COVID-19 Recovery in SMEs Shows Mixed Results... Only Advanced Manufacturing and Seoul Metropolitan Area Thrive (Comprehensive)

Jungjinkong Q1 Management Trend Survey
Chemical Engineering, Information, Distribution 'Export Increase' Responses
Non-Capital Region Sales Decline Rate Higher than Capital Region
"Regional and Industry Gaps...Need for Customized Support"

[Asia Economy Reporter Kim Bo-kyung] As the COVID-19 pandemic accelerates the transition to a contactless and digital economy, a clear polarization is emerging within the small and medium-sized enterprises (SMEs) sector. While advanced manufacturing industries such as information processing and electrical/electronics experienced a slight decline in sales, traditional manufacturing industries saw a much larger decrease. This trend was clearly reflected in export performance as well, with a significant gap between the metropolitan area and non-metropolitan regions.

On the 6th, the Small and Medium Business Corporation (SBC) announced the results of a survey conducted in February targeting 606 SMEs regarding their business trends in the first quarter of this year. Overall business conditions, including sales, exports, and employment as perceived by companies, showed recovery compared to the fourth quarter of last year, but differences by industry were pronounced.

In the first quarter of this year, 7 out of 10 SMEs expected exports to decrease compared to the same period last year, with an average decline rate of 12.9%. Among them, traditional manufacturing industries responded that exports would decrease by 16.2% compared to the same period last year, whereas advanced manufacturing industries expected an average increase of 33.1%.

The proportion of respondents reporting 'export increase' was 11.9% overall. By industry, the order was chemical engineering (24.1%), information (18.2%), distribution (16.7%), and electrical/electronics (14.3%). This was mainly due to increased demand in information and communication technology (IT) and security industries, as well as increased export volumes related to secondary batteries and new car development.

Differences were also notable in export outlooks by region. While Seoul reported an 8.7% increase in exports compared to the same period last year, non-metropolitan areas such as Gangwon (-40%), Daegu and Gyeongbuk (-27.2%), and Daejeon and Chungcheong (-19.2%) expected export declines.

Although the export growth rate has remained positive for five consecutive months, it is noteworthy that 60.4% of SMEs responded that the export environment has not improved. About half (50%) of companies in the metropolitan areas including Seoul, Incheon, and Gyeonggi reported improvements in the export environment, but non-metropolitan regions showed low rates of improvement responses. The export environment improvement response rates for non-metropolitan companies were lowest in Daegu and Gyeongbuk (16.7%), followed by Gangwon and Gwangju, Jeonbuk, Jeonnam (25.0%), Daejeon and Chungcheong (28.6%), and Busan, Ulsan, Gyeongnam (33.3%).

The prolonged COVID-19 pandemic also caused stark differences in first-quarter sales by industry and region. 71.1% of SMEs reported a decrease in sales compared to the same period last year, with an average decline of 14.5%. Sales in metropolitan areas such as Incheon and Gyeonggi (-9.7%) and Seoul (-7.7%) were better than the overall average decline rate (14.5%), whereas sales in non-metropolitan regions exceeded the average decline. Gangwon (-24.3%), Daegu and Gyeongbuk (-21.3%), and Busan, Ulsan, and Gyeongnam (-20.5%) showed the highest sales decline rates.

Sales in contactless-related industries such as information processing (-3.4%) and electrical/electronics (-4.6%) were relatively stable, but traditional manufacturing industries such as textiles (-29.1%), food (-23.8%), and metals (-18.3%) exceeded the overall average decline rate.

The biggest concern due to the prolonged COVID-19 situation was 'difficulty maintaining employment due to decreased sales and exports,' at 40.8%. This was followed by 'poor sales due to weakened consumer sentiment' (30.5%) and 'liquidity deterioration caused by contract cancellations and delayed payments' (23.1%).

The proportion of respondents who said their financial conditions worsened compared to the same period last year reached 86.6%. Those who responded 'about the same' accounted for 11.2%, and only 2.1% said conditions had improved. The main cause of worsened financial conditions was 'poor sales' (47.8%), followed by 'difficulty in external financing' (19.8%), 'rising raw material prices' (16.8%), 'others' (8.2%), and 'repayment demands from main banks' (7.5%).

23.8% of SMEs reported having applied for new bank loans this year, and more than half (52.8%) of them were either fully or partially rejected. Reasons for loan rejection included 'exceeding loan limits' (33.3%), 'lack of collateral' (26.9%), 'sales decline last year' (21.8%), and 'credit rating below standard' (10.3%).

Regarding the main uses of additional policy funds, 55.0% cited expenses to alleviate management difficulties due to the prolonged COVID-19 impact. However, despite the pandemic, one in three companies (33.3%) planned to use funds for new investments such as research and development (18.2%) and facility investment (15.1%).

Kim Hak-do, Director of the Small and Medium Business Corporation, diagnosed, "Although the survey results show that the economy is gradually improving compared to the same period last year, there are disparities in economic improvement by region and industry, so tailored policy support segmented by industry is necessary." He added, "We will promptly provide funds to vulnerable industries to overcome management crises and stabilize employment, and strengthen support for promising industries to enhance new investments and export competitiveness."

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