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Three factors affecting corporate performance

Published: 29 Aug. 2024, 20:08

LEE CHUL-MIN
The author is a managing partner at VIG Partners.

When interviewing candidates in their mid-to-late 20s for experienced positions, I always ask these questions. “Have you ever made personal investments?” “What investments have you made the most profits or losses from?” “What are the causes for profit or loss?” Another question that must not to be missed is “What are three most important factors in macroeconomic trends that will determine the performance of Korea Inc. in the future?”

It is only natural that the last question can be answered differently depending on the economic situation at the time of the interview and the candidate’s disposition. I was very surprised that the two candidates I interviewed last week gave the same answers. They pointed to the spread of artificial intelligence (AI), aging and the Korean wave. They picked these three out of other possible answers such as the polarization of income and consumption, persistent inflation, interest rate cuts, expansion of single-person households, stagnation of the electric vehicle market, intensification of conflict between the United States and China and the spread of regional wars. The two interviewees showed very similar reasoning for their choices.

In the case of AI, it’s certainly not an issue that will have a significant impact on the sales or profitability of domestic companies in the short term. However, as the industrial methods will change in the mid- to long-term, companies that fail to preemptively and successfully introduce AI technology will be eliminated from markets. Moreover, given the difficulties in predicting which industry can be helped by AI and how, companies’ proactive response has become a necessity, not an option.

The aging population is already having a serious impact on the domestic consumption market, and it will continue to have a notable impact on the performance of companies. Koreans already feel the effects of having the second most rapidly aging population after Japan as baby boomers are retiring. As it is linked to the low birthrate and a dramatic increase in single-person households, retailers and distributors must fundamentally think about how to reorganize their products and distribution networks.

The K-wave is important because it provides an opportunity for rapid growth, as K-beauty and K-food showed. The so-called indie-brands are rapidly growing in the developed world, including the United States, to stimulate large corporations and improve the overall competitiveness of Korean companies. On the contrary, some large conglomerates that fail to ride on the trend and settle for the domestic market will suffer.

Of course, there is a possibility that unforeseen and powerful trends may suddenly emerge one day on top of those three. Therefore, it is very important not only for CEOs but also for individuals or institutional investors to be sensitive to macroeconomic trends 24/7.