74.5% of Small and Medium Enterprises Have "No Hiring Plans for the Second Half"... Challenges Due to 'Domestic Demand Slump'

Survey on Management Difficulties and Economic Outlook for SMEs in the Second Half
Companies with Hiring Plans Average 3.5 New Employees
68.9% Responded 'Need for Tax and Levy Reduction Policies'

[Asia Economy Reporter Kim Bo-kyung] More than 7 out of 10 small and medium-sized enterprises (SMEs) have no hiring plans for the second half of this year. Small manufacturing businesses cited rising raw material prices, while service industries pointed to sluggish domestic demand as the biggest obstacles to business activities.

The Korea Federation of SMEs announced on the 4th the results of the "Industry-specific SME Management Difficulties and 2021 Second Half Economic Outlook Survey," conducted from the 18th to the 29th of last month with 912 SMEs.

Second Half Economic Outlook Rises to 91.6
30% of Companies Still Concerned About Economic Deterioration

First, the second half economic outlook index (SBHI) rose by 14.0 points to 91.6 compared to 77.6 in the first half. In manufacturing, industries such as ▲Medical substances and pharmaceuticals (114.3), ▲Food products (107.1), and ▲Beverages (107.1) forecast improvement, whereas ▲Furniture (61.9), ▲Paper and paper products (71.4), and ▲Leather bags and shoes (76.2) are expected to worsen.

In the service sector, ▲Publishing, video, broadcasting, telecommunications, and information services (112.2), ▲Arts, sports, and leisure-related services (106.7), and ▲Real estate and rental services (100.0) anticipate improvement, but ▲Business facility management and business support services (74.4), ▲Transportation (77.8), ▲Education services (80.0), and ▲Wholesale and retail trade (86.7) are predicted to decline.

About 30.5% of small business owners and SMEs expect the economy to worsen in the second half compared to the first half, which is higher than the 19.1% who expect improvement.

When asked about the most needed policies for small business owners and SMEs, 68.9% responded with "tax reductions including income tax and corporate tax, and reductions in various charges." This was followed by financial support such as preferential loan interest rates and relaxed loan qualifications (46.3%), and increased flexibility in working hours (29.6%).

Half of SMEs Struggled Due to Sluggish Domestic Demand
Manufacturing Industry Cites 'Rising Raw Material Prices' as Difficulty

When asked about difficulties experienced in the first half of this year, "sluggish domestic demand (economic recession)" was the highest at 52.7% (multiple responses allowed). This was followed by rising raw material prices (44.6%), difficulties in financing (23.6%), expansion of the 52-hour workweek system (20.0%), and labor shortages (18.5%).

The response citing sluggish domestic demand as a difficulty was higher in the service sector (69.3%) than in manufacturing (36.6%). Conversely, manufacturing (78.1%) reported a higher proportion of difficulties due to rising raw material prices compared to the service sector (10.2%).

Regarding anticipated difficulties in the second half of this year, sluggish domestic demand was again the highest at 51.9%, followed by rising raw material prices (43.8%), difficulties in financing (20.1%), expansion of the 52-hour workweek system (20.1%), and labor shortages (18.3%).

74.5% of SMEs Have No Hiring Plans for Second Half
"Policy Responses Needed to Solve SMEs' Triple Hardships"

The hiring capacity of SMEs appears somewhat limited. When asked about workforce plans for the second half, 74.5% responded that they have "no hiring plans." Only 23.6% said they have hiring plans, and 1.9% said they plan to reduce their workforce.

The average number of hires among companies that answered "have hiring plans" was 3.5 people. Medium-sized enterprises (30%), companies with 50 or more employees (36.5%), and those with sales of 20 billion KRW or more (31.9%) showed relatively higher numbers of planned hires.

By industry, in manufacturing, the "primary metals" sector (42.9%) had the highest proportion of companies with hiring plans. In services, "publishing, video, broadcasting, telecommunications, and information services" (40.0%) was the highest. The sector with the most planned hires was "beverages" in manufacturing with 5.29 people, and "publishing, video, broadcasting, telecommunications, and information services" in services with 5.50 people.

Choo Moon-gap, head of the Economic Policy Division at the Korea Federation of SMEs, said, "Due to the prolonged COVID-19 pandemic, sluggish domestic demand and the sharp rise in raw material prices have worsened business performance in the first half." He added, "Active policy responses are needed to address the triple hardships of rising raw material prices, labor shortages, and logistics disruptions that are currently burdening SMEs."

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