Risk Spread from Russia and China... Concerns Over Impact on Korean Companies

Ukraine Invasion and COVID-19... 'Adding Insult to Injury'
Severe Impact Expected if COVID-19 Spreads Across China
Global Companies Leaving Russia Increase Pressure on Domestic Firms

[Image source=Yonhap News]

[Asia Economy Reporter Kim Jin-ho] Following Russia's full-scale invasion of Ukraine, the domestic industrial sector is on high alert due to the spread of COVID-19 within China. The global supply chain crisis, which emerged after the Ukraine situation, has once again struck China, known as the 'world's factory,' posing significant risk management challenges for Korean companies.

According to business circles and major foreign media on the 19th, an emergency has been declared across Korean companies operating locally and the entire industrial sector.

According to the Korea Trade-Investment Promotion Agency (KOTRA), as of 2020, 24 Korean companies have directly entered Shenzhen. True to its reputation as a 'technology hub' in China, many manufacturing and science and technology service companies have established a presence there. Due to China's city lockdown measures, most of these companies are reported to have significantly suspended factory operations and business activities.

A KOTRA official explained, "From the 14th, companies have shifted to remote work, and office access restrictions have delayed customs clearance and logistics operations," adding, "We are monitoring whether the lockdown measures will be extended."

Fortunately, major Korean conglomerates like Samsung Electronics do not have factories locally, but they are expected to face indirect difficulties such as parts supply issues through their partners. Concerns are rising that if the global supply chain issues persist and risks originating from China emerge, these companies could face considerable burdens.

In fact, Samsung Electronics is expected to face difficulties in procuring smartphone parts due to the Shenzhen lockdown. General Interface Solution (GIS), a touch panel subsidiary of Foxconn, halted production at its Shenzhen factory from the 14th. GIS has been supplying fingerprint recognition modules to Samsung Electronics since the Galaxy S10 series. If GIS's production halt prolongs, there are concerns that the recent success of Samsung Electronics' Galaxy S22 series could be disrupted.

Nikkei Asia reported, "GIS, which counts Apple and Samsung Electronics as clients, is shifting some of the production previously handled at its Shenzhen factory to other plants," adding, "Shenzhen is not only Huawei's but also Foxconn's second-largest production site in China."

The 'consumption contraction' caused by the full city lockdown is also a significant burden for Korean companies with sales subsidiaries locally. If consumption is suppressed, serious damage to sales and other areas is inevitable. In China, consumption vitality has not returned to pre-pandemic levels since the major COVID-19 outbreak in 2020.

The industrial sector is extremely cautious about the possibility that COVID-19 lockdown measures could spread beyond Shenzhen to the entire Guangdong Province and even across China. A local company official said, "If the lockdown expands or continues for a long time, sales damage is inevitable," adding, "We are closely monitoring the situation."

The fact that major global companies such as Apple, Intel, and Tesla are successively joining the 'de-Russia' movement also deepens concerns for Korean companies like Samsung Electronics and Hyundai Motor. Declaring withdrawal as a boycott against Russia risks losing the markets they have painstakingly developed, while staying risks being caught up in global boycotts. From the perspective of Korean companies, this is a classic case of being 'between a rock and a hard place.'

Unlike Apple and other global companies, Korean major companies are analyzed to have many factories locally.

Since the factories, which required significant investment, have a large employment effect locally, deciding to withdraw could lead to a 'disfavor' from Russian authorities, unlike other global companies. A business circle official said, "It is unreasonable to simply follow other global companies in withdrawing," adding, "Since it could cause considerable damage, this matter needs to be reviewed and decided with greater caution."

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