Korean SMEs under Price Cut Pressure due to Weak Yen

It has been found that Korean small and midsize enterprises (SMEs) exporting to Japan are not only suffering from a decrease in profitability due to the weak yen but also under pressure from their export destinations to cut the prices. 

“The weak yen trend has resulted in at least a 5% drop in profitability,” said the CEO of a local digital imaging device manufacturer, adding, “We are facing significant foreign exchange losses and are coping with the situation by cutting R&D investments, business trip expenditures and the like.” Another firm’s CEO echoed by saying, “We are doing transactions on a US dollar basis to provide against the weak yen, but an increasing number of our Japanese partners are asking us to cut the product prices these days.”

As Korean companies’ price competitiveness is getting weaker against their Japanese rivals, the latter are expected to take up a larger share of the global market, too. Under the circumstances, the former are compelled to ship out their products at a dumping price.

“The weak yen has led to a potential 7% to 10% drop in sales on the part of Korean exporters,” the Korea Federation of Small and Medium Business mentioned recently, continuing, “At the same time, the profitability problem is getting worse so that more and more companies feel burdened in their day-to-day business.” According to the Korea International Trade Association’s recent survey report, 45% of the respondents have had trouble in export discussions and contract conclusions these days due to the weak yen, while 20% of them have given up on exports due to a profitability problem.”

Another concern is that big businesses competing with Japanese companies in the automobile, TV, and semiconductor markets are taking a hit to affect the business performance of the smaller firms in cooperation with them. “With the current foreign exchange situation expected to continue for a while, uncertainties will have to be addressed by means of aggressive measures such as foreign exchange risk insurance, forward exchange, etc.,” said Yang Gap-soo, head of the Trade Policy Division of the Korea Federation of SMEs.