Korea backtracks while global firms rush for restructuring drive

Korea backtracks while global firms rush for restructuring drive. January. 21, 2019 07:47. .
Businesses around the world are scrambling to reduce workforce in the wake of the New Year. In the U.S., Apple CEO Tim Cook recently announced a restructuring plan and Elon Musk-led electric vehicle manufacturer Tesla also announced on Friday a plan to cut 7 percent of its regular workforce. In the auto industry, General Motors started a massive restructuring drive late last year and decided to close seven of its plants and let go 15,000 workers, while Toyota and Nissan of Japan, Volkswagen of Germany and Jaguar and Land Rover of the U.K. also started campaigns to go slim en masse as well.

Likewise, global enterprises have begun preemptive restructuring campaigns due to growing concern over a global economic recession, and to the urgent need to prepare for the future amid an industrial paradigm shift including the Fourth Industrial Revolution. “The auto industry is fast shifting towards electric vehicles and self-driving cars,” GM CEO Mary Barra said. “We should increase our capability to secure long-term profitability and generate sales, and adapt to the changing market.” Accordingly, GM plans to reduce production of gasoline-powered vehicles, and instead double the number of experts in the software and artificial intelligence fields.

The situation in Korea, however, is quite the opposite of the global trend. Toyota, which posted a record-high profit last year, has started a restructuring drive to cut the number of executives in half, while GM also announced a massive restructuring plan the day after posting record performance. In contrast, Hyundai Motor, which continued to struggle amid lackluster performance, cannot take any action to reform in the face of resistance by its militant labor union. The Korean automaker cannot do anything without the union’s consent, including shifting of production lines, let alone seeking corporate restructuring.

Hyundai Motor is not alone. Korean companies have little room for restructuring and hence cannot proactively respond to challenges. Due to rigid rules and regulations and militant labor unions, they can hardly afford to consider preemptive restructuring and start preparation for the future. According to a survey of 252 companies by the Korea Employers Federation, 72.2 percent of the respondents expressed concern, saying, "Labor-management relations will become more unstable this year than last year.” While corporate performance has been deteriorating amid an economic recession, labor union and society has had mounting demand to increase uncertainty in labor-management relations.

In the face of the government’s guideline, companies are under pressure to hire even non-regular workers in non-core operation as regular workers. Samsung Electronics and LG Electronics directly employed thousands of vendors’ employees as their own employees last year, which could eventually add to their burden in the long term. Cutting payrolls due to recession may not the best solution. However, in order for Korean companies to survive amid cutthroat competition in the global market, they should be granted some autonomy and independence in management.

The South Korean government and ruling party are scrambling to meet with entrepreneurs and visit production sites en masse as part of their efforts to galvanize the economy and create jobs since the beginning of this year. Rather than making blank verbal pledges to create business-friendly environment, they should improve market conditions and ease regulations that only add to the burden weighing on firms. If only Korean companies have to hurdle a flurry of barriers while rival companies in foreign countries are allowed to run freely without obstacles, the former will hardly be able to survive, let alone thrive. If the government stubbornly insists on "co-prosperity," Korea is feared to end up with facing a collective fall.