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Export-oriented firms suffer as won rises

Publication Date : 09-11-2012

 

South Korea’s export-oriented firms are suffering as the won continues to strengthen.

The won-dollar exchange rate dipped below 1,100 won last month and has not risen above that value since.

For some industries, the exchange rate has already fallen below the minimum needed to secure profit, which averaged 1,086.2 won per dollar, according to a survey conducted by the Korea Chamber of Commerce and Industry on about 500 companies.

About 57 per cent of the surveyed companies said their profits had already fallen due to the exchange rate.

The home appliance, petrochemical and semiconductor industries are the hardest hit on the fall of exchange rate, as they require a minimum exchange rate of 1,106.5 won, 1,104.3 won and 1,099 won, respectively, for profitability. KCCI commented that exporting will result in losses for the industries right now.

The automobile industry, which the survey found to need an exchange rate of 1,084.9 won, steel and metal industries (1,084.2 won), and shipbuilding, plant and machine industries (1,083.3 won) are also in danger.

“Exports of products that are affected by the exchange-rate fall, including home appliances, semiconductors, automobiles and shipbuilding, take up 40 per cent of the nation’s total exports. The worsened profitability will be a threat to Korea’s economy, especially amid stagnant domestic demand,” said the KCCI through a statement.

Small and medium-sized companies, which on average require an exchange rate of 1,090.4 won, suffer more than large companies, which are okay until the rate falls below 1,076.1 won.

While 75 per cent of the big conglomerates said they have been preparing for the strong won in various ways, including cutting costs, enhancing productivity and shifting the main currency, 52.7 per cent of small or medium-sized companies said they were not prepared.

“Companies should always put in effort to cut costs and enhance competence by developing technologies as it is difficult to cope with short-term exchange rate fluctuations,” said Jeon Su-bong, head of a research team at KCCI.

“The government should come up with ways to support the suffering small and medium-sized companies as well as systems to properly look after the foreign-exchange market and the financial market,” he said.

 

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