[Opinion] The Impact of COVID-19 and Changes in the Industrial Landscape

The market economy is dynamic in itself. In the short term, prices fluctuate according to the supply and demand of goods, and in the long term, industries rise and fall with technological advancements. Countless variables converge in the stock market. The total market capitalization represents the size of a country's economy, and the rankings of individual companies reflect the key industries. The top companies by market capitalization indicate the current state of leading industries in the economy, and especially the symbolism of the number one company is significant.

General Motors (GM) was the emblem of 20th-century American industry. "What is good for GM is good for America." This phrase became famous during the congressional confirmation hearing of Charles Wilson, a former GM president appointed as Secretary of Defense by President Eisenhower in 1952. The era of GM began to wane in the early 1970s following the Middle East oil shock. As American-made large vehicles were shunned, fuel-efficient Japanese compact cars gained popularity. In the 1990s, as Japanese companies like Toyota, Honda, and Sony advanced and traditional American manufacturing firms declined, discussions about the representative companies succeeding GM were active. While some analysts argued that Disney was the new symbol of American industry, there was strong opposition to this view, pointing out the limitations of Disney’s soft business focus on movies and content. This was a phenomenon of the transformation period where the industrial structure shifted from hardware-centered to software-centered due to the information revolution. Today, more than 20 years later, companies representing American industry such as Google, Apple, Microsoft, and Facebook are all in the software sector.

The reason for reflecting on the changes in leading American companies is that the industrial landscape of our country is rapidly changing due to the shock of COVID-19, which originated in Wuhan, China, at the end of last year. As of the end of last month, semiconductor companies maintain top positions within the top 10 of the KOSPI market capitalization rankings, alongside bio, healthcare, and IT companies. On KOSDAQ, bio companies dominate while content and gaming companies are making their presence known. The disappearance of financial, steel, and automobile stocks?once mainstays of the stock market?from the top 10 rankings indicates the intensity of the shock.

Pessimistic forecasts about the aftermath of COVID-19 abound. However, from an economic and industrial perspective, COVID-19 is a temporary shock that will pass with time, and its essence is the acceleration of digital transformation. In fact, the rapid spread of digital trends such as non-face-to-face services, platforms, big data, and artificial intelligence, which have been progressing until now, is felt in everyday life. Examples include the growth of online distribution and the decline of offline distribution, the spread of content streaming and the slump of movie theaters, the expansion of remote work in workplaces, and the introduction of remote education in schools. With the implementation of quarantine measures in living spaces, interest in hygiene and health has also increased. These changes are reflected in the shifts in market capitalization rankings in the stock market.

Leading stocks in the stock market reflect the rise and fall of industries. In early 20th-century America, railroad and steel stocks were prominent, followed by automobiles, electronics, computers, internet, and platform companies. In Korea, the focus shifted from construction stocks in the 1970s to trade, finance, automobiles, and semiconductors. About a decade ago, companies in the bio and gaming sectors, once doubted for their business substance, proudly rose to the forefront. Of course, given the volatile nature of the stock market, market capitalization fluctuates in the short term, but it is meaningful in that it reflects the rise and fall of industries in the mid to long term.

The world changes gradually. Awareness of a world that changes little by little often occurs suddenly through specific triggers. New industries such as digital and bio, which had been spreading like water seeping into sand, have come to the center stage due to COVID-19. Recent changes in market capitalization rankings eloquently indicate the shift of leadership from analog-era industries to digital industries. This is why companies need to reassess their current business portfolios from the perspective of future industries. It is also the background for policy authorities to implement policies based on openness, convergence, deregulation, and autonomy that align with the dynamic ecosystem characteristic of 21st-century new industries.

Kim Kyung-jun, Vice Chairman, Deloitte Consulting