Globalization to be key for survival of small businesses in S.Korea-Early in August, South Korean President Lee Myung-bak put forward what is called ecosystemic development as a key policy focus in the remainder of his term that ends in early 2013.
The ecosystemic development was coined by Lee as a society where large and small businesses coexist harmoniously as in the ecosystem. Lee has urged large conglomerates to share the benefits of their growth with small businesses for shared growth.
As part of efforts to boost shared growth, heads of local department stores and other retail giants agreed to cut sales commissions imposed on small vendors by up to 7 percentage points earlier this month after a meeting with Fair Trade Commission (FTC) chairman Kim Dong-soo.
The state-run Korea Development Bank (KDB) unveiled a 1 trillion won (902 million U.S. dollars) worth of financial aid program for small firms on Thursday in a bid to help small enterprises and venture companies that have potential for growth but lack capital. "Despite such efforts for shared growth, small- and mid-sized enterprises in South Korea will not escape from their structural problem that is lack of bargaining power," Oh Dong-yoon, a research fellow at Korea Small Business Institute ( KOSBI) in Seoul, said in an interview with Xinhua on Sunday.
Oh noted globalization will be the key for survival of small businesses as lack of bargaining power for small firms can be solved only by diversifying where their products are bought.
STRUCTURAL PROBLEM
Small- and mid-sized manufactures in the country have earned more than half of their sales by supplying parts and components to large companies rather than selling their products directly. Such a business structure strengthened small firms' dependence on large conglomerates, and made small companies more vulnerable to forced supply price cut by their larger corporate clients.
When economic conditions are good, small manufacturers can generate enough cash for their normal operation as large-sized firms increase their orders to their smaller subcontractors, but under the worsened economic situation, large companies twist the arms of their subcontractors to lower prices for their parts supplies, adding burden to small firms already hit by economic uncertainties. "Following the 1997 Asian foreign exchange crisis, large companies began calling on their subcontractors to cut supply prices as part of efforts for cost control, and their cost management became much stronger after the 2008 global financial crisis occurred," Oh said.
The European fiscal crisis is expected to have less impact on sales of the nation's large firms, which in turn affect small firms' earnings. The world's No.1 tech firm Samsung Electronics depends on Europe for around 20 percent of its sales, and the country's top automaker Hyundai Motor, on which some 2,000 subcontractors depend, generate some 10 percent of its sales in Europe.
Despite the expected less negative impact from the crisis, local small firms should rush to globalize their business by diversifying their corporate clients if they want to break away from their excessive dependence on large companies' performance, Oh said.
The expert noted small firms can enhance their bargaining power only when they diversify their corporate clients globally because they can increase their sales volume to overseas clients immediately after domestic large firms call on them to cut supply prices.
In terms of the number of enterprise, small firms account for around 99 percent against the total number of enterprise, but the value of exports for small companies merely makes up for some 35 percent of the total, according to Oh.
The ecosystemic development was coined by Lee as a society where large and small businesses coexist harmoniously as in the ecosystem. Lee has urged large conglomerates to share the benefits of their growth with small businesses for shared growth.
As part of efforts to boost shared growth, heads of local department stores and other retail giants agreed to cut sales commissions imposed on small vendors by up to 7 percentage points earlier this month after a meeting with Fair Trade Commission (FTC) chairman Kim Dong-soo.
The state-run Korea Development Bank (KDB) unveiled a 1 trillion won (902 million U.S. dollars) worth of financial aid program for small firms on Thursday in a bid to help small enterprises and venture companies that have potential for growth but lack capital. "Despite such efforts for shared growth, small- and mid-sized enterprises in South Korea will not escape from their structural problem that is lack of bargaining power," Oh Dong-yoon, a research fellow at Korea Small Business Institute ( KOSBI) in Seoul, said in an interview with Xinhua on Sunday.
Oh noted globalization will be the key for survival of small businesses as lack of bargaining power for small firms can be solved only by diversifying where their products are bought.
STRUCTURAL PROBLEM
Small- and mid-sized manufactures in the country have earned more than half of their sales by supplying parts and components to large companies rather than selling their products directly. Such a business structure strengthened small firms' dependence on large conglomerates, and made small companies more vulnerable to forced supply price cut by their larger corporate clients.
When economic conditions are good, small manufacturers can generate enough cash for their normal operation as large-sized firms increase their orders to their smaller subcontractors, but under the worsened economic situation, large companies twist the arms of their subcontractors to lower prices for their parts supplies, adding burden to small firms already hit by economic uncertainties. "Following the 1997 Asian foreign exchange crisis, large companies began calling on their subcontractors to cut supply prices as part of efforts for cost control, and their cost management became much stronger after the 2008 global financial crisis occurred," Oh said.
The European fiscal crisis is expected to have less impact on sales of the nation's large firms, which in turn affect small firms' earnings. The world's No.1 tech firm Samsung Electronics depends on Europe for around 20 percent of its sales, and the country's top automaker Hyundai Motor, on which some 2,000 subcontractors depend, generate some 10 percent of its sales in Europe.
Despite the expected less negative impact from the crisis, local small firms should rush to globalize their business by diversifying their corporate clients if they want to break away from their excessive dependence on large companies' performance, Oh said.
The expert noted small firms can enhance their bargaining power only when they diversify their corporate clients globally because they can increase their sales volume to overseas clients immediately after domestic large firms call on them to cut supply prices.
In terms of the number of enterprise, small firms account for around 99 percent against the total number of enterprise, but the value of exports for small companies merely makes up for some 35 percent of the total, according to Oh.
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