[South Korea Unable to Grow Large Corporations]③ Countries with Many Large Corporations Prosper... South Korea Resembling PIGS

Among 48 Cross-Shareholding Restricted Groups, 12 Are 'Self-Made'
South Korea's Large Conglomerate Share Among OECD Countries Is Among the Lowest
Countries with Higher Large Conglomerate Shares Also Show Higher Growth Rates

Editor's NoteDoes South Korea have a favorable environment 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. Newly emerging large corporations like Coupang, Kakao, Celltrion, and Netmarble, which have grown under new founders, are few and far between. SMEs fear growing into mid-sized companies, and 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 advance to large corporations and compete on the global stage. However, in Korea, as companies grow larger, they face more regulations that hinder growth rather than serve as a ladder for growth. Companies like Pantech and STX, which once competed with existing large corporations, could not endure long and disappeared into history. New large corporations are not given the time to build systems and traditions to compete with existing large corporations and, furthermore, global corporations. 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.

Hyundai Group, which was ranked first in the business world during South Korea's rapid economic growth in the 1970s and 1980s, fell to a mid-sized company in 2016 after selling Hyundai Securities and Hyundai Merchant Marine. Geukdong Group's Geukdong Construction and Geukdong Oil were among the top 30 large business groups until the 1997 International Monetary Fund (IMF) foreign exchange crisis but became mid-sized companies after the bankruptcies of Dongseo Securities and Kukje General Construction, later being sold to Woongjin Group. These companies once thrived as large corporations but failed to grow properly and fell to mid-sized companies.

Employees are heading to work on the morning of the 24th at the Hyundai Group building in Jongno-gu, Seoul, where the Hyundai Asan office is located, amid North Korean State Affairs Commission Chairman Kim Jong-un's critical remarks and directives regarding tourism in Mount Kumgang. Photo by Kang Jin-hyung aymsdream@

Among the 48 business groups designated by the Fair Trade Commission as subject to mutual shareholding restrictions, most are stagnant. Many share the same 'roots.' For example, the Samsung group (Samsung, CJ, Shinsegae), Hyundai group (Hyundai Motor, HD Hyundai, Hyundai Department Store, KCC), and LG group (LG, LS, LX) alone account for 10 groups. Thirty-six of these are large corporations inherited from parents or are public enterprises or cooperatives. In contrast, only 12 large corporations are 'self-made' with active founders. Limiting to those founded after 2000, only three remain: Netmarble, Kakao, and Coupang. During the same period, companies like Sambo Computer disappeared from the 'large corporation list.' Pantech, a strong candidate, vanished into history.

Countries where large corporations do not grow properly are shown to be limited in economic growth. The higher the proportion of large corporations in a country, the more likely it is to become a prosperous nation. This is why South Korea, where the proportion of large corporations is decreasing, should be cautious.

On the 21st of last month, the Federation of Korean Industries surveyed the proportion of large corporations among OECD member countries. South Korea's proportion of large corporations was 0.09%, ranking 33rd out of 34 countries surveyed, placing it near the bottom.

Among countries with populations over one million, the highest was the United States (0.88%), followed by Switzerland (0.85%), Canada (0.80%), New Zealand (0.48%), and Germany (0.44%). Greece ranked lowest at 0.07%. South Korea (0.09%), Italy (0.10%), Portugal, and Slovakia (each 0.11%) were among the bottom five countries. In South Korea, companies with fewer than 300 employees are classified as SMEs, but the OECD classifies companies with 250 or more employees as large corporations.

From 2011 to 2021, countries with the top five proportions of large corporations (with populations over one million) all recorded double-digit nominal GDP growth rates. The United States grew by 49.4%, New Zealand by 48.4%, Germany by 13.6%, Switzerland by 11.8%, and Canada by 10.8%. However, countries with low proportions of large corporations saw mixed results: South Korea (44.5%) and Slovakia (16.6%) performed relatively well, but Portugal recorded single-digit growth (3.5%). Italy (-8%) and Greece (-24%) experienced negative growth.

Portugal, Italy, and Greece, along with Spain, are known as the 'PIGS' countries. PIGS is an acronym derived from the countries that experienced fiscal crises in the 2010s. Spain also ranks sixth lowest in the OECD for the proportion of large corporations. Spain's nominal GDP in 2021 decreased by 3.4% compared to 2011.

The PIGS countries failed to improve their GDP rankings over the decade. Italy maintained 8th place, Spain dropped one rank to 14th, Portugal fell five ranks to 49th, and Greece dropped from 37th to 52nd, experiencing the steepest decline.

Although South Korea's proportion of large corporations is small, its GDP growth rate over the past decade appears to be holding up well. However, narrowing the period to the last five years reveals that it is relatively lagging in competition. From 2016 to 2021, South Korea's nominal GDP growth rate was 20.7%, ranking lower compared to the 'top five' countries such as New Zealand (32.3%), Canada (30.1%), the United States (24.7%), and Germany (22.7%).