‘One-shot’ plan reshuffles policy on conglomerates
The government has proposed a “one shot” business reinvigoration law to streamline the process when companies make investments and restructure their business.
The government claims the new law would especially help manufacturers that are having a tough time in the global market, squeezed by Japan’s plan for further stimulus and ever stronger competition from China.
The government said the law benchmarks Japan’s business revitalization law, which was established in 1999 and has facilitated 542 business reshuffles in the past 12 years.
“The Industry Ministry is pushing for a business reinvigoration law jointly with the Finance Ministry,” said an official at the Ministry of Trade, Industry and Energy who requested anonymity. “We plan to write a final draft by the upcoming Trade and Investment Promotion Committee meeting, hosted by President Park Geun-hye.”
The ultimate goal is to provide a shortcut for business reshuffling in two ways.
The law would allow waivers on acquisition and registration taxes for companies that eliminate underperforming affiliates or rearrange their business units overall. This would greatly help the shipbuilding and construction industries, which have long been in desperate need of corporate restructuring, the official said.
The law also would encourage mergers and acquisitions (M&As) by cutting in half the Fair Trade Commission’s screening period, which currently makes companies wait as long as a month.
In addition, the law will encourage joint investment and R&D, in particular among holding company affiliates. This will cover companies with asset-to-debt ratios of 200 percent or higher.
Under the current law, for example, LG Electronics would be prohibited from undertaking a smartphone R&D project with LG Chem because both are affiliates under the same holding company.
State-run Korea Finance Corporation will prepare a set of support measures to lend money to those companies that have a new business idea.
“I think this new law could become a solution to the sluggish Korean economy,” said Yoo Hwan-ik of the Federation of Korean Industries.
Experts say manufacturers face eroding competitiveness due to the rise of Chinese manufacturers, the revival of manufacturing in advanced economies like the United States and Japan, and Japan’s quantitative easing that will further devalue the yen.
To revive local manufacturers, the proposed business reinvigoration law would give companies more freedom to quickly adjust their strategies.
When the government gives the green light, the law would eliminate legal obstacles to corporate restructuring. It takes a different approach from government policy right after the Asian financial crisis of 1997 under which the government took an active role in leading corporate restructuring.
Industry observers say the proposed law is a sign the government wants to change its fundamental corporate policy direction to boost competitiveness and investment, from management transparency and financial stability.
Japan launched its version of a business reinvigoration law in 1999. Initially intended to last three years, its main goal was to create jobs and boost corporate investment.
According to data from the Federation of Korean Industries, 103 Japanese companies created 49,281 new jobs in the five years since 2003 after applying to use the law. During that period, only 810 workers were laid off from eight of those companies.
Nippon Steel Corporation used the law in 2011 to prepare the legal groundwork for a merger with Japan’s third-largest steelmaker Sumitomo Metal. This established the world’s second-largest steelmaker Nippon Steel & Sumitomo Metal.
Automaker Nissan used the law on five occasions to restructure its business units among 52 affiliates.
The Japanese law benefited not just conglomerates, but small and midsize businesses. Of 542 business restructures from 1999 through 2010, 48 percent were by smaller companies.
“The Korean government should immediately introduce policies like the Japanese business reinvigoration law,” said Lee Kyung-sang, director at the Economic Research Center of the Korea Chamber of Commerce and Industry.
“This law would definitely trigger new investments and streamline business structures, which will eventually help Korean manufacturers regain their competitiveness.”
BY KIM HYUN-YE, LEE HAN-GIL [email@example.com]