By Kim Rahn
Samsung and Hyundai groups have been the main engine for Korea's growth over the decades but the two are now emerging as potential risks with economic dependence on the duo growing at an alarming pace.
Samsung and Hyundai Motor groups are taking larger portions of the country's economic activities, with their combined sales being equivalent to one third of Korea's gross domestic product (GDP), a report showed Monday.
As the country's economic dependence on the two conglomerates is increasing, concerns are that the whole country could be hit hard if the two groups face problems such as huge profit declines.
The report from CEO Score, an online corporate productivity evaluation service provider, said the sales of Samsung and Hyundai Motor groups in 2012 were equivalent to 35 percent of Korea's total GDP ― 23 percent from Samsung and 12 percent from Hyundai Motor.
This was a huge leap from 2008's 23.1 percent; and considering the sales of numerous subcontractors to the conglomerates, the percentage would be much larger.
Also, corporate taxes paid by Samsung and Hyundai Motor accounted for 20.6 percent of the combined total from Korea's 482,574 companies in 2012 ― 9.7 trillion won of 47.3 trillion won.
While the total corporate taxes rose 13.9 percent from 41.5 trillion won in 2008, the two conglomerates' taxes increased 232 percent from 2.9 trillion won during the same period.
On the stock market as well, Samsung and Hyundai Motor groups are powerful.
Twenty-seven affiliates of the two conglomerates are listed, accounting for 1.6 percent of 1,741 companies listed on the KOSPI and KOSDAQ bourses. But their aggregate market value accounts for 36.5 percent of the total.
Their aggregate market value hiked 226 percent from 134.1 trillion won in 2008 to 437.6 trillion won last year. During the same period, the value of other listed companies grew 70.9 percent.
Experts say that Korean economy is getting more dependent on the two groups, causing economic polarization.
"The two conglomerates' superior performance overlooks the fact that most firms, especially small- and mid-sized ones, are suffering from difficulties in turning a profit," professor Kim Sang-jo at Hansung University said.
"The nation's entire economy can be damaged if the two groups' profits decrease or other problems occur at them."
As he noted, Korea's stock market has plunged since the beginning of this year amid negative outlooks on Samsung Electronics' 2013 fourth-quarter profits. The firm's operating profit, announced on Jan. 7, was 8.3 trillion won, lower than expected, and the company's aggregate market value dropped by about 12 trillion won compared to the beginning of the year.
Examination underway
Finance Minister Hyun Oh-seok said the government is examining the Samsung and Hyundai Motor-centered economy.
"As we analyze economic polarization, we need to study the dependence on specific companies," he told reporters, adding it does not necessarily mean changes in government policy.
Park Ju-gun, head of CEO Score, said the portion of a handful of top companies' sales to GDP is not large in countries with stronger economic structures.
"A country needs to have a balanced portfolio in order to have a strong economic structure. If some specific firms take up a considerably large portion in the portfolio, it means the country's economic structure is stagnant," he said.
Park said Korea needs more globally competitive firms. "Korea's entire industrial structure focuses too much on automobile and IT. The government should make efforts to foster the more diverse potential that Korea has."
Kim said not only small but also many large companies suffer from financial difficulties, and such firms should undergo restructuring, through which good and bad firms are sorted out. "After sorting out, the country should focus on channeling its economic resources into good ones," he said.
Samsung and Hyundai groups have been the main engine for Korea's growth over the decades but the two are now emerging as potential risks with economic dependence on the duo growing at an alarming pace.
Samsung and Hyundai Motor groups are taking larger portions of the country's economic activities, with their combined sales being equivalent to one third of Korea's gross domestic product (GDP), a report showed Monday.
As the country's economic dependence on the two conglomerates is increasing, concerns are that the whole country could be hit hard if the two groups face problems such as huge profit declines.
The report from CEO Score, an online corporate productivity evaluation service provider, said the sales of Samsung and Hyundai Motor groups in 2012 were equivalent to 35 percent of Korea's total GDP ― 23 percent from Samsung and 12 percent from Hyundai Motor.
This was a huge leap from 2008's 23.1 percent; and considering the sales of numerous subcontractors to the conglomerates, the percentage would be much larger.
Also, corporate taxes paid by Samsung and Hyundai Motor accounted for 20.6 percent of the combined total from Korea's 482,574 companies in 2012 ― 9.7 trillion won of 47.3 trillion won.
While the total corporate taxes rose 13.9 percent from 41.5 trillion won in 2008, the two conglomerates' taxes increased 232 percent from 2.9 trillion won during the same period.
On the stock market as well, Samsung and Hyundai Motor groups are powerful.
Twenty-seven affiliates of the two conglomerates are listed, accounting for 1.6 percent of 1,741 companies listed on the KOSPI and KOSDAQ bourses. But their aggregate market value accounts for 36.5 percent of the total.
Their aggregate market value hiked 226 percent from 134.1 trillion won in 2008 to 437.6 trillion won last year. During the same period, the value of other listed companies grew 70.9 percent.
Experts say that Korean economy is getting more dependent on the two groups, causing economic polarization.
"The two conglomerates' superior performance overlooks the fact that most firms, especially small- and mid-sized ones, are suffering from difficulties in turning a profit," professor Kim Sang-jo at Hansung University said.
"The nation's entire economy can be damaged if the two groups' profits decrease or other problems occur at them."
As he noted, Korea's stock market has plunged since the beginning of this year amid negative outlooks on Samsung Electronics' 2013 fourth-quarter profits. The firm's operating profit, announced on Jan. 7, was 8.3 trillion won, lower than expected, and the company's aggregate market value dropped by about 12 trillion won compared to the beginning of the year.
Examination underway
Finance Minister Hyun Oh-seok said the government is examining the Samsung and Hyundai Motor-centered economy.
"As we analyze economic polarization, we need to study the dependence on specific companies," he told reporters, adding it does not necessarily mean changes in government policy.
Park Ju-gun, head of CEO Score, said the portion of a handful of top companies' sales to GDP is not large in countries with stronger economic structures.
"A country needs to have a balanced portfolio in order to have a strong economic structure. If some specific firms take up a considerably large portion in the portfolio, it means the country's economic structure is stagnant," he said.
Park said Korea needs more globally competitive firms. "Korea's entire industrial structure focuses too much on automobile and IT. The government should make efforts to foster the more diverse potential that Korea has."
Kim said not only small but also many large companies suffer from financial difficulties, and such firms should undergo restructuring, through which good and bad firms are sorted out. "After sorting out, the country should focus on channeling its economic resources into good ones," he said.
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