Korean companies on edge due to mounting Russia-Ukraine tension

Russian President Vladimir Putin gestures while speaking to the media during a joint news conference with Hungary's Prime Minister Viktor Orban following their talks at the Kremlin in Moscow, Tuesday. AP-Yonhap

By Baek Byung-yeul, Park Jae-hyuk

Large Korean companies including Samsung Electronics, LG Electronics, Hyundai Motor and POSCO are closely monitoring increasing military tensions between Russia and Ukraine, bracing for significant disruptions in their operations in Eastern Europe if a war breaks out, company officials said Wednesday.

The officials said a Russian invasion of Ukraine will not only impact their operations, but will expose Korea to U.S. pressure to join economic sanctions against Moscow. These companies are also feared to suffer deteriorating profits due to soaring prices of oil and other raw materials.

“Companies operating businesses in Russia are all closely watching the situation,” an official from an IT company here said. “The industry predicts that Russia and nearby regions will apparently have a negative impact on us, with markets disappearing or becoming difficult, and interest rates and raw material prices rising sharply.”

Samsung Electronics' TV plant in Kaluga, Russia / Courtesy of Samsung Electronics

Russia moved troops to its border with Ukraine recently, demanding an agreement from NATO to ban the Eastern European country from joining the military alliance and restrict its deployment in Eastern Europe.

On Tuesday (local time), Russian President Vladimir Putin said he was open to dialogue to avoid a worst-case scenario in response to international concerns that a war will break out. But he added that war will be inevitable if Ukraine joins NATO and tries to recapture the Crimean Peninsula.

"Let's imagine Ukraine is a NATO member and starts these military operations. Are we supposed to go to war with the NATO bloc? Has anyone given that any thought? Apparently not," Putin said after talks with Hungarian Prime Minister Viktor Orban in Moscow.

Currently, 13 Korean companies are operating in Ukraine. Around 40 Korean businesses are active in Russia.

The U.S. is considering punitive measures such as curbing the sale of semiconductors to Russia. The White House told the U.S. chip industry recently to be ready for possible restrictions on exports to Russia if it invades Ukraine.

As most chips included in electronic devices are made using U.S. technology, the export restriction will also affect Korean companies.

"We will take necessary measures to protect the safety of our employees and their families," a Samsung spokesman said. "We are paying attention to the situation at this moment, as there has yet to be any physical conflict after the tensions."

Samsung accounts for the largest share of Russia's smartphone and TV markets. The company manufactures TVs at a plant in Kaluga. LG Electronics produces home appliances at a plant near Moscow.

Korean automakers are also paying attention to the conflict as cars account for the largest segment among Korea's top 15 export items to Russia. According to data by the Korea Trade-Investment Promotion Agency (KOTRA), Korea exported $2.49 billion worth of automobiles to Russia in 2021.

Concerns are rising that Hyundai Motor Group, the largest automaker in Korea, may face problems keeping its plants operating in Russia. In 2020, the company acquired General Motors' factory near St. Petersburg to expand into the Eastern European market.

Regarding the issue, a Hyundai Motor official said, “There is no direct impact on us yet. We are keeping a close eye on the local situation.”

POSCO International, which operates a grain export terminal in Ukraine, also said it is watching the situation closely. But the steelmaker added that its Ukrainian business is located far from the eastern border area.

"Other multinational firms from the U.S. and China are also staying in Ukraine," a POSCO International spokesman said.

Due to the possibility of the U.S. imposing economic sanctions against Russia in case a war breaks out near the Ukrainian border, some Korean firms in Russia started securing U.S. dollars to brace for a fall in the value of the Russian ruble.

"The economic sanctions will reduce Korea's exports of electronics, mobile phones, cars and components while affecting the supply of minerals and grain from Ukraine," a KOTRA official in Russia said in a press release.

The government also organized an emergency task force to brace for the impact of the Ukraine crisis and plans to hold meetings twice a week.