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Businesses: We Need to Prepare Thicker Coats

Posted December. 04, 2007 04:15,   


“By early December, each subsidiary company is supposed to map out and correct next year’s plan. But it is almost impossible this year.”

“Volatile fluctuations in exchange rates and oil prices have made it impossible for us to come up with next year’s prediction. Under the emergency system, we are reviewing the existing plan in the most conservative manner.”

Major Korean companies are having trouble mapping out their management plans for next year. They are reviewing their plans by lowering their goals.

The domestic and international business environments are worsening due to the slowdown of the global economy, soaring oil prices, volatile exchange rates, and the possibility of the U.S. subprime mortgage problem spreading to the rest of the world.

Pessimism over the Korean Economy-

Major private economic institutions have begun to correct their economic projections for 2008. Most of them are pessimistic.

Samsung Economic Research Institute (SERI) lowered next year’s exchange rate from 925 won per dollar in September to 910 won in November. Meanwhile, it raised the Dubai crude oil price projection from $68 per barrel to $74 during the same period.

LG Economic Institute and Hyundai Economic Institute will follow SERI in correcting their predicted exchange rates and oil prices from September.

The industry predicts that an average of 10 won decrease against the dollar per year will lead to a loss of 220 billion won in revenue for Hyundai Motor and 300 billion won in operating profit for Samsung Electronics.

Korean Air forecasts that it will lose 30 billion won in profits if oil prices rise $1 per barrel annually.

Businesses Face Setback in Setting Their Future Plans-

There has been growing concern among business sectors as the prediction of various economic factors fluctuates.

They are delaying their future management plans and some are considering heading back to the drawing board.

SK Group and Hanwha Group did not confirm predictions for any exchange rates and oil prices. Instead, they decided to make plans based on different scenarios depending on the volatile factors.

A Hyundai Kia Automotive Group employee said, “After we set the exchange rate at 900 won per dollar, we set the rate 880 won per dollar conservatively, due to the strong won. However, it rose to 930 won per dollar nowadays, and we do not know where to fix the rate.”

Samsung Group, South Korea’s largest conglomerate, has stopped its planning in the wake of the revelation of corruption by its former in-house lawyer Kim Yong-cheol. It is expected to be hard-hit down the road.

Lowering Goals and Planning for Emergency-

Export-driven businesses that are sensitive to fluctuations in exchange rates and chemical and airline industries that are susceptible to commodity prices are de facto under the emergency plan now.

LG Chem, which heavily depends on exports, is following the “catch-up plan” that makes up for the losses by drastically cutting costs incurred by fluctuations in the exchange rates.

LG Electronics set the exchange rate for next year’s plan at 900 won per dollar.

Korean Air and Asiana Airlines are writing different scenarios based on various oil prices.

Kumho Tires decided to factor in a 10 percent increase in natural rubber prices to its plan and Hyundai Heavy Industries is pondering on the rising prices of steel plates, the primary material used for constructing ships.

Joo Won, the head of the macroeconomics division of Hyundai Economic Institute, said, “The overall business environment will deteriorate next year. Some are lowering their management goals. Emergency planning is now a hot topic among businesses.”