More firms enter emergency mode
By Park Si-soo
More Korean firms are facing increased pressure to let go of employees, downsize and close money-losing units in a desperate cost-saving drive triggered by a prolonged global recession and the ensuing downturn of the domestic economy.
Analysts warn that there is virtually no shelter from the tough wave of restructuring spanning the globe. In Korea, it initially wreaked havoc on shipbuilding and oil refining sectors and has now hit automakers, aviation, finance and even the electronics industry.
They say it’s still too early to predict how the situation will unfold, but they are not ruling out the possibility of large-scale layoffs, as seen in 1997 and 2008.
GS Caltex’s recent letting go of 70 mid-level sales managers is the first time in 14 years for the country’s second largest oil company has done so. The firm also integrated six sales-support units as part of a cost-saving campaign.
The oil company posted 370.9 billion won ($320.1 million) in operating profit during the first quarter of this year, down 50 percent from the corresponding quarter last year. Analysts say GS Caltex’s outlook for the second quarter is still bleak due to the prolonged global recession.
Adding greater woe to the refiner is declining domestic market share.
In 2008, GS Caltex’s domestic market share of gasoline, diesel and kerosene remained around 30 percent. But the ratio has been declining for four consecutive years to hover at 25.6 percent in the first quarter of this year, according to the Korea National Oil Corporation.
It is not alone. The economic downturn has put on hold the country’s fourth and smallest oil refiner Hyundai Oilbank’s ambitious initial public offering (IPO). The firm announced on June 15 that it had requested Woori Investment and Securities to halt all preparatory steps for an IPO.
Keum Seok-ho, senior vice president of Oilbank’s management support department, said tough times are expected to last throughout the year so that the firm will seek an IPO next year at the earliest. On top of this, the oil company plans to reduce its budget for this year by 20 percent in an austerity measure.
In other areas, the slump forced Renault Samsung Motors to allow its plant in Busan to sit idle for five days this month. The firm said excessive inventory was to blame. The carmaker halted its assembly line for four days in April and May and another 10 days last December for the same reason.
Renault Samsung has seen domestic sales plunge 38.3 percent on-year in the first five months. Despite selling 6,200 cars in January, demand slowed to 4,600 in May.
The decision to suspend production was also triggered by a 20 percent drop in exports led by the fiscal crisis in the eurozone. Europe accounts for 20 percent of the automaker’s total exports.
GM Korea has selected some 100 mid-level managers who will voluntarily leave the company in return for handsome severance pay and post-retirement benefits. It is the first time in three years that the U.S. carmaker’s Seoul office is pushing forward with voluntarily retirement.
In the same vein the country’s flagship carrier Korean Air is in the process of sacking some 50 officials in reaction to surging operating losses. Those in their 40s and 50s working for the company for more than 15 years are subject to early retirement. Reeling from high oil prices, Korean Air posted 98.8 billion won in operating losses during the first quarter of this year.
Shipping companies are caught between a rock and a hard place. High oil prices and an oversupply of vessels following the global recession in 2008 have continually undercut profitability of domestic shipping companies.
Hanjin Shipping, the country’s largest container carrier, recorded 218.4 billion won in operating losses during the first quarter. Hyundai Merchant Marine also showed a poor performance during the same period, posting 200.8 billion won in operating losses. Few analysts see a rosy outlook for the industry during the second quarter. As a result, Hanjin sacked 9 executives in November.
“Shipping companies around the world are facing the same difficulties and considering large-scale layoffs,” said an official of the Korea Ship-owners’ Association. “We don’t rule out the possibility that it (layoffs) could take place in Korea.”
Crown jewels in Korea Inc., Samsung Electronics and LG Electronics have also streamlined operations. LG Display recently canceled a plan to kick start a TV assembly line in Poland and downsized other joint projects overseas.
Also in emergency mode is Hyundai-Kia Automotive Group as a preliminary step to head off the global recession.
“We should prepare measures in advance to cope with the possibility that the eurozone crisis impacts our overseas markets, reflecting on the different aspects of each market,” Hyundai-Kia Group Chairman Chung Mong-koo said Monday during a meeting with the heads of overseas branches.