ed Retooling companies

The wind of change is blowing fiercely throughout the business sector with some watchers predicting the largest-ever restructuring since the currency crisis of the late 1990s.

The latest changes seem unusual, given that there wasn’t any comprehensive restructuring, even during the 2008 global financial crisis.

It’s also unusual that the restructuring drive comes at a time when the Korean economy is showing signs of an upturn. The central Bank of Korea last week revised upward its growth forecast for this year to 4 percent from 3 percent, noting that the economy hit bottom in the first half of 2011 and has been on a path to recovery ever since.

It’s not hard to understand why corporate restructuring is gripping the nation at this time. The corporate sector, except for a few globally sound companies, has been driven into a corner due to the prolonged business slump since 2008, and many of the companies under pressure have opted for restructuring as a last resort.

A look at how the retooling is progressing raises fears that another economic crisis might be imminent.

KT, the nation’s No. 2 mobile carrier, announced a plan to trim its work force by 20 percent in its first major layoff since new Chairman Hwang Chang-gyu took office.

Conglomerates such as Hyundai and Dongbu, which have been struggling with liquidity woes, have already disposed of subsidiaries and scaled back manpower in efforts to rescue themselves. The shipping, steel, shipbuilding and petrochemical industries are also in the throes of painful restructuring, and even POSCO is busy pruning away non-core assets.

More recently, financial firms have undertaken restructuring. Last week, Samsung Group’s key insurance and securities units unveiled plans to trim 1,500 and 300-500 employees, respectively, as part of their cost-cutting measures. Citigroup Korea and SC Bank Korea are also in the process of incorporating branches and reducing employees.

Admittedly, the latest restructuring drive may be inevitable, considering the need to make preemptive efforts to dispose of unprofitable units and concentrate available resources into core sectors at a time when business prospects are murky.

Retooling the financial industry is all the more necessary, given that most local financial firms are grappling with high costs and low efficiency. Japan is a case in point. In the 1990s, the neighboring country saw half of brokerage houses closed and 13 commercial banks merged into four after bubbles in the stock markets and real estate burst.

But it’s worrisome that the massive restructuring could put the brakes on our recovery momentum because it worsens labor market conditions. The government needs to keep a close watch on the ongoing downsizing and take appropriate measures.