Struggling SMEs Amid COVID-19... "Introduce Dedicated Electricity Tariff Plan"

'Small and Medium Manufacturing Revitalization Policy Research Meeting' Held
"Economic Recovery Delayed... Urgent Measures Needed"
1,773 Factory Disposals... Inventory Increasing, Production Decreasing
Emphasis on Expanding Smart Factories and Fair Trade Necessity

[Asia Economy Reporter Kim Bo-kyung] "Since COVID-19, the number of employees has decreased by more than 10. Raw material prices have risen by over 30% compared to before the pandemic. As raw material prices are expected to continue rising, unit prices are being set based on shipment rather than order volume. Delivery prices to large corporations remain frozen." (Ship valve manufacturer Company A)

Small and medium-sized manufacturing companies, hit hard by the COVID-19 crisis, are facing deepening concerns. Employment numbers, especially among women and youth, have declined, along with sales and production. Despite the base effect from last year's poor business performance, negative outlooks remain dominant this year. Experts have suggested digitalization to strengthen corporate competitiveness, creating a fair trade environment, and introducing electricity tariffs exclusively for SMEs.

The Small and Medium Business Institute and the Korea Federation of SMEs held a "Policy Research Meeting for Revitalizing Small and Medium Manufacturing" on the 15th at the Federation of SMEs in Yeouido. The meeting was organized to examine changes in SME manufacturing management after COVID-19 and to explore ways to overcome the crisis.

Nominsun, head of the Future Strategy Research Group at the Small and Medium Business Institute, who presented the topic, said, "The economic recovery from COVID-19 is delayed more than expected, and polarization among small and medium manufacturers may intensify. It is necessary to prepare drastic measures to enhance the survival capacity of small and medium manufacturers."

Last year, various management indicators of small and medium manufacturing showed the worst levels due to the impact of COVID-19.

Last year, the number of employees in small and medium manufacturing companies with fewer than 300 employees was 3,546,000, a decrease of about 180,000 over the past three years. This contrasts sharply with companies with 300 or more employees, which saw a decrease of 9,000 during the same period. In particular, employment among women and youth in small and medium manufacturing decreased by 117,000 and 139,000 respectively, leading the employment decline.

As the number of employees in small and medium manufacturing decreased, the share of manufacturing in total SME employment fell from 15.4% in 2017 to 14.6% last year.

Last year, production and shipments in small and medium manufacturing decreased by 4.3% each compared to 2019, while inventory increased by 0.8%. Factory operating rates dropped by 4.6 percentage points from the previous year to 68.7%. Additionally, the number of factory disposals in industrial complexes nationwide reached 1,773 cases last year, up 19.5% (289 cases) from the previous year. During the same period, used machinery and equipment listings increased by 48.3% (209 cases) to 636 cases.

SMEs also expressed a negative outlook on business performance this year. According to a recent survey by the Small and Medium Business Institute, the proportion of responses expecting decreases in sales, investment, and employment was higher than those expecting increases.

Furthermore, according to the Korea Federation of SMEs' "SME Business Outlook Survey," the main management difficulties for small and medium manufacturers were domestic demand slump (62.1%), rising raw material prices (46.6%), rising labor costs (42.2%), and excessive competition among companies (31.6%), in that order.

Director Nom emphasized, "To strengthen the competitiveness of small and medium manufacturing, it is important to improve productivity without reducing employment." He proposed key initiatives including ▲strengthening support for research and development (R&D), ▲promoting business restructuring and industry transformation, and ▲enhancing collaboration among stakeholders such as SME business owners and workers, and between large and small enterprises.

Kang Hyung-deok, head of Manufacturing Innovation at the Korea Federation of SMEs, said, "It is necessary to expand smart factory construction projects to reduce production costs and improve productivity." He also expressed the opinion that the burden on companies for smart factory construction costs, currently 40-50%, should be reduced to below 30%.

Mr. Kang also proposed the introduction of an "electricity tariff system exclusively for SMEs." He pointed out, "In the root industries that form the foundation of manufacturing, such as heat treatment, which consume a lot of electricity, electricity costs account for 12.2% of manufacturing costs per company. Although industrial electricity rates are lower in production costs than residential rates, electricity charges are imposed at higher rates."

He added, "In June and November, although the power reserve rate is similar to that in spring and autumn, companies are charged summer and winter rates, increasing their burden."

Mr. Kang expressed hope that "a fair trade environment will be established, and a voluntary ecosystem where large and small enterprises coexist will be built, spreading a culture of 'paying fair prices for delivery'."

Professor Ahn Jun-mo of Korea University suggested, "Many difficulties such as job training and global supply chain management can be solved through digital technology. Full support for the digital transformation of manufacturing is necessary."

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