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Competitiveness of listed S. Korean and Chinese non-financial companies

With Chinese companies already becoming considerably more competitive than South Korean companies in the areas of profitability and growth, it‘s too late to worry about China catching up with South Korea, a new report suggests.

This is the conclusion of a report titled “Analyzing the Competitiveness of Companies in South Korea and China” that was released on July 5 by the Korea Economic Research Institute (KERI), which is affiliated with the Federation of Korean Industries (FKI).

After analyzing the competitiveness of publicly listed non-financial companies in South Korea and China between 2007 and 2014, the report concluded that Chinese companies were ahead of their South Korean counterparts in five indices as of 2014: profitability (operating margin), growth (sales growth rate), amount of assets, number of patent applications and value of overseas corporate mergers and acquisitions.

Chinese companies had an operating profits of 7.28%, which was three times that of South Korean companies (2.42%), while their sales growth rate (7.66%) was 130% higher than South Korean companies (3.39%). Overseas mergers and acquisitions by Chinese companies had an average value of US$7 million, which was 210% higher than South Korean companies (US$2.28 million).

In 2007, Chinese companies’ average assets were worth just 55% of South Korean companies‘ assets. By 2014 Chinese companies had overtaken South Korea in this area, reaching 103% of South Korean levels.

There were only three indices in which South Korean companies had maintained their advantage between 2007 and the present: research and development expenditure as a percentage of sales, the percentage of sales made overseas and labor productivity.

When just the top 30 companies in the two countries are considered instead of all the publicly listed companies, the situation is a little better. As of 2014, South Korean companies held an edge in five indices: average amount of assets, research and development expenditure as a percentage of sales, number of patent applications, the percentage of sales made overseas and productivity.

Even so, the top 30 Chinese companies outperformed their South Korean counterparts in the three indices of operating profits, sales growth rate and average value of overseas corporate mergers and acquisitions.

“Even in the areas where South Korea’s top 30 companies have an advantage, their lead over China‘s top 30 companies is gradually shrinking,” KERI said.

The report also divided South Korean and Chinese listed companies by their level of technology and separately analyzed their competitiveness at each level. In the low-technology level, the number of indices in which Chinese companies have an advantage increased from six in 2006 to seven in 2014. The only index in which South Korea was still ahead was labor productivity.

The number of indices in which Chinese companies have the lead also increased in the intermediate-technology level, from four in 2007 to six in 2014. Here, the only indices in which South Korean companies had an edge were the percentage of sales made overseas and labor productivity.

In the high-technology level, South Korean companies had the advantage in more indices than China in 2007 - at five to three - but by 2014, the two countries had evened out, each holding the lead in four indices.

“Looking at the situation overall, Chinese companies are outperforming South Korea at the low-technology and intermediate-technology levels, while South Korea and China are going at it hammer and tongs at the high-technology level,” KERI said.

By Kwak Jung-soo, business correspondent

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