[South Korea Unable to Grow Large Corporations]②Global Competitiveness Declines Due to Large Corporation Marginalization

Fewer Than 10 New Entrants Among Top 10 by Market Cap
US Leads Global Hegemony Through 'Economies of Scale'
No New Entries in Global Top 100 Companies

Editor's NoteDoes South Korea have an environment conducive for small and medium-sized enterprises (SMEs) to grow into large corporations? Among the 48 business groups subject to the Fair Trade Commission's regulations on mutual shareholding restrictions (with total assets exceeding 10 trillion won and 2,169 affiliated companies), many were founded by the founding families of major domestic groups currently leading the Korean economy, such as Samsung, Hyundai Motor, and LG. CJ and Shinsegae are related to the Samsung family, while LS and LX are connected to the LG family. Since the 21st century, it has been difficult to find 'newborn' large corporations founded by self-made entrepreneurs in Korea. New large corporations like Coupang, Kakao, Celltrion, and Netmarble, which have emerged with new founders and grown their corporate size, are few and far between. SMEs fear growing into mid-sized companies. Mid-sized companies split their businesses to avoid being designated as large corporations. SMEs should grow into mid-sized companies, and mid-sized companies should rise to large corporations and compete on the global stage, but in Korea, the larger a company becomes, the more it encounters regulations that hinder growth rather than serve as a growth ladder. In the past, companies like Pantech and STX competed with existing large corporations but did not last long and disappeared into history. New large corporations are not guaranteed the time to build systems and traditions to compete with existing large corporations and, furthermore, global giants. Asia Economy aims to examine the reality of South Korea's inability to properly nurture large corporations. It diagnoses what is needed now to create an environment where SMEs want to grow into large corporations.

Because regulatory barriers are layered at the gateway to becoming a large corporation, South Korea has a structure that makes it difficult for new large corporations to emerge. This is clearly reflected in the capital markets where investment funds flow.

[Image source=Yonhap News]

As of the 16th, none of the top 10 companies by market capitalization on the Korea Exchange's KOSPI have been newly established large corporations since the 2000s. LG Energy Solution (2nd place, 2020) and Samsung Biologics (4th place, 2011) are 'new faces,' but they are subsidiaries that grew under existing large corporations and then went public. This contrasts with the United States, where two large corporations founded in the millennium era are among the top 10 listed companies. It is also difficult to find newly emerged large corporations that have grown significantly since 'Nakao' (Naver and Kakao).

On the other hand, the United States, where the share of large corporations rose from 0.56% in 2011 to 0.88% in 2021, has many giant new companies with global competitiveness. Tesla, which opened in 2003, and Meta, founded the following year, are representative examples. As of the 16th, they rank 6th (USD 891.8 billion) and 7th (USD 791.5 billion) in market capitalization among U.S. listed companies, respectively. They represent the electric vehicle and big tech eras and serve as new growth engines for the U.S.

As the share of large corporations increased, the pace of economic growth in the U.S. accelerated. From 2011 to 2021, the nominal GDP growth rate in the U.S. reached 49.4%, surpassing South Korea's 44.5%. This is the first time the U.S. GDP growth rate has overtaken South Korea's over a period exceeding ten years. South Korea's economic scale is less than 10% of the U.S., but its growth momentum is comparatively lower.

The U.S. is realizing 'economies of scale' centered on large corporations. It is common for large companies to aggressively expand through mergers and acquisitions (M&A). Microsoft's acquisition of Activision Blizzard is a prime example. MS spent USD 69 billion (about 88 trillion won) to acquire Blizzard last year. AT&T also acquired Time Warner in 2016 for USD 85.4 billion (about 109 trillion won). In the era of global infinite competition, companies strengthen competitiveness by increasing their 'weight class.'

'Economies of scale' lead to global competitiveness. According to data released by the Korea Chamber of Commerce and Industry, the number of U.S. companies among the 'Global Top 100 Companies' increased from 28 to 37 between 2010 and 2020. China also rose from 7 to 18, and Japan from 3 to 8. However, South Korea had only one company, Samsung Electronics, with no new entrants.

The same applies to the 'Global 500 Companies' list selected annually by Fortune. Since LG Chem in 2019, no new Korean 'rookies' have appeared on this list. The combined sales of Korean companies in the top 500 grew 21.8% from USD 660.1 billion in 2011 to USD 804.4 billion last year. During the same period, the combined sales of U.S. companies increased 26% from USD 7.6505 trillion to USD 9.65 trillion.