Businesses must change to survive

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Businesses must change to survive

On Thursday at 7 a.m., about 100 CEOs of small and medium companies gathered at a forum hosted by the Korean Employers’ Federation. Most participants talked about the major deal between Samsung Group and Hanwha Group that was announced on Wednesday, but their expressions were grim, probably because the topic for the forum was “Urgent Diagnosis of the Korean Economy.”

At the forum, vice chairmen from three business groups had discussed the gloomy state of Korea’s business environment.

“Because the recession came slowly, many people don’t recognize that we are in one,” said Lee Seung-cheol, vice chairman of the Federation of Korean Industries.

Lee Dong-geun, vice chairman of Korea Chamber of Commerce and Industry, emphasized that the nation’s quarterly economic growth since 2011 has been hovering at 0 percent, while Kim Young-bae, vice chairman of Korea Employers’ Federation, said that some companies won’t be able to survive because of government regulations.

But they all agreed that now is the time for Korean businesses to make aggressive changes on their own because the economy is at a turning point.

Experts said that Samsung’s deal to sell its defense and chemical affiliates to Hanwha has triggered other big companies to think about business restructuring.

“This big deal shows that a company can raise its competitiveness by undergoing restructuring on its own,” said Kwon Tae-shin, head of the Korea Economic Research Institute. “It also indicates that companies need to take those steps to survive.”

It is not difficult to find long-lasting global companies that have made changes to their main businesses to survive.

IBM, which was well known for its computers, declared 12 years ago that it was not a computer company anymore, and would instead become a consulting and software company. More than 80 percent of its profit now comes from these businesses.

General Electric, which held its top status in the manufacturing industry for more than 130 years, has sold profitable businesses to ensure its future stability. For many, GE’s decision stands in direct contrast to Kodak, which made the world’s first digital camera but would not give up its film business.

In Korea, AmorePacific is regarded as an exemplary company that has shown its dedication to selecting and concentrating on a single business. In the past, the company had a securities firm and electronics and metal businesses, but in the late 1990s, it sold them to focus solely on cosmetics.

Now, AmorePacific has about 4,100 stores in 13 countries. Its shares are known as “emperor’s shares” for their high value of more than 2 million won ($1,810) per share.

But experts say that many Korean companies are afraid to make changes and some are already paying the price. Dongbu Group, the nation’s 18th-largest conglomerate, is currently struggling financially because its steel and construction companies are failing to secure business.

“Companies should not be dwelling on yesterday’s success, because that’s the past,” said LG Economic Research Institute researcher Lim Ji-soo.

According to Statics Korea on Thursday, the value of shipments in the local manufacturing and mining industry last year was 1,495 trillion won, while the value added from those industries marked only 481 trillion won, a 1 percent and 0.2 percent year-on-year drop, respectively. It is the first time since the IMF crisis in 1999 that both values declined.

By company, the world’s No. 1 shipbuilder Hyundai Heavy Industries has had more than 3 trillion won of operating losses through the third quarter and has been dealing with a strike by its labor union, the first in 20 years.

Experts point out that many companies are waiting for demand to increase again automatically, when they should be the ones creating it.

For example, the construction industry was put at a standstill after the budget for social overhead capital (SOC), which is used for building infrastructure like roads and railways, was cut so that the government could expand its budget for welfare.

As a result, public construction orders shrank. According to data from the Construction Association of Korea (CAK), builders have only collected 91.3 trillion won worth of orders in Korea this year, the least in the past 11 years.

“This year, 4,594 builders didn’t win any new orders in this first half, meaning that 42 percent of the nation’s builders failed to secure a future revenue source,” said Chung Nae-sam, vice chairman of CAK.

Experts said that in order to break out of the current economic decline, companies need to make some changes, such as reorganizing their business portfolio or investing aggressively in their future.

“We need to recover our economy’s growth engines through bold innovation and structural transformations,” said Korea Development Institute President Kim Joon-kyung.

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