Survival Strategies against Further Appreciation of Dollar

Major conglomerates such as Samsung Electronics, Hyundai Motors and LG Electronics are drawing up strategies to gear themselves up against a possible decrease in the won-dollar exchange rate below 1,000 won.

They expect that the FX rate could decline to 1,050 next year and plan to counter possible declines in export profit and volume by cutting costs and enhancing productivity. They have come up with plans to counter the depreciation of the dollar down to 1,100 won.

Managing Director of Samsung Electronics, Jang Il-hyung said, ˝The company is establishing management plans to prepare against the depreciation of the dollar to 1,100 to 1,050 won next year. Strategies are in the pipeline to prevent the company’s profit from decreasing dramatically when the won-dollar exchange reaches the 1,000 won-mark.˝

He added, ˝It has been analyzed that if the exchange rate of the dollar against the won decline by 100 won, our annual corporate profit decreases by about 1trillion won. We will make double efforts to cut costs and enhance productivity so that each item such as semiconductors and digital appliances could be profitable even when the exchange rate hovers around the 1,000 won-mark.˝

Director of Hyundai Motors, Kim Jo-geun said, ˝Countermeasure against the decrease of the dollar to 1,150 won, 1,100 won and 1,070 won are being drawn up. Overseas production such as in China and India is not much affected by FX rate changes. But Concerns are raised about possible profit declines in major overseas markets in the U.S. and the E.U. The firm is aggressively preparing itself against the depreciation of the dollar to 1,000 won-mark by increasing the sue of the Euro in settlement and by cutting expenses.˝

LG Electronics is also coming up with management plans to counter the decline in the won-dollar exchange rate to 1,100 to 1,050 won. Meanwhile LG Investment and Securities analyzed that if the exchange rate skids down to 1,080 won next year, Samsung Electronics, LG Electronics, Samsung SDI and Samsung Mechanics will see their operating profit decreasing by 1 trillion 225 billion won or 13.3%.

The security firm adjusted its won-dollar exchange rate forecast downward by 5.8% from 1.146 won to 1,080 won. It also expected that the profits of four exported oriented companies such as Samsung Electronics would drop next year 2 trillion 134.7 billion won or 2.7%. On average, export accounts for 72% of the firms. Thus, as much as 78% of transactions are settled by the dollar. The decline in export profit is inevitable if the dollar is depreciated.

By company, Samsung Electronics would suffer the greatest blow with possible reduction in operating profit of 819.4 won (-11.3%), followed by LG Electronics (167.5 billion won), Samsung SDI (150 billion won) and Samsung Mechanics (88.1 billion won).

Chan-Sun Hong Kang-Woon Lee hcs@donga.com kwoon90@donga.com