Established on January 30, 1979, the Small & medium Business Corporation (SBC) currently has the six headquarters including the Enterprise Support Headquarters (ESH), nine offices, 14 divisions, 31 regional headquarters and branches, five training institutes, one academy and one center. A total of 903 employees are working for the SBC now. The ESH has three management support divisions and 31 regional headquarters and branches made up of 466 employees.
Business Korea sat down with Lee Han-cheol, chief of the ESH to hear about his activities in the era of business environment transition. The ESH is a contact-point organization that carries out the Korean government’s support policy for small and medium enterprises (SMEs) in the field. Followings are some excerpts from the interview with him.
In most cases, SMEs in the manufacturing sector are vendors working for larger corporations or those doing their own business. What are their ratios and how is the SBC supporting each of them?
Although no detailed statistical data is available now with regard to the vendors and the independent businesses, the number of primary, secondary and tertiary subcontractors working with larger contractors in the manufacturing sector is estimated at approximately 58,000, equivalent to about 46.2% of 126,000 or so SMEs in the sector each employing at least five persons.
The SBC is an organization making up for market failures and leading various markets by providing assistance in high-risk sectors for startups and small firms with less private support. The SBC is currently propping up SMEs answering policy goals regardless of the above-mentioned business model classification.
The SBC’s main businesses include government-led financing, marketing and globalization, human resources development, management diagnosis and consulting.
They say that large Korean companies’ manufacturing facility relocation to other countries is resulting in an increasing number of SMEs going out of business. What is the current status and how is the SBC dealing with it?
In view of the industrial structure of South Korea, changes in business environments attributable to such overseas relocations by large companies are significantly affecting SMEs doing business with them.
Let me cite Gwangju City as an example. The city has a home appliances production output of 4.7 trillion won, equivalent to 17.5% of that of the overall regional industry, and it is home to 200 or so consumer electronics manufacturers hiring 7,328 workers. Domestic appliances constitute the key industry of the region. These days, intense global competition is causing large companies to produce some of their domestic appliances abroad instead of in the city and this is negatively affecting the regional economy and conditions of their partner firms. Under the circumstances, major primary subcontractors’ average annual sales have dropped by 5% to 8%. Samsung Gwangju Electronics relocated its factories for less expensive washing machines and refrigerators to Vietnam in May this year and Dongbu Daewoo Electronics’ two production lines for washing machines and the like were moved to Tianjin, China in January 2015.
Gumi City can be another example. Since Samsung Electronics and LG Electronics relocated their production lines to Vietnam, the electronics exports from the Gumi Industrial Complex covering mobile phones, displays and so on, which used to account for 63% of the total exports from the industrial complex, have decreased by more than 20% a year. Besides, large corporations’ overseas business expansion entailing a reduction in the ratio of domestic production has led to an increase in the number of the unemployed and deteriorating business conditions on the part of partner firms. Last year alone, the city’s capacity utilization rate fell by more than 10% while the number of unemployment benefit beneficiaries increased 14.7%. In addition, about 70 firms in partnership with Samsung Electronics followed Samsung Electronics for overseas business until April 2014.
It is inevitable for large companies to move to regions with lower labor costs in the interest of global competitiveness. In this regard, the SBC is helping SMEs to reduce their dependence on larger companies and become self-sufficient by means of technological development and business portfolio adjustment. Also, the SBC has provided emergency funds for business stabilization for firms going through temporary hard times so that they can come back to normal with less financial burdens.
You mentioned that the SBC is trying to help domestic market-oriented firms turn into exporters. Please offer some detailed explanations along with examples of successful cases.
Recently, the South Korean government announced this year’s goal for the growth of exporting firms. According to it, the government is to concentrate on the conversion and increase the number of such converted firms from 92,000 to 97,000 between last year and this year.
In order to achieve the goal, the government has allocated a goal to each of 14 organizations for them to find firms doing business only in the domestic market. The SBC is to find 3,000 such firms and help 40% of them turn into export-oriented companies.
To this end, the SBC has found firms fit for the conversion by making use of its 31 regional headquarters and branches and formed a pool of domestic market-oriented firms, providing them with export marketing assistance in the form of overseas exhibitions and trade delegations and linking them to government funds for export financing, those reserved for global market penetration, etc.
In addition, the number of the members of the Global Futures Club, which is a group of domestic market-oriented firms eager to penetrate global markets, is scheduled to be increased from 536 to 1,500 between last year and this year. What have been carried out for this purpose include the signing of the One-on-one Mentor-mentee Agreement in February this year with the Global CEO Club, which is a group of exporting firms, timely provision of export financing and various overseas marketing programs such as assistance for resale at overseas online shopping malls.
What are the numbers of small subcontractors and their employees associated with the shipbuilding industry currently in the middle of a severe recession and restructuring? What are the SBC’s support measures for them?
According to the Korea National Statistical Office, the numbers as of the end of 2014 are estimated at approximately 3,000 and 90,000, respectively.
In late June this year, the government designated the companies in the sector as beneficiaries of special employment support measures so they can be given more subsidies for employment maintenance and vocational training subsidies and benefit from deferred payment of employment insurance and industrial accident compensation insurance premiums.
Likewise, the 31 regional headquarters and branches of the SBC have tried to have a better grasp of their needs by making contact with them in the field and provided the emergency funds for business stabilization on a preferential basis for companies suffering from the lack of financial liquidity. The budget for the emergency funds is to be increased by 400 billion won (US$347 million) in the upcoming supplementary budget.
In the southeastern region of the country in particular, which is home to a large number of firms working with South Korean shipbuilders, the regional headquarters and branches have provided tailored support measures for them to suit their respective needs concerning financing, consulting, employee training, export marketing, etc.
What are the most frequent complaints from SMEs and what are the SBC’s solutions to such complaints?
As an executive in charge of on-site assistance for SMEs, I believe one of my most important roles is to listen to their voices in person and contribute to the improvement of business environments.
I have visited firms all across the country each week in order to communicate with them. I also have lent my ears to entrepreneurs and offered them encouragement by making it a habit to participate in Global Futures meetings and Global CEO Club meetings.
In addition, the chiefs of the 31 regional headquarters and branches of the ESH have given regular briefings on such matters so that an organic and systematic communication channel can be maintained between the SBC and SMEs.
In the past, their complaints revolved around the lack of available funds. These days, however, their needs are being diversified to cover marketing channel expansion, production technology, professional human resources and many more as well as financing. In this regard, the SBC is providing customized management diagnosis for SMEs along with systematic and organized assistance so they can prosper and thrive in global markets.