[EDITORIALS]A step forward for businesses

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[EDITORIALS]A step forward for businesses

Samsung Electronics has said that it will pay cash for products or materials bought from its supplier companies. Another firm, Posco, which began paying cash to its suppliers late last year, announced that it will provide 1.3 trillion won ($1.29 billion) worth of assistance to its supplier companies ― typically, small and medium-sized firms ― in purchasing, outsourcing and developing their human resources.
These businesses, two of the nation’s leading firms, deserve applause for taking such aggressive measures to help small and medium-sized businesses.
Cash payments will benefit the smaller companies. But the greater significance is that it will address the hitherto unequal relationship between large businesses and smaller companies, and also end bad practices resulting from the conglomerates’ use of promissory notes to pay their suppliers.
There are precedents where conglomerates have at times made cash payments to smaller companies. But it was usually a temporary gesture taken when they were flush with cash or a forced face-saving gesture. But this time around, both Posco and Samsung Electronics decided voluntarily to make payments in cash, and to keep on with this practice.
In reality, the method of paying with promissory notes allowed large businesses to have significant control over their smaller suppliers. It was a method to transfer the cost burden to the supplier companies for some time. During economic downturns, large companies would extend the notes’ maturity dates elastically. When supplier companies complained about late payments, conglomerates threatened the suppliers with a loss of future contracts. Supplier companies may not have liked the practice but, lacking clout or power in the industry, they accepted it.
Thus, it is good that our leading companies have at last taken the initiative in toppling an outdated practice and adopted a payment method widely used in other industrialized countries.
The conglomerates’ assistance to small and medium-sized companies will likely reduce the widespread antipathy toward large businesses across the nation. Voluntary measures taken by large businesses toward smaller businesses will be a much more effective step in reviving smaller businesses than any government measure. We urge other conglomerates to take the same step forward.
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