[Inside Chodong] The Era of Risk Diversification for the Industrial Sector Amid Internal and External Crises

As the Russia-Ukraine war enters a prolonged phase, a new conflict between Israel and the Palestinian armed group Hamas has begun, increasing geopolitical risks in the Middle East. The industrial sector once again faces an endless darkness.

[Image source=Yonhap News]

When Russia invaded Ukraine in February 2022, the industrial sector weighed the possibility of a 'temporary conflict.' They shifted local employees to remote work and monitored the situation, thinking it was a brief period to avoid damage. However, the Russia-Ukraine war has entered a long-term phase. Local production and sales subsidiaries of Korean companies such as Samsung Electronics, LG Electronics, and Hyundai Motor, which have not prepared countermeasures, have been virtually closed for nearly two years. They have not completely withdrawn from the market, but normal production and sales activities are impossible, so they are barely surviving day by day with deficit operations.

Now it is the Middle East. The armed conflict between Israel and Hamas could escalate into a broader Middle East war. Of course, the industrial sector currently states that there is no direct damage yet. Similar to the early days of the Russia-Ukraine war, they are responding by shifting local employees to remote work and operating emergency contact networks with headquarters to frequently monitor the situation. It is still unknown whether this will end as a temporary conflict or escalate into a new Middle East war. Fortunately, Korean companies currently operating in Israel are mostly gathered in the relatively safe Tel Aviv, and their numbers are not large. Samsung Electronics has a research center, semiconductor R&D center, and sales subsidiary in Israel, while Hyundai Motor and LG Electronics operate European technology research centers and sales branches.

However, the industrial sector must be concerned about the 'butterfly effect.' Korean companies, which have expanded globally to various countries, must not become immobilized amid the sudden influx of uncertain external environments.

Korean companies have already suffered losses from the Russia-Ukraine war, losing one side of their production and sales regions, as well as experiencing supply chain disruptions, a slowdown in global economic recovery, and reduced consumption. The changed security landscape and bloc formation have intensified the US-China hegemonic competition, and Korean companies caught in the middle have been directly and indirectly affected. The unstable atmosphere in the Middle East could cause direct or indirect losses to Korean companies at any time, and the difficulty in calculating when and how this will happen is a reason for concern.

Regarding the ongoing US-China hegemonic competition that has lasted for years and will continue, Korean companies should have taken more active steps toward risk diversification and response. Due to the slow progress in diversifying supply chains and production locations and supporting reshoring (U-turn), Korean companies are now forced to leave their fate to decisions made by others. Of course, the US applied semiconductor equipment export restrictions to China but exempted domestic semiconductor companies' Chinese factories without separate approval procedures or deadlines, giving Samsung Electronics, SK Hynix, and other Korean companies some breathing room. However, with the scheduled expiration of this grace period this month, the fact that Korean companies have not prepared clear countermeasures and can only hope for the US government to extend the measures is worth reconsidering.

Crises always come in succession. Considering the weight of globalization, companies must respond more proactively to crises and diversify risks before raising a toast to success. The complacent thought that "short-term impacts are limited" must be abandoned.

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