The profitability of leading Korean companies was at the lowest level among major countries. This is because they lacked the ability to develop innovative products with high added value and had low productivity.
On July 31, the LG Economic Research Institute released a report titled "Analysis of Business Performance of Korean Companies." The research center compared the performances of the top 3,000 global companies by country. The 115 Korean companies included in this list recorded 7.6% sales growth last year, placing Korea sixth among 17 major countries including the US, China, Japan and Germany.
However, their profitability was low. Their operating profit to sales ratio arrived at 4.7%, placing Korea 16th. Their ratio was less than half of the ratio of US companies (11.3%) and more than 1 percentage point lower than that of Chinese companies (6.1%). In particular, that of other companies swelled from 7.3% in the 2010 to 2013 period to 7.6% in the 2014 to 2017 period while that of the Korean companies dropped to 4.6% from 5.2% in the same period. In terms of return on assets, the Korean companies came in last. This means that they were not able to make proper profits for the money they invested in production facilities and equipment.
A similar trend was shown when the scope of companies was expanded to cover all listed companies in Korea. Sales are on the rise, but profitability on the decline. Listed Korean companies’ sales growth recovered to 1.9% in 2015, 3.0% in 2016, and 5.0% in 2017 after bottoming out at 1.7% in 2014. But their return on assets rose from 3.5 percent in 2014 to 4.1 percent in 2016 and then dropped to 3.7 percent last year. Their return on operating assets also slid from 6.4% in 2016 to 5.5% in 2017.
"Korean companies have a profit structure that is difficult to respond flexibly to economic slumps as their profitability changes a great deal depending on changes in their business environments," said Lee Han-deuk, a researcher at the LG Economic Research Institute. "A lack of the development of innovative products and low productivity also contributed Korean companies’ low profitability.”