[THE INVESTOR] Although service businesses make up a big part of South Korea’s leading conglomerates, they are not delivering enough profits, according to analysis results on July 13.

The analysis by corporate tracker CEO Score compared the business performances and new employment of service-related affiliates of the 30 top conglomerates from 2010 to 2015.
 
Results showed that in 2015, 66 percent of the conglomerates’ subsidiaries were engaged in service-related business with 43 percent of the employees working in the service sector. 

In terms of sales, the 720 affiliates recorded 420.3 trillion won (US$365.85 billion), or 34 percent of the conglomerates’ total sales, suggesting that this line of business wasn’t bringing in the expected gains.

South Korean companies have been manufacturing-focused in an economy that relies heftily on exports. 

The government is executing policies to spur on the service industry as the future source of economic growth. On July 4, the government announced a latest set of policies to create 250,000 jobs in promising service sectors by 2020 and provide the same level of tax benefits to service businesses as those in manufacturing.

An analysis by CEO Score said sales growth in service businesses at conglomerates rose 0.9 percentage point in the 2010-2015 period. Operating profit actually fell from 30.8 percent in 2010 to 30.3 percent in 2015.

The proportion of employment in the service industry remained about the same -- 40.1 percent in 2010 and 42.8 percent in 2015.

The figures are well below the 72.9 percent median for member states of the Organization for Economic Cooperation and Development.

Despite the under-performance by service affiliates, conglomerates who have concentrated on them in the measured years fared better in sales growth than companies that stuck to manufacturing, analysis showed.

The top 30 business groups such as Lotte, Hanwha, Hanjin, KT and CJ, whose service businesses account for 50 percent or more of their entire business activities, marked a 27.3-percent increase in sales during the five years. Employment increased 42.1 percent.

By comparison, manufacturing-centered conglomerates, including Samsung, Hyundai Motor and SK, saw a 9.2-percent drop in their sales during the period. Their employment increased 18.7 percent.

The top four conglomerates with the biggest sales jump in the five-year period were all service-oriented -- Hyundai Department Store, CJ, Mirae Asset and Hanwha -- who reported more than 50-percent hikes in sales.

(theinvestor@heraldcorp.com)