Two out of Three Export Companies Say "Geopolitical Risks Are Management Risks"

Survey of 448 Companies by Korea Chamber of Commerce and Industry
Issues of Exchange Rate Fluctuations and Economic Delays
57% of Companies Considering Tightened Management

Two out of three export companies recognize geopolitical risks such as the US-China conflict, the Russia-Ukraine war, and Middle East disputes as management risk factors. There is a call to eliminate corporate regulations and establish measures to stabilize the supply chain of key raw and subsidiary materials.

Export containers are piled up at Busan Port. Photo by Kang Jin-hyung aymsdream@

The Korea Chamber of Commerce and Industry (KCCI) announced on the 17th that, according to a recent survey titled "Impact of Prolonged Geopolitical Risks and Response Status" conducted on 448 export manufacturing companies, 66.3% of companies recognized geopolitical risks as management risk factors. Among them, 39.5% responded that it was a "temporary risk level," 23.7% said it was a "level that lowers business competitiveness," and 3.1% said it was a "level threatening business survival."

When investigating the types of damage among companies recognizing these as management risk factors, "financial risks such as exchange rate fluctuations and payment delays" had the highest response rate at 43.1%. This was followed by "logistics disruptions and increased logistics costs" (37.3%), "restricted access to overseas markets and sales decline" (32.9%), "increased energy and raw material procurement costs" (30.5%), "production disruptions due to raw material supply issues" (24.1%), and "local business suspension and investment reduction" (8.1%).

Looking at the types of damage by major trading countries, companies trading with China reported "restricted access to overseas markets and sales decline" as the most common at 30.0%. This is interpreted as an effect of the significant decrease in exports to China due to the US-China conflict.

Export-import companies trading with the United States and Russia both reported "financial risks such as exchange rate fluctuations and payment delays" as the most common damage (US 30.2%, Russia 54.5%). Especially at the outbreak of the Russia-Ukraine war, companies trading with these countries experienced significant delays in export payment or suspension of foreign currency remittances due to financial sanctions.

Export-import companies in the European Union (EU) and the Middle East most frequently selected "logistics disruptions and increased logistics costs" (EU 32.5%, Middle East 38.0%). These companies faced increased logistics costs after the Middle East war, as Red Sea navigation was suspended and rerouted via South Africa.

When asked about the future direction of geopolitical risks, 40.2% of companies answered that "the current level of impact will continue." 22.5% of companies said "it will occur more frequently than now," which was more than the 7.8% who said "it will ease compared to now."

Companies prioritize tight management in response to the ongoing geopolitical risks. Regarding corporate-level response strategies to prolonged geopolitical risks, 57.8% of export companies answered "cost reduction and strengthening operational efficiency." Many companies also suggested "developing alternative markets and diversifying business" (52.1%). This was followed by "diversifying supply chains and strengthening local procurement" (37.3%), "managing financial risks such as exchange losses" (26.7%), and "reducing global business" (3.3%).

The KCCI argued that regulatory policies that could burden companies should be introduced cautiously. It emphasized the need for policy support aimed at reducing corporate burdens, as worsening geopolitical risks could negatively affect exports. In the mid-to-long term, it added that efforts should focus on establishing a stable supply chain for advanced industries in response to the strengthening of strategic industrial policies by major countries such as the US and China.

Juwon, Head of the Economic Research Office at Hyundai Research Institute, said, "It is necessary to identify what geopolitical risks may materialize in the future and provide timely warnings to our export companies." He added, "Government-level efforts to secure alternative procurement markets for key raw and subsidiary materials and promote localization must continue to prevent supply chain disruptions from turning into a production cliff for companies."

Kim Hyun-soo, head of the Economic Policy Team at KCCI, said, "Policy support such as export vouchers should be expanded for export companies suffering from rising oil prices and logistics costs due to geopolitical risks." He added, "In the mid-to-long term, the government should lead resource development through public-private cooperation and focus on stabilizing the supply chain of key raw materials."