[VIEWPOINT]Important but neglected

Things are getting more and more difficult for small and medium businesses. One might ask if there ever were a time when things were not difficult for them in Korea, but these days the situation almost seems to have reached an extreme. There is a chronic lack of funds, low domestic demand along with the combination of the rising production costs and rising prices of raw materials; it is getting even harder to repay existing loans or get new ones.
And that’s not all. Despite the fact that there are about 435,000 unemployed youth out there, small and medium manufacturing companies are experiencing a shortage of labor.
It is said that the overall market index is getting better with the prosperity of exporters, but for small and medium companies, which usually depend on domestic demand, this has little meaning. The operating rate of those companies has dropped steadily and stayed below 60 percent since last February. The decrease in supplies and price hikes of raw materials such as steel is worsening the situation by harming the stable operations of those companies and damaging their payability. The various regulations and tension between management and labor are also aggravating the problems for the small to medium companies.
According to a survey by our federation, 38 percent of the small and medium companies have either transferred their facilities abroad or are planning to do so. Among the companies planning to move out, 65 percent plan to do so within the next three years. This is hard evidence of how difficult it is to operate these companies in Korea. At the rate things are going, the domestic manufacturing industry could disappear altogether in the next four to five years.
One cannot emphasize enough the important role small and medium companies play in our economy. They comprise all but half a percent of the number of companies here, hire three-quarters of the labor market, create over half our value-added and nearly 45 percent of exports.
Also, small and medium companies solidify political, economic and social stability by preventing the overt concentration of economy and expanding the middle class. Thus, they provide the foundation for sustainable economic growth, improve our industrial structure and contribute to balanced distribution of regional development.
Small and medium companies contributed to alleviating the rising unemployment that has emerged as a serious social problem recently: Acting as a source of vitality for society, they brought stability to society by absorbing new labor. Jobs in big companies have decreased from 2.5 million in 1998 to 1.6 million in 2002, a fall of 36.7 percent. In the same period of time, the number of jobs in small to mid-size companies rose 35.5 percent, from 7.6 million to 10.4 million. Recent research by the federation shows that despite the difficult management conditions due to the recession in domestic demand, small to mid-size start-up companies could provide some 100,000 additional jobs to absorb 4.9 percent of the entire labor force.
Small and medium companies are also capable of responding more flexibly to changes in the economy than big companies and thus contribute to the efficient use of resources and the increase of exports. This is why many advanced countries try hard to support and encourage them.
Despite their importance, the small and medium companies have been neglected by the government and economic policy-makers in recent years. In the past, there had always been some kind of emphasis, albeit often for form’s sake only, on rearing smaller companies. Now, even the empty slogans are gone. If things continue this way, these companies will have no grounds to stand on even when the economy recovers. It is difficult to expect a healthy and normal recovery of the economy without the foundation of small to mid-size companies, especially technology-based manufacturers. Without economic recovery, we will not see the new jobs that the government is so intent on creating. Economic policy-makers and the new government party should realize just how difficult the present situation is for the small to mid-size companies in our country and provide assistance.
The companies themselves should also wake up. They cannot forever blame their troubles on structural difficulties and expect the government to assist them at every turn. They must learn to survive on their own in this fast-changing environment. If small to mid-size companies want to cope appropriately with the changes and acquire their competitive edge, they must strive harder. Efforts to produce high value added products through technological advances and to enhance productivity are needed urgently. Above all, the important thing is for the small to mid-size companies to shed off the passive attitude they had taken to in the past in managing themselves and become more active and aggressive.

* The writer is the chairman of the Korea Federation of Small and Medium Business. Translation by the JoongAng Daily staff.

by Kim Yong-gu