The way ahead

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The way ahead

Samsung Group has decided to sell off four subsidiaries in the petrochemicals and defense industries to Hanwha Group to focus on its core areas of competitiveness. In the largest sale of units, amounting to 1.9 trillion won ($1.71 billion), since the 1997 financial crisis, both groups took an unprecedented step, which could go down as an historic moment for our industrial sector.

Samsung Techwin, Samsung Thales, Samsung General Chemicals and Samsung Total have been non-core businesses for the group, and Samsung has been facing ever fiercer competition from China in its true core businesses: smartphones and semiconductors.

Given the stature of the other top global competitors in the market, like Apple, Samsung could probably not avoid a difficult choice to survive.

By contrast, Hanwha Group, whose main strength is in chemicals and the defense industry, needed to secure economies of scale. After the acquisitions, the group is expected to rank No. 1 in Korea in defense with total sales of arms hitting 2.6 trillion won, not to mention acquiring global competitiveness in the fields of oil refining and petrochemicals. We’ll watch carefully to see if Hanwha can repeat its successful history of M&As, as seen in its acquisitions of Hanyang Chemicals (now Hanwha Chemical) in 1982 and Daehan Life Insurance (now Hanwha Life Insurance) in 2002.

Large-scale M&As are taking place around the globe at a blinding speed among companies that have trouble getting over technological barriers or want to take advantage of excellent manpower. Google, for instance, has done 126 M&As over the last three years. At the same time, many companies give up businesses that retain strengths. IBM sold off its PC business to China’s Lenovo, and General Electric sold off its household electric appliances business to focus on production of power equipment.

A new paradigm of industrial competition is ongoing between advanced countries that seek to concentrate on their high-value-added businesses, and China, which wants to expand its global dominance in general use goods. Compared to the dazzling M&As overseas, our companies have been reluctant to shut down their noncompetitive businesses. The truth is that they can’t continue to expand in the traditional way. They must secure their global competitiveness by focusing on core businesses.

The Korean economy cannot recover on the government’s monetary policy. Without restructuring and reinforcing their fundamentals through realignments of their business portfolio, our companies won’t progress. We hope the deal between Samsung and Hanwha serves as a catalyst to this transition.

JoongAng Ilbo, Nov. 27, Page 34

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