| A series of restructuring is sweeping through the financial industry. Samsung Life Insurance, an affiliate of Samsung Group considered a safe zone from restructuring, has dismissed 15 out of its 70 executives and plans to lay off 1,000 out of 6,700 people through voluntary resignation. Samsung Securities, which remained intact even during the downsizing crisis in the banking industry last year, is to layoff six executives and 300-500 employees.
Restructuring of Samsung financial affiliates is likely to deal a significant blow to the financial industry overall, including insurance companies, securities firms and banks. Given the stagnant growth of the Korean economy, restructuring in the financial industry is inevitable. As Samsung, the top company in the sector, is going through restructuring, it would be difficult for others to avert downsizing. For the manufacturing industry, firms can sale assets and reduce capital expenditure during a recession. But for the financial industry, layoff is the easiest way for restructuring.
Korea has learned from the 1997 Asian financial crisis that real economy cannot be stimulated without proper financial restructuring. The restructuring in the financial sector tends to be expanding into other sectors. Observers say this would be the largest in scale since the Asian financial crisis.
For restructuring to be effective, it should be conducted in a clear and swift manner. It should not fizzle out due to resistance from a militant labor union. When a layoff is inevitable, executives should be equally held responsible as employees. As for securities firms, low entry barriers and cut-throat competition against each other have made the situation worse. In addition, the management who has stuck to the traditional business mode solely dependent on brokerage services is also responsible for such restructuring.
While downsizing is necessary, strengthening fundamentals to weather a recession is also urgent. The financial authorities should carefully look around if there are unnecessary regulations and build an environment friendly for finance. Securities firms should also need to diversify their business models by strengthening collective asset management services while refraining from a cutthroat competition. If the financial industry continues the cycle of expanding during a booming period and downsizing during a recession, it would not be able to join the ranks of the advanced financial industry.