Korea Can't Rely on 2 Conglomerates to Stay Afloat

      October 11, 2012 13:48

      Samsung Electronics and Hyundai-Kia Automotive Group are expected to post combined net profits of W36.7 trillion this year, accounting for a whopping 55 percent of the total net profits of Korea's top 30 businesses (US$1=W1,115). Last year, the figure was 44 percent.

      Samsung will likely post a net profit of W22.7 trillion this year, up from W13.7 trillion in 2011, while Hyundai and affiliate Kia together are forecast to generate W14.1 trillion in net profit, up from W11.6 trillion. Meanwhile, the remaining 27 top firms saw their combined net profits dwindle from W32 trillion to W30.8 trillion over the same period.

      This shows the divide in earnings is widening even among large corporations as well as between small and big businesses.

      Samsung and Hyundai-Kia should of course be praised for managing to boost their net profits by such a huge margin amid the global slump. While competing fiercely with Apple, Samsung has rolled out one hit mobile gadget after another and posted a record operating profit of W8.1 trillion in the third quarter alone. Hyundai-Kia boosted their global market share while Toyota and other rivals faltered.

      But having the entire Korean economy propped up by the successes of a small handful of super-businesses is just too risky. It grew at a breakneck speed of 8.9 percent in 1995 powered by a booming semiconductor market. But the country suffered an increasing trade deficit the following year as chip prices plunged, and eventually turned cap-in-hand to the International Monetary Fund in the 1997 Asian financial crisis. It could end up facing another crisis if it rests on the laurels of booming smartphone and car sales.

      If Korea is to avoid the risks caused by the widening gap between companies, successful businesses must be nurtured in other sectors as well. Businesses have to strive to become more competitive and bolster their capabilities. And the government needs to support promising small and mid-sized companies so that the gap can be narrowed. The economy cannot rely on just Samsung and Hyundai to stay afloat.

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