Korea’s conglomerates cut costs amid economic uncertainty
Korea’s leading conglomerates have entered belt-tightening mode by reducing operation costs and selling unprofitable businesses, as the economy does not show any clear and immediate sign of a rebound, according to industry officials, Wednesday.
Major retailers are displaying their firm willingness to brace for the worst amid an ever-toughening market rivalry — posed by Chinese firms — and unfavorable economic circumstances.
E-Mart, the largest discount store chain here, operated by Shinsegae Group, recently decided to ban its employees and executives from playing golf and declaring it as a company expense.
The decision came after it surprised the industry by accepting its first-ever voluntary retirement following last year’s earnings shock.
Even worse, Shinsegae is facing mounting pressure to return investment worth 1 trillion won ($720 million) to two foreign private equity firms.
There stands a possibility that the group may sell off its less lucrative businesses if it fails to come to terms with the financial investors.
Shinsegae’s arch-rival, Lotte Group, is also taking similar actions, banning its staff from playing golf on weekdays or embarking on overseas business trips when the schedule includes weekends.
“Retail industry players have no choice but to tighten their belts, as the market sentiment is unlikely to revive in the near future due to the negative macroeconomic circumstance,” an official from a retail firm said. “On top of that, they also face fierce rivalry against the rapid rise of Chinese e-commerce firms, such as AliExpress and Temu.”
Manufacturing sectors are also moving to close down unprofitable businesses.
Lotte Chemical is considering selling its Malaysian subsidiary, Lotte Chemical Titan, to realign its portfolio and improve profitability.
LG Chem is reducing its workforce by accepting voluntary retirement from employees who worked for the company for more than five years, as part of its efforts to normalize its falling revenue.
The company was hit by an operating fall of 67.1 percent in the first quarter from a year earlier.
The unfavorable market sentiment, sparked by rising oil prices and prolonged high interest rates, has forced LG Chem to streamline its business portfolio.
Last year, the company sold its IT film business and suspended the operation of factories producing styrene monomers.
Samsung Electronics has introduced a six-day workweek for its executives in a move to tackle lingering management challenges posed by macroeconomic uncertainties and geopolitical risks.
SK Group executives have also started attending global strategy committee meetings on Saturdays once every two weeks.
Some other firms have decided to return part of executives’ salaries in a display of willingness to tackle economic uncertainties.
POSCO Group decided to cut up to 20 percent of the salaries of its executives.
SK On CEO Lee Seok-hee also promised to voluntarily return 20 percent of his salary until the company achieves an earnings turnaround.
“As the global economy is widely forecast to remain in the doldrums until the end of this year, most conglomerates will have to continue their belt-tightening mode for the time being,” another official from a major conglomerate here said.