Gap in Perceived Business Conditions Between Large Corporations and SMEs Widens to Record High (Comprehensive)

Bank of Korea 'May 2021 Business Survey Index (BSI)'
Overall Industry Sentiment Remains Flat

Gap Between Manufacturing Conglomerates and SMEs' Business Condition BSI Widens to Record 30 Points

Raw Material Supply and Auto Parts Supply Chain Issues Hit SMEs Hard

[Asia Economy Reporter Kim Eunbyeol] Supply chain disruptions and rising raw material prices have widened the recovery gap between large corporations and small and medium-sized enterprises (SMEs). While the business sentiment of large corporations rose to its highest level in over a decade, the business conditions of SMEs deteriorated, resulting in the largest-ever gap between the two. The recovery imbalance feared since the COVID-19 pandemic is becoming a reality. The improvement trend in domestic companies' business sentiment, which had continued for two consecutive months, has also stalled.

According to the 'May 2021 Corporate Business Survey Index (BSI)' released by the Bank of Korea on the 26th, the business condition BSI for large corporations (110) rose 3 points from the previous month, reaching the highest level in 10 years and 11 months since June 2010. In contrast, the SME BSI (80) fell by 3 points. Although SMEs' business sentiment sharply declined immediately after the COVID-19 outbreak in April-May last year and recovered from the second half of the same year, the improvement has not been as rapid as that of large corporations and remains well below the baseline of 100.

As a result, the gap between large corporations and SMEs widened to 30 points, up from 24 points the previous month, marking the largest gap since statistics began in January 2003. The gap, which was around 5 points as recently as November last year, has expanded to its widest in half a year due to significant differences in recovery speed by company size. Even after the global financial crisis, the gap in business sentiment between large corporations and SMEs was only about 11 points (May 2009).

The widening gap in business sentiment between large corporations and SMEs was driven by differences in raw material supply and product transportation stability. Kim Daejin, head of the Corporate Statistics Team at the Bank of Korea's Economic Statistics Bureau, said, "Business sentiment had been favorable thanks to strong exports, but this month it stagnated overall due to a shortage of semiconductors for automobiles," adding, "Raw material procurement issues caused by a shortage of ships also had an impact." He further explained, "Large corporations with systematic supply chains experienced smooth material supply and continued business improvement, but SMEs were negatively affected as raw material prices and shipping costs rose simultaneously." Rising raw material prices remain the biggest challenge in manufacturing management.

The recovery gap by company size is also evident in loan data. According to the Bank of Korea, bank loans to large corporations increased by only 3.2 trillion KRW from January to April, whereas loans to SMEs rose by 31.8 trillion KRW during the same period. In a situation of uneven recovery, SMEs are effectively sustaining themselves through debt.

The business sentiment gap also affected the overall industry BSI this month. The BSI is an index derived from surveys of entrepreneurs' assessments of their current business conditions and future outlook; a value above 100 indicates more companies perceive conditions as good, while below 100 means more companies see conditions as poor. This month's overall industry BSI was 88, the same level as last month. The non-manufacturing business condition BSI (81) fell by 1 point, due to decreases in group tourists and sports spectators, as well as a decline in construction orders.

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