[EDITORIALS]Rising won, crashing firmsKorea’s mid-sized mobile handset maker VK declared bankruptcy yesterday. The company, which mostly sold inexpensive handsets to China and Europe, struggled amid the rapid advance of the won, which now trades for less than 1,000 per dollar. At that exchange rate, it was impossible for the company to sell its products cheaply.
Now local banks and about 170 suppliers and business partners of VK are expected to experience great financial difficulties, in addition to the 34 billion won in losses to individual stockholders who invested in VK.
A growing number of Korea’s small and medium companies have lamented that their profits are narrowing because of the won’s advance against the U.S. dollar. Now such concerns at local exporters have turned into reality with the collapse of VK.
The Korean won, which climbed 11.75 percent against the dollar throughout 2005, gained a further 6.6 percent in the first half of this year. According to trade associations, 60 percent of 163 local exporters are either losing money or just breaking even. There is a limit to what those companies can deal with.
To make matters worse, the strengthening of the won will probably last for quite a while. Looming trade and budget deficits in the United States and the expected halt in U.S. interest rate hikes are expected to further drive the U.S. dollar down in value.
But the government can hardly step up to curb the won’s strengthening against the dollar, because artificial measures could later lead to bad side effects and cause a sudden surge in the won when the government’s measures lose their effectiveness.
Local companies do not have any choice but to increase their market competitiveness. They can no longer compete in the international market by churning out cheap products, especially in this day and age when ultra-cheap products made in China and India are flooding the market. Surviving in this market environment calls for more aggressive efforts, such as developing outstanding value-added products that can be sold even if they are expensive, exploring niche markets or reducing production costs by close cooperation between management and labor. The administration needs to acknowledge the seriousness of the current situation, and discover and support competitive small and medium companies with cutting-edge technologies.