Cost cutting in 2019 all the rage with local firms

The majority of companies in Korea are planning to take belt-tightening measures next year, according to a recent survey by the Korea Employers Federation (KEF).

The KEF announced Tuesday that 50.3 percent of chief executives surveyed said they would introduce cost-cutting measures in 2019. Only 19.6 percent said they would be expanding their businesses, while 30.1 percent responded that they would hold steady with their plans.

A total of 244 member companies were polled.

“While last year’s survey indicated that most companies planned to maintain the status quo, this year’s survey shows a change to a cost-saving stance,” explained a KEF official.

Companies planning to cut costs increased by 10.8 percentage points this year, up from the 39.5 percent figure in the same survey last year.

Over the past eight years, companies polled in the KEF survey said they were looking to either save costs or maintain their businesses as is.

For next year’s belt-tightening measures, cost reduction led at 34.8 percent, followed by changes in the workforce at 22.3 percent, new investment reduction at 19.3 percent, business restructuring at 10.6 percent and production size reduction at 6.2 percent.

Despite the current administration’s pressure on businesses to focus on job creation and new investment, companies are opting to cut back.

“The slump in the construction sector since a few years ago has led to a decrease in orders, and we are currently experiencing financial difficulties,” said a CEO of a construction company that records annual revenue of 300 billion won ($266 million). “We are planning to undergo mass restructuring as the situation looks to be worse next year.”

The KEF survey also showed that 69.4 percent of respondents saw the current situation staying the same for the long term. Of those surveyed, 14.5 percent said the economy was in decline after peaking, 11.2 percent said it was at the lowest point of the cycle and 5.0 percent saw the economy in recovery from the lowest point.

Those anticipating a recession increased by 20.3 percentage points from last year. Respondents were concerned that the sluggish economic situation will continue for more than two years.

On when the economy will likely recover, 60.3 percent of respondents predicted after 2021, followed by 28.1 percent after 2020 and 11.6 percent from 2019.

As companies look toward cost-saving measures, the overall economy may face greater difficulties.

“Korea’s economy is falling into a vicious cycle,” said Cheong In-kyo, a professor of economics at Inha University. “Leaving the current situation as is will not lead to growth but toward a shrinking economy.”

“The government shouldn’t make empty statements but should drastically ease regulations for companies and lead investment,” Cheong added. “Market intervention policies such as providing subsidies are superficial fixes that should be avoided.”

The majority of CEOs also predicted a loss in earnings next year as 54.1 percent said next year’s business results will decrease compared to this year’s. In the survey, 29.1 percent said it will stay about the same, while only 16.8 percent said it will improve.

Respondents were most concerned about the government’s pro-labor policies.

Nearly one-third, or 30.3 percent, cited labor policies, such as the minimum wage hike and the reduction of working hours, as the source of difficulty. That was followed by 23.4 percent saying that the problem was the slump in the local market, while 15.1 percent pointed to U.S.-China trade friction.

The reduction in working hours has been cited as a major issue to businesses.

Results from a survey by the Korea Chamber of Commerce and Industry (KCCI) released on Tuesday said that 71.5 percent of companies were experiencing difficulties due to the 52-hour workweek reduction. The frustration from businesses has led the government to retreat somewhat. It may extend the Dec. 31 enforcement deadline.

The business sector is also worried about changes to government regulations, which would add resting hours into the minimum wage calculations. The inclusion of more hours could lead to changes in wage policies for businesses.

“Small and medium-sized companies face more difficulties as they don’t have as much room to respond compared to large companies,” said a KCCI official. “The government should refrain from thinking that problems will be resolved with time and take preemptive action.”

BY KIM MIN-JOONG [chae.yunhwan@joongang.co.kr]