Two out of Three Export Companies Report "Reduced Margins"

Export and import containers are stacked at Pyeongtaek Port as seen from a Seoul Metropolitan Police Agency helicopter. Photo by Jin-Hyung Kang aymsdream@

[Asia Economy Reporter Choi Dae-yeol] As international market competition intensifies recently, a survey revealed that two out of three domestic export companies have experienced a decline in profitability.

According to a survey conducted by the Korea Chamber of Commerce and Industry on 300 domestic export companies on the 11th, 64% responded that their profit margins have decreased recently. The remaining 36% said their margins have not fallen. The decline in profitability is due to the difficulty in reflecting increased costs in export prices amid fierce competition in overseas markets.

Seventy-nine percent of the companies surveyed said that the intensity of overseas competition has been increasing recently. Only 15% responded that competition is weakening. The main reason for the intensified competition was an increase in the number of competitors, cited by 61%. A significant number also pointed to a slowdown in market growth (46%) and faster technological innovation (35%) as contributing factors.

Global Competition Trends

This year, despite rising raw material prices driven by expectations of economic recovery, most companies find it difficult to fully reflect these increases in export prices. Seventy-six percent of companies reported that recent rises in international oil and raw material prices have increased production costs, but only 9% fully passed these increases on to export prices. Sixty-nine percent partially reflected the increases, while 12% did not reflect them at all.

A company manufacturing machinery stated, "Even if we try to reflect cost increases in export prices, overseas clients strongly resist, and it takes considerable time to gain acceptance." They added, "At best, only about 30% of cost increases are reflected in prices." An electronic components exporter said, "Our main product demand is concentrated among a few clients, and price competition is fierce, so it is difficult to pass on cost increases. When raw material prices rise sharply like now, we have to cut other expenses to balance the books, leaving no room for flexibility."

Although South Korea's exports showed strong performance in the first half of the year, surpassing $300 billion for the first time, the underlying conditions remain challenging. The Korea Chamber of Commerce and Industry explained, "This seems to be due to growing caution and concerns about intensifying international competition in the post-COVID era," adding, "The global supply chain restructuring in semiconductors and batteries, accelerated competition among major countries to dominate new industries, ESG (environment, social, governance) management, reduction of quantitative easing, and imposition of carbon taxes are also contributing to accumulating new challenges and future uncertainties."

Export companies believe that to secure competitive advantages, they need to build collaborative networks between companies and sectors, nurture talented personnel, and expand new industrial infrastructure such as telecommunications and energy. Choi Gyu-jong, head of the corporate policy team at the Korea Chamber of Commerce and Industry, said, "It is an important time to prepare for paradigm shifts such as digitalization and eco-friendliness, but intensified competition, margin reductions, and new product launches are placing heavy burdens on companies' research and development and future investments." He added, "Policy support is needed, including expanding investments in next-generation communication, data, and energy infrastructure, and easing funding-related regulations to attract large-scale investment capital."

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