By Cho Jin-seo
Staff Reporter
The weakening Korean currency against the U.S. dollar may not be entirely good news for Korea's leading exporters such as LG Electronics as previously believed, its chief said Monday.
Nam Yong, CEO and vice chairman of the nation's second largest electronics maker, said that the current situation can actually hurt the firm, mainly because the strengthening Chinese yuan is pushing up operational costs at the firm's 14 factories in China.
``Exchange rates have two faces. The won is losing its value but the yuan is gaining, so the situation is getting worse for goods that we make in China and ship to other countries,'' the company's press release quoted him as saying in recent internal meetings. ``It is too early to determine losses and benefits from the exchange rate change.''
South Korea's won has tumbled against the dollar over the past year, despite the dollar's weakening against other key currencies such as the euro and yen on the wake of the sub-prime mortgage crisis. It is now being traded at over 1,000 won per dollar, compared to 937 won per dollar a year ago.
In Korea, economists and industry watchers have considered a weakening of the local currency as a favorable factor for large exporters such as LG Electronics, Samsung Electronics and Hyundai Motor, because it gives them an advantage in labor and other operational costs over rivals in other countries. However, the advantage from the weak won is now being mostly offset by globalization of their operations ― big firms now have manufacturing and logistics facilities in foreign countries where operational costs are rising quickly, and they import many raw materials and parts from overseas at higher prices than before.
``The exchange rate is an external factor that can either benefit or harm us. And we cannot control it,'' Nam said. ``It is important to improve our basic competence so we can achieve our goal no matter how the exchange rate changes.''
Nam also downplayed the firm's rising non-operational profit as a poisoned apple, which could blind the firm's employees and make them complacent.
``We have to think soberly about recent media and market reports on our increasing profits,'' he said. ``There are two types of profit: good profit and bad profit. Those from exchange rate changes and capital gains from sister companies are never good profits. If we relax and become complacent with the bad profits, it will poison us and we will have big crises in three or four years time.''
LG Electronics had a net profit of 621.3 billion won in the fourth quarter of last year, which was a 1,160 percent jump from the fourth quarter of 2006. Among it, only 153.8 billion won was operating profits, while the rest came from non-operational sectors such as its capital investment in LG Display.
The firm is expected to post 1.86 trillion won ($1.86 billion) in net profit in 2008, up 52.5 percent from 1.22 trillion won earned last year, according to Reuters Estimates calculated at 1,002.9 won per dollar.
Nam was appointed CEO of the world's fifth largest mobile phone maker in 2007. Previously, he worked as the chief of LG Telecom for eight years.
indizio@koreatimes.co.kr