70% of Companies Say Global Value Chain (GVC) Restructuring Unavoidable Due to COVID-19

Survey of 300 Manufacturing Companies by Korea Chamber of Commerce and Industry
‘COVID-19’ (72%) Identified as the Main Factor in GVC Restructuring

Source: Korea Chamber of Commerce and Industry

[Asia Economy Reporter Changhwan Lee] Seven out of ten domestic companies recognize that the "restructuring of the Global Value Chain (GVC)" is inevitable.

On the 27th, the Korea Chamber of Commerce and Industry announced that, according to a recent survey of 300 domestic manufacturing companies on the "Outlook and Response Status of Global Value Chain (GVC) Restructuring," 41.7% of companies "feel the changes in GVC," and 27.3% "anticipate changes."

As the factor having the greatest impact on GVC restructuring, 72.0% of the responding companies pointed to the spread of infectious diseases such as the novel coronavirus (COVID-19).

When GVC is restructured, more companies expected negative impacts (40.8%) than positive impacts (6.5%). Additionally, each GVC restructuring factor was more often evaluated as a crisis factor rather than an opportunity.

When the responding companies evaluated GVC restructuring factors on a 5-point scale, "Advancement of Chinese manufacturing" (2.1 points) and "Infectious diseases such as COVID-19" (2.2 points) were likely to be crisis factors. "US-China trade dispute" (2.7 points) and "Japanese export restrictions" (2.8 points) were also expected to have negative impacts. However, "Acceleration of the 4th Industrial Revolution" (3.1 points) was somewhat perceived as an opportunity factor.

A Korea Chamber of Commerce and Industry official explained, "In fact, Korea's dependence on GVC is higher than that of major countries, so it is inevitably more sensitive to change factors."

Companies anticipated that both forward and backward participation in GVC would shrink if restructuring occurs. Regarding forward participation, which involves selling intermediate goods overseas, companies' "shrinkage outlook" (41.1%) was twice that of the "expansion outlook" (18.1%). Backward participation, which involves purchasing intermediate goods from overseas, also showed a "shrinkage outlook" (34.7%) surpassing the "expansion outlook" (10.3%).

Regarding whether companies are responding to GVC restructuring, 59% were either "responding" (25.0%) or "planning to respond" (34.0%). Specific response measures included "diversification of procurement and sales channels" (44.0%), "strengthening technological competitiveness" (19.0%), and "business transformation such as portfolio expansion" (15.8%), in that order.

◆ Even if GVC is restructured, transactions with China will be 'maintained or expanded' (84%)

Even if GVC is restructured, transactions with China are not expected to shrink. Only 6% responded that they would "reduce" transactions with Chinese companies, while 84.3% said they would "maintain or expand" transactions with China. Although a global weakening of China-centered GVC is anticipated, Korea's high economic dependence on China suggests that the possibility of reducing transactions is low for the time being.

Regarding the "paradigm shift such as the 4th Industrial Revolution," one of the GVC change factors, 44.0% of responding companies said they are "not responding." Companies cited "lack of R&D technology, personnel, and funds" (34.1%) as the biggest reason for difficulties in responding, followed by "future uncertainty about business transformation" (24.2%), "lack of will and capability for business transformation" (24.2%), and "insufficient open innovation and cooperative ecosystem" (17.5%).

To prepare for GVC restructuring, companies most frequently requested "strengthening R&D support" (37.7%) as a policy support task. This was followed by "strengthening cooperation between large and small-medium enterprises" (25.3%), "support for business transformation" (14.7%), "leading GVC restructuring with Korea's leading industries" (13.0%), and "blocking ripple effects of the US-China trade dispute" (9.3%) as government policy tasks.

Kang Seok-gu, head of the Industrial Policy Team at the Korea Chamber of Commerce and Industry, said, "With China's push for a red supply chain (self-sufficiency in intermediate goods) and the rise of new protectionism, the GVC that our companies have built is being threatened by last year's Japanese export restrictions and the COVID-19 pandemic." He added, "To actively respond to GVC restructuring and build a robust domestic industrial ecosystem, it is necessary to more intensively promote R&D innovation, strengthen digital foundations, and enhance cooperation between companies and between large and small-medium enterprises."

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