Following is the first in a series of stories featuring economic issues facing the Park Geun-hye government which was inaugurated on Feb. 25. ― Ed.
When President Park Geun-hye visited the Korea Federation of Small and Medium Business last month, the fact that she went there before paying a call on the group representing the nation’s largest conglomerates seemed to highlight her commitment to supporting small firms.
“Shared growth” between large and small companies has been a key policy goal of the government for years, and it is expected to gain momentum under Park, who took office on Monday.
The government currently offers some 160 incentives, including tax benefits, for small and medium enterprises, but most of them still have trouble finding workers of high caliber, in large part because many young Koreans prefer big firms, and can’t invest much in research and development.
To keep large companies from hurting SMEs’ business, a state-funded panel designates trades deemed suitable for only SMEs, such as bakeries and restaurants, and advises large firms to stay away from them.
In addition to that, the new administration plans to increase R&D support for small and medium-sized firms, and reduce their income gap with big companies in a bid to foster “global” SMEs.
The SME law defines SMEs as firms below certain sizes in employee number, capital or annual sales. Different standards apply to different trades. Manufacturers, for instance, need to have fewer than 300 regular employees or less than 8 billion won ($7.3 million) in capital in order to be legally recognized as an SME. Retailers must have fewer than 200 regular workers or make less than 20 billion won in annual sales to fit the category.
What the government calls “large companies” are those belonging to conglomerates with total assets of over 5 trillion won.
Companies that are neither SMEs nor large firms are called medium-sized companies “with high potential,” according to the Ministry of Knowledge Economy.
There are about 1,400 medium-sized companies with high potential in Korea, according to Kim Sang-soon, a ministry official in charge of supporting these firms in between.
Many SMEs deliberately delay growing over the legal measure for SMEs for fear of losing the benefits and falling under some 190 new regulations.
The Park administration, therefore, plans to give a 10-year grace period for SMEs that have grown into medium-sized companies with high potential.
“We are strongly considering extending the grace period to 10 years over which the benefits are guaranteed for five years and gradually reduced in the remaining five years,” said a key member from Park’s presidential transition team.
“Once they’ve become medium-sized companies, they start going abroad and it is important for them to keep getting (government) assistance for R&D taxes and overseas marketing.”
The Park administration also plans to exempt more SMEs from inheritance taxes in a bid to keep them from shutting down business due to massive taxes.
Her transition committee last week unveiled measures to fix 94 problems bothering SMEs. They include making public corporations give out construction orders separately instead of in lump sum. Large builders have held a monopoly over turn-key projects ordered by public firms, in which small builders took part as subcontractors and put up with pressure to cut costs.
Rules will be revised to introduce punitive damages against large firms’ unfair demands on suppliers to cut costs and to ease SMEs’ financial burden of overdue employment and occupational health and safety insurance premiums in July.
The federation of SMEs will be given the right to discuss the adjustment of SMEs’ delivery prices to large firms as small subcontractors find it hard to make demands on prices.
The new president also vowed to take steps to keep banks from cutting back on loans for SMEs citing bigger risks amid the economic slump.
The National Commission for Corporate Partnership is reviewing adding the medical and financial sectors to the list of trades in which companies are graded based on their efforts for a win-win with small partners. Those who received high scores are given preference in winning public orders.
By Kim So-hyun (email@example.com