News Room - Business/Economics

A prolonged global economic slump and steeper competition from Chinese rivals are hitting South Korea's key manufacturers for exports hard, sparking worries that their trouble could end up hurting the country's overall economic growth momentum, South Korea's Yonhap news agency reported.

Experts stress that now is the right time for manufacturing to step up restructuring efforts to stay alive and competitive under ever-toughening business conditions.

Shipyards, steelmakers and other major businesses are heeding the call and taking diverse measures to pull out of the crisis, reflecting the seriousness of the challenges that they are confronting.

Recent central bank data showed that local manufacturers -- about 120,000 companies -- saw their combined sales shrink 1.6 percent on-year in 2014, the first such decline since related data was recorded in 1961.

The downturn seems to be worsening this year, with the corresponding figures falling 5.7 per cent and 6.3 per cent in the first and second quarters, respectively, compared with a year earlier.

Exports, which account for around a half of the country's economic growth, also remain stagnant, apparently affected by unfavorable external factors such as intensifying competition and falling demand from emerging markets.

According to government data, the country's exports plunged 15.8 per cent on-year in October, the steepest drop since a 20.8 per cent decline posted in August 2009.

Some say that South Korea is not alone in suffering from such setbacks, given that global demand is on the decline. However, Asia's fourth-largest economy is now facing much tougher challenges due to other emerging market rivals, including China, which are fast catching up and posing threats to the prowess that it has maintained in many areas.

The problem is that South Korea has heavily depended upon some major industries and many of them seem to not be making enough efforts to nurture new growth engines that could help them get through current unfavorable market situations. This has led experts to raise the need for comprehensive restructuring.

"The global industrial glut driven by China is making things tough for our major businesses such as petrochemical, shipbuilding and steelmaking," said Shin Seung-kwan, a researcher at the Institute for International Trade.

"As we have failed to move toward high-value added areas in many sectors, this makes it hard for us to compete, which raises urgent need for restructuring."

Bearing the brunt of the global slump and faced with unprecedented losses, the country's three shipbuilders are being pushed harder than others to ramp up restructuring.

Recently, creditors of Daewoo Shipbuilding & Marine Engineering Co. will pour 4.2 trillion won (US$3.68 billion) into the ailing shipyard to help it get back on track. In return, Daewoo will be required to take tough self-rescue measures, including layoffs and asset sales.

Starting around the end of next year, the company will cut back on manpower by up to 10,000 employees in phases and businesses, while reducing the share of its money-losing offshore plant construction to below 40 percent from the current level of more than 50 per cent.

The shipbuilder will also raise 1.85 trillion won through the sell-off of non-core assets, among other measures, according to the creditor.

Other major shipbuilders, including Hyundai Heavy Industries Co. and Samsung Heavy Industries Co., are also in trouble and being forced to take similar overhaul measures. The top three shipyards including Daewoo are forecast to post nearly a combined 8 trillion won in losses for this year.

Restructuring efforts have been underway as well among steelmakers, which are suffering similar problems caused by oversupply from China and mounting loss in recent years.

In July, steelmaking giant POSCO unveiled an array of business reform measures mostly centered on reducing the number of affiliates over the next few years to concentrate its capacity on four major areas -- materials, energy, infrastructure and trading.

Currently, POSCO has 48 affiliates under its wing, which will be cut by half by the end of 2017 under the measures. The steelmaker said it will also fold loss-making businesses abroad and reduce them by 30 percent.

With the restructuring efforts underway in many sectors, the government said that it will try to provide the support necessary to nurture an environment where companies can push for overhaul voluntarily and in more aggressive manners.

"There is a consensus among industry experts for the need for restructuring because they are worried that without timely restructuring measures, they also could collapse," a government official said. "The government, for its part, will try hard to create a mood in which they take the lead."

In a related move, the government recently launched a consultative committee consisting of officials from such agencies as the Financial Services Commission, the finance ministry and the commerce ministry to support corporate restructuring.