Downsizing Sweeps Korean Companies
By Yoon Ja-young
Staff Reporter
The automobile, semiconductor and petrochemical industries are expected to be the next targets for downsizing next year.
``While the Financial Supervisory Service (FSS) announced Tuesday downsizing of construction and shipbuilding businesses early next year, other industries might also be subject to restructuring. From automobiles and semiconductors to petrochemicals, Korea is expected to see massive downsizing next year,'' a financial source said Thursday.
The automobile industry is one of the most vulnerable sectors. It was shocked when Ssangyong Motor was issued an ultimatum from its main shareholder, Shanghai Automotive Industry Group, according to which it should accept restructuring or go bankrupt. Ssangyong, which sustained 28.2 billion won in losses in the third quarter, said it might not be able to pay its employees salaries.
Ssangyong executives will meet Seoul officials today to sound out restructuring and possible government aid. Hyundai Motor, the nation's largest carmaker, has shut down one major plant this week due to a lack of orders and is considering a temporary suspension of operations.
The worldwide automobile industry has been negatively affected by the global economic downturn, and Korea is no exception. The number of new car sales stood at 74,753 in November, down 27.7 percent from the previous year. To reduce inventory, carmakers have been suspending or reducing production.
With automakers cutting production, parts manufacturers are having trouble. At Namdong Industrial Complex in Incheon, nearly 300 businesses suspended operations temporarily, leaving 5,000 workers at home. Industry watchers say that restructuring is inevitable, especially among auto parts manufacturers.
The semiconductor industry also will be unable to avoid downsizing. Hynix Semiconductor's creditors decided to pump 800 billion won into the firm, while the chipmaker plans to sell one trillion won in assets and save 180 billion won through cost-reductions, including one of its three executives being dumped and a voluntary retirement program.
Global chip prices have fallen by 40 percent since September on excessive supply and the economic recession. ``The problem now is that demand will fall due to the economic slump. As the drop is something new, it is impossible to estimate demand,'' said SK Securities analyst Jack Park, explaining that chipmakers are having trouble estimating how much they should cut supply. The semiconductor market is expected to get worse in the second half of next year, and parts suppliers and equipment manufacturers are likely to face downsizing first.
The petrochemical industry has also faced downsizing on excessive facility investment in recent years, as well as a drop in prices following weak demand.
Despite lenders sorting businesses as viable and nonviable, the lenders themselves might also be subject to restructuring. A downsizing of the workforce is already taking place in the financial industry, with local banks receiving applications for voluntary retirement.