[Reporter’s Notebook] SMEs Suffer from Exchange Rates Despite Record-High Exports

Rising Import Prices Due to High Exchange Rates
SMEs Struggle to Cope with Currency Fluctuations
Export Growth Fails to Ease Management Concerns

Exports by small and medium-sized enterprises (SMEs) have reached an all-time high. In the first half of this year, exports totaled $57.1 billion, a 4.4% increase compared to the same period last year. While this calls for a celebration, sighs can be heard on the ground.

The CEO of a company manufacturing bioplastics told a reporter over the phone, "The high exchange rate is making the business environment difficult for our export-oriented company." He continued, "Exports have increased due to the weak won value, but profits are actually declining, creating a situation where we gain in front but lose in the back." This company, whose main export market is North America, is a notable SME exporter, having received the '1 Million Dollar Export Tower' award.

However, the fact that most raw materials must be imported has become an Achilles' heel. As the exchange rate soared, raw material prices rose sharply. Sea freight costs also increased, making the shipping cost higher than the cargo itself. The company CEO lamented, "To minimize exchange rate risks, we need to secure overseas clients in various regions. That requires frequent overseas business trips, which is a heavy burden for SMEs."

The high exchange rate does not only hinder SMEs; large corporations face similar challenges. However, SMEs suffer greater damage due to a lack of personnel and funds for foreign exchange hedging measures. This is especially true for companies that have just started exporting or have low export volumes.

On the ground, there are two main complaints about the Ministry of SMEs and Startups, the key government agency supporting SME exports.

First, support is concentrated on so-called 'successful' export products. The Ministry of SMEs and Startups implements dozens of export support programs, but currently focuses on industries such as beauty and food.

Second, support is concentrated at the finished product export stage. Export support should cover the entire process from importing raw materials, manufacturing products, to exporting them overseas. However, the Ministry focuses on the stage when products are shipped abroad. For example, the Ministry publishes export statistics for SMEs but does not provide import statistics. This inevitably leaves manufacturers who import and process raw materials into secondary products for export feeling underserved.

According to a survey by the Korea International Trade Association, among small export companies with sales under 1 billion won in the first quarter of this year, 7 out of 10 struggled to cover loan interest with operating profits. Despite record-high SME export volumes, concerns are rising that the number of bankrupt SMEs this year could also reach a record high.

At the upcoming year-end, the Ministry of SMEs and Startups will likely announce the achievement of "maximum export volumes by SMEs." Some companies may have grown significantly due to improved export performance. However, there are also companies facing management crises overshadowed by export growth. It is time to prepare real export support measures for these companies.