'Raw Material Shock'... 7 out of 10 Exporting SMEs Report "Profitability Deterioration"

Rising Raw Material Demand Drives Sharp Price Increase
Half of SMEs Unable to Reflect in Delivery Prices
Only 9% of Companies Fully Pass on Price Hikes
35% Say "Government Should Support Price Negotiations"

The Korea Federation of Small and Medium Business announced on the 14th that, as a result of conducting a survey titled "Impact of Raw Material Price and Logistics Cost Increases on Exporting Small and Medium Enterprises" targeting 300 exporting SMEs nationwide, only 2 out of 10 SMEs were unaffected by the rise in raw material prices.
[Photo by Yonhap News]

[Asia Economy Reporter Junhyung Lee] It was found that 75.6% of export-oriented small and medium-sized enterprises (SMEs) experienced a deterioration in profitability due to rising raw material prices.

The Korea Federation of SMEs announced on the 14th the results of the "Survey on the Impact of Rising Raw Material Prices and Logistics Costs on Export SMEs," conducted from the 31st of last month to the 7th of this month, targeting 300 export SMEs nationwide.

According to the survey, 75.3% of SMEs reported that the rise in raw material prices had a negative impact on their profitability. Only 21.7% of SMEs said they were unaffected.

The impact of raw material prices on profitability.
[Photo by Korea Federation of SMEs]

Among the SMEs negatively affected, 37.4% responded that their operating profit margin decreased by 10-30% due to the rise in raw material prices. This was followed by a decrease of less than 10% (30%), 30-50% decrease (21.1%), and 50-100% decrease (6.6%).

Additionally, about half of the SMEs (45.3%) were unable to reflect the increase in raw material costs in their delivery prices. Only 9% of companies said they fully passed on the price increases to their delivery prices.

The primary reason for not reflecting the price increase was "loss of price competitiveness" (47.8%). This was followed by "relationship with clients" (28.7%) and "difficulty in changing prices due to long-term contracts" (21.3%).

Status of Reflecting Raw Material Price Increases in Delivery Prices.
[Photo by Jungso-Gieop Junganghoe]

Given this situation, 42.3% of SMEs responded that they need to adjust delivery prices as a countermeasure against rising raw material costs. Meanwhile, 22% said they have no appropriate response measures.

About 34.3% of SMEs hoped that the government would support negotiations on delivery prices with suppliers. Many SMEs also desired "financial and guarantee support for raw material purchases" (36.3%). In addition, SMEs indicated the need for "provision of raw material price and supply information" (30.3%), "discounted release of raw materials stocked by the Public Procurement Service" (20%), and "support for joint raw material purchases" (15.3%).

Meanwhile, rising logistics costs also negatively affected most SMEs. 76.3% of SMEs responded that increased logistics costs reduced their operating profit margins. 58.7% said they have no appropriate countermeasures.

Choo Moon-gap, head of the Economic Policy Division at the Korea Federation of SMEs, said, "As the global economy recovers recently, demand for raw materials has increased, continuing the upward price trend," adding, "Most SMEs supplying intermediate goods to partner large companies are unable to properly reflect the increase in raw material costs in their delivery prices."

Choo also stated, "There are quite a few SMEs that have stopped factory operations due to rising raw material prices," and added, "Policy support must be provided to ensure that price increases are sufficiently reflected in delivery prices."