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Korean firms say restructuring is inevitable: survey

By Shin Ji-hye
Published : Sept. 27, 2020 - 15:26

(Yonhap)

Amid the slowdown in global trade in the wake of the pandemic, many South Korean companies see changes in global value chains as inevitable, a survey showed Sunday.

According to a recent survey of 300 Korean manufacturers by the Korea Chamber of Commerce and Industry, 41.7 percent of the respondents said they were “experiencing the GVC changes” and 27.3 percent said they were “expecting changes.”

As the biggest factor affecting the restructuring of global value chains, 72 percent of respondents pointed to the spread of COVID-19. Advancing Chinese manufacturing industries (16.9 percent) and US-China trade disputes (7.7 percent) followed.

The KCCI said, “There has been a gradual change in GVCs due to China’s economic growth, growing protectionism and the fourth industrial revolution. And, this year’s global spread of coronavirus is accelerating the restructuring of GVCs.”

Forty percent of the respondents said they expected negative effects from the restructuring of global value chains, and only 6.5 percent of the companies expected positive effects. Fifty-two percent expected neither positive nor negative effects.

If global value chains are reorganized, companies forecast that both forward and backward participation would shrink.

Within forward-linkage-based industries, which sell intermediate goods abroad, 41 percent of companies expected to see business contract while 18 percent expected it to expand. Within backward-linkage-based industries, which purchase intermediate goods from abroad, 34.7 percent of respondents expected reduction and 10.3 percent expected expansion.

Even if GVCs are reorganized, Korean companies’ transactions with China will not be reduced, the survey showed. Only 6 percent of respondents said they would reduce their business with Chinese companies, while 84.3 percent said they would maintain or expand transactions with China.

As a policy support measure to prepare for the reorganization of global value chains, companies requested “support to strengthen research and development” (37.7 percent) the most. They also asked the government to strengthen win-win cooperation between large and small businesses (25.3 percent).

Kang Seok-gu, head of the KCCI’s industrial policy team, said, “The GVCs that Korean companies have been building have been threatened by the pandemic, by China’s push for self-procurement of intermediate goods, by the emergence of new protectionism and by Japan’s export regulations.

“In order to actively respond to the reorganization of GVCs and build a strong domestic industrial ecosystem, we need to push for R&D innovation, strengthen our digital base and joint cooperation between large businesses and small and medium-sized enterprises,” Kang said.

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

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