By Yoon Ja-young
Samsung Electronics' weaker-than-expected earnings in the second quarter raised concerns not only about the company's outlook but the economy's heavy dependence on the tech giant.
Samsung Electronics estimated last Tuesday that its second-quarter sales fell 9.5 percent and operating profit by 24.5 percent from a year ago, amid a slowdown in its smartphone business.
The news rattled the market as Samsung has huge significance in the country's economy, along with Hyundai Motor. Samsung Group recorded 380 trillion won sales in 2012, and Hyundai Automotive Group 164 trillion won, which compares with the country's total GDP of 1.2 quadrillion won. These two companies take over 30 percent of the total operating profit by Korean companies.
Some people point to the examples of Sony in Japan or Nokia of Finland, which also took huge part of the economies. Nokia took 20 percent of the Nordic country's export and 23 percent of total tax revenue between 1998 and 2007, but failed to survive the shift to smart era. With the fall of Nokia, the Finnish economy was hit by minus growth, soaring unemployment, and plunging consumption.
"Samsung Electronics and Hyundai Motor represent IT and automobile, the main export items of the country. They have huge significance as the Korean economy is highly dependent on the export," said Ju Won, a chief economist at Hyundai Research Institute.
He said the market was overreacting as the two companies aren't having serious problems like default or deficit.
In the long run, however, he said that country's growth potential will be affected if the two main pillar companies lose in the global competition.
"Their main products, like Galaxy smartphones and memory chips of Samsung Electronics, are increasingly chased by Chinese companies," he said.
"Hyundai Motor is also doing well in the U.S. market, but its market share is still not very big," he added. He said that the mid-to-long term outlook for the company isn't very rosy as it is focusing on its old models instead of launching something totally new.
He said that Korean economy may follow Japanese economy, which got under-evaluated after fall of Sony and Toyota, which were the symbol of the Japanese economy.
"Not only Samsung and Hyundai, but the Korean companies in overall, should present the products that can innovate the market," Ju said. "Galaxy, in fact, was not an innovative product. It followed Apple. That's why it is now threatened by Chinese products. Hyundai cars aren't innovative either as they are focused on middle-low price market," he added.
Wi Pyoung-ryang, a senior researcher at Economic Reform Research Institute, said Samsung Electronics will continue to be good at seeking new growth engine.
However, he said that the country's economic policy has been too much concentrated on chaebol and conglomerates.
"The chaebol-focused growth strategy and trickle-down effect from there lost validity, but the government continued the myopic policy, worsening the economic polarization," he said.
The economist said that while chaebol groups have played and should continue playing critical role in the economic development, chaebol-focused policy isn't effective anymore as seen in the recent low-growth of the economy or loss of the growth momentum.
"The President Park Geun-hye administration emphasizes creative economy based on the creativity of individuals, but it will eventually fail if the fruit of the growth is concentrated on the few chaebol groups," he said.
"The government should focus on ‘fair trade' in the market, and try to nurture small and medium sized companies to reduce the economy's dependence on a handful of top chaebol," he added.
Samsung Electronics' weaker-than-expected earnings in the second quarter raised concerns not only about the company's outlook but the economy's heavy dependence on the tech giant.
Samsung Electronics estimated last Tuesday that its second-quarter sales fell 9.5 percent and operating profit by 24.5 percent from a year ago, amid a slowdown in its smartphone business.
The news rattled the market as Samsung has huge significance in the country's economy, along with Hyundai Motor. Samsung Group recorded 380 trillion won sales in 2012, and Hyundai Automotive Group 164 trillion won, which compares with the country's total GDP of 1.2 quadrillion won. These two companies take over 30 percent of the total operating profit by Korean companies.
Some people point to the examples of Sony in Japan or Nokia of Finland, which also took huge part of the economies. Nokia took 20 percent of the Nordic country's export and 23 percent of total tax revenue between 1998 and 2007, but failed to survive the shift to smart era. With the fall of Nokia, the Finnish economy was hit by minus growth, soaring unemployment, and plunging consumption.
"Samsung Electronics and Hyundai Motor represent IT and automobile, the main export items of the country. They have huge significance as the Korean economy is highly dependent on the export," said Ju Won, a chief economist at Hyundai Research Institute.
He said the market was overreacting as the two companies aren't having serious problems like default or deficit.
In the long run, however, he said that country's growth potential will be affected if the two main pillar companies lose in the global competition.
"Their main products, like Galaxy smartphones and memory chips of Samsung Electronics, are increasingly chased by Chinese companies," he said.
"Hyundai Motor is also doing well in the U.S. market, but its market share is still not very big," he added. He said that the mid-to-long term outlook for the company isn't very rosy as it is focusing on its old models instead of launching something totally new.
He said that Korean economy may follow Japanese economy, which got under-evaluated after fall of Sony and Toyota, which were the symbol of the Japanese economy.
"Not only Samsung and Hyundai, but the Korean companies in overall, should present the products that can innovate the market," Ju said. "Galaxy, in fact, was not an innovative product. It followed Apple. That's why it is now threatened by Chinese products. Hyundai cars aren't innovative either as they are focused on middle-low price market," he added.
Wi Pyoung-ryang, a senior researcher at Economic Reform Research Institute, said Samsung Electronics will continue to be good at seeking new growth engine.
However, he said that the country's economic policy has been too much concentrated on chaebol and conglomerates.
"The chaebol-focused growth strategy and trickle-down effect from there lost validity, but the government continued the myopic policy, worsening the economic polarization," he said.
The economist said that while chaebol groups have played and should continue playing critical role in the economic development, chaebol-focused policy isn't effective anymore as seen in the recent low-growth of the economy or loss of the growth momentum.
"The President Park Geun-hye administration emphasizes creative economy based on the creativity of individuals, but it will eventually fail if the fruit of the growth is concentrated on the few chaebol groups," he said.
"The government should focus on ‘fair trade' in the market, and try to nurture small and medium sized companies to reduce the economy's dependence on a handful of top chaebol," he added.
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