| Officials of the Korean Security Agency of Trade and Industry (KOSTI) conduct consulting work at the state-run agency's office in Seoul, Feb. 24. The government began operating a Russia desk, a counseling window dedicated to export control, as Russia's invasion of Ukraine began. Yonhap |
By Baek Byung-yeul
Samsung, Hyundai Motor, LG and other Korean companies are facing increasing difficulties in doing business in Russia, as the United States and EU decided to exclude most Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) banking system, according to industry watchers Monday. The SWIFT banking system enables secure cross-border settlements and payments.
The companies said they expect intensifying Western sanctions on Russia to make it harder for local firms not only to import natural gas and other raw materials from Russia, but also to receive payments for exporting a wide range of industrial goods, including cars, to that country. Korea's exports to Russia ranked 12th among all trading countries in 2021, according to the Korea International Trade Association (KITA), accounting for 1.5 percent of the country's total outbound shipments. Korea sent goods worth $9.98 billion to Russia last year.
“Hyundai Motor operates manufacturing lines in Russia. Samsung Electronics and LG Electronics also have factories. Many Korean companies are actively engaged in business there. Korea is dependent on trade which accounts for 75 percent of GDP. Our nation is the country that will be hit hardest by the sanctions,” said Kim Dae-jong, a professor at the School of Business at Sejong University.
“It is a fatal situation in Korea's trade. It will be fortunate if this situation ends early, but for now, there are signs emerging that the Russian invasion of Ukraine could be prolonged, which will be fatal to the national economy.”
Kim Yang-paeng, a researcher at the Korea Institute for Industrial Economics and Trade (KIET), diagnosed that if economic sanctions against Russia lead to strong sanctions that completely ban exports of strategic materials such as semiconductors, it could negatively affect domestic chip companies such as Samsung and SK hynix.
“If the export of semiconductors or products containing semiconductors to Russia is blocked, there may be a negative impact on sales of Samsung and SK. Russia also has a fairly large consumer market, and Samsung's smartphones are sold a lot,” the researcher said.
Kim presumed that domestic chip companies could have difficulty in supplying raw materials if economic sanctions against Russia are prolonged, as some of the raw materials necessary to make semiconductors are imported from Russia and Ukraine.
“It won't be a problem because companies have months of inventory. However, semiconductor manufacturing can be discontinued when they just don't have one kind of raw material, so this issue can cause damage if it is prolonged,” he said.
| A protester holds a placard reading 'No SWIFT for Russia' during a rally against Russia's invasion of Ukraine in Frankfurt, Germany, Feb. 26. AFP-Yonhap |
The Ministry of Trade, Industry and Energy announced Monday that it will strengthen screening of export control permits for strategic supplies such as semiconductors to Russia, in an effort to stay apace with the international community's economic sanctions against Moscow. However, on the other hand, it is also analyzing the impact on domestic companies of Russian banks' exclusion from the SWIFT system.
“To minimize uncertainties in Korean companies caused by sanctions against Russia, the ministry plans to push for rapid consultations with the U.S.,” the ministry said.
Company officials said that Russia's share of sales is not so large and this will not have a strong impact on them because their products for Russian consumers are produced in that country.
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.
“We don't think it will have a significant impact right away because if we sell home appliances or mobile phones there, we will have sales bond insurance,” a spokesman at a local IT company said on condition of anonymity.