Hard Times Ahead for Korean Businesses

  • By Lee Sung-hoon

    November 18, 2016 12:59

    Awkward times lie ahead for Korea's big businesses.

    The ongoing probe into conglomerates involved in the crony scandal that has engulfed President Park Geun-hye will probably take a long time now the National Assembly has agreed to appoint an independent counsel and set up an investigative committee.

    The owners of top conglomerates have already been traipsing through the Supreme Public Prosecutors' Office and now face at least another three months of additional grilling by investigators and lawmakers.

    Compounding woes for domestic businesses is U.S. president-elect Donald Trump's victory, which could spell more protectionist policies in one of Korea’s biggest markets.

    Businesses are already wallowing in a severe slump. The top 30 conglomerates saw their first-half revenues drop more than three percent on-year and have slashed investments by 30 percent.

    Although big businesses are looking for new growth engines to fuel exports and domestic sales, earnings continue to decline. Exports fell 3.2 percent last month and have been declining steadily for almost two years, with the exception of a temporary increase in August.

    According to the World Trade Organization, Korean trade fell two notches to eighth place in the world in terms of trade volume this year.

    Domestic consumption is weak. Retail sales fell 4.5 percent in September compounded by the debacle surrounding Samsung's combustible Galaxy Note 7 phone, the biggest drop in more than five years.

    Ailing shipping and shipbuilding are laying off workers, with the total number of people employed in those industries dwindling by 115,000 in October alone.

    The real estate market, which had so far weathered the storm, is seeing a rapid spike, while household debt has reached a record W1,300 trillion, signaling a housing bubble ahead (US$1=W1,175).

    Adding to these woes are fears of protectionist trade policies by the Trump administration. If the U.S. designates China as a currency manipulator and slaps up to 45-percent tariffs on Chinese imports, Korea will suffer as its exports to China slow.

    Businesses are downsizing to stem the tide, but their efforts have recently ground to a halt.

    "We have no time right now to think about innovation or restructuring," one executive said. "We need to worry about our survival as we prepare to answer questions from prosecutors."

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