46% of Korean companies draw grim outlook for H2

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At a recent management strategy meeting, Company A in South Korea decided to reduce investment and secure liquidity. This is because the company believes that in order to survive in an uncertain business environment, defensive management that focuses on internal fundamentals rather than expansion is necessary.

“Not only interest rates, but also increases in various costs such as raw materials and wages are a burden for companies. In addition, the global trade environment, including the U.S. Inflation Reduction Act (IRA) and the European Union’s Carbon Border Adjustment Mechanism (CBAM), presents an obstacle for Korean companies,” an official from Company A said. “The expected impact of reopening of borders from China has not yet appeared.”

Company B has put on hold its facility investment plans for the second half of the year. It also stopped ordering additional raw materials. Instead, it is using up its raw material inventory for production. This is a strategy to maximize cash flow as business uncertainty grows.

Maeil Business Newspaper and the Korea Chamber of Commerce and Industry (KCCI) recently surveyed 73 executives from its members nationwide on their business outlook for the second half of the year. Among the changes in management strategies that will be implemented in the second half, 61.3 percent chose reducing investment, 41.9 percent increasing cash reserves, 32.3 percent reducing workforce, 29.0 percent business restructuring, and 22.6 percent managing foreign currencies. In addition, 47.9 percent said cost reduction was being considered as a contingency management measure for the second half, 45.1 percent said securing additional liquidity, 38.0 percent controlling production and inventory, and 32.4 percent reorganization.

In fact, SK hynix Co. is planning to raise about 1 trillion won ($775.8 million) by selling its water treatment center in Icheon City. SK innovation Co., CJ CGV Co. have set out to raise capital in the trillion won range. High inflation and interest rates were the top reasons for these changes in business strategy. The survey showed that 67.6 percent of the respondents cited the issues.

According to the survey, only 11 percent of respondents expect their annual sales to increase this year compared to their sales targets set at the beginning of the year. Forty-six percent expect the figure to stay on target and 42.4 percent to decline.

For operating income, 46.6 percent of the respondents expected a fall from their target set early this year, 43.8 percent expected it to be on target, and 5.5 percent expected it to be in the red. With this outlook for the second half, companies are taking contingency measures to survive. Of the companies surveyed, 46.6 percent said they have recently reflected this situation in their business strategies.

In addition to the chairmen of the surveyed 73 companies, more than 2,000 manufacturing companies also predicted a dim outlook for the second half. According to the KCCI, the Business Sentiment Index (BSI) for 2,307 manufacturers was 91 for the third quarter, down three points from 94 in the previous quarter. A BSI above 100 indicates that more firms viewed business conditions in the quarter as positive than negative compared with the previous quarter, while a reading below 100 indicates the opposite.

Six out of 10 companies said they expect their first-half results to fall short of their original targets. While 43.5 percent said they would fall slightly short, 18.9 percent said they would fall significantly short.

“While we initially expected a modest improvement and recovery toward the second half of the year, there are many voices on site that business will only rebound in the second half of next year,” said Kang Seok-koo, head of the research division at the KCCI. “In order to accelerate investment recovery and export rebound, bold policies that can reduce uncertainty for businesses, such as innovations in regulations that block investment and global-level policy support for high-tech industries, must be pushed forward.”