"67% of Small and Medium Enterprises... Need for Linked Pricing System for Supply Contracts"

[Asia Economy Reporter Kwak Min-jae] More than six out of ten small and medium-sized enterprises (SMEs) identified the ‘Delivery Price Linkage System’ as the most effective method to reflect the rising raw material costs in delivery prices.

The Korea Federation of SMEs announced on the 12th the results of a ‘Survey on SME Opinions for the Introduction of the Delivery Price Linkage System’ conducted last month targeting 209 small manufacturing companies.

67.0% of SMEs responded that the Delivery Price Linkage System is the most effective way to continuously reflect the soaring raw material price increases in delivery prices. This was followed by ‘Voluntary Negotiations between Companies’ at 19.6%, and ‘Delivery Payment Adjustment Negotiation System’ at 11.5%.

According to the Korea Federation of SMEs, raw material prices increased by an average of 47.6% in 2021 compared to 2020. In contrast, the delivery price increase rate was only 10.2%. Operating profit margins decreased from 7.0% to 4.7%.

Regarding the preferred method of linkage system, the largest number of companies (55.0%) chose ‘Mandatory Implementation through Legislation.’ This was followed by ‘Voluntary Implementation between Companies’ (33.0%), ‘Don’t Know’ (8.6%), and ‘Linkage System Not Necessary’ (3.3%).

As for specific opinions on how to implement the delivery price linkage system, 40.2% responded that it should target raw materials that account for a certain percentage or more of the supply cost. The response that all raw materials should be targeted reached 38.8%.

The raw material price increase rate that companies can bear on their own was mostly in the 3-5% range. In particular, 36.4% responded with 5%. It was found that there is a high need to consider implementing the linkage system when raw material prices rise by more than 5%.

Regarding the linkage amount, 54.5% responded that it is desirable to apply only to the amount exceeding a certain standard. The largest number of respondents (40.2%) said that the entire amount should be borne by the consigning company.

For companies that fail to implement the linkage system, 43.5% responded that corrective orders and 23.9% said fines (penalties) are necessary sanctions.

Yang Chan-hoe, Head of the Innovation Growth Division at the Korea Federation of SMEs, said, “The introduction of the Delivery Price Linkage System has been a long-standing wish of the SME sector, and currently, bills are being proposed regardless of political party.” He added, “We hope that the system can be introduced promptly based on the opinions of the SME sector.”

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