SMEs Urge Swift Adoption of Delivery Price Linkage System

Rising Raw Material Prices Increase Burden
New Government Urged to Establish Proactive Policies

Park Hong-geun, Floor Leader of the Democratic Party of Korea, and Kim Ki-moon, President of the Korea Federation of Small and Medium Business (from left), are attending the "Democratic Party of Korea Small and Medium Business Sector Livelihood Issues Meeting" held on the 4th at the Korea Federation of Small and Medium Business in Yeouido, Seoul, discussing industry issues.

[Asia Economy Reporter Donghyun Choi] Small and medium-sized enterprises (SMEs) facing management difficulties due to rising raw material costs have urged the ruling party to introduce a ‘delivery price linkage system.’ This move is interpreted as an appeal in response to the lukewarm reaction from the government’s main ministries and the Presidential Transition Committee regarding the implementation of the linkage system.

On the morning of the 4th, the SME sector presented the ‘Current Status and Improvement Measures of the Polarization between Large and Small-Medium Enterprises’ at the ‘Democratic Party SME Livelihood Issues Meeting’ held at the Korea Federation of SMEs in Yeouido, Seoul. Choo Moon-gap, head of the Economic Policy Division at the Korea Federation of SMEs, emphasized, “The global raw material price surge that has continued since last year worsened further due to the Ukraine crisis,” adding, “This is the biggest factor deepening the polarization between large and small-medium enterprises and hindering the dynamism of the Korean economy.”

The SME sector shared cases of damage, stating that due to the vertical transactional relationship and unfair practices between large and small-medium enterprises, the burden of rising raw material prices is entirely borne by SMEs. Kang Sung-jin, CEO of Cheongsong Construction, appealed, “Construction material costs have soared by 40-50%, but even though we continuously request construction companies to increase contract amounts, it is not reflected,” adding, “If the increase is not reflected, work stoppage or closure is inevitable.” Yoo Byung-jo, president of the Korea Window Curtain Wall Association, said, “Recently, the price of aluminum, a major material for window and curtain wall frames, has doubled in a year,” and “Even though enormous losses occur, long-term contracts with construction companies for 1 to 3 years mean that the increase is not reflected at all.”

The SME sector insists that the introduction of the linkage system is urgent to prevent such damage cases from occurring further. They also proposed a specific implementation plan that mandates adjusting delivery prices when the main raw material price index rises by more than 3%. Park Hong-geun, floor leader of the Democratic Party who attended the meeting, emphasized, “We will accelerate the passage of bills for the introduction of the linkage system, such as the amendment to the Win-Win Cooperation Act and the Subcontracting Act,” adding, “We also plan to prepare measures to adjust prices within the current law.”

The SME sector argued that the ‘Delivery Price Adjustment Consultation System’ introduced in 2009 as an alternative to the linkage system is ineffective. To date, there have been ‘zero cases’ of adjustment consultations through this system. This is due to complicated procedures and concerns about retaliation such as transaction termination from the supplier side.

Meanwhile, the Presidential Transition Committee recently indicated that rather than the linkage system, they will take an approach of introducing a model contract to provide benefits to large companies that adjust delivery prices. The intention is to leave price adjustments to market autonomy rather than having the state enforce them.

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