9 out of 10 Korean firms ‘not ready’ for supply chain risks

Almost 90 percent of South Korean companies are unprepared for supply chain risks even though they are aware that those risks will continue this year.

According to a survey by the Korea Chamber of Commerce and Industry published on Sunday, among 300 companies that import raw materials, only 9.4 percent said they have prepared specific measures to respond to potential supply chain constraints, while 89.1 of them responded they have yet to come up with clear plans.

Of the companies that said they have already secured or are planning to do so, 45.7 percent said they plan to diversify suppliers, while 23.9 percent and 12 percent said they aim to increase inventories and expand local procurement, respectively.

“Companies have reasons for importing raw materials or components from overseas. It’s because sourcing them locally is impossible or too costly,” a KCCI official said. “It would be difficult for them to come up with more fundamental solutions such as diversifying import channels.”

The survey also showed that 67 percent of the companies suffered damages due to supply chain risks last year. Of them, 59.2 percent faced complications in production due to delayed supplies of raw materials, while 40.8 percent witnessed increased costs due to rising prices of raw materials.

“An industrial tape company, for instance, couldn’t produce products due to the delayed shipment of raw materials from China. The company had to deliver products to a European client three months later than the promised date. The company fears that the situation can repeat,” the KCCI official said.

Asked whether supply chain risks will continue this year, 88 percent of the companies said yes.

Of the respondents, 57 percent picked coronavirus as the primary reason for the risks persisting. Factories have stopped operations overseas in the past two years and concerns still remain, they said.

Meanwhile, 23.3 percent cited ongoing US-China tensions. Considering that almost 40 percent of the nation’s trade volume occurs with the top two trading partners, the companies said they feel uncertainties growing over the industry-wide impact of the escalating rivalry.

To alleviate supply chain risks, the companies called for greater government engagement. Around 24 percent of them asked the government to diversify its supply chains, while 21.8 percent and 17.1 percent requested it to bolster local procurement and boost diplomatic efforts such as striking free trade agreements, respectively.

“Amid the rapid change in the industry paradigm due to the digital transformation and carbon neutrality, the pandemic and the US-China rivalry are compounding supply chain risks to continue,” said Jeon In-shik, the head of industry policy at the KCCI.

By Kim Byung-wook (kbw@heraldcorp.com)