Korean Large Businesses More Passive Than Before in Employment, R&D Investment

It has been found that the number of employees working for the major subsidiaries of the 10 largest business groups in South Korea including Samsung Electronics, Hyundai Motor Company, SK Innovation and LG Electronics decreased by 6,777, equivalent to 2.2% of the total, last year. During the same period, the number of employees of the 253 subsidiaries of the 30 largest business groups in the country decreased by 19,903 or 2.1% to 930,124.
 
In the meantime, the 10 groups’ R&D investment edged up by 1.4% or 311 billion won. Experts pointed out that the economic recession in 2015 and global economic uncertainties affected their employment and R&D investment last year. Hyundai Heavy Industries let go of 4,332 employees in 2016 alone while reducing its R&D investment by approximately 15%. Things were quite similar in the other companies.

Meanwhile, the size of the land, buildings, machinery and the like they own increased by 3.1% or 7.3854 trillion won last year. For instance, Samsung Electronics is currently building semiconductor manufacturing facilities in Pyeongtaek City, Gyeonggi Province and the Hyundai Motor Group is working on a new building in Samsung-dong, Seoul. LG Electronics is building the largest R&D complex in South Korea in the Magok District of Seoul, too.

This increase in real estate investment under the circumstances is leading to an increase in operating profit and a decline in sales. Specifically, the companies’ combined sales fell 2.5% from a year ago whereas their operating profit rose 21.6% last year. The operating profit-to-sales ratio went up from 6.6% to 8.3% during the same period.

Last year, Samsung Electronics sold its printing solution division and dismissed 2,581 employees from its relatively less profitable consumer electronics division. As a result, the operating profit ratio of the consumer electronics division rose from 2.6% to 5.6% between 2015 and 2016. The same decline in sales and increase in operating profit following personnel restructuring was witnessed in Hyundai Heavy Industries as well, which recorded an operating loss of no less than 1.5401 trillion won in 2015. POSCO disposed of 38 subsidiaries in 2015 and 19 in 2016 to show a significant increase in operating profit last year.

The South Korean business groups are likely to be pretty passive in terms of employment and R&D investment this year, too. This has to do with the IMF’s recent announcement that the South Korean economy is estimated to grow by 2.6% this year, instead of 3.0% according to its announcement in October last year, and a variety of external and internal uncertainties ranging from the restructuring of the shipbuilding industry and interest rate hikes in the United States to trade retaliation from China related to THAAD deployment in South Korea.

According to a job portal website, 21.8% of South Korean companies have cancelled or deferred the execution of their employment plans for the first half of this year. In addition, a meaningful increase in R&D investment is unlikely for the time being with most South Korean companies being more interested in M&A as in the case of Samsung Electronics’ acquisition of Harman.