South Korean firms concerned by China supply-chain disruptions, with 'chaos' to continue
Top manufacturing firms in South Korea feel unprepared for another supply-chain crisis, with many predicting the environment to worsen during the remainder of the year, according to a survey by a major Korean economic organisation.
China has also been identified by South Korean firms as one of the most concerning regions when it comes to disruptions, with more than half of respondents picking the country as the biggest risk to their supply chains in terms of production and imports, the Federation of Korean Industries said.
The world's No 2 economy also ranked a close second to Russia as the most concerning region for supply chains related to exports.
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The survey received replies from 150 of the 1,000 firms the federation contacted about their current supply-chain arrangements and future plans.
The federation is one of the most significant economic associations in South Korea, consisting of more than 600 domestic companies. The organisation has traditionally been headed by the chairman of the country's biggest conglomerates, such as Samsung and SK.
The survey showed that firms on average rated their competitiveness, in terms of their current supply-chain arrangements, at 58 out of 100.
Average scores were below 60 when firms considered supply chain flexibility, whether they could adjust to unexpected situations such as the coronavirus or natural disasters, and how fast they could react to changes in market conditions.
Of the companies surveyed, 42.7 per cent also predicted global supply-chain conditions would worsen in the second half of the year, with only 9.3 per cent saying they believe the situation will improve.
"The supply-chain chaos will continue in the second half of the year due to soaring oil prices, inflation and strengthening protectionism in each country," said Moon Il-kyung, a professor of industrial engineering at Seoul National University.
"Even if the Russian-Ukrainian war ends this year, it will be a long time before the damaged supply chain is restored."
Despite the negative outlook, only six per cent of firms said they had come up with specific strategies to deal with future problems.
Some 44 per cent said they are in the process of devising a strategy, while 14.7 per cent said that they do not plan on reviewing their strategy.
More than a third of respondents said they believed the most important way to improve their supply chain would be to set up alternatives by procuring materials and parts from multiple companies.
"It is necessary to establish a governmentwide unified supply-chain control system," Moon said.
Others warned that the supply chain for semiconductor production in South Korea could potentially be disrupted if relations with China soured.
"[The Korean semiconductor industry's] dependence on China for rare gases needed for semiconductor production has increased recently, which means there could be risks when bilateral relations with China deteriorate," said Kim Young-woo, the head of research at SK Securities.
"We need to closely monitor potentially sensitive items, as there are many types of semiconductor equipment that we are importing that cannot be replaced."
This article originally appeared on the South China Morning Post (SCMP).
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