Korea, with its locomotive for growth hurt by a prolonged global economic slump, is likely to see a stronger wave of corporate downsizing in 2016. From shipbuilding, steel and airlines to banking, companies are moving to increase efforts to cut costs through jobs cut, branch closures and outsourcing, while selling off noncore assets, industry officials and experts said.
In financial districts, one of the buzzwords for this year is “voluntary early retirement,” as companies seek to reduce branch operations and payroll with the rise of online and mobile channels, a persistent drop in margins and a looming extension of retirement ages.
“Wage bills account for nearly 60 per cent of costs in local financial companies,” said Kim Woo-jin, a researcher at the Korea Institute of Finance, adding the sector, bent on cost-cutting and a leaner and healthier organisation, is likely to see further reductions in jobs.
Nearly 5,000 jobs disappeared last year across the banking, securities and insurance sectors in voluntary severance programs, with a big chunk of the losses coming from the banks.
KEB Hana Bank was the latest to announce a reduction of 690 jobs through a voluntary retirement programme. The number of job cuts, effective in late December, amounted to about 4.3 per cent of its workforce of 16,100 as of the end of November last year.
Earlier last year, KB Kookmin Bank, the country’s largest lender with about 1,000 outlets nationwide, let go of 1,122 of its staff in an early retirement scheme, while Standard Chartered Bank reduced its total workforce by nearly 18 per cent, or 961 workers, in a similar programme.
The cost-cutting drive comes as local lenders’ net interest margin dropped to 1.6 per cent in the first half of 2015 from 2.3 per cent in 2011. Experts see no sign of a turnaround in the near future as the Bank of Korea is expected to keep the current record-low interest rate for the time being.
The country’s five mainstream banks ― KB Kookmin, Woori, NH Nonghyup, Shinhan and KEB Hana ― are likely to close more than 100 branches this year, industry sources say.
In shipbuilding, where a global oversupply has led to bankruptcies of shipyard operators around the world, downsizing is a matter of survival.
Faced with mounting losses, Korean shipbuilders, including the top three players Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries, are currently undertaking harsh restructuring measures, including layoffs, closure of building berths and sale of noncore assets.
STX Offshore & Shipbuilding, the industry’s fourth largest, is among the hardest hit, with its prime creditor and state-run Korea Development Bank pushing for a corporate workout plan that entails layoffs of over 900 employees and the shutdown of three of the five building berths at its shipyard in Jinhae, South Gyeongsang Province.
Corporate restructuring and downsizing are sweeping other industries such as steel, shipping and construction, as their business outlook remains cloudy in 2016. POSCO, the world’s No. 6 steel firm, plans to sell off 35 of its affiliates or units, including overseas ones, this year, and another 25 in 2017, as it continues to slim down the business portfolio to concentrate on its core sources of revenue.
On Dec. 30, Kumho Asiana Group announced a major downsizing of its flagship unit and the country’s second-largest air carrier, Asiana Airlines, as the troubled group moves to rebuild after a liquidity crisis.
The two-year plan entails branch closures from 23 to 14 in Korea and from 128 to 92 overseas, outsourcing of airport and reservations jobs and discontinuation of unprofitable routes. Also, the number of flight attendants on short distance routes will be lowered from the current seven to six.
“To survive, we need more than just short-term remedies. From 2017 onwards, after these measures are completed, we will be able to regain competitiveness,” Kim Soo-cheon, CEO of Asiana Airlines said.