Overseas units of Korean firms lost money in 2015

Overseas units of South Korean companies were in the red in 2015 for the first time since the global financial crisis, as the business environment in foreign countries has deteriorated, a report said Wednesday.

A total of 6,045 overseas subsidiaries with more than $1 million in foreign direct investment logged a net loss of $4 billion in 2015, or $700,000 per company on average, declining 2.3 percent from a year ago, showed a report by the Overseas Economic Research Institute under the state-run Export-Import Bank of Korea.

It was the first time the net profit turned negative since 2008.

“Since the financial crisis, the operation of overseas units had recovered until 2013, but their financial health has been worsening since 2014,” the report said.

Among the 6,045 companies, more than 52 percent of the companies lost money in 2015. Both large and smaller companies suffered from worsening business conditions due to slow global demand, fierce competition and weak sales, the report said.

The total sales of the surveyed 6,045 companies was $676.6 billion, or $112 million on average, declining 11.8 percent from a year ago. Sales in the manufacturing sector, which made up 58 percent of the number of companies, fell 13.4 percent from a year ago, while sales at mining companies tumbled 37 percent.

Weak sales hurt the operating profit of overseas units. Operating profit plummeted 34.1 percent on-year to $16.3 billion, or $2.7 million per company.

The ratio of operating profit to net profit for the overseas units were 2.4 percent and negative 0.6 percent, compared to 4.7 percent and 3.3 percent for domestic companies, according to the report.

The debt-to-equity ratio also reflected the deteriorating business environment in foreign countries. The debt-to-equity ratio of overseas units reached 163.7 percent in 2015, slightly down from 164.8 percent the previous year but it was higher than the average of 128.5 percent for their domestic counterparts.

“The overseas units of South Korean companies need to revamp their management strategy from growth to profitability and reinforce localization to target local markets and counter spreading protectionism in trade,” the report said. 

By Park Ga-young (gypark@heraldcorp.com)