Major Corporations to Refrain from Aggressive Expansion in Second Half

Leading Korean corporations picked risk management and concentration on the basics, instead of external growth, as their business strategy for the second half of this year.

The Federation of Korean Industries carried out a survey of the top 30 conglomerates between June 16 and 27 and released the results on July 6. According to the survey, 40 percent of the respondents mentioned the management of business risks such as foreign exchange rate fluctuations as their key strategic goal for the rest of this year. Eleven answered that they would enhance the health of their business before anything else by means of restructuring and the like.

Two of the respondents picked management in a safe way, while just 10 percent and 6.7 percent of them chose external growth for market share improvement and the enhancement of growth potentials, respectively.

The pace of the recovery of the domestic economy was mentioned by 36.7 percent of the responding chaebol as a leading factor to affect corporate investment. That of the international economy was picked by 33.3 percent, financing conditions by 13.3 percent, and foreign exchange movement by 10 percent. As non-economic factors, delay in legislation concerning investment was selected by 30 percent, anti-chaebol sentiment by 13.3 percent, delay in government permission and deregulation by 13.3 percent, and deteriorating labor-management relations by 10 percent.

In addition, 26.7 percent of the respondents answered that deterioration in profitability is the largest obstacle they are currently facing. It was followed by the slump in domestic demand (23.3 percent), unfavorable export conditions (13.3 percent), increase in production costs (10 percent), government regulations and intensifying competition (10 percent), and the shortage of financial resources (6.7 percent).

It is expected though that the companies are not going to cut their combined investments when compared to their previous plans set up earlier this year. Eighty percent of the respondents answered so, while only four would have to reduce their investment for the slow recovery of the international economy and financing difficulties.
Of the responding companies, 66.7 percent predicted that the economic conditions would get neither better nor worse between the first and second halves of 2014. Six and four answered that things would be improved and exacerbated, respectively.

Also, 46.7 percent of them mentioned the revitalization of the domestic economy as the foremost policy task for greater investment. It was followed by deregulation for investment attraction (23.3 percent), more tax incentives (16.6 percent), flexible employment systems (6.7 percent), and invigoration of the real estate market (6.7 percent).