SMEs hit harder by plunging won

An electronic signboard at Hana Bank headquarters in Seoul, Friday, shows the won-dollar exchange rate at 1,449.1 won per dollar during after-hours trading while the benchmark KOSPI closed at 2,432.72 points. On the daytime trading market, the Korean currency weakened by 6.5 won to close at 1,449.9 won per dollar. Yonhap

By Lee Kyung-min

• Published Apr 13, 2025 3:58 PM KST
• Updated Apr 13, 2025 3:59 PM KST

Small and medium-sized enterprises (SMEs) are grappling with the recent sharp weakening of the Korean currency against the U.S. dollar, market watchers said Sunday.

Most of them say their operating margin target was based on the Korean currency moving at around 1,304 won relative to the global reserve currency.

However, the figure is now approaching 1,500 won, depreciating to 1449.9 won, as of 3:30 p.m. Friday. Last week, the Korean currency fluctuated by 67.6 won, the widest changes in value since July, when the local foreign currency trading was extended to 2 a.m. the following morning from the previous daytime closing of 3:30 p.m.

According to a survey by the Korea Federation of Small and Medium Business in January, more than half of the 360 surveyed, or 51.4 percent, cited the weakening won as a major negative for their businesses. Only 13.3 percent said the currency depreciation was a positive for them.

At the time of the survey, their combined break-even currency averaged 1,334.6 against the dollar. This means the currency losing ground further will translate to losses for their businesses.

Equally concerning are tariff uncertainties.

The U.S. Donald Trump administration has long threatened to impose reciprocal tariffs on China and other countries with significant U.S. exports dealings.

The global upending of trade norms was delayed for 90 days at the last minute, but the fear lingers.

Many small auto parts manufacturers say they are open to hiking prices, delaying orders or diversifying their manufacturing bases altogether.

Meanwhile, the scenario is more complicated for K-beauty firms.

Cosmetics brands with a substantial U.S. market base can in theory sell their goods at a cheaper price, aided by the weakening Korean won.

However, it remains uncertain whether and for how long the benefits from the short-term market conditions will outweigh the increased costs from soaring import prices.

Tariff factors are another risk.

Cosmetics exported to the U.S. remain tariff-free under the Korea-U.S. Free Trade Agreement (FTA).

However, the decade-long benefit could be wiped out if the reciprocal tariffs take effect.

Other companies vulnerable to currency risks include original equipment manufacturing (OEM) fashion brands, since their sales and expenses are settled in the U.S. currency.

Those with manufacturing bases in Vietnam and Bangladesh are focused on managing the currency fluctuations.

Food companies that rely heavily on imports for input materials are also significantly affected.

Market consensus is that the Korean won weakening 10 percent will reduce their annual net income by over 10 billion won.

Korea Rural Economic Institute data showed that raw materials constitute up to 70 percent of the total production costs for food manufacturers.

The industry says price hikes are inevitable.

“Years of anemic consumer spending is compounded by sustained depreciation of the Korean currency against the dollar and oil prices,” the Korea Food Industry Association said in a recent statement.

“Extreme climate events are pushing up global raw material costs in a heightened uncertain global market conditions. Processed food manufacturers will not be able to push back for long.”