Expansion of Risk
Korean companies are busy preparing countermeasures against the Ukrainian crisis. An increasing number of them are re-examining their investment plans and business strategies in emerging economies, including Russia, as the instability is expected to spread to those regions.
According to the Korea Trade-Investment Promotion Agency (KOTRA), Ukrainian companies are in no position to start a new business, and their imports from abroad are estimated to be cut by at least 20 percent. Still, no large Korean company is doing business there now, and the impact of the crisis is expected to be rather limited.
The problem is that the situation could result in a conflict between the Western world and Russia, which would affect the Russian economy. Then, Korean companies in Russia could take a direct hit. For example, Hyundai Heavy Industries, which runs a high voltage circuit breaker manufacturing plant in Vladivostok, mulled over facility expansion until earlier this year, but has withdrawn the plan in view of the stagnation of and increasing concerns over the Russian economy.
“Fewer and fewer Korean companies are likely to be willing to invest in Eastern Europe if the Ukrainian crisis exacerbates to a greater conflict between the two regions,” said Jo Hyeon-man, director at the Federation of Korean Industries. He also explained, “They will have to consider non-economic factors, such as political conditions, when entering emerging markets in that the crises, including that in Ukraine, are based on non-economic situations.” Besides, the tapering by the United States and the economic growth slowdown in China are compounding the matter as well.
The Hyundai Motor Group held an emergency meeting to provide against the possibility of crises in the BRICs, too. The automobile markets of the regions are showing a weakening growth momentum these days. The total demand increased from a year earlier in 2013, with the only exception of China. Even the car sales in China are predicted to drop by 7.7 percent this year, although the growth rate reached 14.4 percent last year. In India, the total sales declined 7.3 percent year on year in 2013 to post negative growth for the first time in 15 years. Russians bought 5.3 percent fewer cars during the same period as well.
Electronics manufacturers are also wary of what will become of the Ukrainian crisis, and what impact it will have in emerging economies. “The electronics markets of the BRIC countries have slowed down since last year, and political risk factors are emerging again nowadays to add to the problem,” said an industry source, continuing, “The domestic electronics sector might be greatly affected in that the BRIC regions are not just large consumer markets, but also important manufacturing bases.”