Increased Polarization
After the global financial crisis, the polarization between big corporations and small companies has gotten more intense. The wage differential between big corporations and small manufacturing companies has widened, and the export portion of small manufacturing businesses has declined as well.
According to a “report on changes in major indexes of small manufacturing businesses, the reasons and implications” by the Korea Small Business Institute (KOSBI), major indexes of small manufacturing businesses in Korea have been weakened relative to big corporations after the global financial crisis, and this is the main reason for a broader gap. In 2008, the average annual wage differential between employees in big corporations and small manufacturing companies was 1.796 million won (US$1,747), but this became 2.44 million won (US$2,373) in 2013, showing a 35 percent increase. From 2002 to 2007, the average wage level of small companies was 59.4 percent of big corporations, but this reduced to 54.5 percent from 2008 to 2013. Small companies are suffering from a shortage of manpower, as well as low labor productivity.
The portion of small manufacturing businesses in all exports was 21.1 percent in 2009, but decreased by 3.9 percent to 17.2 percent last year. This change was calculated based on index changes in the manufacturing industry panel data of OECD countries after the global financial crisis. The main reasons for this downward trend are worsened management circumstances of small manufacturing businesses due to the recession, and a lack of self-innovation.
Especially in terms of poor innovation in small manufacturing businesses, it is hard for small manufacturing companies in Korea to enhance productivity and competitiveness based on the current management structure, in which expenditures on R&D are relatively low. Although expenditures on R&D in Korea are indeed the highest among OECD member countries, the majority of them are concentrated in big corporations. R&D expenditures of small businesses that have less than 250 employees are only 24 percent, lower than the OECD average of 33 percent in 2012.