Korean Companies Escaping Ukraine... "Closely Monitoring Supply Chain Impact" (Comprehensive 2)

Samsung, LG and Others Withdraw Expatriates from Ukraine
Concerns Over Raw Material Supply and Local Product Sales Disruptions

[Image source=Yonhap News]

[Asia Economy Reporters Sunmi Park, Hyeyoung Lee, Hyunseok Yoo, Donghoon Jung] As the possibility of Russia invading Ukraine intensifies, major domestic companies such as Samsung Electronics and LG Electronics are successively ordering the withdrawal of their locally dispatched employees.

According to the industry on the 14th, Samsung Electronics and LG Electronics, which have sales corporations in Ukraine, recently repatriated the families of their expatriates first and have now completed the withdrawal of employees remaining on site. Some are being temporarily relocated to other overseas regions or are in the process of moving back to Korea.

Currently, about 10 Korean companies have corporations or branches in Ukraine, including Samsung Electronics, LG Electronics, Hyundai Corporation, POSCO International, Hankook Tire, Ecovis, and Osstem Implant. Most of these companies have responded to the Ministry of Foreign Affairs' guidelines by repatriating the families of expatriates in preparation for the escalating tensions between Russia and Ukraine, leaving only essential personnel necessary for business operations on site.

However, as tensions between Russia and Ukraine have recently escalated, some companies have relocated even their locally dispatched employees to safer areas or repatriated them to Korea. A Hankook Tire official said, "We are preparing to withdraw employees according to the guidance of the Ukrainian embassy." According to the Ministry of Foreign Affairs, there are about 300 Koreans staying in Ukraine as of the previous day, and it is expected that more than 100 will depart within 2 to 3 days.

However, some Korean companies hesitate to fully withdraw their locally dispatched employees due to concerns that re-entry would be difficult. Given the complex and frequently changing regulations and systems in the Ukrainian market, as well as unique business practices and language barriers, it is difficult to enter the market, and once withdrawn, re-entry is challenging. KOTRA, which has a trade office in Kyiv, Ukraine, said, "Since there are still companies that have not withdrawn, we are establishing a response system with the Ministry of Foreign Affairs, leaving only one local manager and one staff member to handle local businesspeople and Korean residents."

What is the situation of Korean companies operating in Russia?

Korean companies operating in Russia are not yet considering withdrawal but are concerned about disruptions in raw material supply and sales of locally produced products.

The automotive industry faces inevitable damage if the U.S. uses the card of excluding Russia from SWIFT, the international financial messaging system, as one of the sanctions, given the large scale of export and import payments. According to the Korea International Trade Association, last year, Korea exported $4.151 billion worth of automobiles and automobile parts to Russia, accounting for 42% of total exports. Automobiles and automobile parts rank first and second as single export items in terms of volume. Hyundai Motor, which has its own production plant in Saint Petersburg, Russia, with an annual capacity of 200,000 units, stated, "The impact is still minimal, but if the tense situation continues, we are closely monitoring the potential effects of sanctions."

If the U.S. imposes semiconductor sanctions to block exports of semiconductors produced using U.S. technology in third countries to Russia, the domestic semiconductor market will also be affected. However, since most demand comes from the U.S. and China, and customers in Russia and Ukraine are minimal, the impact is expected to be limited. The home appliance industry is concerned that if the situation worsens to war, sales in Russia and neighboring regions could be adversely affected, as local factories in Russia focus on the domestic market.

Industries heavily dependent on raw materials from Russia and Ukraine, such as aviation, shipping, petrochemicals, and cement, fear damage from price burdens if raw material prices rise sharply. Even if an invasion does not occur, if tensions continue, international raw material prices, which have already risen significantly, are likely to increase further. Regarding crude oil, the largest import item, Korea imported $4.27 billion worth from Russia last year, an increase of about 80% compared to the previous year. Russia ranks sixth among Korea's natural gas import countries and second for coal. However, the shipbuilding industry sees a potential short-term benefit if ship prices rise this year reflecting raw material price increases.

Kim Kkotbyul, senior researcher at the Korea International Trade Association, said, "If semiconductor sanctions proceed in the form of economic sanctions targeting products using advanced U.S. technology like Huawei, the impact and ripple effects will vary depending on the specific scope and intensity of regulations." He added, "If financial sanctions such as exclusion from SWIFT become a reality, the repercussions could be significant."

He explained, "Exclusion from SWIFT essentially blocks dollar payments, so companies operating locally such as Samsung Electronics and LG Electronics, as well as domestic companies with trading partners, could be comprehensively affected in exports and imports. Therefore, it is necessary to closely monitor whether high-intensity measures will be implemented." He also noted, "Disruptions in the supply of raw materials related to semiconductor production or major raw materials imported from Russia, such as naphtha, crude oil, and thermal coal, could cause chain reactions affecting the entire industry."

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