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Management reports, briefs issued by Samsung Economic Research Institute

Corporate Strategies for Low Growth Economy

Corporate Strategies for Low Growth Economy

KIM Seung-Pyo, KANG Han-Soo, LEE Jung-Ho, LEE Min-Hoon
KIM Ji-Yoon, KANG Sang-Koo, AHN Hyunsoup

Aug. 26, 2013

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Uncertainty is weighing on the global economic recovery and there is mounting consensus that the decelerating growth of recent years is the prelude to prolonged sluggishness. After reaching 5.2% in 2010, global GDP growth dropped to 4% in 2011 and further to 3.2% in 2012. Forecasts for this year see the global economy rising around 3%.

Protracted low growth appears inevitable since it will take considerable time for countries that had implemented extreme measures during the global financial crisis to restore and normalize their economy (i.e., resolving excess liquidity, etc.). The dim view is shared in Korea. In a Samsung Economic Research Institute (SERI) survey of CEOs conducted in April, half of the 603 respondents predicted low growth would continue for more than three years, and 21.4% said it will last more than five years.

Compared with previous downturns, the current conditions are very different in terms of length, scale and structure, and will necessitate a fundamental shift in business strategies. If business cycles were categorized in meteorological terms, a recession would be "winter," but a long period of low growth would be a "Little Ice Age" because its continuous abnormal temperatures would cause a drastic change in the ecosystem. Just as nature undergoes fundamental changes when the average temperature varies 1 to 2 degrees, a 1 to 2% percentage point decline in economic growth rate for several years will inevitably alter the corporate ecosystem.

Companies will have to accept low growth as a new economic order, or a "New Normal," and adjust accordingly to maintain competitiveness and financial health.

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