Business Performances
Concerns are rising over the future growth potential of the main industries of Korea. The economy recovered very fast from the global financial crisis that swept across the world back in 2008. However, their momentum has been losing steam since 2010. Experts are pointing out that the government and companies work together for technological development and profitability enhancement, while reorganizing industrial structure in a comprehensive manner to sharpen their international competitive edge.
According to the Samsung Economic Research Institute (SERI), Korean companies’ sales increase rate reached 17.2% in 2010, but have been in a downward spiral since then to get to 4.3% last year. The percentage reached 0% in the first half of this year. The current net income ratio fell from 6.8% to 4.2% between 2010 and 2012, and down to 3.9% in the first half of this year.
“Korean companies’ conditions are getting worse rapidly from 2011 as the economic recession has continued since 2008,” said Kim Seong-pyo, senior research analyst at SERI. He added, “The number of high-performance companies has dwindled, while that of marginalized companies has soared to pose a significant threat to the Korean economy.”
Signs of crisis are emerging one after another in the recent business reports of major Korean companies. For example, the TV and home electronics business units of Samsung Electronics and LG Electronics, which used to be a cash cow for the entire Korean economy, are suffering more and more from decreasing profitability.
The Consumer Electronics (CE) Division of Samsung Electronics recorded operating profits of 350 billion won (US$329.7 million) in the third quarter of this year, 12.50% down from Q3, 2012 and and 18.60% down from Q2, 2013. LG Electronics’ Home Entertainment (HE) Division posted business profits of 517 billion won (US$487 million) last year, but the amount is likely to be reduced to 322 billion won (US$303 million) this year. The Home Appliances (HA) Division’s profits are estimated to go down from 528 billion won (US$497 million) to 448 billion won (US$422 million), too.
The story is not so different for the shipbuilding industry. Hyundai Heavy Industries’ operating profits were more than halved, from 2.7434 trillion won (US$2.5843 billion) to 1.0206 trillion won (US$961.41 million) between 2011 and 2012, and the figure is likely to further drop to 811.7 billion won (US$764.6 million) this year. Daewoo Shipbuilding and Marine Engineering’s profits plunged from over one trillion won (US$942 million) to 486.3 billion won (US$458.3 million) during the same period, and are expected to stand at 417.8 billion won (US$393.6 million) in 2013. STX Offshore and Shipbuilding failed to withstand the recession, putting itself under joint management by its creditors.
The automotive and smartphone industries, which are considered as two of the main pillars of the Korean economy, are facing a growth slowdown and market saturation, too. Hyundai Motor Company’s H1 sales increased 5.8% year-on-year to 44.5505 trillion won (US$41.9666 billion), but the operating profits fell by 7.7%. The Korea Automotive Research Institute has recently predicted that global car sales would increase 3.1% this year, which is the lowest level since the outbreak of the global financial crisis.
The high-end smart phone market, led by Samsung Electronics, is reaching saturation, with the penetration rate having exceeded 50% in the United States, Europe, Singapore, Australia, and other markets. The total demand of the Korean market increased from 200,000 units or so to 30.7 million between 2007 and last year, but demand is estimated to fall down to 263 million units this year.