Hard Times Force Samsung Group To Tighten Belt Giant Korean Conglomerate Takes Steps To Weather Nation’s Financial Crisis
The Samsung Group, South Korea’s largest and strongest conglomerate, says it would slash executive salaries 10 percent and end guaranteed pay raises for thousands of middle-management workers in reaction to the nation’s economic tumble.
Responding to the financial turmoil that has pummeled South Korea’s currency, battered its stock market, and forced it to request financial assistance from the International Monetary Fund, Samsung said Wednesday that it would sell off 34 product lines, cut travel and entertainment spending, reduce energy consumption and reduce capital investment by at least 30 percent.
“We are getting ready for the worst,” said Mika J. Sarkkinen, a Samsung Group spokesman. “We are taking some pretty active measurements to increase our competitiveness.”
The huge electronic maker’s aggressive moves to cut costs and horde capital signals that other, more fragile South Korean firms may be compelled to make more massive cutbacks, analysts said. With interest rates rising and economic growth bound to slow, Korean firms will be forced to lay off workers, cut salaries and reduce investment.
Moreover, most corporate leaders believe that as a condition for lending upwards of $20 billion to South Korea, the IMF will insist this nation’s long-protected economy become more open to imports. A rush of Japanese cars, U.S. made high-tech products, and imported food could force even more Korean firms out of business.
Samsung, which produces electronic products ranging from semiconductors to television sets and operates retail stores and chemical factories, employs 216,000 workers in South Korea alone and had revenues last year of $92.7 billion. The company is trying to become a major player in the world’s markets - last quarter, it became Asia-Pacific’s leading seller of personal computers, surpassing Texas-based Compaq Computer Corp., according to market research firm Dataquest. But a slowdown in the home market may further dampen its expansion plans.
By cutting executive pay and warning workers they could not expect further wage increases, Samsung appeared to be signalling its workers that the days of annual wage increases, which helped make South Korean goods less competitive overseas, are ending.
“The world is watching to see how top corporate conglomerates will lead Korea’s economy back to health and prosperity,” the company’s official statement said.
“If other firms will not or do not change, they are not realizing the seriousness of the economic situation at the moment,” added company spokesman Sarkkinen.