UK sites could suffer in Korean cutbacks as Samsung retrenches

Click to follow
The Independent Online
The international implications of the South Korean economic crisis were felt for the first time yesterday, as the giant Samsung Group, a big investor in the UK, announced a restructuring which will cut investment by about one-third. Richard Lloyd Parry in Seoul and Chris Godsmark in London report.

The company insisted that the brunt of the cuts would be felt within Korea and that the company would continue to expand overseas. But analysts believe that the weakness of the Korean won against foreign currencies, plus tough retrenchment measures likely to be prescribed as part of a bail-out package by the International Monetary Fund, will have an inevitable effect on Korean investment abroad.

Samsung's senior managers will suffer 10 per cent pay cuts as part of the restructuring, travel and entertainment budgets will be cut in half, and the company will launch a "Saving One Trillion Won" (pounds 689m) campaign designed, in the words of yesterday's announcement, "to capture the imagination and support of employees worldwide in an effort to create a more frugal Samsung".

Next year 34 product lines will be shelved, saving 1.3 trillion won. The group did not announce how many jobs this will cost, but all of the Korean-based businesses controlled by the group will be forced to eliminate a layer of management.

The group will "focus on core growth businesses, such as memory and non- memory semiconductors, telecommunications, automobiles and Samsung Corporation's retail business," according to the announcement.

Next year alone, investment will be cut from 8.2 trillion won to 6 trillion won.

Korean newspapers yesterday quoted government officials saying that they would generally "discourage" investment projects which require foreign currency funding, in an attempt to prevent any deterioration in the already stricken economy.

Korea was forced to turn to the IMF after being driven almost to bankruptcy by the decline in the value of the won, which has drained the country's reserves and raised the cost of debt repayment to foreign banks. It has also driven up the cost of foreign goods and investment and, despite Samsung's avowals yesterday, some analysts believe that a reduction in Korean overseas investments is certain.

"The first thing the IMF is likely to say is that the government needs to slam the breaks on investment, and that will particularly effect overseas projects," said Richard Samuelson of SBC Warburg in Seoul. "The government could allow interest rates to rise, and they could withhold permission for specific projects. Politically it's always easier to make these kinds of cuts abroad than at home."

In the last four years, in conscious emulation of their Japanese rivals, Korean firms have invested heavily overseas. Half of their money has gone to Asia, much of it to low-cost manufacturing projects, and just one-fifth to Europe. But 60 per cent of that total, about $6.75bn (pounds 4bn), has gone to Britain, the majority in the form of electronic manufacturing.

Samsung has three UK plants on Teeside, two of which were opened in 1995 as part of a pounds 450m investment programme. The group manufacturers microwave ovens, computer monitors and colour televisions and is thought to have so far spent pounds 60m on its drive in the British market, creating 1,400 jobs in the process.

The British arm of Daewoo, another Korean conglomerate which has invested heavily in the UK, claimed the crisis had strengthened its resolve to complete its investment programme. Daewoo is spending pounds 15m a year building up its car design and retailing operations, with a base in Worthing, Sussex, employing 1,000 staff. Another business park in Worthing is planned to strengthen the group's engineering facility.

A Daewoo spokesman said the UK operations would move into profit "sooner than people are expecting." Daewoo also makes VCRs in Northern Ireland, while Hyundai has a Scottish microchip plant.

A year ago, LG announced the UK's biggest ever inward investment project, a huge pounds 1.7bn semiconductor facility in Newport, Wales. The first stage of the investment, a computer monitor plant, began production a fortnight ago, with some 400 staff already employed.

David Rowe-Beddoe, chairman of the Welsh Development Agency, said he saw no cause for serious concern from the Korean turmoil. "We keep close contact with them. Markets go up and down but I remain confident that the Koreans will continue to invest."

All these firms face drastic and painful changes, of which those announced yesterday by Samsung are just the beginning.

Far East crisis, page 24