Korea’s small- and medium-sized exporters are struggling with delayed payments and a drop in orders from their Japanese partners whose operations were disrupted by the massive quake and tsunami last week.
Government bodies and banks are stepping up financial assistance for such firms and trade agencies are operating emergency teams to closely monitor the extent of the damage.
The powerful 9.0-magnitude earthquake and ensuing tsunami devastated the northeastern coastal areas of Japan last Friday, leaving more than an estimated 10,000 people dead or injured.
Fears of radiation leaks stemming from a crippled power plant in Fukushima, north of Tokyo, are also adding to concerns.
The biggest concern for local small exporters is worsening of their liquidity position, as most of them have been failing to retrieve due payments from their Japanese partners since the disaster, industry insiders said.
“Even if the amount does not seem to be that much, it has a potential to largely damage SMEs’ businesses as they are vulnerable to such situations,” a Small and Medium Business Administration official said.
“SMEs, unlike conglomerates, tend to find it hard to overcome a situation where they face even a slight difficulty in financing and parts procurement,”
In addition to liquidity issues, local exporters are currently facing a drop in the number of orders and delay of product transports, according to Korea Federation of Small Businesses.
The export-dependent Korean economy relies heavily on neighboring Japan. Korea’s exports to Japan soared 29.2 percent on-year to $28.2 billion in 2010 and jumped 57.4 percent on-year in January.
“The impact should naturally be big for local SMEs as their exports to the island nation stood at $10.5 billion, or 37 percent, as of the end of last year. It is expected to be even more intensified if the situation there lasts longer,” an SMBA official said.
The amount of damage incurred for around 240 local SMEs, mostly in the manufacture industry, tops $200 million, though an exact figure is still yet to be determined, according to SMBA. Government, banks, trade agencies support troubled firms
The number of firms which export to or import from Japan are 19,000 and 30,000, respectively. Korea exports telecommunication devices and oil products while bringing in steel and metal.
Meanwhile, though in a less serious position than exporters, local importers are also dealing with hardships which will likely escalate should the recovery of the Japanese economy take a long time, industry sources said.
Due to the nation’s heavy dependence on the supply of parts from the world’s third-largest economy, a protracted supply disruption could affect production of manufacturing companies here such as shipbuilders, steelmakers and automakers, said Korea Center for International Finance.
Korea imported parts and raw materials worth $38 billion, or 25 percent, from Japan last year, according to KOTRA.
The KOTRA said parts importers in electronics and pertrochemical industries which largely work with firms in the quake-hit northeastern region face major obstacles to their businesses.
The Korea Importers Association also projected that SMEs’ damage from the devastation in the island country will likely increase in the future, adding to already high raw materials prices.
In response, local banks and government bodies are boosting financial support for firms hit hard by the disaster in Japan.
Korean banks are offering financial support to local smaller companies doing business with firms in Japan as they encounter a potential cash shortage due to a disruption in their business partners’ production in Japan, officials said Thursday.
Top lender Kookmin Bank has decided to extend loan maturity and cut spreads charged on loans that are used for operating funds, it said.
State-run Industrial Bank of Korea said it will also provide such firms with a maximum of 300 million won ($263,000) in emergency funds.
The Seoul Metropolitan Government put forward a set of measures for local small and medium traders Wednesday.
The Seoul City said it would postpone the collection of provincial tax for small firms whose liquidity position has been influenced by the situation in Japan, and also offer them a total of 20 billion won-loan at a rate 2-3 percent lower than the market rate.
The city government also promised other diverse support in collaboration with institutions including KOTRA, Korea International Trade Association and KOIMA, officials said.
By Koh Young-aah (email@example.com