By Lee Hyo-sik
Staff Reporter
One out of every four local small-and medium-sized enterprises (SMEs) are either giving up exports or shipping merchandise abroad at a loss as the strengthening won continues to chip away at profitability.
According to a survey of 346 small companies conducted by the economic research institute affiliated with the Industrial Bank of Korea (IBK) Sunday, 86.8 percent said they are having difficulties exporting goods, up from 84.2 percent in January 2005, because of a strong won against the dollar and the yen.
About 21 percent said they are sending products to foreign countries while incurring losses, and 5.5 percent stopped shipping goods overseas altogether amid the worsening bottom line.
Also, more than half of surveyed SMEs rated business hardship stemming from the strong won as ``serious,'' up from 49.3 percent early last year.
The institute said small companies have been making all-out efforts at cutting costs to lower prices and maintain profitability. ``However, such an effort has reached a limit and if the won continues to gain against other currencies, many more firms will have no choice but to stop exporting.''
The won has recently risen to an eight-month high against the greenback on globally weak dollar sentiment and led to the ample supply of dollars on the local foreign exchange market.
The local currency appreciated 8.8 percent against the dollar in 2006 and appreciated another 1.3 percent this year. In contrast, the yen depreciated 0.7 percent against the dollar in 2006 and lost its value 0.3 percent since the beginning of the year as of July 27, according to the Bank of Korea.
A stronger won makes Korean goods expensive on overseas markets and erodes exporters' earnings.
In particular, Korean exporters have been losing their international market share to their Japanese rivals in sectors where the two sides are in fierce competition, such as automobiles, electronics and semiconductors.
Also, they are having a hard time shipping their merchandise to Japan as a strong won is weakening the price competitiveness of Korean goods on the Japanese market.
The institute said about 57 percent of surveyed small companies said their exports will decrease in the foreseeable future, while 85.5 percent expected profitability to worsen.
``The government should introduce policy measures and intervene in the foreign exchange market if necessary to stabilize the won's value against the dollar and the yen.
It should also help small firms hedge against the currency loss and companies themselves must make an effort to receive payment for their goods in euro and other currencies,'' it said.
It also stressed firms should raise product prices by upgrading qualities through improved design and packaging in a long run, and diversity export destinations.