Steel, automobiles and semiconductors have been included in the nation’s 10 major export products for the past 39 years, according to the Korea International …
By Choi Sung-jin
The ongoing industrial restructuring shows the time has come for businesses that have remained complacent with the status quo to seek changes, experts say.
The realignment of the shipping and shipbuilding sectors should be an occasion for Korean businesses to realize the need to shift to a “two-track” strategy, they say. There is no future for the Korean economy if the nation repeats plunging a scalpel into ailing industries after waiting for them to fester.
Instead, business groups have to realign their core sectors under the long-term plan of developing new growth engines, they say.
“There have been warnings since as early as 2010 that shipping operators and shipbuilders could fall into serious crises, but most businesses involved dismissed calls for realignment as premature, until their sales began to fall steeply,” said Chang Seok-in, senior fellow at the Korea Institute of Industrial Economic and Trade. “This was in part because people interpret restructuring as withdrawal from core sectors.”
Another expert agreed. “The businesses in trouble, once branded as ‘unhealthy companies’ by the government, cannot get reasonable prices here or abroad,” said Kim Yun-kyeong, assistant researcher at the Korea Economic Research Institute (KIET). “It is necessary for businesses to select new growth engines in the long term before the current one loses its momentum, and try to realign other businesses through permanent restructuring.” He cited Samsung SDI as an example.
In February, the Samsung Group affiliate and a total energy solution provider divided its chemical business department from it as SDI Chemical, and plans to sell 90 percent of it to Lotte Chemical within the first half of this year, and the other 10 percent in three years. Samsung SDI will receive about 2.58 trillion won ($2.25 billion) and invest it into expanding its battery manufacturing plants in Korea and China, as well as building new ones in Europe. In a two-track strategy, the company will have spun off its chemical business and focused on the battery business.
An industry executive said other companies, such as POSCO, GS and Hyundai Heavy, industries engaged in “vulnerable industries” as categorized by the government, should no longer adhere to previous growth engines but shift their focus to next-generation industries.
Already, global corporate giants have realigned their business portfolios and entered into new industries. General Electric, for instance, took over Alstom’s electric and energy business for 9.7 billion euro (12.58 trillion won). Siemens acquired CD-Adapco to enhance its competitive edge in electrification, automation and digitalization.
Korea’s competitiveness in new industries remains low. According to a report by KIET that compared major countries’ competitiveness in the four areas of smart cars, convergence-integration material, fusion biotechnology-health-care and Internet of Things, Korea’s stood at only 68.3 if that of the U.S. was 100 in 2015. It was higher than China’s 55.9 but far lower than Japan’s 81.5.
If Korea wants to improve the situation, the government should first ease regulations, businesspeople and academics say.
Specifically, the Korea Chamber of Commerce and Industry has asked the government to do away with the “triangle” of regulations: the approval system in which would-be entrants in new industries have to win the government’s go-ahead; positive regulations that disallow all activities except those already allowed by the government, and lack of certifying criteria that keeps businesses from releasing newly developed products on time.
“Trying to develop new industries under the government’s initiatives is an old story,” said Professor Cho Seong-hun of Yonsei University. “It is most urgent for the government to abolish regulations so that companies can conduct business activities freely.”
Another KIET researcher agreed. “During the development era, the government could select strategic industries and businesses and focus support on them,” said Choi Yun-hee, head of the future industry research team at the state think tank. “That formula can no longer work today, when the industrial environment has become more complicated and diversified. The government should limit its role to creating the market.”
Other experts took issue with the government’s incentive system that expands tax breaks for large businesses but provides no additional benefits to small and medium enterprises, which will widen further the already serious gap between them.
This can hardly be called “industrial innovation,” doing nothing about big businesses’ excessive internal reserves and the gulf between large and small companies, a critic said.
“There should be a difference between the national economy’s future course and the government’s role in it,” said Kim Jin-bang, an Inha University professor. “Reducing taxes for large companies jumping into new industries is but another special favor.”