SK Hynix, LG add more to GDP

Samsung Electronics, Hyundai Motor, Kia Motors, SK Hynix and LG Electronics topped this year’s assessment of Korean firms’ economic contribution held jointly by the Korea Institute for Firm Contribution and the JoongAng Ilbo.

Chipmaker SK Hynix entered the top five rankings for the first time this year, while discount chain E-Mart entered the top 10.

The assessment, which marks its fourth year, is held annually by the institute by analyzing conglomerates’ business reports from last year.

It analyzed 1,022 conglomerates this year in five categories: value production (measured by a firm’s revenue and export sales), national income, job creation, national competency (measured by investments in research and development or facilities) and corporate social responsibility (measured by donations and environmentally friendly operations).

According to the assessment, 20 large companies including the nation’s conglomerates contributed to 87.6 trillion won ($74.5 billion) in national income, 14.7 trillion won in national finance and created 1.35 million jobs.

Electronics, automobiles, retail and chemicals were the highest contributors to the nation’s economy. The retail and chemical sectors have been increasing their presence in the nation’s economy, while electricity and gas providers and telecommunications business operators have stumbled.

Economic contribution from SK Hynix and LG Display grew the most. Among business groups, SK, Hyundai Motor and LG had the biggest growths in their contributions last year.

A notable factor in this year’s overall assessment was the sluggish sales performance by conglomerates. According to data analyzed by the institute, sales of 473 conglomerates in 10 industries such as electronics, automobiles and retail began declining in 2012. Last year, their sales fell 127.6 trillion won compared to a year ago.

“Sluggish sales performance of conglomerates may lead to an economic crisis in the country,” said Lee Jong-cheon, chairman of the institute. “Revenues have been falling for all 10 industries except for automobiles and construction, which means our economy is getting more difficult by year.”

The conglomerates’ revenue fall that began in 2012 coincided with the decline of the nation’s export sales.

“A boost in the nation’s economy begins not from expanding the domestic market but from increasing foreign exports and bringing in foreign capital,” said Han Jong-soo, a business professor at Ewha Womans University who participated in the assessment.

Still, conglomerates raised salaries for employees, created jobs and paid corporate taxes as businesses struggled. Salaries paid by the assessed conglomerates increased 3 trillion won, or 5 percent year on year, while 45,000 more people were employed, also a 5 percent increase over the previous year. Corporate taxes paid by conglomerates last year rose 10 percent, or 1 trillion won, compared to 2014.

However, investments for R&D were weak. The top 20 conglomerates cut 13 percent, or 3.9 trillion won, of their investments for R&D last year compared to 2014.

Among the nation’s pillar industries, electronics slashed 1.7 trillion won, or 8 percent, of their R&D investment, while automobiles investments fell 1.3 trillion won, or 27 percent.

“The nation’s conglomerates are having difficulty expanding investments for finding future business engines,” said Yi Jae-kyung, a business professor at Kookmin University.

Regarding ongoing discussions in the political sector on corporate tax hikes, Chung Moon-jong, an Ewha business professor said, “It could push conglomerates into a vicious cycle where source of investment on R&D declines, companies’ global competency falls by lack of investment and their revenue falls.

“Economic boosting is a better way of collecting taxes than to merely raise corporate tax rates.”

BY PARK SUNG-MIN [kim.jeehee@joongang.co.kr]