Major Korean companies’ efforts to create new businesses since the 2008 financial crisis are losing momentum. Most of such attempts have only led to increasing losses in spite of aggressive investment for five long years.
For instance, Samsung SDI is forecast to record losses of approximately 20.3 billion won (US$19.2 million) this year in the vehicle battery and energy storage system (ESS) fields. The amount is estimated to increase 39.04% from last year’s 14.6 billion won (US$13.7 million).
The problem is that the two items are directly related to the future of the entire Samsung Group. Back in 2010, the group selected five new future growth drivers -- LEDs, solar cells, automotive batteries, biopharmaceuticals, and medical appliances -- and announced that it would invest 23 trillion won (US$22 billion) by 2020 to post 50 trillion won (US$47 billion) in sales in these sectors.
Slow progress is a headache for the whole Samsung Group now. On July 1, the company disbanded the new business promotion team in its future strategy office, which had been in charge of the growth of the businesses. “The team was organized to set a direction of the new businesses, and we broke it up because the direction was set,” the company explained, continuing, “All of the employees of the team were relocated to their original units.” However, those in the know have a different opinion.
The solar cell business, which was adopted by many companies as a new growth driver, is a typical example of such failure. The Hanwha Group entered the industry in 2008 and has poured in no less than two trillion won (US$1.8 billion) since then. Nevertheless, Hanwha SolarOne recorded a loss of 203.8 billion won (US$191.8 million) in 2011 and 213 billion won (US$201 million) last year. The losses are expected to reach 80.6 billion won (US$76.1 million) and 66.8 billion won (US$63.1 million) for this year and the next. Hanwha Q.Cells’ deficits are estimated at 39.7 billion won (US$37.5 million) for 2012, 36.3 billion won (US$34.3 million) for 2013, and 58.5 billion won (US$55.0 million) for the following year.
KAM, the photovoltaic polysilicon manufacturer jointly established by Hyundai Heavy Industries and KCC, shut down its operation this year after posting a current net loss of 237.3 billion won (US$224.0 million) last year. “Although many groups picked new growth drivers and made huge investments, the sales account for just 2% to 3% of the total,” said an industry insider, adding, “Due to the petty profits, they are refraining from disclosing specific figures.”
The number of the funds in the New Growth Fund, which was raised for long-term support for the growth of Green industry, increased from five to just eight between 2009 and this year, and the combined amount stands at 827.6 billion won (US$781.3 million). Given that approximately 100 billion won (US$94 million) is spent on the construction of one 20MW thin film solar cell manufacturing line, the industry can get at least some momentum only when there are 30 or so funds worth 100 billion won each.
The funds have been invested in 59 companies, and the amount has reached 522.9 billion won (US$492.0 million). 15 of the companies are listed, and six are foreign ones. This means that they are focusing on the redemption of principal rather than future value enhancement. “A long-term investment is required for the future industries, but the sectors are especially vulnerable to investment withdrawal when uncertainties increase or market conditions are bad,” said Kim Tae-yoon, head of the Future Industry Team of the Federation of Korean Industries.