A dark prospect for the economy

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A dark prospect for the economy

I hoped Samsung wasn’t one of them. When everyone was complaining about the crisis, I wished Samsung would say that hope could still be found. When the conglomerate was derided as “Samsung Kingdom,” I always thought that Samsung was the pride of the Korean economy. But the latest moves of Samsung have left me perplexed. The crisis in the Korean economy can be seen through the prism of Samsung.

Samsung Group announced executive promotions on Friday, and it was a symbolic sign of the crisis. This year, 294 people were promoted to the executive level, the fewest since 2009. More than 200 positions are presumed to have been cut. Throughout the year, voluntary resignations below the executive level have been accepted for restructuring purposes.

Samsung Electronics, the core business of Samsung and one of the leading IT companies in the world, has shown unusual signs. Operating profit, which peaked in 2013 at nearly 37 trillion won ($31.4 billion), fell to 25 trillion won last year and 27 trillion won this year. The smartphone business, the cash cow for the last few years, is struggling, caught between Apple and Chinese makers.

I suspect that Samsung may have lost confidence. When a company needs to overcome a crisis by cutting costs, it could start producing parts that had been outsourced. Samsung Electronics increased the portion of direct production of certain parts by operating a smartphone plant in Vietnam. In this case, the subcontractors that had heavily relied on Samsung orders would suffer inevitably.

A CEO of one of these contractors told me what he had heard at a contractors association meeting in October. He was shocked that a Samsung official declared that the contractors and partners must not rely on Samsung alone and diversify their businesses. In the past, Samsung would try to make sure the contractors didn’t end their partnerships. “It realized that even Samsung was in trouble,” he said.

Looking at Samsung actually makes me worry about how other companies will suffer. While Samsung’s moves are highlighted, other companies actually pursue far more rigorous restructuring. Many industries, especially the steel and chemical industries, are in trouble. Let’s look at the top 50 companies. How many do you think will remain strong in 10 years? The grim prospect makes us anxious and nervous.

Regarding labor reform, President Park Geun-hye has pressured the opposition party, saying, “What good would it do if it is passed after the economy is dead?” There is no way of knowing whether the Korean economy will come back with successful labor and financial reform. There is no guarantee that various economic stimulus measures will keep the economy running. But we know for sure that if we don’t act now, the economy will die.

The author is a business news reporter for the JoongAng Ilbo.

JoongAng Ilbo, Dec. 9, Page 34

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