8 out of 10 SMEs Helpless Against Unfair Trade Practices Like Payment Squeezing

Korea Federation of SMEs 'Opinion Survey on Measures to Resolve Polarization Between Large and Small-Medium Enterprises'
Half of SMEs Say "Eradicating Unfair Trade Helps Resolve Polarization"
"Raw Material Price Increases Burden SMEs... Delivery Payment Adjustment Needed"

A factory of a small and medium-sized manufacturing company located in Gimpo, Gyeonggi.
Photo by Lee Jun-hyung

[Asia Economy Reporter Lee Junhyung] Among small and medium-sized enterprises (SMEs) that experienced unfair trade practices, 8 out of 10 (78.6%) accepted the original business owner's 'price cutting' without any particular countermeasures.

The Korea Federation of SMEs announced on the 9th that this result came from a survey titled "Opinions on Measures to Resolve Polarization between Large and Small-Medium Enterprises," conducted on 500 small manufacturing companies.

According to the survey, half (50%) of the SMEs responded that eradicating unfair trade practices would help alleviate polarization between large and small-medium enterprises. The main types of unfair trade practices identified were 'price cutting on delivery prices' (44%) and 'pressure to change business partners if prices are not lowered' (10.8%).

It was found that 4.4% of SMEs experienced unfair trade related to delivery payments last year. Among them, 68.2% faced 'unilateral price reductions.' This was followed by 'delayed payment' (18.2%) and 'unfair amounts after contract' (4.5%).

How Small Businesses Respond to Unfair Demands for Lower Supply Prices.
[Photo by Korea Federation of SMEs]

Among 98 companies that had received demands to lower delivery prices, 78.6% accepted these demands without any particular countermeasures. The proportion of such companies was 82.3% in non-metropolitan areas, which is 10.1 percentage points higher than the 72.2% in metropolitan areas. Some companies responded by 'reducing facility investments' (11.2%) or 'refusing delivery' (11.2%).

Four out of ten companies (37.8%) answered that a cost-linked pricing system should be introduced to receive fair prices for delivery. The need for 'activation of delivery price adjustment negotiations' (26.3%) was also raised.

Measures to resolve the polarization between large corporations and small and medium-sized enterprises.
[Photo by Korea Federation of SMEs]

Companies most frequently cited 'improvement of unfair trade practices' (45.4%) as a measure to resolve polarization between large and small-medium enterprises. This was followed by 'legal institutionalization of profit-sharing systems' (25.9%) and 'spread of voluntary profit-sharing culture' (22.7%).

Jung Wookjo, Head of the Innovation Growth Division at the Korea Federation of SMEs, said, "Despite the recent soaring raw material prices, the cost burden is solely passed on to small manufacturing companies, hindering their growth potential." He explained that while establishing systems to resolve polarization between large and small-medium enterprises is important, creating a fair trade environment must come first.

Jung added, "If fair delivery price adjustments are made, the resulting profits can lead to a virtuous cycle where SMEs invest in technology development and improve worker treatment," and "Increasing the number of self-sustaining small manufacturing companies is essential to produce strong small and medium enterprises like Germany's hidden champions."

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