Why it matters. South Korea is a major link in global manufacturing supply chains, so a materials squeeze on its small producers can ripple into electronics, packaging and construction inputs that customers worldwide depend on.
Background. Small and mid-sized enterprises make up roughly 99% of South Korean companies and the bulk of its workforce, yet they typically lack the deep cash reserves and diversified suppliers of large conglomerates (chaebol) like Samsung or Hyundai. KBIZ, the Korea Federation of SMEs, is the long-standing lobby that channels these firms' concerns to government. Korea imports most of its raw materials and energy, leaving it acutely sensitive to Middle East shipping and price shocks.
What to watch next. Watch whether Seoul responds to KBIZ's call with emergency supply monitoring or financial support, and whether the conflict drags past the three-month mark that most firms say they cannot survive.
More than one in three South Korean small and mid-sized manufacturers say their current stock of raw materials and components will run dry within a month, according to a survey released on June 2 by the Korea Federation of SMEs (KBIZ), which blamed prolonged conflict in the Middle East for tightening supplies and driving up costs.
The survey of 410 small and mid-sized enterprises (SMEs) that depend on imported inputs, conducted between May 15 and 31, paints a picture of an industrial base running on thin margins with little fallback plan.
Dwindling stockpiles
Two-thirds of respondents (65.9%) said they were holding less than 70% of their normal target inventory, and 23.7% reported holding under 30%. Overall, 36.1% said their on-hand materials would last less than a month. The strain was sharpest among firms that rely on construction and civil-engineering materials, where more than half (51.0%) reported less than a month of supply.
The Korea Federation of SMEs, known as KBIZ, is the country’s main umbrella body representing small businesses, which account for the vast majority of South Korea’s companies and jobs.
Little plan for a longer crisis
Asked what they would do if the current conditions persisted for three more months, the largest group of firms had no real answer. A majority (54.2%, or 222 firms) selected “other,” and most of those (49.7%, or 204 firms) effectively said they had no plan at all for a prolonged disruption. Beyond that, 39.8% said they would scale back operations, 4.1% would cut permanent staff, and 3.2% were weighing a temporary shutdown.
The findings underscore how exposed smaller manufacturers are to shocks far beyond their control, with few buffers to absorb a sustained squeeze.
Costs climbing fast
When asked how Middle East tensions had affected production (multiple answers allowed), firms most often cited rising cost burdens (94.6%) and shortages of materials (80.7%). Smaller shares pointed to disrupted operations (19.8%) and delayed deliveries (12.4%).
Price pressure has been severe. Some 71.9% of firms said the average purchase price of key inputs had risen by 20% or more compared with late February, before the conflict escalated. A further 15.1% said prices had jumped by 80% or more. The pain was most acute for companies using packaging materials, film and paper, where 31.4% reported increases of at least 80%.
A call for government action
KBIZ used the results to urge the South Korean government to strengthen monitoring of supply and demand for raw materials, warning that without intervention many small firms have no buffer left to weather a drawn-out conflict.
