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Korean firms on edge about rapid coronavirus spread in Europe, US

Samsung, LG, Hyundai concerned about production disruptions, weaker consumer sentiment

SK Innovation battery plant in Hungary
SK Innovation battery plant in Hungary

South Korean companies are feeling the strain as the new coronavirus spreads rapidly in their major production bases and premium markets -- Europe and the US.

The cumulative number of confirmed cases in Europe totaled around 67,000 as of Monday, and the death toll exceeded 2,300. In the US the number of new cases increased by more than 1,000 over the weekend to about 3,100. 

Europe, which the World Health Organization declared the “epicenter” of the pandemic on Friday, is home to production plants for 210 Korean companies, including Samsung, LG and Hyundai Motor. 

Samsung Electronics and LG Electronics make their home appliances in Hungary, Slovakia and Poland. Korean battery makers LG Chem, Samsung SDI and SK Innovation run plants in Hungary and Poland that supply batteries to European carmakers.

In the US, Samsung operates foundry plants and washing machine plants. LG Electronics runs washing machine plants in Tennessee with a yearly production capacity of 1.2 million machines. Hyundai Motor and Kia Motors produce passenger cars in Alabama and Georgia, respectively.

As the number of confirmed cases increases rapidly, the US and Europe are likely to experience factory shutdowns. Earlier, Samsung, LG and Hyundai Motor faced production disruptions at home after shutting down their plants due to confirmed cases among their employees.

Industry watchers said parts and product logistics could also be disrupted as European borders are closing in response to the coronavirus threat. Spain, France, Italy, Denmark, Poland and the Czech Republic decided to shut their borders and the national lockdowns on the continent may damage both sales and production at Korean companies.

Amid the rapid spread of COVID-19 in the region, Korean companies are implementing measures to prevent it from spreading through their overseas factories.

“We are doing our best to manage the health of our executives and employees by measuring their body temperature at the entrance of our businesses,” a Samsung Electronics official said. “We are doing the same thing in our overseas operations.”

Hyundai Motor said it has had no reports of affected corporate, dealership or manufacturing employees in the US.

In response to the evolving COVID-19 situation, Hyundai Motor America suspended all travel outside of North America and all nonessential travel within the region. It is also restricting visits to Hyundai facilities.

The companies’ worries center not only on supply disruptions, but on the impact coronavirus fears might have on consumer sentiment in their premium markets.

Europe accounted for more than 20 percent of Korean carmakers’ total exports as of last year, according to the Korea Automobile Manufacturers Association. In particular, Italy, one of the top five auto producing countries in Europe, holds 12 percent of the market in the region. It is expected to take a hit this month as the country now has the highest number of coronavirus infections outside China.

“Hyundai and Kia have so far offset sluggish sales in Africa and the Middle East with sales in European and American markets. However, their global sales are expected to remain sluggish in the second quarter due to the spread of COVID-19 in the advanced countries and weak demand from emerging economies,” said Lim Eun-young, an analyst at Samsung Securities.

IHS Markit, a global market research company, predicted that global television sales in the first quarter of this year would drop 8.7 percent from last year to about 47 million televisions in the aftermath of the COVID-19 outbreak. Market research firm Strategy Analytics forecast that smartphone sales in the first quarter of this year will shrink 26.6 percent on-year.

By Shin Ji-hye (shinjh@heraldcorp.com)
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