If COVID-19 Prolongs, 41% of Foreign Companies Consider Reducing Business in Korea

Source: Federation of Korean Industries

[Asia Economy Reporter Changhwan Lee] If the novel coronavirus infection (COVID-19) situation prolongs globally, 41% of foreign-invested companies operating in Korea are considering downsizing their business within the country. This is the result of a survey conducted by the Federation of Korean Industries (FKI), which commissioned market research firm Monoresearch to investigate the 'Impact and Response to the COVID-19 Situation' among 150 foreign-invested companies in Korea.

According to the FKI on the 22nd, 48% of global companies considered reorganizing their global production and distribution networks if the COVID-19 situation prolongs worldwide. Among these companies, 86.1% are considering reducing the scale of their production and distribution networks in Korea. The average scale of business reduction within Korea was surveyed to be approximately 11.1%.

The FKI explained that these results indicate that global companies are considering reorganizing their global supply chains to avoid the risk of overseas factory shutdowns and the resulting collapse of global supply chains caused by unforeseen events like COVID-19.

Furthermore, it was pointed out that if COVID-19 prolongs, negative impacts on foreign investment in Korea by foreign-invested companies are inevitable, and responses to this are necessary. As of 2019, the scale of foreign direct investment in Korea was about 23.3 billion USD annually.

In fact, 64.7% of foreign-invested companies operating in Korea expect the global end of COVID-19 to be in the second half of this year or later, indicating a high possibility of realization of such global and domestic production and distribution network reorganization.

Meanwhile, 9 out of 10 foreign-invested companies in Korea forecast negative impacts on management due to the COVID-19 situation. Specifically, 'disruption in procurement of raw materials and parts' (35.1%) was the highest, followed by 'sales difficulties' (28.4%), 'production disruptions' (23.9%), 'worsening financial difficulties' (6.7%), and 'personnel and labor management difficulties' (6.0%).

Due to the COVID-19 situation, 3 out of 4 (74.0%) foreign-invested companies in Korea anticipated a decrease in sales, with the scale expected to be about 12.4% on average. By industry, wholesale and retail distribution sectors are expected to be particularly affected, with a projected sales decrease of 22.4% compared to the previous year.

To minimize damage caused by COVID-19, foreign-invested companies' top request to the Korean government was 'strengthening the quarantine system to calm the situation' (44.0%). This was followed by 'rapid information sharing' (33.3%), 'simplification of customs procedures to facilitate parts supply' (10.0%), and 'strengthening cooperation with home country governments to support foreign-invested companies' (4.7%).

Kim Bongman, Director of International Cooperation at the FKI, said, "Global companies expect the COVID-19 situation to last longer than anticipated, and in this case, there are concerns about downsizing business in Korea due to global business restructuring. To minimize the economic shock to Korea, comprehensive efforts are needed to create an investment-friendly environment along with strengthening quarantine measures."

This content was produced with the assistance of AI translation services.