8 out of 10 Small and Medium Enterprises Say "COVID-19 Economic Crisis Will Last Over a Year"

Reduction of Daily Expenses Including Sheet Metal Costs Reaches 32%
Need for Operating Fund Support and Tax Relief Assistance

Federation of Korean Industries

[Asia Economy Reporter Dongwoo Lee] A survey revealed that 8 out of 10 domestic small and medium-sized enterprises (SMEs) expect the economic crisis caused by the spread of the novel coronavirus infection (COVID-19) to last for more than a year.

They focused primarily on ‘lean management’ by reducing daily expenses to overcome COVID-19. This means they tried to save wherever possible first. Some companies also plan to implement business structure adjustments as an emergency management measure.

The Federation of Korean Industries announced on the 29th that, according to a survey conducted on 60 SMEs nationwide, 85.0% of SMEs expect the economic crisis caused by the spread of COVID-19 to continue for more than a year.

The highest response was that the economic crisis would last at least one year (46.7%). This was followed by opinions that it could last more than one and a half years (23.3%). Other responses included six months (15.0%), two years (8.3%), three years (1.7%), and 5.0% said the crisis would be prolonged for more than three years.

They interpreted this as SMEs judging that the domestic and international supply chains disrupted by the spread of COVID-19 would be difficult to recover in a short time and that it would take a long time for the economies of major export target countries to normalize.

Emergency management measures that are being focused on or planned in response to the economic crisis caused by the spread of COVID-19 showed that reducing the daily expense budget (32.3%) had the highest response rate. This was followed by ▲business structure adjustment (18.8%) ▲personnel restructuring (14.6%) ▲temporary shutdown (10.4%) ▲wage reduction (7.3%).

This appears to reflect the situation in the early stages of the economic crisis where SMEs focused on overcoming the crisis through lean management by reducing daily expenses such as office expenses and relocation rather than personnel restructuring.

Federation of Korean Industries

In fact, some SMEs in the IT industry are considering introducing remote work systems to reduce office-related costs, and some SMEs are considering factory relocation and asset sales to cut expenses.

As for the support measures that the government should focus on to minimize damage to SMEs, operating fund support (36.6%) was the highest. This was followed by ▲tax reduction and payment deferral (18.8%) ▲improvement of employment retention support system (13.9%) ▲promotion of consumption (11.9%).

The Federation of Korean Industries emphasized that related support such as funding, taxation, and employment retention should be concentrated before the economic crisis deepens to minimize damage to SMEs. They also added that large-scale consumption promotion measures need to be implemented.

On the other hand, dissatisfaction (33.3%) or strong dissatisfaction (16.7%) with the government’s recent COVID-19 related SME support measures was higher than satisfaction (10.0%) or strong satisfaction (1.7%).

When asked the reasons for dissatisfaction (including strong dissatisfaction) among 30 companies that responded negatively to government support measures, the highest proportion (28.0%) cited ‘narrow support conditions and targets.’ Other complaints included ▲unclear support criteria (18.0%) ▲complex support procedures (16.0%) ▲insufficient support scale (16.0%).

Yoo Hwan-ik, head of the Corporate Policy Office at the Federation of Korean Industries, said, "There is concern about massive damage to SMEs, which are relatively vulnerable to the economic crisis caused by the spread of COVID-19," adding, "To minimize damage, government support in financial, tax, and employment support areas must be implemented swiftly to an extent that companies can actually feel before the economic situation worsens further."

This content was produced with the assistance of AI translation services.