This is the fourth article in a series of “Creative Korea Leadership – K-Trade” provided in partnership with Ministry of Trade, Industry and Energy.
SEOUL, KOREA- Korea Trade Insurance Corp. (K-sure) has set its trade insurance support target for 2013 at 211 trillion won, up 4.5 percent from 202 trillion in 2012, as a part of its strategy to build a trade safety network in an era of $2 trillion trade.
"As of the end of October, our business volume stood at 167 trillion won. If this trend continues, it will achieve its 2013 target without any difficulty." said Park Sang-Hee, Executive Director of SMEs Business Division of K-sure.
In an interview with Korea IT Times, Park said, "K-sure has placed the first priority on supporting the advancement of small and medium-sized enterprises'(SMEs) into overseas markets. In particular, we will actively help domestic companies with no export records enter overseas markets.”
"First of all, K-sure has been making strong efforts to build a trade safety network through trade insurance to help a great number of SMEs engage in export activities with their mind at ease." said Park.
In a related development, K-sure introduced ’SME Plus+ group insurance’ in March of this year, to which local governments and related institutions can act as the policy holder for small and medium-sized exporters. At present, 27 institutions, including KOTRA and Jeju Provincial Government, have taken up the group insurance policy and about 3 trillion won in trade insurance volume has been offered to 3,700 SMEs.
"Along with this, K-sure introduced the "global growth ladder program" in May this year to provide export companies with tailor-made trade insurance services according to their export growth stage. For instance, exporters are classified into the three categories, Trade Beginners Club with an annual export of less than $1 million, Trade Small-giants Club with an annual export of $1 million~$50 million, and Trade Champs Club with an annual export of over $50 million." he explained.
Thanks to such efforts, K-sure extended a total of 27.7 trillion won in trade insurance volume to SMEs as of the end of October 2013, up 17 percent from a year earlier.
Project Finance selects K-sure's financial support program as the 2012 best project
Project Finance and Trade Finance magazines, operated by British Euromoney, selected K-sure's many deals as 2012’s best projects.
Among the selected K-sure projects are the Turkey Eurasia submarine tunnel project, the Bahrain steel mill construction project, the Turkey Enerjisa thermal power project, the Saudi Arabia Rabigh 6 thermal power project, the Uzbekistan Surgil gas field project, and the Australia Ichthys LNG facility project.
"In addition, Project Finance International, a Thomson Reuters-affiliated international financial magazine, also named K-sure as the Global Multilateral of the Year in 2012. It highlights K-sure's success despite such difficult conditions as the debt crisis in Europe and financial pinch of many commercial financial institutions." he said.
Noting that the global financial market has been shrinking owing to aftermath of the global economic crisis and strengthened capital regulations on banks, Park said, "Under these circumstances, the financial assistance role of export credit agencies such as K-sure has become more important than ever. Related to this, K-sure has been offering various programs to strengthen Korean companies' competitiveness in winning overseas project bids by effectively coping with a rapidly changing investment environment."
As an initial step, K-sure established the ’financial assistance task force for small and medium-sized projects’ to provide smaller plant companies with prompt one-stop services, including financial assistance and legal & accounting consultations.
"At the same time, K-sure is exerting efforts to diversify financing sources from Japanese, Chinese and Islamic financing. It also launched the 'K-Syndi Club' with seven commercial banks to bolster Korean companies' participation in overseas projects and strengthen information exchanges." he said.
Strategy to attack newly emerging markets
Commenting that the center of global economic growth is moving from existing advanced markets to newly emerging markets, Park said, "K-sure is placing emphasis on extending trade insurance support to Korean companies to help them effectively penetrate newly emerging markets, the so-called future market.”
"In line with this, K-sure has selected 100 strategic emerging markets that could replace the existing Chinese market and classified them into the three categories, i.e., support maintenance market, concentration support market, and selective support market to provide customized trade insurance services based on market characteristics.
"For instance, we will keep the present assistance level for three countries, including India, but expand our trade insurance support for 79 countries, including many African countries."
K-sure also introduced the Mobile-K Office, under which K-sure officials directly visit importers located in newly emerging markets, including Africa, analyze their credit ratings and set credit limits. So far this year, K-sure finished credit investigations on 102 importers in 28 countries and offered a credit limit of over $400 million.
"In addition, K-sure normalized trade insurance assistance for 12 countries with high risk, including Iraq and Myanmar, to help Korean enterprises actively advance into the newly emerging markets without concern over non-settlement." he said.
Prospects for K-sure's foreign exchange fluctuation insurance project
Pointing out the instability of the won-dollar exchange rate due to the U.S. Federal Reserve's consideration of exit from quantitative easing and the slowdown of the Chinese economy, Park said, "If the exchange rate falls below the break-even-point regarded by exporters, it will be a serious blow to their profitability.”
"Accordingly, K-sure plans to expand the foreign exchange risk insurance volume to help smaller exporters effectively hedge against exchange rate risk easily. It is also expanding insurance assistance programs with relevant institutions, while holding seminars to help smaller companies avoid this risk and enhance their FX risk management." said Park.
Solution to accelerate SMEs' utilization of FTA
As the scope of the Free Trade Agreement (FTA) is expanding from the existing traditional trade deregulation to service and investment liberalization, conditions for Korean companies' advancement into overseas markets have been changing at a rapid pace.
Simultaneously, the trend of recent international trade is changing from a simple export structure of goods and services to overseas investment and direct business operation in foreign markets.
"To effectively deal with such a changing environment, K-sure is operating the trade insurance system not only for export transactions but also for overseas investment and overseas projects. For example, we are offering the short-term export insurance, mid- and long-term export insurance, and overseas investment insurance, as well as overseas business financing insurance schemes." he explained.
K-sure is also participating in the FTA Utilization Acceleration Council led by the Ministry of Trade, Industry and Energy to actively find difficulties SMEs find in using FTA and helping them solve such problems.
Global cooperation to boost Korean firm's exports and overseas investment
Also, it has been holding annual bilateral meetings with Coface of France and Euler Hermes of Germany, two of the global export credit agencies, to discuss joint financial assistance for large projects, while keeping long-term cooperation with Sinosure of China and NEXI of Japan.
"K-sure is a sole institution in Korea that analyzes the credit information of overseas companies and offers the information to Korean companies through its overseas offshoots and global networks with credit research institutions, including D&B, in 44 countries. We will continue expanding our global networks to help Korean enterprises expand their advancement into foreign countries, including those with which Korea concluded a FTA." he added.
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