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This is how coronavirus is having a ‘domino effect’ on Asian businesses | World Economic Forum

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Posted on: August 2, 2020
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Its woes illustrate how the coronavirus crisis has shaken an Asian electronics supply chain still smarting from the U.S.-China trade war and the integral role played by China’s ecosystem of factories. The problems also expose how Korea Inc’s strategy of investing heavily in Vietnam has not proven to be a fully successful hedge against risks in China.

Korean firms are the biggest foreign investors in Vietnam, with over 4,000 operating in the country. Interdependence runs deep: Samsung alone accounts for one-fourth of Vietnam’s exports and the Southeast Asian nation is South Korea’s No. 3 export market as well as the fifth-biggest source of Korean imports.

Business is facilitated by a huge amount of travel. There were some 3.5 million arrivals from Korea in Vietnam in 2018, a 44% jump from a year earlier. South Korean and Vietnamese airlines flew routes between the two countries 538 times a week last year.

So when Vietnam began curtailing travel links, business plans went awry. Most flights between the two nations are currently suspended and starting Sunday, South Koreans entering Vietnam will have to undergo 14 days quarantine.

“We are having a tough time, because we can’t work there,” said the chief executive of a different supplier to LG, which also declined to be named.

The company, which makes automation equipment for car navigation systems used by Honda Motor Co, BMW and Hyundai Motor Co and is also based in Gumi, is worried it will have to delay the installation of gear because it can’t send engineers to Vietnam.

“Should the crisis last two and three months, that will cause serious problems,” the CEO said.

The personal presence of engineers to guide technology improvement and manage quality control can be crucial.

“Managers can do video conferences, but production engineers have to go there for problem solving,” said Park Ho-hwan, a business school professor at Ajou University who has studied Samsung’s operations in Korea and Vietnam.

This content was originally published here.

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