) businesses and sluggish TV sales causing flagging demand in light-emitting diodes (LEDs).

But in 2012, the increase in average memory space for new smartphones, as well as large sports events such as the London Olympics driving up sales of electronics is expected to spike demand for tech components as well.

The restoration of hard disk drive manufacturing in Thailand is also good news. “The hard disk firms that ceased operations after flooding will be back to normal production in February,” said Kim, the analyst from Kiwoom.

Meanwhile, the telecommunications industry in 2012 will be saddled with a batch of new competitors, as food and entertainment conglomerate CJ Group, cable TV providers and others begin mobile virtual network operator (MVNO) businesses that rent networks from existing mobile operators to offer mobile services at a lower price.

This competition, as well as 2012 being an election year, is expected to increase pressure for existing mobile carriers - SK Telecom, KT and LG U+ - to lower mobile charge rates for basic calls.

Last year, the Korean automobile industry reported its best performance ever with some 4.19 million cars sold as of last November due to Japanese competitors being crippled by natural disasters, plus the stronger brand power of Hyundai Motor Group affiliates overseas.

However, in 2012, the industry is expected to see limited growth as the economic downturn leads to sluggish demand at home, fiscal crises in the European market drives down sales in the region, and the Chinese automobile market contracts.

The Korea Automobile Manufacturers Association recently forecast that car production by Korean companies will increase by 3.1 percent on-year in 2012 to reach 4.7 million, including cars manufactured abroad.

Imported cars, which had increased domestic sales by 18.1 percent on-year in Nov. 2011, are expected to continue encroaching on Korean models’ market share. Japanese competitors’ return to full production capacity and the swift contraction of the Chinese market - having reported negative growth in Oct. 2011 - is further cause for worry.

Meanwhile, the nation’s petrochemical industry began 2011 in fabulous shape with some of the best revenues ever in the first quarter. But government pressure to lower gasoline prices in April as a measure to control inflation as well as a contraction in the Chinese market put a dent in profits in the latter half.

As for this year, petrochemicals are expected to hold their own despite rocky export conditions as demand from China recovers with the end of inventory adjustment, according to the Federation of Korean Industries.

“Emerging countries such as China, India and Vietnam have been established as domestic petrochemical companies’ main export centers, and there will be no drastic increase of supply due to added facilities,” said Park Young-hoon, analyst at IBK Investment & Securities. “Companies’ performances are expected to hit a low point during the first quarter then steadily recover.”

Korea’s representative heavy industries, shipbuilding and steel, saw exports increase by 17.9 percent and 34.1 percent on-year respectively in 2011. However, during the latter half of the year shipyards suffered due to economic slowdown in Europe and elsewhere - and as the shipyards’ supplier, the steel industry was also adversely affected.

This year, both industries are in for a tough time as new orders become scarce for shipyards - and steel companies suffer the double whammy of slowing demand and volatile currency exchange rates.

“Substantial orders for new ships are likely to come in only during the latter half of the year,” said Park Min, analyst at Korea Investment & Securities. “In particular, the polarization of large and smaller shipyards is expected to deepen.”

For Korea’s aviation and shipping industries, 2011 was a year rocked by high oil prices and volatile currency rates cutting into profits.

But although the aviation industry emerged relatively unscathed as passengers increased by 4 percent on-year despite natural disasters in neighboring countries, the shipping industry had some of their worst months in memory due to fierce competition between global shipping giants and a decrease in container traffic. Domestic leader Hanjin Shipping had seen 500.5 billion won ($434.4 million) in net losses as of the third quarter in 2011.

Fates will continue diverging for the respective industries this year, as an increase of foreign air travelers boost domestic airlines. “Stable growth is expected as more passengers from China and Japan visit Korea, and demand for air cargo cannot get worse,” said Cho Byung-hee, industry analyst from Kiwoom Securities.

Experts predict the shipping industry to undergo restructuring with smaller companies undergoing M&A processes, as only leading companies with large ships are expected to survive the freight charge discount that is only expected to normalize during the latter half of 2012.

Meanwhile, it appeared things couldn’t get any worse for the construction industry - 25 of the top 100 domestic builders are currently in debt restructuring or workout processes as public works projects dried up and the housing market remained mostly lifeless last year.

However, experts say tribulations will continue. “Without new work, mid-sized builders are reaching their limit,” said Doo Sung-gyu of the Construction Economy Research Institute of Korea. “Conditions will get worse.”

By Lee Jung-yoon []

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