Korean Firms Losing Global Competitiveness
By Cho Jin-seo
Staff Reporter
The global competitiveness of Korean firms has been falling over the past five years, with their investments made since 2005 turning out to be inefficient, a recent survey showed.
According to financial analysis on 51 major companies by KB Investment & Securities, the overall competitiveness index of big Korean players is currently achieving about 90 percent of the operating efficiency of competing global firms.
The index shows that the South Korean economy as a whole was running at its most efficient between 2001 and the end of 2003. By the end of this three-year period, the competitive index soared to 25 percent higher than the global average.
A KB analyst explained this was possible because of the lessons from the Asian financial crisis of 1998.
"After the crisis, firms reduced investment and instead focused on how to maximize their return on capital spent," said Kim Sung-no, the author of the paper.
But the descent afterward was as steep as the ascent. From 2005, the competitiveness index plummeted until it hit bottom in December last year. "During this period, firms again rapidly increased their investment. It will take some time for this investment to take effect on their competitiveness, Kim said.
The KB index uses the three-year moving average of the firms' financial data in order to reflect the trend and the sustainability of their financial performance. This is determined by dividing the revenue by the sum of the cost of sales, operational cost, and additional capital investment.
The index shows how efficiently a firm is using its resources to produce goods and services.
Among 13 industrial sectors, firms in the steel (POSCO, Hyundai Steel), electronics (LG Electroincs, LG Display, Samsung SDI), and Internet (NHN, NCsoft) industries were found to have a higher competitiveness ratio than their global peers. On the contrary, utility and telecommunication firms were less efficiently managed than foreign firms.
To the surprise of many, the indices for the semiconductor and automobile industries, the twin engines of South Korea's export, were lower than the global average.
"In 2010, the competitive index for South Korea's automobile industry is likely to be relatively weak, but it is expected to improve to the global average in 2011," the report said. "Japanese makers are going to lose their competitiveness between 2010 and 2011, while Korean and Chinese makers catch up."