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Appreciation of Won Affecting Profitability of Small Exporting Firms in Korea
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Appreciation of Won Affecting Profitability of Small Exporting Firms in Korea
  • By matthew
  • May 20, 2014, 03:22
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A bird's eye view of Busan Port.
A bird's eye view of Busan Port.

 

It has been found that 91.5 percent of small exporters in Korea are suffering from the appreciation of the won. 

The Korea Federation of Small and Medium Business announced the result of its recent survey on the issue on May 19. 59.6 percent and 31.9 percent of the 100 respondents answered that their profitability would be significantly and somewhat deteriorated due to the drop in the exchange rate, respectively. 

By industry, 75.0 percent of the companies in metal and steel gave the same answers along with 71.4 percent of rubber and chemical product manufacturers, 68.8 percent of machinery companies and 66.7 percent of food and beverage producers. They also mentioned that the falling exchange rate as of late has led to fewer new export contracts than before. 

According to the respondents, the won-dollar rate and won-yen rate for them to reach the BEP this year is 1,038.1 won per U.S. dollar and 1,059.4 won per 100 yen. The optimal rates are 1,086.3 won per U.S. dollar and 1,100.6 won per 100 yen. However, the won-dollar rate is at around 1,020 won these days, meaning that small exporters are having severe difficulties. Of the survey participants, 43.6 percent said they try to cut costs to cope with currency appreciation, followed by the adjustment of export prices and rescheduling of settlement dates.

In the meantime, 16.0 percent of the surveyees answered that they have taken no action for exchange risk management since the exchange rate drop. The figure was divided into 21.5 percent for firms with 50 or less employees and 16.7 percent for those with annual exports of less than US$500,000. 

Of the small exporters, 80.9 percent called upon the government to focus more on stable foreign exchange management. The other answers included greater assistance in trade finance and payment guarantees, currency insurance, and service by professional forex managers.