South Korean companies are tightening their belts as they prepare next year’s business plans, focusing on cost-saving initiatives and voluntary retirements. (Image courtesy of Korea Bizwire)
SEOUL, Dec. 11 (Korea Bizwire) – In the midst of a prolonged global economic downturn, South Korean companies are tightening their belts as they prepare next year’s business plans, focusing on cost-saving initiatives and voluntary retirements.
SK Group recently adopted a cost-effective approach by organizing dinner meetings at company cafeterias instead of dining out, reducing expenses to less than a third of previous levels. These cost-saving measures are aimed at maintaining communication among employees while trimming down the budget. With the uncertainty surrounding when economic improvements will materialize due to the ongoing global economic slowdown, domestic companies are bracing themselves for a frugal management strategy.
Reductions in executive promotions during year-end personnel reshuffles also reflect the overarching theme. The business community, fresh from concluding personnel appointments, appears poised to engage in discussions focused on both future preparations and cost-cutting strategies.
LG Display, Hanwha Q Cells, and Kuhmo Petrochemical are currently accepting voluntary retirements as part of their efforts to streamline operations. LG Display, for example, has offered voluntary retirement to production workers over 40 years of age at its Paju and Gumi factories for the first time in four years. Earlier this year, the company also accepted applications for voluntary leave from office employees.
High inflation and interest rates have also prompted companies in the food and retail sectors to implement workforce restructuring for cost savings. Retail giant Lotte Mart and online marketplace 11th Street have offered voluntary retirement options to their employees. Ailing businesses like Lotte Duty-Free and GS Retail also conducted similar initiatives during the latter half of this year.
Samsung Electronics has issued guidelines to minimize business trips in preparation for CES 2024. (Image courtesy of Yonhap)
The cost-cutting trend has extended to other sectors as well. Samsung Electronics, having entered a state of crisis management since late last year, has issued guidelines to minimize business trips in preparation for CES 2024, the world’s largest home appliance and IT exhibition, and the ‘Galaxy Unpacked’ event scheduled for January. SK Hynix has already reduced executive and team leader welfare and activity budgets by 50 percent and 30 percent, respectively.
Looking ahead to the new year, LG Chemical is expected to reinforce its internal cost-saving approach further, considering the continuing challenging business environment. Additionally, Hanwha Ocean has launched a new task force to establish a sustainable cost structure, offering up to 300 million won in rewards to employees for cost-saving ideas.
Moreover, to combat weak financial performance, some companies have instructed executives, traditionally accustomed to flying business class for overseas trips, to opt for economy class travel instead.
The construction industry is also expected to adopt cost-saving strategies, driven by the cooling real estate market, rising construction costs, increasing unsold housing units, and concerns related to high interest rates and project financing. In response, companies have reduced headquarters staff while increasing field personnel and focusing on restructuring to enhance competitiveness.
Smaller local construction firms are facing an even more challenging situation. With the real estate sector suffering, there is no guarantee that the government will increase public construction orders. This uncertainty has led to concerns that both small and mid-sized construction companies will face a tough year ahead.
The construction industry is also expected to adopt cost-saving strategies, driven by the cooling real estate market, rising construction costs, increasing unsold housing units, and concerns related to high interest rates and project financing. (Image courtesy of Yonhap)
In addition to cost-cutting, major companies are also downsizing the number of executives promoted during year-end personnel reshuffles. For instance, Samsung Electronics reduced the number of newly promoted executives by 23.5 percent compared to last year, and SK Group cut the total number of new executives by a staggering 43.4 percent.
Furthermore, these companies are convening meetings to discuss their business environment and review their business plans for the upcoming year. LG Group recently held an executive meeting led by Chairman Koo Kwang-mo, and Samsung Electronics is set to host a global strategy meeting starting on December 14.
The meetings will involve sharing current issues by business segment and region, setting next year’s business objectives, and seeking comprehensive crisis management strategies. LG Electronics will hold an expanded management meeting on December 15, attended by Korean and foreign executives, to discuss emergency management strategies for overcoming complex crises.
SK Group is planning to review its business plans, focusing on cost-saving measures through the appointment of new executives across its affiliates in January. Likewise, Lotte Group is scheduled to hold its first-half meeting of executives in January to discuss new year business plans and medium- to long-term strategies.
As external conditions continue to evolve, companies are closely monitoring the situation and reducing the number of promoted executives while minimizing non-essential expenditure beyond necessary operating investments. With next year’s business environment still uncertain, the cost-cutting trend is expected to persist for the foreseeable future.
Kevin Lee (kevinlee@koreabizwire.com)
