Supply Chain Disruptions and Raw Material Price Surges... Companies Say "We Can't Even Think About Redrawing Management Strategies"

Business Disruptions Due to Russia-Ukraine Crisis
But Difficult to Revise Management Strategy Amid Uncertainty

[Image source=Yonhap News]

[Asia Economy Reporters Sunmi Park, Hyunseok Yoo, Daeyeol Choi] Due to Russia's invasion of Ukraine, not only financial sanctions but also a complex combination of soaring raw material prices, supply chain disruptions, and transportation difficulties have made it inevitable for Korean companies to change their management strategies toward Russia and the Commonwealth of Independent States (CIS) region. However, despite immediate business interruptions and setbacks, the prolonged duration of the Russia-Ukraine conflict remains uncertain, making it difficult to properly revise business plans.

According to the Korea International Trade Association and industry sources on the 7th, Samsung Electronics has stopped shipments to Russia as of the 3rd because global shipping companies are refusing to enter Russian ports, blocking export routes. Shipments to Russia can only resume once the port entry issues are resolved, but currently, finding alternatives is not easy.

LG Electronics, which operates home appliance production plants in Russia, has become unable to ship parts to the factories due to the Russian port entry problem. For now, they are relying on parts inventory and seeking to establish a Plan B for smooth supply. Hyundai Motor Company has halted operations at its Russian plant due to disrupted local logistics systems making parts procurement difficult. Initially, the plant was scheduled to stop operations for about five days starting this month, but the suspension period was extended until the 9th, and at present, the possibility of resuming operations remains uncertain.

Not only large corporations but also small and medium-sized export companies are suffering continuous damage. As of the previous day, the emergency response team for the Ukraine situation operated by the association received 346 cases of difficulties from 256 domestic companies. This is a sharp increase from just 27 cases on the 25th of last month. Issues related to payment due to financial sanctions accounted for the largest number at 193 cases, followed by 110 cases related to logistics and supply chain disruptions.

The problem is that Korean companies have little they can do immediately other than closely monitoring the situation. In domestic circumstances, companies can timely revise strategies when business disruptions occur, but since the situation overseas can change rapidly at any time and the ripple effects on global raw material supply chains and transportation disruptions are broad, revising management strategies is not easy.

An electronics industry official said, "If the war ends within a month or two, there would be no need to revise plans such as regional sales, operating profits, and budgets set at the end of last year; we would just need to prepare countermeasures," adding, "Currently, it is impossible to predict even the immediate situation, so revising management strategies is also impossible." Another electronics industry official also said, "If we revise management strategies in an unpredictable future situation, bigger problems could arise," and added, "We have no choice but to closely monitor and watch the situation."

Hyundai Motor Group is closely monitoring the situation because many industries are directly or indirectly intertwined with its major affiliates. Other affiliates such as Hyundai Steel and Glovis have become internally busy as their management plans can be significantly affected by external raw material supply conditions and oil price fluctuations.

The aviation and shipping industries also find it difficult to predict when routes to and from Russia will reopen. Currently, Korean Air and Asiana Airlines have suspended passenger flights to Russia. Cargo flights have also decided not to pass through Russia due to the suspension of aviation fuel supply.

HMM temporarily suspended reservations for the Saint Petersburg cargo service route to Russia starting from the 2nd. The suspension of the other two routes to Vladivostok and Vostochny in Russia is also under review. An aviation industry official said, "We will carefully assess the local situation and cautiously decide on flight operations according to changing circumstances," adding, "If the war situation does not improve, the suspension may be extended, but it is still difficult to predict."

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