Excessive Dependence Economy
The electronics and automobile industries, two of the most important pillars of the Korean economy, are wavering due to the saturation of the smart phone market and strikes in the auto industry. Under the circumstances, an increasing number of economists point out that the Korean economy’ excessive dependence on the two sectors be addressed immediately to mitigate potential risks.
According to industry sources, Samsung Electronics’ performance for the second quarter of this year declined by 24.5 percent year on year to 7.2 trillion won (US$7.07 billion), and the Hyundai Motor Group’s performance is expected to shrink from a year earlier. Securities information provider FnGuide recently estimated that Hyundai Motor Company’s sales for the same quarter would be 0.98 percent higher than a year ago, but the operating profits would fall by 6.67 percent to 2.246 trillion won (US$2.2051 billion).
Samsung accounted for 25 percent of Korea’s total exports, and the auto industry, which revolves around Hyundai Motor Company and Kia Motors, represented 13.1 percent of the exports as of the end of last year. This means that approximately half of the national economy will be shaken if the two companies stumble.
The problem is that the sluggish performances of the two groups are likely to continue for a while. For Samsung Electronics, the mobile business division that represents 70 percent of the operating profits is showing a negative outlook. According to market research firm Strategy Analytics, the global smart phone market is likely to grow by double digits until this year, but the growth rate is expected to be limited to 38 percent for the next six years until 2020. Besides, Chinese manufacturers are coming up with more and more mid-market handsets to add to the difficulty of Samsung.
In the meantime, GM Korea decided to go on strike on July 9, with 69.3 percent of the registered union members in favor. The labor union of Renault Samsung Motors, which voted for a strike with an approval of 90.7 percent, is going to rush into the strike on July 11. Hyundai Motor Company has gone through wage negotiations with its union twice each week since July 3, but no agreement has been made yet. Last year, Hyundai lost about 5 percent of its domestic production due to the partial strikes that cost 50,000 cars and 1.2 trillion won (US$1.1 billion), not to mention significantly decreased exports.