As the won-dollar exchange rate soars to nearly 1,500 won, small and medium-sized enterprises (SMEs) in South Korea are grappling with mounting challenges. (Image courtesy of Yonhap)
SEOUL, Dec. 30 (Korea Bizwire) — As the won-dollar exchange rate soars to nearly 1,500 won, small and medium-sized enterprises (SMEs) in South Korea are grappling with mounting challenges, including volatile currency markets and the looming enforcement of stricter labor regulations.
The steep rise in the exchange rate—up from the 1,300-won range earlier this year—has exposed many SMEs to significant financial risks, especially those reliant on imported raw materials for domestic sales. Compounding these pressures is the scheduled end of a grace period for the 52-hour workweek rule, which will apply to businesses with five to 30 employees starting January 2025.
Currency Risks Leave SMEs Vulnerable
A survey conducted by the Korea Federation of SMEs last year revealed that nearly half (49.3%) of exporting SMEs lack proper strategies to manage currency risks. Many small businesses rely on cost-cutting or price adjustments rather than advanced hedging tools like futures or insurance, leaving them exposed to sudden fluctuations in exchange rates.
One clothing company lamented losses of over 10% on its planned imports due to the unexpected spike in the won-dollar rate. Similarly, a manufacturing firm in Gyeonggi Province described incurring financial damage when exchange rates jumped overnight just before an invoice payment.
The cosmetics sector, despite benefiting from increased exports under the “K-Beauty” boom, also reported challenges as raw material costs surged due to the weak won. Smaller brands expressed concerns about passing rising costs to consumers, fearing a decline in sales.
From January 1, 2025, the grace period for the 52-hour workweek rule has been officially ended for businesses with five to 30 employees. (Yonhap News TV)
Labor Law Changes Add to the Strain
From January 1, 2025, the grace period for the 52-hour workweek rule will officially end for businesses with five to 30 employees. While the rule was introduced in 2018 to improve work-life balance, smaller businesses were granted an extension until 2022, with an additional grace period through the end of this year.
Many SMEs argue that compliance is nearly impossible without additional workforce support, which remains scarce. Industry representatives have called for greater flexibility, such as calculating work hours on a monthly or quarterly basis rather than weekly.
“The 52-hour rule is burdensome for small businesses, especially when workload surges unexpectedly to meet deadlines,” said a spokesperson for a small business federation. “Violations could lead to criminal penalties, which adds immense psychological stress for small business owners.”
Systemic Challenges and Long-Term Risks
Experts warn that prolonged exchange rate instability could erode SME competitiveness in the long term. Rising raw material costs hinder production, while reduced cash flows force companies to scale back investments and innovation, creating a vicious cycle of declining competitiveness.
According to a study by the Korea Small Business Research Institute, currency-related losses account for up to 25% of operating profit for manufacturing SMEs. A 1% rise in the exchange rate translates to a 0.36% increase in such losses.
“Large companies can rely on reserves to weather the storm, but SMEs operate on a month-to-month basis and feel the impact immediately,” said Song Young-chul, a researcher at the institute.
With mounting challenges on multiple fronts, SMEs are urging policymakers to extend support, from currency risk mitigation to more flexible labor regulations, to ensure their survival in an increasingly volatile economic environment.
M. H. Lee (mhlee@koreabizwire.com)
