[Viewpoiont] Let enterprises grow on their own

‘Small and medium-sized enterprises are no longer targets for protection and support. The scope and targets for support should be revised to realistic terms,” said Kim Dong-seon, the new head of the Small and Medium Business Administration, in his inauguration speech last week. Small businesses may be offended by his frank comment. We have long been accustomed to the concept that small and medium-sized companies need a helping hand. So the new administrator may be walking into the eye of a storm by talking otherwise.

Kim, who was the presidential secretary for knowledge economy before he took up the new post, had repeatedly called for an overhaul in the support policy for such companies.

He campaigned for stronger due diligence for companies applying for aid program and post-support evaluations to prevent the squandering of funds. He argued that the generous government policy on smaller companies only served to slow the growth of the nonconglomerate corporate community and hampered the creation of new jobs.

With such large benefits, the country should have been called heaven for small and medium-sized companies. The benefits make up a long list ranging from various tax favors, loan programs and personnel support. Still smaller businesses fail to grow in number and revenue. And every election platform includes campaign promises to boost support for such companies.

The government has a duty to assist these companies. They make up 99.9 percent of the corporate population and employ 85 percent of the workforce. But under the current law on small and medium-sized businesses, companies eligible for government aid are those with capital of less than 8 billion won ($7.08 million) and have no more than 300 workers.

But the law designed to foster this community actually restricts it by capping size and capital.

If the companies do well enough to improve their revenues and employment levels beyond the government’s yardstick, they get shifted to the large corporate category and are stripped of various incentives.

Therefore, instead of walking into the corporate jungle of the big and strong, companies opt to remain in the well provided for and guarded fences of the weak and fragile. That’s why the government adopted a three-year grace period to allow companies to enjoy prior benefits while adjusting to their new environment. But three years later, these companies simply crawl back under the fence.

A solid smaller company, which is well-known in the corporate community, has kept its number of employees at 298 since it started business. The company’s management kept the job number just two shy of the government criterion lest it climb over the protective fence.

There are many other ways to toy with the government regulations. A company that has grown too big for its category would rather split into two to stay in the minor leagues instead of venturing into big-league competition at home and abroad. Under such self-serving management, companies lose the essential driving force needed to develop. It is no wonder investment and jobs remain stagnant in the minor leagues.

Among the group of small companies in 1997, only 119 moved into the midsized category as of 2007. Those moving up the ladder to the big leagues from the middle group totaled 28 over the same period.

Except those companies affiliated to conglomerates and foreign invested enterprises, only three - Poongsan, Ottogi, and E-Land - have successfully turned themselves into large companies on their own. Instead of functioning as an incubator to turn small companies into larger ones, the government guidelines and aid measures for smaller companies have built a bottleneck hampering companies from growing beyond a certain stage.

In an economy-related meeting chaired by President Lee Myung-bak, the government earlier this month came up with a strategy to foster special midsized companies.

Under the plan, the government will offer, on top of the three-year moratorium for the cutoff of certain aid, a five years phase-out for the benefit program. It presented an ambitious outline to boost companies with growth potential with aid in tailored marketing, personnel and technology training to create more than 300 enterprises capable of global competitiveness by 2020. The measures may offer incentives to push the companies out of the bottleneck.

But government support and a regulatory system with a yardstick to categorize companies has limits in spurring competitiveness and growth. If the government creates new criteria, companies will only accommodate themselves to fit into the framework. Though it may not be possible any time soon, the government should gradually eliminate the corporate differentiations based on the size and implement a blanket support system for all companies. Companies should be encouraged to grow on their own rather than on the government’s back.

In a recent address to a forum, Jin Dae-je, former Samsung Electronics president and Korea’s information and communication minister, said there is nothing the country can do for small and midsized companies. “The incentives like tax cuts are no more than a painkiller. They do not help companies actually grow.” His offer of advice is simple and clear. Entrepreneurs should grow their enterprises through their own toil and efforts.

*The writer is an editorial writer of the JoongAng Ilbo.
Translation by the JoongAng Daily staff.

By Kim Jong-soo