Gov’t changes its criteria for SME designation

For the first time in 47 years, the government is revising its definition of small and midsize companies.

Under the current law, small and midsize companies are determined by the number of workers and the amount of capital.

Instead, they will be classified based on average annual sales for the previous three years starting in 2015.

The new definition, provided by the Small and Medium Business Administration (SMBA), is somewhat more detailed.

It will divide SMEs with average annual sales of 40 billion won ($38 million) to 150 billion won into five categories.

For manufacturers of electrical equipment, clothing, bags and shoes, pulp and paper, metal and furniture, small and medium companies will be those with an average annual revenue of less than 150 billion won.

Automotive, food, construction, mining, retail, agriculture, forestry and fishing, electricity, gas and water-supply businesses with less than 100 billion won of sales will be classified as SMEs.

Beverage, medical equipment, transportation, publishing, information services, sewage treatment and environmental-restoration businesses with less than 80 billion won will be classified as SMEs.

Service businesses that deal with repairs, business support, scientific and technical services, health care and social services, and arts and sports with sales of less than 60 billion won will be SMEs.

Service industries in the 40 billion won or less category will be lodging and restaurants, banking and insurance, education, and real estate and leasing.

“With the revision, we expect to minimize the so-called Peter Pan syndrome in which SMEs loath to grow up because becoming a large company means being eligible for fewer benefits,” said a spokesman for the SMBA. “With the possibility of falsifying the number of workers and the amount of capital they have [now gone], it will increase employment and investment into SMEs.”

The SMBA predicted when the revision’s three-year averaging period concludes at the end of 2017, 759 companies that are currently classified as SMEs will lose that designation.

However, 684 companies will be incorporated into the SME group, resulting in a net decrease of 75 companies eligible for government benefits.

BY KIM JUNG-YOON [kjy@joongang.co.kr]