"Our Company's China Business 'Warning Light'... Sales, Profit, and Market Share All Decline"

Analysis of Trends and Challenges for Korean Corporations of 30 Major Companies Investing in China Since 2016 by FKI

Data provided by the Federation of Korean Industries

[Asia Economy Reporter Kim Heung-soon] Since 2016, Korean subsidiaries of major domestic companies investing in China have been experiencing a triple hardship of simultaneous declines in sales, profit margins, and market share. There is an urgent need to normalize economic cooperation with China to discover new business opportunities.

The Federation of Korean Industries (FKI) announced on the 6th that among the top 100 domestic companies by sales, 30 large companies that disclosed their sales in China recorded 117.1 trillion won in sales to China last year, a 6.9% decrease compared to 2016.

The FKI explained that since 2018, U.S. trade restrictions against China have significantly impacted the demand for Korean memory semiconductors by Chinese companies such as Huawei, contributing substantially to the decline in sales. In fact, Korea's memory semiconductor exports to China last year decreased by 29.1% compared to 2018. As sales in China declined, the proportion of China in the total overseas sales of these 30 large companies also dropped from 25.6% in 2016 to 22.1% last year, a decrease of 3.5 percentage points.

Data provided by the Federation of Korean Industries

Korean Companies with Subsidiaries in China Show Greater Declines in Sales and Profit Margins than Japanese Firms

According to the latest management performance report on all Chinese subsidiaries of Korea and Japan, the total sales of Korean subsidiaries in China decreased by about 21.1%, from $187 billion (approximately 225 trillion won) in 2016 to $147.5 billion (approximately 171 trillion won) in 2019, based on the year-end exchange rates. In contrast, during the same period, total sales of Japanese subsidiaries in China decreased by only 1.1%, from 47.6 trillion yen (approximately 490 trillion won) in 2016 to 47.1 trillion yen (approximately 502 trillion won) in 2019.

The FKI pointed out that the total sales of Korean subsidiaries in China have been continuously declining since peaking in 2013 at $250.2 billion (approximately 261 trillion won). This is attributed to overlapping factors such as the reduction in demand for Korean semiconductors by Chinese companies like Huawei due to the U.S.-China trade war starting in 2018, decreased local demand, and intensified competition.

In fact, according to a survey by the Korean Chamber of Commerce in China conducted in February this year, Korean companies cited the main reasons for sales decline as ▲decreased local demand and ▲intensified competition, in that order. As sales performance of Chinese subsidiaries continues to falter, the number of new Korean subsidiaries and total personnel in China have also been decreasing since 2015. This contrasts with the steady increase in new subsidiaries and total personnel of Korean companies in the 10 ASEAN countries during the same period.

The operating profit margin of all Korean subsidiaries in China also fell by 2.5 percentage points, from 4.6% in 2016 to 2.1% in 2019, whereas the profit margin of all Japanese subsidiaries in China decreased by only 0.2 percentage points, from 5.5% in 2016 to 5.3% in 2019.

Data provided by the Federation of Korean Industries

Declining Status of Korean Brand Passenger Cars, Cosmetics, and Smartphones in China

The FKI analyzed that the reason Korean subsidiaries in China have experienced greater declines in sales and profit margins than Japanese firms since 2016 is due to the continuous decrease in market share of key Korean brand products such as automobiles, cosmetics, and smartphones in the Chinese market.

The market share of Korean brand passenger cars in China dropped by 3.7 percentage points, from 7.7% in 2016 to 4.0% in the first nine months of 2020. In contrast, the market share of Japanese brands increased by 7.2 percentage points during the same period, from 15.1% to 22.3%.

Korea's share of the imported cosmetics market in China also declined by 8.1 percentage points, from 27.0% in 2016 to 18.9% in 2020, while Japan's share increased by 8.0 percentage points, from 16.8% to 24.8% during the same period.

Additionally, Korea's market share in the Chinese smartphone market lost its presence, falling from 4.9% in 2016 to less than 1% since 2019, due to the aggressive advances of Chinese companies such as Huawei and Xiaomi.

Furthermore, risks have expanded due to COVID-19 and U.S. measures to block China's technological rise, resulting in a 23.1% decrease in Korea's direct investment in China last year compared to the previous year.

Kim Bong-man, head of the FKI International Cooperation Office, stated, "It is necessary to actively operate official and unofficial economic consultative bodies between the two governments to resolve the difficulties Korean companies face in doing business in China." He added, "Through this, support should be provided so that companies can discover new business opportunities in China in emerging growth sectors such as cultural content, hydrogen energy, and biotechnology."

This content was produced with the assistance of AI translation services.