Excluded midsize companies weigh their options

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Excluded midsize companies weigh their options

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A 57-year-old surnamed Jeon, who heads a midsize consulting company, has been thinking about taking some of his employees and forming a smaller company so as to be able to participate in government tenders. The company has annual sales of about 6 billion won and 20 percent of that amount is from government orders.

“We are a consulting company that runs training programs for employees,” Jeon said, noting that government orders are worth 40 million to 50 million won each ($35,749 to $44,685). “From this year, however, we’re not able to even take part in tenders because we’re a midsize company.”

In late May, Jeon submitted a tender document to offer consulting service training for employees at a government affiliated organization, but it was rejected. Jeon said he was told that with a change in law, a company with more than 10 employees isn’t qualified to bid.

“I had no idea that my company with 50 people is considered big enough to be excluded,” he said.

Jeon’s company was disqualified because of a revised enforcement ordinance that took effect May 16 promoting purchases from small businesses. The enforcement decree states that when giving out tenders worth less than 100 million won, all chiefs of public institutions and organizations should make sure that competition for each tender is limited to small companies and small businesses. By law, in the manufacturing, construction and transportation industries, companies are referred to as “small” when they employ no more than 50 full-time workers. Those with more than 50 but less than 300 employees are considered midsize companies, while small businesses are defined as those with 10 or fewer. In other industries, small companies refer to those with 10 or fewer full-time workers, while small businesses have five or fewer.

The amendment in the decree was made to help small companies and businesses grow, which is in line with the Park Geun-hye government’s efforts to boost start-ups and create jobs. However, there are growing complaints about a lack of fair competition.

A software company in Guro District, western Seoul, for example, was not even able to bid twice recently. The company has about 100 employees and its business involves establishing human resource development programs. Late last month, the company was excluded from bidding for work with Korea Southern Power and Korea Electric Power Corporation because the company was legally too big.

To take part in government tenders, many midsize companies with 10 or more full-time employees are considering spinning off a separate company with nine or fewer employees. But that strategy is also a concern.

“If our company is divided into two, we’d be given the chance to take part in government tenders, but we’re concerned we wouldn’t be able to nurture talented employees,” said a 42-year-old executive surnamed Bang, who works at a software company

Jeon, the head of the consulting company, agrees.

“Small and midsize companies become competent only when employees work hard, and only that way will jobs be created,” Jeon said. “That is what we call small but strong companies, but government policy seems to be leading us to make tricks.”

It’s not only company executives who are tilting their heads, but also officials of government institutions in charge of orders. According to sources, many orders less than 100 million won fail because small companies making bids are often not equipped to move forward with projects.

“I understand the government’s intentions to support start-ups,” said Yoo Gil-sang, a professor at Korea University of Technology and Education. “But it doesn’t help boost their competitiveness if the government is promoting a policy that favors only small companies.”

Yoo said that rather than limiting competition, the government should devise measures to boost mergers and acquisitions so small companies are able to grow, which eventually will help create jobs.


BY KIM KI-CHAN [angie@joongang.co.kr]

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