75% of SMEs Participating in Pilot Program for Delivery and Subcontract Payment Linkage Say "Satisfied"

Ministry of SMEs and Startups Announces Investigation Results at Meeting on the 25th

More than 70% of the 10 companies participating in the pilot project for the linkage system of delivery payments and subcontract payments reported satisfaction.

Fair Trade Commission Chairman Han Ki-jung is giving a greeting at the joint meeting on the on-site settlement of the payment linkage system held by the Ministry of SMEs and Startups and the Fair Trade Commission at LG Science Park in Magok-dong, Gangseo-gu, Seoul, on September 11.
[Photo by Yonhap News]

On the 25th, the Ministry of SMEs and Startups held an on-site meeting with the small business sector at the Foundation for Large and Small Enterprises and Agriculture and Fisheries Cooperation in Jung-gu, Seoul, to announce the results of a survey conducted on companies that participated in the pilot operation of the linkage system from September last year to February this year.

About 75.2% of the entrusted companies responded that they were "satisfied" with the overall process of concluding linkage contracts. Approximately 85.6% expressed their willingness to re-sign linkage contracts. The Ministry explained, "Most entrusted companies showed high satisfaction with the linkage system, and as an effect of the system, many cases experienced not only a reduction in risks due to raw material price fluctuations but also financial benefits such as improved productivity and quality, and increased sales."

Regression analysis of the rate of change in raw material prices and the adjustment rate of delivery unit prices showed a regression coefficient of 0.62. This means that if raw material prices rise by 1 percentage point, delivery unit prices increase by 0.62 percentage points.

In an in-depth interview conducted with the commissioning companies participating in the pilot operation, one respondent said, "In the case of certain raw materials, prices have risen by up to 45% since October 2021, and if the linkage method for delivery payments had not been established, price negotiations could have been delayed, potentially disrupting timely supply of parts." They added, "The linkage system is not advantageous to either side but has the advantage of facilitating stable relationships with partner companies and convenient price negotiations between entrusted and commissioning companies during the contract period."

The meeting was attended by Minister Lee Young of the Ministry of SMEs and Startups, Chairman Han Ki-jung of the Fair Trade Commission, representatives of small and medium enterprises nationwide, and associations such as the Korea Federation of SMEs. Minister Lee said, "The number of Donghaeng companies has nearly doubled from 4,208 companies on the 11th of last month to 8,120 companies within a month, indicating that the linkage system is rapidly settling in the field following the enforcement of the law." He added, "Companies participating in the linkage system, such as Donghaeng companies, will feel the effects such as reduced risk from raw material price fluctuations, so we plan to recruit more than 10,000 Donghaeng companies by the end of the year to allow more companies to benefit from the linkage system."

Minister Lee also stated, "The Ministry of SMEs and Startups has prepared strong sanctions against illegal acts that undermine the purpose of the law and established an anonymous reporting center." He added, "We will closely monitor to prevent illegal acts related to exemption clauses and support the establishment of linkage contracts as a trading culture in the field."

Chairman Han emphasized, "Since the obligation to link risks from raw material price fluctuations between large and small-medium enterprises has been legislated, we will ensure the rapid establishment of the system and block attempts to evade it by employing all means and methods to guarantee the spread of the linkage culture." He added, "Through the Korea Fair Trade Mediation Agency, designated as the support headquarters for the spread of linkage under the Subcontracting Act, we will provide close support on-site regarding individual companies' difficulties in concluding linkage contracts, setting linkage conditions, and conflicts and disputes between parties during implementation."

Chairman Han urged the small business sector, saying, "As the main parties holding information such as raw material details and supply costs used in subcontract transactions, please review in advance the presence of major raw materials subject to the linkage obligation, price fluctuation indicators and cycles of major raw materials, and the degree of burden sharing to prepare for concluding linkage contracts."

Small business owners attending the meeting conveyed to the government opinions that support such as education is needed to smoothly operate linkage contracts and help management, and that since transaction conditions and practices vary by industry, the operation of the linkage system should be well monitored to ensure that no small businesses miss out on its benefits.

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