S.Korea's chaebols out to break slump

By JONG-HEON LEE, UPI Business Correspondent

SEOUL, Jan. 6 (UPI) -- Despite lingering business uncertainties and cloudy outlook, South Korea's main conglomerates have come up with massive investment plans for this year focused on cutting-edge technology sector.

The family-run business conglomerates called chaebol in South Korea said they were determined to beak out of a prolonged economic slump with aggressive corporate investments and marketing.


In line with the business efforts, the government has also vowed to make all-out national efforts to revive the economy, spearheading various investment projects under which it would spending 67 percent of this year's government budget in the first half.

But prospects seem not so bright as consumer sentiment and business confidence remain bleak and the won's sharp appreciation against the dollar has undermined competitiveness of South Korean products in the global market.

Samsung Group, South Korea's largest conglomerate, has taken the lead in the country's massive investment drive, unveiling a 21.2-trillion won ($20-billion) plan for this year, up 15.2 percent from 2004. The investment plan comprises 13.9 trillion won ($13.1 billion) for facility investments and 7.3 trillion won ($6.9 billion) for spending in research and development activities.


"The investment is aimed at boosting capital spending and research and development activities in 2005," Samsung Group vice chairman Lee Hak-soo said. The drastic increase in investment was worked out by the group's chairman Lee Kun-hee who called for the company to invest more in hard times to sharpen its global competitive edge, he said.

"Although uncertainty lingers for this year's economic outlook in foreign exchange rates and crude oil prices, we have set up an aggressive investment plan in line with our chairman's order," Lee said.

Based on the investment, Samsung is targeting its sale to rise to 139.5 trillion won ($131.9 billion) this year, up 3 percent from last year's 135.5 trillion won ($128.1 billion).

The industrial group also looks to increase its outbound shipment to $59.2

billion in 2005, up 12.3 percent from this year. This means Samsung-made products account for some 23 percent of South Korea's overall exports for this year that reached to a record $254 billion in 2004.

Samsung, parent to Samsung Electronic Co, the world's top memory chip maker and the world's second-largest mobile phone maker, forecast that growth in its revenue would slow down this year because of the strong won against the U.S. dollar and high production costs caused by strong oil prices.


Samsung said it would focus its business on semiconductor and liquid crystal display (LCD). Samsung Electronics, the world's largest LCD maker, plans to invest 286.7 billion won ($271 million) to build its second seventh-generation thin film transistor-liquid crystal display (TFT-LCD) production to meet rapid growth in demand for large-sized LCD panels.

Samsung Electronics, Asia's most valuable technology firm, forecasts its annual TFT-LCD to hit a record high of 10 trillion won ($9.5 billion) this year. It also forecasts demand for mobile phones in the United States to grow 7 to 8 percent to 114 million units in 2005, up from 106 million units last year, but expected a slowdown in the U.S. semiconductor market this year.

On Thursday, Samsung Electronics said it has developed the world's first mobile phone with the capability to convert spoken words into text messages. This "revolutionary" speech-to-text Voice ode capability will allow users to speak into the phone and have the phone convert those words directly into text, it said.

LG Group, South Korea's second-largest conglomerate, has also said it would pump up corporate investment by 26 percent from last year to reach 11.7 trillion won ($11.1 billion), comprising 8.3 trillion won ($7.8 billion) for facility investments and 3.4 trillion won ($3.2 billion) for research and development activities.


The conglomerate is targeting a 15 percent rise on-year in 2005 sales to 94 trillion won ($88.9 billion) through increased exports and sales of flat screens and aiming for 2005 exports of $39.2 billion, up 30 percent from a year earlier.

The group's affiliates includes home appliances maker LG Electronics Inc., flat screen maker LG.Philips LCD Co. Ltd. and chemical company LG Chem Ltd. LG Group said its investment would be focused on LCDs, plasma display panels (PDPs) and batteries.

"We plan to use some 60 percent of R&D spending for our core sectors such as digital TVs, next-generation cell phones and other new high-end appliances," said Jung IL-jae, LG vice president.

Hyundai Motor Group, which has South Korea's largest automaker of Hyundai Motor Co., has earmarked 6.76 trillion won ($6.4 billion) for its investment this year, up 23.8 percent, to expand production and boost research and development.

"Although this year will see many difficulties such as weak domestic demand, a global economic slowdown and unstable foreign exchange rates, we will continue our growth momentum and focus on quality and innovation," Hyundai chairman Chung Mong-koo said.

Hyundai, which aims to become one of the world's top five car makers together with affiliate Kia Motors Corp., is aiming for sales of 2.39 million units worth 36.2 trillion won ($34.2 billion) in 2005, up from provisional 2004 sales of 2.1 million units. The group hopes to capitalize on its U.S. plant in Alabama, which starts operation in March, as a major springboard to become a top five global carmaker.


SK Group, South Korea's fourth-largest conglomerate, also said it will increase its capital spending by 22 percent to 4.9 trillion won ($4.6 billion) this year. The group said it aims to achieve sales of 57 trillion won (53.9 billion) in 2005 through increased capital expenditures.

Upbeat about the conglomerates' massive corporate investment plans, President Roh Moo-hyun said his government would do its utmost to support economic growth through public investment plans.

"We will do the utmost to boost investment to support growth potential by 1 to 2 percentage points," Roh said in a speech to a gathering of business executives this week. The government plans to spend 66.7 percent of the total earmarked for this year in the first half.

"It is the largest ever for the first half. We will tap into the national tax and other revenues to mobilize funds for the front-loading," said Ban Jang-sik, chief of the budget review department at Ministry of Planning and Budget.

But sluggish domestic consumption has posed a huge obstacle to the conglomerate's performance this year. Weak consumer confidence has been weighing on the economy, causing economists to forecast a mere 4 percent growth rate this year, which far below the average 7.7 percent expected to of Asian countries. The central bank has forecast economic growth will slip to 4.0 percent this year from 4.7 percent projected for 2004.


The country's business confidence dropped to a three-year low in December as consumer spending slumped, according to this weeks' data.

In another bad omen, South Korea's service industry production fell for a fifth month in November as a slowdown in consumer spending crimped sales at retailers and wholesalers, the National Statistical Office said on Thursday.

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