(News Focus) General trading firms striving to diversify for survival

SEOUL, Feb. 18 (Yonhap) -- South Korea's general trading companies, once the darlings of the country's export-reliant economy, are increasingly making forays into new business sectors to survive, industry observers said Wednesday.

Last week, Hyundai Corp. said it won a US$120 million order from Russia to build
ten cargo vessels. The deal came as a surprise as local shipbuilders such as
Hyundai Heavy Industries Co. had not won any deals for a few months amid the
global economic downturn.
"We have won number of deals to build tankers and carriers over the past two
years," said an official at Hyundai Corp. "The shipbuilding business is one of
our growth engines."
Hyundai Corp., which acquired a Chinese shipyard in 2004, has won shipbuilding
deals valued at combined $303 million so far to build 28 vessels such as bunkers
and petrochemical carriers, he said.
Hyundai's rivals are also ratcheting up their efforts to venture into new sectors.
LG International Corp. is importing 200 kinds of wines from 11 countries, and
supplying them to department stores and hotels across the nation. The company
also serves as the Korean distributor for Japanese Canon cameras.
Samsung C&T, a trading company of Samsung Group, is involved in producing and
supplying stainless steel in addition to importing raw materials and selling them
locally.
SK Networks Co. is offering a 'Speed Mate' service for auto drivers. The
automotive services ranges from tire changes to fuel filing.
"The portion of their trading business is huge. But in terms of profitability,
its contribution is very small," said Park Jong-yeol, an analyst at HMC
Securities. "That's why they are in a rush to diversify business portfolios in
order to survive."
It would have been unthinkable prior to the 1997-98 economic crisis, which
buffeted the country's general trading companies, as their parent groups could
support them no longer.
But they are breaking with conventional ideas about a trading company's role. "We
have been trying to advance into new business territory to increase our revenue,"
the Hyundai Corp. official said. "We are not just export agents anymore. To earn
money, we are keen to move into niche markets."
The country's trading companies played a key role in powering the export-driven
Korean economy in the 1970s and 1980s.
They came under growing pressure to diversify their revenue sources as large
manufacturers such as LG Electronics Co. have set up their own sales and
marketing networks overseas, cutting their reliance on general trading companies.

Faced with such a trend, trading companies are increasingly branching out into
such new business lines as manufacturing, distribution and even restaurants,
analysts said.
In the past few years, they have focused on developing energy resources as part
of their efforts to secure long-term revenue sources. Hyundai and other rivals
have secured couple of oil, gas fields and coal mines.
"Their efforts have now begun to materialize," said Song Chang-min, an analyst at
LIG Investment & Securities. "Given oil fields and other energy resources held by
the trading companies, their profitability will improve down the road."
Backed by their diversified business lines, the country's major trading companies
logged better-than-expected business results last year.
Hyundai Corp.'s operating income more than doubled to 52 billion won ($35.7
million) last year on sales of 2.84 trillion won. Daewoo International Corp. also
posted a record 156 billion won in operating income, and a record sale of 11.1
trillion won last year.
"Every sector will post weak sales this year, but trading companies are expected
to weather the current economic turmoil with their diversified business
portfolio," said Park of HMC Securities.