SME Industry Faces 'Cold Wind'... Challenges of the 60th Anniversary of the Korea Federation of SMEs

Double Burden on SMEs Amid Rising Raw Material Prices
Recurring Controversy Over 'Delivery Price Linkage System'
'0 Cases' of Voluntary Adjustments with Large Corporations

Kim Ki-moon, Chairman of the Korea Federation of SMEs, is delivering a greeting at the 2022 New Year's Meeting for Small Business Owners held on the 5th at the Korea Federation of SMEs in Yeouido, Seoul. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Kim Bo-kyung] Although the Korea Federation of Small and Medium Business (KSMB) is celebrating its 60th anniversary, the reality surrounding the SME sector remains harsh. With the enforcement of the Serious Accidents Punishment Act causing a contraction in business activities, companies are facing a double burden as increases in raw material prices are not reflected in delivery prices. The long-awaited delivery price linkage system remains elusive, and the establishment of a Presidential Commission for Win-Win Cooperation between Large and Small-Medium Enterprises, promised by the new government before the election, has also sunk beneath the surface. Rather than a festive atmosphere for the KSMB at its sixtieth birthday, worries and concerns are growing.

What is most frustrating is that the delivery price adjustment system, introduced in 2009, has remained ineffective on the ground for over ten years. Although the KSMB gained negotiation rights last April through amendments to the Win-Win Cooperation Act, allowing it to sit at the table with large corporations on behalf of SMEs, not a single adjustment request has been submitted even after a year.

The law was amended in the National Assembly to introduce the new system, and resources such as manpower and budget were reallocated. However, the actual results were 'zero.' This is a typical case of hasty legislation and hasty administration. The head of the KSMB Delivery Payment Adjustment Center told reporters on the 9th, "Companies trading with large corporations hesitate to apply because they fear disadvantages and the negotiation results are not guaranteed." While it is understandable from the companies' perspective, the government and KSMB, which have maintained a system that does not work at all on the ground for a year, also need to reflect.

The 'Discussion on the Legalization of the Raw Material Price and Delivery Price Linkage System' held in 2008. From the third person on the left: Professor Choi Yong-rok of Inha University, moderator Professor Yang Hyuk-seung of Yonsei University Business Administration, Senior Research Fellow Kim Seung-il of the Small and Medium Business Research Institute, Executive Director Heo Man-hyung of the Foundry Association, Professor Yoo Kwan-hee of Korea University.

The establishment of a Presidential Commission for Win-Win Cooperation between Large and Small-Medium Enterprises, which would discuss ways to receive fair delivery prices, is also uncertain. Lee Young, nominee for Minister of SMEs and Startups, recently stated during a briefing with the ministry, "I have never seen a Presidential Commission operate realistically. What is the point if only the name keeps changing?" The transition committee has also pledged to drastically reduce various committees with poor operational performance.

The SME sector is once again calling for the introduction of a mandatory delivery price linkage system that reflects raw material price increases in delivery prices by changing the law. However, the Presidential Transition Committee has expressed a stance to leave the market to 'autonomy' by giving incentives to large corporations. The Democratic Party, seizing the opportunity, criticized the new government as 'breaking promises.' The delivery price linkage system has been a political tool and an empty promise used repeatedly during election seasons since the Lee Myung-bak administration.

There may be controversy and a need for social consensus on whether it is appropriate to regulate transaction prices between companies by law and on what standards to apply. The KSMB should not just sit back saying 'companies do not apply for voluntary adjustment,' but should encourage adjustments as much as possible while supporting SMEs to break free from dependence on large corporations by developing export and other sales channels. It can also promote good examples of large corporations coexisting with SMEs to foster an atmosphere of mutual growth.

In this situation, the words of a now-deceased entrepreneur resonate deeply: "If you try to make too much profit in transactions, it may be profitable in the short term, but in the long run, there is nothing more foolish. (Omitted) When dealing with subcontractors, I analyze costs and profits so that at least half of the profit margin from the transaction goes to the subcontractors." This is a passage from the bestseller 'The World is Wide and There is Much to Do' written by former Daewoo Group Chairman Kim Woo-joong.

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