FKI: "More Than Half of Major Companies Suffer Global Supply Chain Disruptions Due to COVID-19"

[Asia Economy Reporter Changhwan Lee] More than half of major domestic companies have suffered damage to their global supply chains due to the novel coronavirus infection (COVID-19).

The Federation of Korean Industries announced on the 31st that, as a result of a survey on perceptions of changes in the global supply chain targeting the top 1,000 companies by sales, 56.7% of the respondents experienced disruptions in business activities due to damage to the global supply chain after the spread of COVID-19.

By industry, one-third (66.7%) of automobile and automobile parts manufacturing companies responded that they experienced disruptions in business activities due to damage to the global supply chain.

Following that, in major domestic industries such as machinery and equipment manufacturing (57.1%) and petroleum and petrochemical product manufacturing (50.0%), more than one in two companies reported having been negatively affected in their business activities due to damage to the global supply chain.

Among companies that expected a future reorganization of the global supply chain, more than one-third (37.4%) responded that they have no particular countermeasures. As responses, they are considering regional diversification of supply chains (21.2%) and direct management of partners and strengthening networks (20.2%).

The most needed support measures to prepare for the reorganization of the global supply chain were strengthening inter-country trade cooperation and support for enhancing internal supply chain capabilities. Only 3% responded that they are considering reshoring, such as relocating overseas production bases back to Korea.

To activate reshoring, companies most hoped for strengthened support systems such as tax benefits and expanded research and development (R&D) support.

48.4% of companies responded that there will be a reorganization of the global supply chain in the future. By industry, a majority in petroleum and petrochemical manufacturing (75.0%) and automobile and automobile parts manufacturing (66.7%) predicted changes in the current supply chain system.

By industry, automobile and automobile parts manufacturers and petroleum and petrochemical manufacturers, who had a high expectation of changes in the global supply chain, were most prepared with regional diversification of supply chains (40% for automobile-related industries, 50% for petroleum and petrochemical-related industries) as a countermeasure.

This is interpreted as companies that experienced parts procurement and production disruptions due to COVID-19 trying to manage supply chain risks by geographically diversifying production bases.

When establishing countermeasures to prepare for the reorganization of the global supply chain, companies regarded institutional difficulties such as regulations related to companies (24.3%) as the biggest challenge. This was followed by lack of funds (22.4%), lack of information (18.7%), and lack of manpower (18.7%) as major difficulties.

Yoo Hwan-ik, head of the Corporate Policy Office at the Federation of Korean Industries, said, “The movement to diversify the global supply chain, which had been concentrated in China in major countries, has already begun. Our companies, which have grown through exports under the current global supply chain system, must thoroughly prepare for future changes in the global supply chain, and active government support such as discovering reshoring demand and strengthening U-turn incentives is necessary.”

He added, “To increase and activate companies’ reshoring demand, it is necessary to provide bold support like that of the United States or Japan, and at the same time, to help reduce domestic production costs upon U-turn by providing targeted support to companies that moved overseas for cost reduction purposes.”