‘Grexit’ could spell new glitch for IT exports

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‘Grexit’ could spell new glitch for IT exports


Left: In this file photo, a car dealer talks to a customer at a Hyundai Motor dealership near Frankfurt, Germany. Provided by Hyundai Motor. Right: TV sets are on display in a showroom also in Frankfurt. Global TV sales have been declining partly due to the financial crisis in Europe. Provided by Samsung Electronic

The risk of Greece exiting the euro zone has already had a direct impact on Korea’s exports to the Continent, with IT shipments falling while auto exports have weathered the storm and made up the shortfall. This is expected to keep overall exports on an even keel through 2012, with little growth to speak of.

The crisis had a significant impact on sales of the country’s smaller automakers, including Ssangyong Motor and Renault Samsung Motors. Europe in particular makes up 30 percent of GM Korea’s finished goods exports, and shipments to the region from January through May fell nearly 10 percent to 103,468 units from 113,177 in the same period last year.

According to an internal report from Hyundai Motor and its affiliate Kia Motors, the ongoing crisis in Europe is as serious as the global financial crisis in 2008 prompted by the bankruptcy of Lehman Brothers. Spain, the fifth-biggest auto market in Europe, saw its sales nearly halve last year compared to 2007. According to the European Automobile Manufacturers’ Association, car sales dropped in Spain, Italy, France and Greece by 7 percent, 20.2 percent, 17.5 percent and 39.1 percent, respectively, from January to April compared to the same five-month period in 2011.

In contrast, Hyundai and Kia fared well in Europe. They together marketed 258,860 vehicles between January and April, an increase of 14.9 percent from the same period last year. In April, their market share reached 6 percent for the first time. “We are better off due to the Korea-EU FTA,” a Hyundai spokesman said.

The domestic market was also hit hard by the global economic slump. Passenger car sales in the country sank 6.4 percent to 571,057 from 610,138 in the same period, according to the Korea Automobile Manufacturers Association.

The Korea Automotive Research Institute predicted that the local auto market will shrink 1.1 percent this year, recording minus growth for the first time in four years.
Automakers plan to overcome the crisis by launching new vehicles and carrying out more aggressive marketing.

“We consider the crisis as an opportunity and hope to meet our targets,” said a spokesman for Hyundai and Kia, which are affiliates.

Hyundai plans to introduce a new version of its i20, a small SUV, as well as a wagon version of its i30 compact and its latest Santa Fe SUV in Europe this year. Kia aims to launch the new Cee’d hatchback. The two companies plan on marketing their models aggressively by streamlining their sales channels in France and Germany, the two leading markets in Europe. Hyundai and Kia are official sponsors of the ongoing Euro 2012 football tournament and are trying to strengthen their sports marketing.

GM Korea said it is also closely watching the situation but expects to reach its annual sales target.

“More people are coming to recognize the Chevrolet brand and its market share is growing in Europe,” said a GM Korea spokesman. “We will continue to launch new vehicles and further expand our market share.”

GM Korea will introduce a small SUV named Trax under the Chevrolet brand in Europe later this year, as well its new Mokka under the Open brand. The new SUV will be produced in Korea and exported to Europe.


Finished goods at risk

Analysts say the financial crisis will also affect sales of IT products. “Overall consumer spending will drop,” said Seoh Kee-man, a researcher at the LG Research Institute. “Sales of necessities may not change, but Korean exports that happen to be mostly high-end goods will decline.”

“Rising unemployment in countries in southern Europe will also dampen consumer spending,” Seoh added.

However, the impact of the financial crisis in Europe will be not as serious for exporters of components as it will be for those who ship finished goods, he said.

“The demand for IT components will also decline, but it is not going to be a huge shock for local exporters,” Seoh said. “If demand for memory chips falls, Taiwan-based makers will suffer more than their Korean counterparts. In turn, industrywide restructuring will begin.”

“Sales of consumer electronics are closely related to economic growth,” said Jang Sung-won, a researcher at Samsung Economic Research Institute. “LCD TV sales fell 18 percent worldwide in the first quarter.”

Local electronics manufacturers are closely watching the situation and are worried the financial crisis in Europe may affect their sales not only in Europe but also in other major markets including North America, China and the Middle East.

Korea’s semiconductor exports to the European Union between January and May plunged 43.6 percent on-year, while its mobile handset exports also dropped 29.2 percent, partly because local handset makers shifted much of their production overseas.

Last year, Europe accounted for around 24 percent of Samsung Electronics global sales of 165 trillion won ($141.5 billion). “The financial crisis won’t have a direct impact on Samsung, but there is a growing concern about what will happen to the global economy,” a Samsung spokesman said.
Samsung Electronics Chairman Lee Kun-hee said after a brief visit to Europe that the situation in the Continent is worse than he expected. Lee also said it won’t have much effect on Samsung though its exports may be affected a little.

Lee recently ordered a reshuffle of the company’s senior management and promoted Choi Gee-sung as Samsung Group’s chief corporate strategy officer.

The country’s largest conglomerate will hold a global strategy meeting at the end of this month by calling in 400 executives from around the world to discuss how to overcome the crisis.

LG Electronics said it has been preparing for greater uncertainty.

“We intend to improve the competitiveness of our products and cut costs in a bid to strengthen our profitability, even though we may not see sales growth in the second half,” an LG spokeswoman said.
“We are trying to spread risks related to Europe’s financial crisis by improving sales in emerging markets, where economic growth rates are higher.”

LG plans to expand the launch of its 3D smart TVs around the world and hopes people will associate the new technology with the LG brand. The company said it will put 4G long-term-evolution (LTE) smartphones, known for their high data-processing speed, at the forefront in developed regions such as North America.

Domino effect

A growing concern is that the financial crisis in Europe will affect Korea’s overall exports worldwide. The government initially anticipated 6.7 percent growth in exports this year but they expanded a mere 0.6 percent from January through May. The nation’s trade surplus this year has been much smaller than expected. A bigger problem is that Korea may not see its exports recover in the near future.

“Even if the crisis subsides, the target for export growth will inevitably need to be revised down,” said Kang Doo-yong, a senior researcher at the institute.


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