Crisis time for Korea Inc.
Korea Inc. is in the midst of its worst-ever management crisis due to the prolonged slump in domestic demand and deteriorating exports. According to the Bank of Korea, local manufacturers saw revenue growth of 0.5 percent last year, the smallest increase ever. It was even lower than the 0.7 percent rise in 1998 after the Asian financial crisis that led to the country’s international bailout. Export-reliant large companies recorded a rise of 0.3 percent in 2013.
Worse, the slowdown has not been sudden. Revenue growth among Korean manufacturers plunged to 4.2 percent from 13.6 percent in 2011 and was virtually flat last year. Their growth chart showed a downward spiral over the last three years and performance is expected to be worse this year.
The BOK, which cut its benchmark interest rate to 2 percent - matching the all-time low - this month, trimmed its 2014 forecast for export growth to 4 percent from 6.1 percent. At the same time, it downgraded this year’s economic growth estimate to 3.5 percent from 3.8 percent. The country’s economy has been hit with a double whammy of low demand, both overseas and at home.
The slowdown in the manufacturing sector stems from the deteriorating performance by the country’s mainstream industries - electronics, automobiles, chemicals and shipbuilding. Major exporters are up against a sluggish global economy and the weak yen. They also are losing competitiveness because their decades-old growth engines have run out of steam.
Despite increasing external challenges and structural limitations, these large companies are neither seeking to discover new sources of growth nor restructuring to hone their competitiveness. The government promised to enlarge the services sector and encourage start-up enterprises to generate new growth, but deregulation remains a stumbling block.
Choi Kyung-hwan, deputy prime minister for the economy, and his economic team are engrossed with short-term stimuli and have not been able to get on with structural reforms. The government may run out of time to retool the economy for a new growth paradigm, making slow growth the new normal. The Korean economy has lost its momentum for short- and long-term growth. It needs both immediate and lasting remedies. Large companies on their own must also come up with urgent and radical action for new growth. They must revive their spirits in these difficult times.
JoongAng Ilbo, Oct. 17, Page 34