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Companies Asking Themselves, “How Should We Plan for Next Year?”

Companies Asking Themselves, “How Should We Plan for Next Year?”

Posted November. 09, 2004 23:08,   


Most employees within the business planning division these days are far from leaving work at a regular time like Manager Kim. Around this time of year (the beginning of November), the business planning division must complete analysis of the prospective business environment for next year as well as the internal situations. The CEO decides the basic business plans and goals based on this analysis.

However, because there are so many risk factors regarding next year, many employees in charge of such planning still have not confirmed the prospects for the business environment. They are also struggling on how to prepare for the worst –case scenarios.

The risk factors that many businesses commonly struggle with consist largely of four factors: the exchange rate risk, China-related risk, the question of domestic spending recovery, and non-economic variables.

Exchange Rate Risk and China Risk-

Many companies are struggling over estimations on how fast and how much the won-dollar exchange rate will drop.

At the end of October, the Hanwha Group estimated the won-dollar exchange rate to be at 1130 won per dollar for next year, but with the exchange rate’s sudden fluctuations recently, this group is undergoing another business planning period.

Many companies are planning the standard exchange rate to be around 1050 won. The number of companies that are going for the worst scenario, in other words, analyzing the won-dollar exchange rate drop when the export shows loss, is also increasing.

Businesses such as LG Chem, who emphasizes exporting to China, and companies like Hyundai-Kia Motor or LG Electronics, who own large-scale operation plants in China, are struggling because of the China risk factor. The point revaluation of the yuan and how the economic growth rate is estimated have huge impacts on business plans.

Unpredictable Domestic Spending-

Domestic businesses including retail, fashion, home appliances, food and beverage, are facing hardships, as they are unable to predict recovery of consumer confidence. An official from Lotte Group said, “The government has released a report that the domestic economy has reached a low point, and in the field, reports saying that consumer confidence is far from recovering keep coming up, so it is hard to settle on a basic business plan.” There are also many distributors that are unable to decide whether they should open a new discount store or not.

Financial companies such as banks are also worrying over the standard for the delinquency rate on small and medium businesses and self-employed individuals. Yoo Yong-joo, the general manager of the Woori Financial Group strategic planning team, said, “If the domestic economy stagnancy continues, many small and medium businesses are estimated to reach their limits,” and added, “Next year’s risk for banks depends on the loan management of small and medium businesses.”

Oil Prices and Non-economic variables-

Industries that are sensitive to oil prices, such as airlines and petrochemical companies, are facing hardships over settling a standard for oil prices. Predicting the oil price has become difficult because the oil price tends to be determined by non-economic variables such as the situation in the Middle East; variables other than supply and demand factors.

Construction companies are vesting interest in governmental policy. Kwon Pil-sang, managing director of strategic planning of Daelim, said, “We are unable to plan for next year because we are unsure about the influence of the government’s real estate policy, administrative capital and the New Deal policy.”

Byong-Ki Lee Keuk-In Bae eye@donga.com bae2150@donga.com