Manufacturing SMEs Employment Drops by 100,000 in One Year... Financial Conditions Also Worsening

3.439 Million Employed in Small Manufacturing in August, Declining for 18 Consecutive Months
Financial Condition Index Drops 1.9 Points from Previous Month...Factory Operating Rate Also Falling
Non-Face-to-Face and Digital Sectors Grow...Online Shopping Transaction Volume Hits Record High
Raw Material Risks and Electricity Price Hikes Combine as Adverse Factors...“Measures Needed”

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

[Asia Economy Reporter Lee Junhyung] The number of workers in small and medium-sized manufacturing enterprises decreased by nearly 100,000 within a year.

According to the "Small and Medium Enterprise Trends September 2021" report released by the Small and Medium Business Research Institute on the 4th, the number of employees in small and medium-sized manufacturing industries in August this year was 3,439,000, down about 98,000 from the same month last year (3,537,000). In addition, the number of employees in small and medium-sized manufacturing industries has been declining for 18 consecutive months. No Minseon, head of the Future Strategy Research Group at the Small and Medium Business Research Institute, explained, "While employment is increasing in large enterprises with more than 300 employees in manufacturing, small and medium-sized enterprises are showing a decline," adding, "This means that the manufacturing recovery is centered on large companies."

Financial conditions are also worsening. In August this year, the Small and Medium Business Financial Condition Index (SBHI) for manufacturing was 74.4, down 1.9 points from the previous month (76.3). An SBHI above 100 means that more companies report positive financial conditions, while below 100 indicates the opposite.

Trend of Small and Medium Manufacturing Business Financial Condition Index (SBHI). [Photo by Small and Medium Business Venture Research Institute]

Factory operating rates are also declining. In July this year, the factory operating rate for small and medium-sized manufacturing enterprises was 70.9%, down 0.7 percentage points from the previous month (71.6%). Compared to July 2019, before the spread of COVID-19, the factory operating rate (74.5%) is 3.6 percentage points lower. By size, both medium-sized and small enterprises saw a 0.7 percentage point decrease in factory operating rates.

Given this situation, the number of startups in the manufacturing sector is also decreasing. In July, there were 4,502 manufacturing startups, marking a decline for three consecutive months. During the same period last year, there were about 5,200 manufacturing startups.

Online Shopping Transaction Amount and Growth Rate Trends.
Photo by Korea Institute for Small and Medium Venture Business.

On the other hand, growth in non-face-to-face and digital-related industries was remarkable. In July this year, non-store retail sales increased by 18.2% compared to the previous month. Non-store retail refers to sales methods without physical stores, such as internet, home shopping, and delivery. Non-store retail sales have consistently shown growth rates above 10% since last year.

Online shopping transaction volume also reached its highest level since statistics began in January 2017. In July, online shopping transactions amounted to 16.1996 trillion won, an increase of 24.9% (3.2328 trillion won) compared to the same month last year. During the same period, mobile shopping transaction growth reached 33.8%.

Employment in small and medium-sized enterprises was also driven by non-face-to-face related industries. In August this year, the number of employees in small and medium-sized enterprises was 24,817,000, an increase of 433,000 from the same month last year (24,384,000). Information and communication, professional, scientific and technical services, and educational services sectors have seen employment growth for six consecutive months.

Raw material index and price trends. [Photo by Korea Institute of Startup & Entrepreneurship Development]

The sluggishness in small and medium-sized manufacturing industries is expected to continue for the time being. This is due to the recent sharp rise in raw material prices, combined with adverse factors such as logistics disruptions and electricity rate hikes. No said, "Prices of some raw materials such as tin and aluminum recently reached record highs," adding, "There is a need to prepare policy measures to overcome the crisis of small and medium-sized manufacturing industries, including raw material risks."

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