Big companies' sales drop for second year

By Choi Sung-jin

For better or worse, the Korean economy has been dependent on family-controlled conglomerates, throwing in its lot with their ups and downs. So the sluggish performances of major chaebol subsidiaries over the past couple of years are a cause of concern for Korea Inc., say business watchers here.

According to FnGuide, a supplier of financial information, the sales of Korea’s 30 largest business groups grew from 1,228 trillion won ($1,016 billion) in 2011 to 1,391 trillion won in 2012 and to 1,416 trillion won in 2013 but fell back to 1,408 trillion won in 2014 and was estimated to drop further to 1,405 trillion won last year.

Especially serious was a sales setback of 37 largest businesses with annual sales of 10 trillion won or more. Their combined sales peaked at 1,214 trillion won in 2013 but fell 10.5 trillion won, or 0.9 percent, in 2014 and an additional 57.1 trillion won, or 4.7 percent, last year.

In a 2014 sales survey conducted by Statistics Korea on companies with 50 or more employees and capitalization of 300 million won or larger, their aggregate sales totaled 2,231 trillion won, down 1.2 percent from 2013, marking the first decline since 2006 when the national stats agency began gathering related figures. It is estimated that the downward trend will continue through 2015, the agency said.

Since the 1990s, corporate sales haven’t recorded negative growth except for when the nation was hit by two financial crises _ in 1997 and 2008. “Falling sales means we have to cut costs, curtailing payrolls and new investments,” said the CEO of a large business.

The Hyundai Automotive Group has set its sales target for 2016 at 8.13 million cars, 70,000 lower than last year’s goal of 8.2 million. Hyundai Heavy Industries also lowered its order-receiving target by 15 percent to $19.5 billion.

The sales drop of large businesses is ascribable to the export setback and the resultant slump in the manufacturing sector, the fall of sales prices resulting from low international oil prices, and weakened competitiveness amid intensifying challenges from foreign rivals. Global factors aside, Korea’s global players seem to have reached their growth limitations, industry watchers note.

Companies that represent Korea Inc. on the global stage, such as Samsung Electronics, Hyundai Motor, SK Innovation and POSCO, have recorded negative sales growth for two consecutive years, and their downturns were even steeper than those of other subsidiaries of the 30 biggest chaebol.

“Since the latter half of 2012, the producer price index has entered into negative territory, signaling the beginning of a long slump, which is now appearing in the form of sales drops for major businesses,” said an analyst. “The slumping sales lead to a vicious cycle of sluggish investments and fewer jobs.”

At stake is how the Korean businesses can improve their productivity, said the experts. “As Japanese companies have strived hard to improve profitability by competing with Korean businesses and without curtailing their business scale, Korean companies should do the same in competition with their Chinese rivals now,” said Richard Dobbs of McKinsey Global Insight, in an interview with a local financial paper. “This will prove to be a very cruel process.”