South Korea - Forecast for Corporate Investment and Employment

The downturn of the world economy after the rapid recovery from the global financial crisis is making itself felt in the Korean economy. Korea’s exports have been brisk, but are now likely to contract due to external instabilities like financial troubles in Europe and worries over a double dip recession in the US.

Much attention is focusing on the status of investment and employment, as they are closely related to exports.

This installment will cover the forecast for corporate investment and employment for the rest of 2011 and 2012, based on surveys conducted from August 22 to August 30, 2011 on the plans of 500 listed companies in the third quarter.

There are three characteristics in corporate investment plans.

First, appetite for investment seems to have declined slightly in the second half of 2011. Among the respondents, 19% said they had a shortage of production facilities, lower than the first quarter’s 25.6%. This was reflected in investment plans. While the share of companies planning to increase investment declined from the first quarter’s 45.8% to 42.8%, those considering a decrease climbed from 10.4% to 14.0% during the same period. It appears that political instability in the Middle East and the financial crisis in Europe has dampened companies’ investment plans

Second, sentiment for investment will continue to decrease among companies in 2012. Increase in facilities investment is likely to slow in 2012 compared to the previous year. While 42.8% of companies planned to raise investment in 2011 and 14.0% planned to reduce it, the figures changed to 26.8% and 15.6% respectively for 2012. As such, fewer companies planned to increase investment while more will decrease it compared to a year earlier.

Moreover, the main purposes of facilities investment has shifted to expanding existing facilities and improving, maintaining, and repairing outdated facilities, instead of entering new business areas.

Third, about two thirds of surveyed companies are supplying investment capital from internal sources. Internal and external economic instability have raised dependency on internal funds. On the source of their investment capital, 64.8% of respondents said they were financing business activities from internal sources, while 22% of respondents indicated they were using loans from banks and non-monetary financial institutions, and 4.4% stated they were raising capital from issuance of stock and corporate bonds.

Next to discuss are the characteristics of companies’ employment plans.

First, businesses reporting intent to engage in new hires for 2011 declined slightly in the third quarter to 30.6% from 32.7% in the first quarter. At the same time, the percentage of companies planning to reduce employment increased from 11.2% to 12.4% during the same period.

The biggest cause for new hiring in the second half was “to fill vacancies,” followed by “hiring for expansion of business,” and “preemptively securing talent to enhance competitiveness.” This implies that companies are more likely to be conservative about employment, as economic uncertainty grows.

Second, employment growth is expected to slow in 2012. Of the surveyed companies, 16.4% said they would raise employment while 9.8% said they would reduce it in 2012. Considering that 30.6% said they would increase employment in 2011, relatively fewer companies are likely to hire more employees.

Third, newly employed regular employees taking their first jobs will account for two thirds of new employment. When asked which employment types they would increase most in the second half of 2011 compared with the first half, 63.8% answered new regular employees while 23.2% said experienced regular workers. By corporate size vis-à-vis the average, large companies employed more new regular workers, while smaller ones recorded an above-average share of experienced workers. This indicates that small and medium enterprises are having a hard time finding a skilled workforce.

All in all, investment and employment for the immediate future will be below the levels of 2010 and the first half of 2011, when the economy was recovering from the global financial crisis. Then, how can companies boost investment and employment under the current circumstances?

Although it may not be easy, companies need to act wisely to turn crises into opportunities. In the face of growing uncertainties both at home and abroad, companies can aim for emerging economies, which still present growth opportunities that can raise investment demand. In new businesses they are developing, companies can bolster investment and technology development to create a competitive advantage while they still can. At the same time, companies can also create more jobs through work sharing by introducing flexible wage and work hour systems. To ensure continuous growth of corporate investment and employment, all economic players, including households, companies and the government will need to cooperate with each other.

LEE Chan-Young          

Samsung Economic Research Institute

Business & Investment Opportunities

YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Consulting, Investment and Management, focusing three main economic sectors: International PR; Healthcare & Wellness;and Tourism & Hospitality. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programs. Sign up with twitter to get news updates with @SaigonBusinessC. Thanks.