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SERI reports
November 30, 2009
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| Korean companies have posted relatively healthy earnings in the third quarter of 2009 despite the ongoing global economic recession. These positive financial results exemplify how much the fundamentals of Korea companies have strengthened. Moreover, markets are optimistic that the trend in positive earnings for Korean companies will continue to improve through 2010. However, concerns over being overly optimistic about Korea’s resiliency are growing, noting that recent company earnings were significantly influenced by internal and external business environments. In its forecast of what lies ahead for Korean companies, Samsung Economic Research Institute (SERI) selected five anxiety factors in the Korean economy and suggested possible countermeasures that would offset such factors and strengthen competitiveness in the future. The first anxiety factor is a repeat of the “three highs.” A strong won, soaring oil prices and rising interest rates are forecast to intensify in 2010. These “high” factors will have larger ripple effects than in previous years because they are currently at higher absolute levels than they were during previous period of “three highs” and the global economy is unlikely to escape its phase of slow growth for the time being. Korean companies should, above all, fully prepare themselves for future developments via stronger risk management. Furthermore, they should double their efforts in easing the potential burdens which the three factors may pose on corporate management by significantly cutting costs. Another anxiety factor is uncertainty in advanced export markets. Due to pending exit strategies around the world, the possibility of a recovery in consumption in advanced markets for 2010 slowing or, even worse, contracting grows larger. In particular, the US and Europe are essential in that they represent more than a third of exports by Korean companies and are the strategic keys that will determine the future direction of several global industries. By closely following changes in consumer needs, Korean companies should make all-out efforts to provide new value. They should continue their pursuit of bolstering soft competitiveness (i.e., brand and design), thus further enhancing their “premium” images. Competition from Japan and China poses as another important factor. Even amid the current crisis, Chinese companies are rapidly emerging as global powerhouses on the back of a solid domestic market and government support. Meanwhile, Japanese companies are accelerating unprecedented restructurings and drastically increasing investments in R&D. In response, Korean companies should try to breakthrough a possible “sandwiching” by their Asian rivals by making drastic investments in key economic drivers. They should actively participate in overseas M&A which provide access to new high technology and greater market power, or quickly establish growth engines that focus on new, promising industries. The fourth anxiety factor is the costs incurred by going “green.” Corporate costs are bound to increase due to greater regulations on greenhouse gas emissions. With ever growing demand for greener corporate operations, not going “green” is no longer an option. A passive response will likely be met with serious repercussions amid an increasingly environmentally-conscious global citizenry. Korean companies should explore ways to cut carbon in advance through the development of process innovations and technologies. Moreover, broader strategic approaches are necessary for the development of eco-friendly products and the expansion into eco-friendly business. An unstable labor-management environment is another source of anxiety that should be taken into consideration. In the process of overcoming the crisis for the past year, workers’ anxieties and exhaustion have increased. As the global financial crisis appears to have somewhat eased, there is concern that mounting work fatigue could transform itself into disappointment and dissatisfaction. Confrontation following settlements for several labor unions will prove burdensome. Companies should establish trust between labor and management through 1) more in-depth communication channels; 2) earnest and rapid processing of grievances; and 3) greater information sharing. Korean companies should view 2010 as their true starting point in the 21st century. The past decade or so could be considered a testing period where domestic companies have learned to cope with various crises. To effectively overcome anxieties and become real global winners, Korean companies should 1) secure price competitiveness through new innovative ideas; 2) fulfill consumer needs by creating new value; and 3) establish an environment of trust in communications with employees and concerned external parties. The writer is a research fellow in the Management Strategy Department at Samsung Economic Research Institute. For more SERI reports, please visit www.seriworld.org. By KIM Sung-Pyo  |
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