The Effect of Strong Won on Individual Industries and the Response: Result from Surveying Domestic Manufacturing Industry
|Author||Min Sunghwan, Jung, Inhwan, Kang, Duyong||Date||2014.06.24||Issue No||594|
As the trend of strong won persists with the sharp decline in the won/dollar exchange rate this year, this study surveyed domestic manufacturing enterprises on the effect of strong won and their response.
About 75% of the total respondents, replied that the exchange rate decrease affected their business activity, and 36.7% of the respondents said they were significantly affected by the strong won.
● In particular, precision machinery, electronics and transportation equipment sector accounted for the largest share of the enterprises which responded that they were affected significantly, whereas the number of textile and machinery enterprises that answered they were less affected by the strong won, was relatively small.
As for the main effect resulting from strong won, many enterprises(77.8%) pointed out ‘deteriorated profitability ‘as one of the main effects of the strong won.
● ‘Enterprises which responded that ‘ export decrease’ is the main effect, was merely about 9% while about 12% of the surveyed said that ‘deteriorated profitability’ resulting from decline in raw material price, was the main effect of the strong won.
● For individual sectors, large number of machinery, precision machinery and transportation equipment enterprises pointed out ‘deteriorated profitability’ while about 25% of other manufacturing sector replied that ‘ improved profitability’ is the main effect of the strong won.
The strong won was analyzed to deal a serious blow to the profitability of SMEs.
● About 34% of the surveyed SMEs said that 10% decline in won/dollar exchange rate leads to more than 3% decrease in their operating profit rate(19% of the surveyed large corporations said so).
70% of the respondents pointed out the fluctuation in export price(including expected fluctuation) whereas 55% of the surveyed companies responded that there would be no fluctuation in their export volume.
The surveyed enterprises demanded “stable management of won/dollar exchange rate (73.8%)”, and the finance /tax benefit for export(16%), as policy measures responding to strong won.