In 2013, persistent low growth in the global economy and new governments in major countries will shape the business environment. Korean companies will have to be aware of three major characteristics of the situation ahead.

First, the sluggish prospects will last through the year, prolonging the worldwide L-shaped slowdown. In other words, businesses will need to prepare for a difficult, long haul.

Second, the weak growth will not spare any region or industry. The currency crisis at the end of the 1990s struck Asia, the collapse of the information technology bubble in the early 2000s roiled the U.S. and the global financial crisis has been felt primarily in the U.S. and Europe. Now, both emerging market economies and advanced countries are faltering.

Although Korea and its Asian neighbors rebounded quickly from the global financial crisis itself, their export-dependent economies have succumbed to the U.S. and Europe contractions. Furthermore, not only traditional industries such as steel and shipbuilding, but high-tech industries such as IT, biotech and solar energy, and service industries are all experiencing a downturn.

Third, in the past, Korean companies could overcome a downturn by ramping up their economies of scale. The mantra now is to rationalize operations in order to increase quality and fitness to stay ahead of competition. They will have to continue to guard against the “structural inertia” of conventional goal-setting based on expansion.

Six issues for companies

Korean companies in 2013 will be confronted with both high expectations and responsibilities in both business and social performance as new winds blow through society. As the world economy struggles with protracted lower growth, companies will need to actively embrace change if they are to survive and prosper.

1. Improving business fitness: rationalize, strengthen capabilities

Korean companies have done well in contending with the fallout from the global financial crisis, but they are finally buckling under the anemic conditions in the U.S. and Europe.

Total debt held by Korean companies reached 1,360 trillion won as of the end of June 2012, accounting for 108 percent of GDP. Worse yet, 74 percent of companies reported worse-than-expected operating profits for the third quarter and a quick turnaround is unlikely anytime soon.

Businesses in Korea will need to switch gears to rationalizing their operations and assets and increasing their fitness. To this end, they need to comprehensively review their internal and external resources to strengthen their core capabilities, while building business platforms and expanding collaboration with outside partners.

In R&D, they need to tap innovation in source technologies, which require large investment and carry substantial risks, and cooperate internally on applied technologies to increase efficiency. General Electric, for example, has successfully used “business interface” experts that act as intermediaries between business project teams who understand market needs and R&D teams who understand technology roadmaps.

2. Risk management: strategic micromanagement

Uncertainty will reign in 2013, and the business environment will be like a desert. In this sense, Steve Donahue’s “Six Rules of Desert Travel” provides valuable advice. When in a desert, following your internal compass instead of using maps can help you navigate better. Likewise businesses in a difficult environment need to draw on their core internal values and skills. Stopping to rest at an oasis helps travelers recharge for the journey; likewise businesses need to rest to prevent or organizational fatigue. Making tires more flexible by deflating them can help desert vehicles handle from difficult sand dunes; just as flexibility in business strategy can help companies escape obstacles. Finally, traveling with others can increase the odds for survival; while businesses that work with others in an ecosystem can likewise better survive and prosper.

Thus in the current business environment, risk management must be first and foremost, with micro adjustments made constantly. Crisis factors must be constantly monitored, and emergency plans containing the adjustments must be prepared for various scenarios. Top management must practice “strategic micromanagement” that directly and thoroughly deals with the core points of company competitiveness. This does not mean creating more paperwork and authorization procedures. It signifies that top management must thoroughly confirm and intervene in areas like core products and services and points of customer contact.

3. Fair play: ethical practices, CSR

Corporate social responsibility is now emphasized more than ever along with a social atmosphere that lays importance on sustainable development. Companies thus need to ramp up efforts for ethical practices, including stronger supervision of corruption and unfair labor practices, and employee education and prevention against immoral activities. H&M, a Swedish multinational retail clothing company known for its fast fashion clothing, dispatches its manpower to supplier companies to monitor whether they observe work environment laws and whether or not there is exploitation of labor. It strictly manages whether there are unethical elements in production and transactions.

Even amid a low economic growth period, companies should place social responsibility at the core and continuously promote it to gain credibility by customers. This year, Samsung Group and the Ministry of Education, Science and Technology jointly launched “Dream Class,” a program that provides after-school study for 15,000 middle school students from low-income families. Corporate citizenship activities should be linked to companies’ core businesses to strengthen competitiveness, rather than promoting them separately from other businesses.

4. Building an ecosystem: strategic collaboration

As low growth becomes more pervasive and access to markets become more restricted, competition with firms in other industries will increase. Accordingly, companies need to look broadly at market dynamics, building partnerships that can help deal with an environment of hyper competition. To this end, strategic collaboration with not only partner firms but also companies in other industries should be made to create synergy and fortify competitiveness. This can ultimately increase the competitiveness of a company’s business ecosystem.

U.S. automaker Ford, for example, had the lowest level of satisfaction among its suppliers in 2007. It introduced a program to share work with its primary partners by inviting their technical workers for three-month visits to Ford plants. This improved partner relations and increased the competitiveness of Ford models, and by 2010 Ford was No. 1 in the industry supplier satisfaction.

Companies will also need to create new market opportunities by focusing on “customer share” rather than just market share. To this end, they need to carefully observe consumer lifestyles to understand customers’ purchasing decisions while developing strategic collaboration with other businesses.

5. Appreciation of Korean won

The Korean won has rapidly appreciated following advanced countries’ announcement of additional quantitative easing measures, hurting the export competitiveness of Korean companies and putting them at increased risk. The won had weakened in past economic downturns, but in the current slowdown, the currency has appreciated due to accommodative monetary policies in advanced economies.

This requires not only cost reductions but also non-price strategies. When the Japanese yen was high in the 1980s and 1990s, Nidec, a Japanese manufacturer of electric motors, focused on developing “only one” products under a principle of “Place Nidec motors in all moving machines,” eventually dominating the world’s small motor market.

For the Korean domestic market, the non-mainstream classes, or the so-called “3S,” should be tapped into: the 4.4 million “single” households whose number is increasing at the fastest pace in the world, the “silver” generation whose market amounts to 33 trillion won, and the “second” customer groups that had previously been excluded from businesses’ primary target. The 10 million inbound tourists should also be tapped into, developing customized products and stores for and strengthening sales marketing on them.

6. Emotional support: revitalization and encouragement

With workers facing increasing anxiety and stress due to uncertainty about their employment and company, businesses need to communicate emotional support and inspiration to have them feel secure and to motivate them. Professor Rosabeth Kanter at Harvard University has noted that employees will use their imagination to overcome crises only in a culture and environment that cares for them. Companies need to keep morale high among employees by showing they are valued by management.

Anheuser-Busch InBev, the world’s No.1 beer manufacturer based in Belgium, increased its employees’ commitment and enthusiasm by introducing a set of goals and a compensation system that makes employees feel more connected. The company was able to win the hearts and minds of its employees by presenting “emotional goals and visions” that are both feasible and directly perceivable.

For customers discouraged by a slumping economy, communication that provides encouragement and hope is critical. Cultural and entertainment phenomena like rap singer Psy, “The Immortal Classic,” “The Thieves” and “Gwanghae: The Man Who Became King,” or “Gag Concert” that grasped consumers’ underlying needs and feelings can be used to deliver messages.

By Lee Dong-hun 

The article was contributed by the Samsung Economic Research Institute. The author is a research fellow at SERI. Other SERI fellows - Kim Jin-hyuk, Seo Min-soo and Kim Ji-yoon also worked on the report. ― Ed.