Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Shinsegae heir scraps global initiatives
By Park Jae-hyuk
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By Park Jae-hyuk
Over the past several years, Shinsegae Group has chalked up fast growth to become one of the country’s top 10 conglomerates.
This prompted analysts to praise Shinsegae Vice Chairman Chung Yong-jin, who has managed the E-mart discount chain and started the Starfield shopping complex.
The only son of Shinsegae Chairwoman Lee Myung-hee, however, seems not to have inherited the pioneer spirit of his grandfather, the late Samsung Group founder Lee Byung-chul who briskly tapped into global markets.
Although the heir vowed this March to expand E-mart’s exports to 100 billion won ($87 million) by 2018, the company’s business report has yet to include a blueprint for overseas expansion.
Last year, Shinsegae Group logged 31.5 billion won in overseas sales, which was only 0.1 percent of the group’s total. Among Shinsegae’s 34 subsidiaries, only four including E-mart chalked up sales overseas.
The figure might go lower as Chung officially stated that the E-mart discount chain will soon exit the Chinese market due to worsening profitability and growth.
The group’s overseas business has highly depended on E-mart, which posted 31.1 billion won in overseas sales. Shinsegae I&C, Shinsegae E&C and Shinsegae Food, which respectively posted 310 million won, 80 million won and 50 million won in overseas sales, earned the money from 100 percent intra-group transactions.
If the retail giant shuts down its six remaining E-mart outlets in the world’s most populous country, the Go Vap store in Vietnam will be the only E-mart outlet outside of Korea.
Against this backdrop, critics say that Shinsegae will become a big fish in a small pond.
“Vice Chairman Chung is famous for bringing Starbucks to Korea and being a fan of Tesla vehicles. I don’t know why such early adopters with business acumen just stick to local markets instead of wading into global markets,” said a consultant who asked not to be named. “I hope that he will show entrepreneurship.”
Shinsegae counters that it seeks to expand the company’s overseas sales by exporting E-mart’s private label products. E-mart became the first retail company which was designated as a specialized trading company by the government last year.
However, the strategy has been regarded as a threat to small- and medium-sized manufacturers’ survival because more private label (PL) products may target not only foreign clients but also domestic customers.
PL products are typically provided by small-sized companies at low margins and sold under discount chains’ brands at lower prices than competitors. Hence, many fear that such products would weigh on manufacturers, especially small ones.
As a result, some local manufacturers claimed the PL products will just allow E-mart to make profits at their expense, unlike the conglomerate’s claim that the PL products will foster the growth of small- and medium-sized enterprises.
The manufacturers also said that they may have to cut their product prices to compete with the conglomerate, or they will become mere suppliers of PL products.