South Korea calls on Bain, BCG and McKinsey for declining industries

01 November 2016

The South Korean government has in recent months roped in Bain & Company, The Boston Consulting Group and McKinsey & Company to work on high profile projects. The consulting firms are taking three troubled industries under scrutiny – shipbuilding, steelmaking and chemical – and are drafting recommendations on how South Korea could transition them to better fortunes.

Sectors of South Korea’s industry are facing considerable pressures from changes in global market conditions and demand for commodities. The shipping industry in particular, has sailed into troubled waters – suffering from considerable overcapacity and high levels of debt. The steel industry also has seen considerable global pressure from lacklustre demand and overcapacity – with the largest companies sitting on considerable debt. Finally, the country’s chemical industry too has begun to feel the pinch, as demand for chemicals slows globally.

Yohap News, a local media agency, recently reported that, in bid to develop reform strategies to mitigate the effects of market change, and create long term competitive and sustainable companies, the South Korean government has called in three of the globe's leading strategy consulting firms – McKinsey & Company, Bain & Company and The Boston Consulting Group.

South Korea calls on Bain, BCG and McKinsey for declining industries

McKinsey & Company has begun working on a plan to support the country’s ship building industry which, given the downturn in global shipping, has come under considerable pressure as orders are delayed or cancelled. The firm's main task is to bring the country’s three largest shipbuilders – which last year had an operating loss of around $7.6 billion, resulting in considerable job losses – back to a safe haven.

Bain & Company has been hired to develop plans to bring sustainability to the ailing chemicals industry. The industry continues to face falling export demands as the global economy remains slow, as well as reductions in requirements for chemical precursors, such as terephthalic acid (used to make plastics), by up to 1.6 million tons, resulting in considerable regional job losses.

The Boston Consulting Group has been called in to craft a plan for the country’s steel industry, as prices remain depressed, while, particularly Chinese producers cope with considerable overcapacity – since 2000 China has added around 1,075 megatonnes of capacity, while last year there was a gap of 419 megatonnes between production and capacity. The firm is said to suggest M&A as a strategy for the industry, reducing the number of marginal companies and protecting workers where possible.

According to a government official, “Reports on each industrial sector are almost complete", with the consulting firms now working to resolve differences between businesses in each industrial sector that will be affected by the restructuring measures.

A number of consulting groups have in recent months been called in by governments to support plans for sectors, including projects in Saudi ArabiAzerbaijan and Morocco.


UK manufacturing sees orders slow amid Brexit anxiety

11 April 2019

Manufacturing in the UK saw negative growth for the end of 2018, reflecting a wider slowdown in the UK economy to 0.2% for the quarter, followed by three months at the start of 2019 which saw continued softening in orders. With uncertainty still hitting the sector ahead of Brexit’s deferred deadline, the industry faces a difficult 2019.

Despite a perpetually changing economic landscape, manufacturing remains a keystone industry in the UK. Optimism in the industry has been riding high in recent years, reflecting the perceived potential of automotive technologies, but last year saw a slight dip in business performance, ahead of what seems set to be a turbulent period for British manufacturing. Ordinarily, the sector might have expected to recover its footing relatively quickly, but with the looming spectre of Brexit making the economy’s future completely uncertain, this has not been the case.

The uncertainties of Brexit have continued to create headaches for companies on both sides of the channel. As contingency planning continues, new analysis from BDO and the Make UK explores how manufacturing – a segment likely to be hard hit by Brexit – has fared in the final quarter of 2018.

Output balance stable

Manufacturing remains a key industry in the UK, generating around 10% of total economic output and supporting around 2.7 million jobs. Yet while the industry has seen a number of years of strong optimism as well as demand, Brexit is set to throw a spanner in the works, with a range of manufacturing companies leaving the UK, or considering it. Indeed, UK manufacturing’s output currently sits at a 15-month low as the industry anticipates a cliff edge Brexit.

In terms of growth for various parts of the UK economy, a slowdown was noted in the final quarter of 2018 compared to Q4 2017. Manufacturing, in particular, saw growth declines coming in at almost -1%, with a similar trend in production. Construction saw a sharp contraction, falling 2 percentage points to below 0% growth in December 2018. Only services managed to have positive % growth in the final quarter. The final quarter as a whole saw growth of 0.2% in the UK economy – the lowest level in six years.

Output across most sectors in the industry remains positive, with the percentage balance of change in output at 22%. The result is the tension quarter of positive percentage balance of change, with stagnation on the final quarter of 2018. The firm is projecting a slight softening of output going into Q2 2019. The firm notes that there is some stockpiling taking place, with orders and outputs unaligned going into 2019.

Order balance remains positive but dips further

While there is a broadly positive picture for output, the firm does note considerable differences between subsectors. Basic metals for instance, saw a net 24% fall to -18% over the past three months. Metal production is also seeing relatively poor performance as demand from the automotive industry enters a period of acute uncertainty. However, most industries are to see improved output on balance, with rubber & plastic increasing from a net 11% to net 56%.

Export trade

Having been buoyed by the lowered value of the pound, UK export orders are up slightly on the previous quarter, but remain well below the most recent peak in Q3 2018. Domestic orders were relatively strong, with a year between the most recent peaks for the segment. However, Q2 2019 looks to see domestic orders fall sharply, to half Q1’s result, while export orders too are set to see declines.

The decline reflects a decrease in basic metals, possibly a reflection of changes affecting the auto industry. Meanwhile, export orders are down due to Brexit cross-border uncertainty – the effect of the sterling devaluation unable to continue to buoy the market. Basic metals and metal products are both in negative territory for the coming three months.

Investment and employment intentions

UK employment figures reached new milestones, with total unemployment down to 3.9% while participation rates hit record highs. Employment planning continues to be in net positive territory, with a net positive balance of 22% in Q1 2019. The coming months are projected to see a slight dip, again, largely resultant from uncertainties around Brexit. Basic metals is the sector most likely to see a negative trend, reflecting the expected decline in orders.

Investment intentions meanwhile continue to be in positive territory. However, again, the now acute uncertainty about Brexit – the UK government has boxed itself into a corner – mean that confidence around investment could wane rapidly.

Commenting on the wider economy, Peter Hemington, a Partner at BDO, said, “Manufacturing firms have been ramping up their preparations for a disorderly Brexit, in large part through the stockpiling of imported goods. This has had the effect of inflating activity levels… It’s too late to do anything about this now.  But a disorderly Brexit would be far worse than the current relatively mild slowdown, possibly disastrously so… We are concerned it looks more likely than ever that we will exit the EU without a deal.”