By Choi Sung-jin
The corporate economy, often called the backbone of Korea Inc., is being shaken at its foundation. The number of marginal, bankrupt businesses is rapidly increasing while that of high-growth companies, capacity utilization ratios and the performance of major industrial parks are falling.
According to the Federation of Korean Industries (FKI) and the Supreme Court, 401 companies filed for bankruptcy in the first seven months of this year, up nearly twice from 214 in the same period four years ago. The number of businesses filing for bankruptcy increased from 396 in 2012 to 461 in 2013, 539 in 2014 and 587 last year.
If this pace continues, the number is expected to surpass 600 easily this year, said officials at FKI, the lobby group for family-controlled conglomerates, or chaebol.
The share of marginal businesses -- whose interest expenses are larger than their operating profit for three years in a row -- rose from 14.3 percent (3,239 companies) in 2014 to 14.7 percent (3,278 firms) last year. Among small and midsize enterprises, in particular, the comparable portion increased more sharply, from 14.4 percent to 15 percent, during the period, indicating that SMEs are struggling harder than their larger counterparts.
Also showing a downward curve is the growth of the surviving companies.
The business community regards companies hiring 10 regular employees or more and registering annual increases of 20 percent or higher in their number of employees or sales over the past three years as high-growth firms. By that standard, the number of high-growth companies has gradually declined, from the peak of 23,400 in 2010 to 20,637 in 2011, 20,212 in 2012, 17,439 in 2013 and 16,410 in 2014, recording a 30-percent drop in four years.
The situation at industrial estates, an indicator of the regional economy, has also been worsening. The number of businesses in these industrial parks increased from 45,065 in 2011 to 50,464 last year, yet their exports fell by a quarter, from $20.33 billion to $14.83 billion in the period.
Industry executives said to get over the crisis in the corporate economy, the nation needs to create an environment in which businesses can find and develop new industries.
By promoting new industries, such as mountain-related businesses and automobile tuning, through deregulation and nurturing businesses that are now in short supply, including services for the elderly citizens and marine leisure, the nation will be able not only to create jobs but also to reinvigorate provincial economies, they said.
"Amid the global trend of low growth, the competitiveness of the existing mainstay industries has reached its limits," said Bae Sang-keun, vice president of the Korea Economic Research Institute, a think tank affiliated with FKI. "Corporate Korea should regain their vigor through business realignment and active development of new growth engines. To that end, the government needs to create a favorable environment by, for instance, enacting a special law for regulation-free zones."
The corporate economy, often called the backbone of Korea Inc., is being shaken at its foundation. The number of marginal, bankrupt businesses is rapidly increasing while that of high-growth companies, capacity utilization ratios and the performance of major industrial parks are falling.
According to the Federation of Korean Industries (FKI) and the Supreme Court, 401 companies filed for bankruptcy in the first seven months of this year, up nearly twice from 214 in the same period four years ago. The number of businesses filing for bankruptcy increased from 396 in 2012 to 461 in 2013, 539 in 2014 and 587 last year.
If this pace continues, the number is expected to surpass 600 easily this year, said officials at FKI, the lobby group for family-controlled conglomerates, or chaebol.
The share of marginal businesses -- whose interest expenses are larger than their operating profit for three years in a row -- rose from 14.3 percent (3,239 companies) in 2014 to 14.7 percent (3,278 firms) last year. Among small and midsize enterprises, in particular, the comparable portion increased more sharply, from 14.4 percent to 15 percent, during the period, indicating that SMEs are struggling harder than their larger counterparts.
Also showing a downward curve is the growth of the surviving companies.
The business community regards companies hiring 10 regular employees or more and registering annual increases of 20 percent or higher in their number of employees or sales over the past three years as high-growth firms. By that standard, the number of high-growth companies has gradually declined, from the peak of 23,400 in 2010 to 20,637 in 2011, 20,212 in 2012, 17,439 in 2013 and 16,410 in 2014, recording a 30-percent drop in four years.
The situation at industrial estates, an indicator of the regional economy, has also been worsening. The number of businesses in these industrial parks increased from 45,065 in 2011 to 50,464 last year, yet their exports fell by a quarter, from $20.33 billion to $14.83 billion in the period.
Industry executives said to get over the crisis in the corporate economy, the nation needs to create an environment in which businesses can find and develop new industries.
By promoting new industries, such as mountain-related businesses and automobile tuning, through deregulation and nurturing businesses that are now in short supply, including services for the elderly citizens and marine leisure, the nation will be able not only to create jobs but also to reinvigorate provincial economies, they said.
"Amid the global trend of low growth, the competitiveness of the existing mainstay industries has reached its limits," said Bae Sang-keun, vice president of the Korea Economic Research Institute, a think tank affiliated with FKI. "Corporate Korea should regain their vigor through business realignment and active development of new growth engines. To that end, the government needs to create a favorable environment by, for instance, enacting a special law for regulation-free zones."
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