"Oil Price Surge Shocks SMEs... Need to Introduce Delivery Price Linkage System" Hong Unseon, Deputy Director of SME Research Institute

Roh-U Crisis Signals Rise in Oil and Commodity Prices
"Manufacturing Producers Hit... Must Be Reflected in Supply Prices"

[Image source=Yonhap News]

Hong Un-seon, Vice President of the Small and Medium Business Research Institute (photo), stated on the 8th regarding the Russia-Ukraine situation, "The shock to the small and medium-sized enterprise sector due to the sharp rise in oil prices will be significant," emphasizing the urgent need to establish additional measures such as the introduction of a delivery price linkage system.

With Russia's invasion of Ukraine causing international oil prices to soar above $130 per barrel, the difficulties faced by domestic small and medium enterprises due to rising raw material costs are expected to intensify.

In a phone interview with Asia Economy, Vice President Hong said, "For companies in the petrochemical industry and others where oil accounts for a large portion of manufacturing costs, operating profits are inevitably affected," adding, "If the situation prolongs for more than a month, all small and medium enterprises using oil will be impacted."

Moreover, the seriousness is heightened by the structure where increases in raw material prices are not immediately reflected in delivery prices. Most small and medium enterprises dependent on consignment transactions with large corporations have no choice but to bear losses. Vice President Hong stated, "When raw material prices rise after delivery contracts with large corporations, manufacturing producers bear the full impact," and added, "In such situations, supplementary measures like a delivery price linkage system are necessary."

Currently, export-oriented small and medium enterprises are experiencing immediate damage. Due to international financial sanctions against Russia, many companies are unable to receive export payments, and concerns over exchange losses arise as the ruble's value plummets. Exports from small and medium enterprises to Russia account for 2.8% (ranked 10th) of total exports. Vice President Hong diagnosed, "The impact on small and medium enterprises that concentrate exports in certain countries will inevitably be greater than on large corporations that have diversified exports."

Concerns are also raised about ‘slowflation’?a situation where economic recovery is sluggish while inflation soars?amid ongoing low growth and high inflation. Vice President Hong forecasted, "When prices rise, private consumption contracts, and loan interest rates for small and medium enterprises increase, which can exacerbate difficulties in corporate growth," adding, "Furthermore, the Ukraine situation will negatively affect economic sentiment."

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