Four out of 10 small and midsize companies that both export and import said they suffered losses recently due to a sharp jump in exchange rates.
The Korea Federation of Small and Medium Enterprises announced on the 22nd the results of its "survey on exchange rate fluctuation and SMEs," conducted from the 1st to the 19th on 635 small and midsize companies engaged in exports and imports. The survey was conducted to check how recent rapid exchange rate swings are affecting SMEs' export and import activities, cost structures, and cash management.
In the results, 40.7% responded that they "suffered losses" due to the rise in exchange rates. That far outpaced the share who said they "made gains" (13.9%).
While the sense of damage was clear among corporations that both export and import, the impact was relatively limited for those that export only, was found. Among exporting companies, "no impact" was the largest share at 62.7%, and the gap between gains (23.1%) and losses (14.2%) was not large. This suggests that a stronger currency does not directly translate into revenue improvement for exporters and instead is a burden for SMEs that import raw materials, process them, and export the goods.
The most common type of damage from the exchange rate surge was higher prices for imported raw and subsidiary materials (81.6%), followed by increased foreign-currency settlement expense (41.8%) and higher sea and air freight rates (36.2%). The most frequent response for imported materials and supplies costs was a 6%–10% increase from a year earlier at 37.3%. Some 55.0% of SMEs said they were unable to pass higher costs on to selling prices.
Exchange risk management was also weak. Exchange risk refers to the uncertainty arising in foreign-currency transactions such as export and import payments, or changes in the value of foreign-currency-denominated asset held by corporations or individuals due to exchange rate fluctuations.
Some 87.9% of respondent corporations were not using any hedging tools against exchange rate volatility. The most common reason was a lack of perceived need at 55.9%, followed by a shortage of specialists and related knowledge (33.9%), and a lack of suitable products (13.8%), was found.
The most needed government supports to cope with a strong dollar were cited as efforts to stabilize exchange rate management, support for sea and air logistics costs, and compensation for increases in raw material prices. For the exchange rate outlook next year, the most common response was "1,450–1,500 won," and the average appropriate rate to meet target operating profit was 1,362.6 won, was found. An exchange rate in the 1,400-won range is thus acting as a burden on SMEs.
Chu Mun-gap, head of economic policy at the Korea Federation of Small and Medium Enterprises, said, "Considering the reality of SMEs with a high share of imports, policy responses focused on easing cost burdens, such as revitalizing the delivery price indexation system, are urgent."