'Companies Facing a Crisis of a Different Dimension, Revising Survival Strategies with Determined Resolve'

Emergency Management Strategy Meetings Follow One Another Amid Soaring Oil, Logistics, and Raw Material Prices
Simultaneous Response to Performance Preservation and Future Growth Opportunities

[Asia Economy Reporter Kiho Sung] As the fear of a recession, the ‘R fear,’ looms over the global economy, major companies have also gone on high alert. Concerns over performance have grown due to the recession, supply chain disruptions, and cost increases from soaring raw material prices, prompting companies to enter ‘emergency management.’ It appears that business owners are focusing on reshaping strategies by holding strategy meetings themselves or convening executive meetings to revise business plans for the second half of the year. However, finding a breakthrough to overcome the crisis is not easy due to the worsening business environment and the rapidly rising labor cost burden.

According to the business community on the 21st, the securities industry recently predicted a ‘shock’ of declining profitability for LG Electronics in the second quarter. The securities consensus estimate for LG Electronics’ Q2 performance is sales of KRW 19.4307 trillion and operating profit of KRW 887.7 billion. Sales are expected to increase by 13.54% compared to the same period last year, but the operating profit growth rate is estimated to be only 1.09%. This falls far short of the Q1 sales growth rate of 18.5% and operating profit growth rate of 6.4%. The low operating profit growth rate is inevitable due to profitability deterioration caused by rising oil prices, increased global logistics costs, and raw material price hikes. In particular, LG Electronics is more negatively affected by inflation than IT component suppliers. If purchasing power declines, demand for TVs and home appliances will weaken accordingly, directly impacting performance. Last month, Chairman Koo Kwang-mo revived the first half strategy briefing after three years and personally presided over it, which is widely interpreted as reflecting a sense of crisis amid global uncertainties.

Hyundai Motor Group, which has a global regional headquarters meeting scheduled next month, is also expected to present countermeasures for the rapidly changing global market. Hyundai Motor Group holds meetings twice a year, in the first and second halves, where each company’s CEO presides, and regional headquarters heads and sales and production corporation heads attend to review regional and global overall strategies. Especially as competition in the global electric vehicle market intensifies, new tailored strategies are needed.

POSCO Group, which convened key executives earlier this month to hold its first-ever future technology strategy meeting, is also expected to hold a group management meeting chaired by Chairman Choi Jeong-woo next month. At the future technology strategy meeting, Chairman Choi said, “The new business areas of POSCO Group, such as hydrogen and secondary battery materials, must accelerate investment and focus on securing new technologies,” adding, “It is especially important to take the lead in developing low-carbon eco-friendly process technologies such as hydrogen reduction steelmaking technology.”

SK Group has already begun upgrading its management system centered on Chairman Chey Tae-won. At the expanded management meeting held on the 17th, Chairman Chey expressed concern, saying, “Analyzing corporate value limited to the current business model or area can lead to stagnation.” He urged, “We must find benchmarks or targets to follow, or boldly engage in management activities that break away from the current business model.”

In fact, domestic business conditions are becoming increasingly uncertain. Demand slowdown has fully begun in key sectors of Korean companies such as semiconductors, home appliances, smartphones, and TVs, while macroeconomic pressures such as interest rates and inflation are intensifying. The ongoing global supply chain disruptions and rising logistics and raw material prices are also negative factors.

According to the April current account goods balance (exports minus imports) recently announced by the Bank of Korea, imports rose 16.5% year-on-year to USD 55.98 billion due to rising raw material prices. This exceeds the domestic export growth rate of 11.2%, which was USD 58.93 billion.

The accelerating pace of interest rate hikes is another source of anxiety. According to the Bank of Korea, corporate loans last month increased by KRW 13.1 trillion from the end of the previous month to KRW 1,119.2 trillion, marking the fifth consecutive month of increase. As of May, this is the second-largest increase on record after 2020. As interest rates rise faster, banks’ interest expenses are also growing.

Labor costs are also a burden. While wage increase pressures are growing among major domestic conglomerates, labor unions are demanding a 30% increase in the minimum wage (effective next year), which directly affects the economies of small and medium-sized enterprises and micro-business owners.

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