"South Korea's Corporate Ecosystem Faces Stalled Growth Engine... 'Need for Joint Growth Like Taiwan's TSMC'"

Signs of Contraction in the Corporate Growth Ecosystem
Neglect Will Accelerate Productivity Slowdown
Policy Reform Needed Based on Productivity

There is growing analysis that South Korea's corporate growth ecosystem is increasingly becoming contraction-oriented. The warning is that the pathway for small and medium-sized enterprises (SMEs) to become large corporations is being blocked, while the number of marginal firms is rising, causing the nation's growth engine to stall. Industry insiders point out that an urgent shift in corporate policy toward productivity and innovation is required.

On the 29th, the Korea Chamber of Commerce and Industry released a report titled "Diagnosis and Challenges of the Corporate Growth Ecosystem," stating that the Korean corporate ecosystem has shown signs of contraction since 2016. The report cited key indicators such as a decrease in the average number of employees per company, an increase in the proportion of marginal firms, and a reduction in the number of mid-sized companies.

In the manufacturing sector, the average number of employees per company dropped from 43 in 2016 to about 40 in 2023. The proportion of marginal firms-those unable to cover interest payments with operating profit for more than three years-increased from 14.4% in 2014 to 17.1% in 2024. The number of companies with 50 to 299 employees also fell from 10,060 in 2014 to 9,508 in 2023, indicating that the ladder for corporate growth is collapsing.

This contraction of the corporate ecosystem is directly linked to a slowdown in national growth. South Korea's total factor productivity growth rate fell from an average of 2.1% during 2016-2018 to 0.9% in 2020-2022, while the average for 24 OECD countries improved from 0.5% to 1.7% over the same period. The Korea Chamber of Commerce and Industry also analyzed that resource misallocation within the manufacturing sector surged, with inefficiency rising from 54% in the 1990s to 108% in 2020-2022. This structural distortion means resources are concentrated in less productive companies, while high-performing firms miss out on growth opportunities.

Source: Statistics Korea, Korea Chamber of Commerce and Industry

The report emphasized that the productivity gap widens as company size increases, and called for a shift in policy direction from contraction-oriented cycles to "scaling up." In fact, the per capita production value for companies with 10-19 employees is only 180 million won, whereas it is 970 million won for companies with over 500 employees-a difference of more than fivefold.

As policy alternatives, the Korea Chamber of Commerce and Industry proposed expanding financial support for startups, whose productivity surges in the first eight years; rationalizing regulations on the separation of industrial and financial capital, such as allowing holding companies to establish asset management firms; shifting from universal SME support to selective support based on growth and innovation; and supporting the industrial ecosystem as a whole rather than by company size.

The report particularly stressed that, as seen in Taiwan, supporting the entire industrial value chain is essential for strengthening the competitiveness of core national industries. A prime example is the growth of TSMC into the world's leading foundry, accompanied by companies such as ASE (back-end process) and MediaTek (fabless), whose sales grew 14 to 36 times over the past two decades.

Kang Seokgu, head of the research division at the Korea Chamber of Commerce and Industry, stated, "In a contraction-oriented corporate ecosystem like the current one, resources are allocated inefficiently, preventing companies with strong growth potential from scaling up in a timely manner. We need to partially shift SME policies from protection to growth, and promote the scaling up of companies by revitalizing the private capital market to break through the stagnation in national productivity."

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