Fears spread among South Koreans over their economy's heavy dependence on top two conglomerates after a local corporate data provider warned it.
On Jan. 13, CEO Score, an online corporate productivity evaluation site, announced a report that the ratio of combined revenues of Samsung Group and Hyundai Motor Group to GDP reached 35 percent in 2012, up from 23.1 percent in 2008.
The report terrified people as underperformance of the top two chaebols could result in overall economic slump, alerting policymakers to the need for a separate assessment of the economy after excluding business activities of the top two from total economic performance. Finance Minister Hyun Oh-seok admitted the need, saying that the ministry was appreciating economic concentration of Samsung and Hyundai.
Revenue of Samsung Electronics, the country's No. 1 company and a flagship unit of Samsung Group, equaled to 16.2 percent of GDP in 2012, according to the CEO Score. It was the highest among the world's top 20 economies in terms of GDP. The figures for the United States, China, Japan, Germany and France were far below 10 percent.
"Samsung and Hyundai's dominance will last over the next 10 more years," Park Ju-Geun, president of CEO Score, said in an interview with Xinhua Friday, at his office in Seoul filled with books on economics, politics, finance and statistics.
Park said it will take around 10 years to enhance economic constitution of South Korea, which has been bred by manufacturing exporters like Japan. Among global top 20 companies selected by the U.S. magazine Fortune, only manufacturers were Samsung Electronics of South Korea and Toyota Motor of Japan.
"It's true the economy depends on a couple of companies. It indicates the need for portfolio diversification from cars and smartphones to finance, pharmaceutical and energy sectors, not oppressing the current leading players," said Park.
BLOOMBERG OF KOREAN VERSION
Park is an expert on statistics and management analysis. When he worked for LG Electronics from late 1990s, Park was tasked with statistics-related projects, becoming the youngest master of Six Sigma Statistics in LG Group, South Korea's fourth-largest conglomerate.
When he moved to LG's strategic planning team, the South Korean tech giant was looking out for opportunities to become one of global top-tier companies. The statistical expert visited Cisco to learn its management planning, touring Toyota for manufacturing logistics, GE for personnel management and P&G for marketing.
Those careers became a cornerstone for Park to set up the CEO Score, founded in July 2012, which specializes in collecting, processing and analyzing raw data of companies that is totally different from statistical data.
"Statistics are biased as it involves a process of advancing and verifying a hypothesis. It also includes the sampling of raw data," said Park. "Big data, or raw data, does include no hypothesis and no prejudice. Big data analysis gets possible now thanks to technical development that reduces costs and time."
The founding story of the CEO Score was similar in some ways to that of Bloomberg News. Park was proposed by co-founder Ryu Tae- hyun, journalist and president of C&Media, to get into a new business, which incorporates journalistic element into big data analysis in a timely manner.
Something similar happened more than 20 years ago between Michael Bloomberg, former three-term New York mayor who founded Bloomberg News, and Matthew Winkler, former reporter at the Wall Street Journal and now Bloomberg's editor-in-chief. In this case, Bloomberg proposed to Winkler.
"What I'm pursing may not be the exact same as Bloomberg News, but my pursuit is not totally different from it," said Park, depicting his "directing point" as somewhere between academic research institutes and news media. He defined what the CEO Score will produce as in-depth reports based on timely analysis of big data.
"SAMSUNG KILLER"
With the timely analysis, the CEO Score has put Samsung in trouble several times. In addition to controversy over the economic concentration of conglomerates, especially Samsung, earlier last month, the corporate data provider rocked the country ' s No. 1 family-controlled chaebol with a report on its lackluster investment.
On Aug. 26, 2013, the CEO Score unveiled its raw data analysis that Samsung Group slashed its investment by 28 percent in the first half of last year, while Hyundai Motor Group, POSCO and Hyundai Heavy Industries lifted their investment. In consequence, combined investment of the country's top 10 conglomerates declined 8.2 percent.
The analysis came just two days before South Korean President Park Geun-hye holds her first luncheon meeting, since her inauguration in February, with chairmen of the top 10 conglomerates to ask them to boost investment and employment.
After the rollout of the CEO Score report, Samsung called an emergency press briefing, saying that it will keep its investment pledge in the second half. On Oct. 25, Samsung's future was struck by the report that the group's five new growth engines made little progress and even suffered losses.
"I'm not a Samsung killer. I really want to deny it," said Park. "Data doesn't tell a lie. We just analyzed it based on raw data. It's nonsense to call me as such due only to negative results," he added.
Last week, Park rolled out another report on Samsung, but this time, it must have delighted the group. The report said that the ratio of sales cost to revenue for Samsung Electronics fell below that of its archrival Apple in the third quarter of last year. The figures for Samsung and Apple were 59.8 percent and 62.5 percent respectively. It was far lower than Toyota's 75 percent or so.
It was a "marvelous" record given the sales cost ratio of global top 10 tech companies averaged between 60 percent and 70 percent, Park said, noting that Samsung is a set maker that builds factories and makes parts and products for itself unlike Apple, which farms out much of its responsibility for manufacturing products to China and Taiwan.
MORE RULEMAKERS
Despite the efficiency, Samsung's heavy dependence on smartphone business became risky to Samsung Group as well as to the South Korean economy. According to CEO Score, revenue in the IT & Mobile communications (IM) division, which makes smartphones, accounted for 54.1 percent of the total in Samsung Electronics last year, up from 26.6 percent four years earlier. For operating profit, the IM portion jumped to 68.4 percent in 2013 when the Galaxy smartphone maker posted record earnings.
"Samsung Electronics' concentration on its smartphone business raised possibility for damages to Samsung Group. Interdependency among the group's six electronic affiliates deepened further," said Park. Combined revenue in the six affiliates, including Samsung Display, Samsung SDI, Samsung Techwin, Samsung Electro- Mechanics and Cheil Industries, took up 58.3 percent of the group' s total in 2012, up from 53.3 percent in 2009.
Park said that Samsung must go the way of rulemakers, not remaining in the rank of players, recommending the diversification of business portfolios and following Philips and GE's suits. GE is famous for its diverse businesses, such as home appliances, power, energy and healthcare services, while Philips is known for consumer electronics, lighting and healthcare.
Samsung Group said in 2010 it will focus on five new growth engines, including medical equipment, biomedicine, light emitting diode (LED), solar cells and electric vehicle batteries. But, it showed little progress and even suffered losses in its future business portfolio.
"More rulemakers should come out in order to reduce the economy 's dependence on a couple of companies. Not a solution is seeking to kill the existing leaders like Samsung and Hyundai," Park said, adding that the government needs to provide policy support to local companies belonging to industries of a big scale such as energy, finance, pharmaceutical and food & beverage.
Source: Xinhua
