Conglomerates keep moving global

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Conglomerates keep moving global


With domestic consumption remaining?sluggish last year, many local conglomerates shifted their focus to overseas markets.

One such company was SK Group, which announced Tuesday that, for the first time in its 60-year history, exports accounted for more than 50 percent of the company’s total sales.

The group’s 15 listed affiliates’ export sales combined to reach 76.7 trillion won, or $72.2 billion, versus 71.2 trillion won at home.

Exports also appeared to generate more profits than domestic sales because the group shifted its business focus to exports in chemicals, memory chips and petrochemicals, in such affiliates as SK Hynix, SK Innovation, SK Networks, SK Chemical and SK Gas.

Exports comprised 51.9 percent of the SK Group’s 147.9 trillion won in sales last year, up from 42.9 percent of 138.2 trillion won in 2011 and 49.7 percent of 156 trillion won in 2012.

SK Hynix, the key affiliate that joined the group in 2012, sold 10 trillion won in memory chips overseas, almost 70 percent of its 14.2 trillion won in total sales.

The world’s second-largest chipmaker said in late January that it recorded the highest sales and operating profit in its corporate history in 2013. The company’s 14.2 trillion won in sales was up 39 percent from 2012, and its operating profit of 3.4 trillion won, a big turnaround from a 227.3 billion won loss the previous year, despite a drop in fourth-quarter profits caused by suspended operations at its factory in Wuxi, China.

SK was not alone in strengthening its overseas affiliates.

Hyundai Motor and Kia Motors, which?unveiled?their 2013 results in late January, both said they were able to keep growing thanks to their popularity outside Korea.

Hyundai Motor succeeded in growing sales by 3.4 percent last year, thanks to improved overseas sales in the United States and China.
Worldwide unit sales rose 7.3 percent to 4.7 million units. But most of that gain came from overseas sales. International unit sales were up 39.3 percent in 2013, versus a declining 4 percent at home.

Weak sales in Korea and a 15-day strike by its labor union caused a 1.5 percent decline in operating profit.

Weakened purchasing power?and free trade agreements with the United States and the European Union, which lowered the prices of imported cars and hurt the competitiveness of local brands, were two additional reasons for the international climb, according to Hyundai.

Hyundai sold 4.1 million units overseas, a jump of 9.3 percent compared to the previous year.

The company boasted its brand was ranked 43rd by Interbrand, an American brand consulting company, the first time Hyundai has been in the top 50.

Kia Motors’ sales expanded 0.8 percent to 27.6 trillion won last year, but operating profit fell 9.8 percent to 3.18 trillion won due to the strong won. It sold 2.8 million units, 4 percent more than 2012, thanks to an improving brand image from its K-series sedans and Sportage R SUVs in overseas markets.

For Hyundai and Kia, the Chinese market has been one of the fastest-growing profit generators. Unit sales of Hyundai cars jumped 20 percent in China last year, following a 12 percent rise in 2012. Kia climbed 14 percent in 2013, up from 11 percent in 2012.

As the two automakers’ sales increased overseas, their main auto parts supplier, affiliate Hyundai Mobis, saw its?sales?climb to 34.2 trillion won, 11 percent higher than in 2012.

About 90 percent of Hyundai Mobis’s parts, such as airbags and brakes, go to Hyundai and Kia, but the company said it was continuing to explore new foreign clients.

“Our exports to foreign automakers, like BMW, Chrysler and Mitsubishi, are small. But we hope to lure more foreign clients by continuing to publicize our quality products,” said a spokesman for Hyundai Mobis.

Samsung Group’s largest affiliate, Samsung Electronics, has been an export giant for more than a decade.

But last year especially, the nation’s largest electronics manufacturer recorded record sales and operating profits.

Sales rose 14 percent compared to 2012, reaching 228.7 trillion won, and profit showed a 27 percent year-on-year jump to 36.8 trillion won.

Samsung will not disclose sales details for 2013 until May, but Korea’s share of Samsung’s total sales has been declining for years. The company got 17 percent of its total sales from Korea in 2010, but that fell to 16 percent in 2011 and 15 percent in 2012.

But as of 2012, 29 percent of Samsung’s total sales came from North America, 25 percent from Europe and 18 percent from Asia and Africa. China alone accounted for 14 percent of sales in 2011 and 2012.

Experts say it is natural for local conglomerates to turning their eyes to overseas.

“Conglomerates are almost fated to go abroad because the domestic market is small and limited due to low-price Chinese businesses that are eating away at the market,” said Joo Won, head researcher at Hyundai Research Institute. “Companies should not abandon the local market, but manufacturers should shift their focus to overseas markets.”

When asked about the expensive won, the researcher advised conglomerates to beware of emerging economies, where many local conglomerates are collecting a large portion of their profits, and advises balancing business in emerging and developed markets.

But small fluctuations in exchange rates are not much of a problem, Joo said, because they tend to offset each other in the long run.

“The significant thing is which countries the conglomerates are advancing in,” he said. “Those companies that export more than half of their total sales to developing countries should be careful of possible economic crises [caused by U.S. tapering].”

Joo also emphasized that the conglomerates have to focus on high-value businesses, such as high technology, in a bid to survive competitors coming from emerging economies, such as China.

“Last year, construction industries received orders from the Middle East, thanks to rising oil prices and a development boom, but such trends may plunge due to the U.S. Federal Reserve’s more aggressive tapering,” he said.

“Conglomerates have mainly had their overseas business focus on low-value projects. Such a tendency leads them become vulnerable to sudden global economic risks and competitors who are tackling the market with lower prices.”

He said Korean conglomerates are already threatened in the steel and petroleum industries in both domestic and overseas markets.

“The case of SK Group is extremely rare. I would say the export success from last year came from SK Hynix, which already is an export company,” Joo said.

“Companies should try to differentiate themselves from competitors based in emerging countries by building up their strength in technology through R&D.”

BY Kim Ji-yoon []
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