A delicate house of cards

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A delicate house of cards

Major local companies are in a state of emergency. Samsung Electronics is deeply embroiled in one of the world’s most expensive court battles with Apple over smartphone patent rights, and Hyundai Motor and Kia Motors face multimillion-dollar class-action damages for overstating the fuel economy of some of their car models sold in the North American market. The two Korean household enterprises have been hit with an unplanned bombshell, but other companies are in no better shape. LG Group announced that it will review and realign group-wide business operations and make an executive-level reshuffle strictly based on performance at the end of the year. The country’s largest shipbuilder, Hyundai Heavy Industries, is receiving applications for early retirement for the first time as a part of cost-cutting efforts. Meanwhile, steelmaker Posco formerly announced a “state of emergency” and plans on sweeping restructuring.

In the past, large companies have faced crises head-on with aggressive investment and clever corporate strategies, but this time is different. They are facing what could be a prolonged slowdown at home and bleak prospects overseas due to worsening conditions in key economies like the United States, Europe, China and Japan.

When large companies falter, they scale down on investment and hiring, and the downward spiral in capital investment is expected to continue next year. Samsung Electronics deferred its plan to complete a next-generation logic chip line at its Hwasung plant in Gyeonggi to make mobile application processors for smartphones. Posco, which has seen its net operating profit ratio sink to within the 2 percent range, has also become more conservative about investment, scaling down its plan to expand its production lines for sheet steel.

As a result, the labor market for college graduates and young job-seekers will likely become even more hostile next year. Of the 20 largest business groups, only one plans to ramp up recruitment next year. According to LG Economic Research Institute, the newly employed will likely total around 280,000 in 2013, a sharp reduction from this year’s estimated 430,000. If large companies are in such trouble, we can imagine what kind of shape mid- and small-sized companies are in? The new social welfare plans may be of little help against a tide of insolvencies and joblessness. Furthermore, if the incoming government keeps bashing chaebol, it could exacerbate both the downturn and job losses, which would hurt taxpayers the most. As such, the presidential hopefuls should focus their attention on saving the sagging economy.

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