Small firms face live-or-die situation
Companies from this country recorded 12.5 percent growth in FDI projects overseas in 2010.
Associated capital investment rose by 36 percent, making the country the sixth largest overseas investor in 2010, up from eleventh place in 2009.
These companies created an estimated 106,443 jobs overseas in 2010, which is 50 percent more than in 2009 and more than the jobs to be created in the U.S. within five years after the KORUS FTA goes into effect.
The 106,443 jobs were the results of 171 projects and almost $32 billion in estimated capital investment _ an increase of 38 percent compared with 2009. This country is now the world’s fifth largest creator of overseas jobs.
What country is this? The answer is Korea. Korean companies were among the fastest-growing investors overseas in 2010.
When it comes to the consistent, sustainable business growth of a big company, the key element lies in strong commitment to the global marketplace.
In the case of Korea, where the won has been climbing sharply these days has been weakening the export competitiveness of Korean companies, the global presence of a company or business diversification is a reliable way to minimize exchange rate risk.
In finance, diversification means reducing risk by investing in a variety of assets to minimize or eliminate their exposure to company-specific risk, to minimize or reduce systematic risk and to moderate the short-term effects of individual asset class performance on portfolio value.
Therefore, any risk-averse investor will diversify to at least some extent. The greater an investor’s risk-aversion, the greater the diversification.
This principle of diversification can also be applied to corporate strategy. In corporate portfolio models, diversification is considered vertical or horizontal. Horizontal diversification is thought of as expanding a product line or acquiring related companies.
Vertical diversification is synonymous with integrating the supply chain or distributions channels.
Conglomerates follow a non-incremental diversification strategy in which individual business lines have a low level of correlation with one another while the company achieves diversification from external risk factors to stabilize and provide opportunities for the active management of diverse resources.
As academics are concerned the true beneficiaries of won devaluation are the chaebols of a few select industries such as semiconductor, automobile, chemicals and shipbuilding, what about the small and medium-sized companies in other industries? Should they be left in the wilderness?
Given their business volume, corporate diversification - particularly the global presence of business - is by nature a challenge for small companies. However, the diversification efforts of chaebol in foreign marketplaces could be a canary in a coal mine for medium-sized companies that, inter alia, must be global supply-chain savvy to survive.
The government cannot help deter the won from appreciating for good. Along with economic growth, it’s only a matter of a few years before the won will appreciate further and hover below 1,000 won per dollar.
The harsh business environment medium-sized companies face will leave them in a live-or-die situation, like that of the Japanese medium-sized companies that used a survival strategy in the face of steep yen appreciation.
The global presence of a business or business diversification for Korean medium-sized companies is no longer an option but a survival strategy.
And the government must help them steer clear of unforeseen obstacles through the business networks KOTRA has built worldwide for 60 years.