[Editorial] Corporate restructuring

Amid growing concerns over the effect of a weakening yen, Korea recorded a nearly three-year high in trade surplus last month, according to government figures released last Saturday. Mainly on the back of increased demand from the U.S. and China, exports grew by 3.2 percent from a year earlier to $48.37 billion, while imports fell by 4.8 percent to $42.34 billion. The May trade surplus of $6.03 billion is the highest record since October 2010, marking the 16th consecutive month Korea’s trade balance has stayed in the black.

Whatever positive mood brought about by the trade statistics was short-lived. On the following day, the Korea Exchange made public data that showed the earnings of the country’s listed companies shrank by nearly 10 percent from a year earlier in the first quarter. The combined net profit of 625 firms listed on the main bourse amounted to 14.4 trillion won ($12.7 billion) on a consolidated basis in the January-March period, down 9.7 percent from 16.1 trillion won in the same period of the previous year. Consolidated financial statements provide an aggregated look at the financial condition and operating result of a company and its subsidiaries.

The bourse operator attributed the year-on-year fall in net profits mainly to the depreciation of the Japanese currency weighing down local exporters. The discrepancy between increasing trade surplus and declining corporate profits mirrors the structural problems of the economy that heavily relies on a handful of big companies.

According to separate figures released last week, affiliates of Korea’s two largest conglomerates ― Samsung and Hyundai Motor ― accounted for more than half of the net profits generated by the country’s top 500 companies in 2012. The combined net profit of the five biggest business groups, which include SK, LG and Lotte, took up 66.2 percent of the total, showed the data from CEOScore, a local website that tracks corporate management. It may not be an overstatement to say that many companies not affiliated with the top five conglomerates are like an empty shell in terms of profitability.

Last month’s surge in trade surplus was led by a year-on-year increase of 62.5 percent in exports of smartphones and other telecom products, followed by a 17.4 percent gain in autos. Samsung and Hyundai Motor accounted for most of the two sectors’ shipments abroad.

The recent series of trade and corporate figures should serve to shatter what some experts describe as an optical illusion that has distorted the picture of the Korean economy. Riding on growing demand from China and a weaker Korean currency, Asia’s fourth-largest economy has not done enough to enhance its industrial efficiency. The successful global performance of some large manufacturers, especially Samsung and Hyundai Motor subsidiaries, has further retarded work toward structural improvement.

In the face of tough challenges to its continuous growth, including Japan’s radical monetary easing and competition from up-and-coming Chinese companies, Korea needs to accelerate corporate restructuring. The focus should be placed on further improving the added value of competitive industries by expanding support for research and development and strengthening financial services. It needs to be reflected on that the weakening yen has not benefited all Japanese companies but mainly those that have undergone thorough structural reform to boost their competitiveness.