Win-win Strategy between Small and Large Enterprises

Relevant authorities, including the Ministry of Knowledge Economy, jointly announced a “Mutual Growth Strategy for Small and Large Companies” on September 29, 2010.

Now one year after the introduction of the “Mutual Growth Strategy for Small and Large companies,” which aims to establish win-win partnerships between small and large firms, a plethora of companies have jumped on the bandwagon. There have been various efforts from large businesses, such as joint technology developments, management training, and assistance in finding new markets.

Most of the large companies increased financial support to subcontractors by establishing “mutual growth funds.” SK expanded the size of its “SK Shared Growth Fund” for SK Group’s subsidiaries and financial institutes to 230.0 billion won, while Lotte Group increased its mutual growth fund to 269.0 billion won as of June. Together with the Industrial Bank of Korea, Samsung established an inclusive growth fund for subcontractors. As of September, loans from this fund had reached a total of 420.0 billion won. Hyundai Heavy Industries is also operating a 30 billion won public-private joint investment technology development fund.

There are some cases of large companies conducting benefit sharing systems or entering overseas markets with subcontractors. POSCO has a benefit sharing system that returns 50% of the performance exceeding the target to subcontractors in cash for three years and gives out long-term supply contracts. SK Group helped three subcontractors enter overseas markets. The subcontractors were selected as regular maintenance firms for Binh Son Refining & Petrochemical, the first oil refinery in Vietnam. SK Group is carrying out projects to improve the capabilities of subcontractor employees by sending them overseas.

Furthermore, large companies are vibrantly providing smaller companies with management training and assistance in finding new markets. Hanjin Group helps subcontractors by purchasing equipment and renting it to SMEs(small and medium enterprises). The company also sent five employees from five subcontractors overseas to receive technical training for 10 days. KT has helped subcontractors penetrate the application markets of Korea, China, and Japan, as well as played a pivotal role in assisting subcontractors sign a global partnership agreement with Ericsson. In addition, Kumho Asiana Group runs a cyber campus for subcontractors and their families. According to documents submitted by the FKI(Federa-tion of Korean Industries) to the Presiden-tial House, the amount of support from large companies to subcontractors stood at 1.4 trillion won as of this year, a 52.7% increase from last year.

Thanks to the active participation of large businesses, the “Korea Mutual Growth Conference 2011” was held on October 27. A total of 25 companies were chosen as “Excellent Businesses for Shared Growth” at the venue.

SMEs Not Feeling Big Changes

However, it was revealed that SMEs are not feeling such “shared growth” benefits. “I understand the shared growth efforts of big companies to some extent, but it is still not enough,” said an official from a small company. According to the survey conducted by the Kbiz (Korea Fe-deration of Small and Medium Business) involving 500 subcontracting companies, only 30.8% of respondents answered, “The social awareness of inclusive growth has improved over the last year,” while 60.4% said ‘Nothing changed’ and 8.8% responded it has become even worse.” In particular, a mere 7.4% evaluated large businesses’ dedication for mutual growth as “Strong.”

Meanwhile, 44.0% of SMEs were more positive, answering they were “Hopeful” regarding the social effort for shared growth. However, more than half of respondents stated they had, “Not received any benefits” regarding the mutual growth strategies of the government and large businesses, showing that little benefit has actually been provided to SMEs. In addition, many answered that the government’s efforts for mutual growth were insufficient. In regards to “the sustainability of inclusive growth,” only 30.9% and 19.4% answered positively about the government and large companies, respectively. Many also pointed out that the desire of the government and large businesses to carry out inclusive growth is weak. In response to a question about the payment of reasonable prices for subcontractors’ products, one of the most representative requests by SMEs, 11.8% answered that conditions were “Improved” compared to a year ago, yet 18.4% said things were “Even worse.”

In conclusion, one out of four SMEs thinks that large companies still offer unreasonable prices to subcontractors and that this is serious. More than half believe a mutual growth culture has “taken root to some extent, but it is still not enough.” Most of the respondents believe it will take more than five years for the culture to become deeply rooted in our society.

It is widely acknowledged that mutual growth is necessary for the sustainable development of the national economy. However, SMEs pointed out that far more practical measures are necessary because the shared growth polices of large firms cannot satisfy the pivotal requirements of SMEs, such as paying reasonable prices for supplied products and stopping aggressively entering other business sectors. “Even though it was found that SMEs do not strongly feel the effects of mutual growth policies, rules related to shared growth are being established. Since the views of large companies’ leaders are being changed, a mutual growth culture is expected to deeply take root in our society,” said Jo U-hyun, head of the Policy Development Division at Kbiz.

Fair Relationship Can Only Sustain Shared Growth

There have not been many disputes regarding mutual growth since the term became a big topic in Korean society. However, many have negative opinions about “fairness,” a prerequisite for shared growth. According to research by the KIET (Korea Institute for Industrial Economics and Trade), only 2.0% of the public believe that the relationship between large businesses and SMEs is “fair.” At the Mutual Growth Conference, SK Chairman Chey Tae-won emphasized, “Shared growth can only be possible when large companies treat subcontractors fairly.”

As mentioned, mutual growth can be achieved through a partnership between large and small companies. Large companies should respect SMEs, not regarding them as “subservient.” An official from the Mutual Growth Committee said, “Subcontractors will provide quality products and services if large companies treat them as business partners. SMEs also have to strengthen their independence through consistent research and development activities, rather than being complacent with the status quo.” He meant that SMEs need to build long-term relationships with large enterprises by consistently analyzing clients’ needs and providing effective solutions. “The 21st century is no longer an era of competition between companies. It is a time when a group of firms compete with another group of firms, and a group of industries compete with another group of industries. Due to the fact that large companies can grow further when SMEs secure competitiveness, large and small businesses have to cooperate in order to strengthen their fundamental competitiveness,” said Im Sang-hyuk of FKI.

By highlighting the shared growth policy as the most important economic task and putting it at the top of the national agenda, the government has established a solid foundation through the revision of relevant laws, such as the Subcontract Act and the Mutual Growth Act. In addition, the government has prepared a policy to promote SMEs at the same time. “The government needs to consistently establish legal and institutional infrastructures and to monitor the market as a coordinator in the mutual growth environment. Businesses should not forget that companies themselves are leading the shared growth movement and have to strengthen their competitiveness,” emphasized an official from the Mutual Growth Co-mmittee.

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STX Engine Will Establish “Mutual Growth Fund” worth 10.1 Billion Won

Holding hands with KDB (Korea Development Bank), STX Engine hit the road to establish a find to support subcontractors. STX Engine had a signing ceremony for the Mutual Growth Fund worth 10.1 billion won at the STX Advanced Institute of Technology in Changwon on October 20, with approximately 10 people attending, including CEO Jung Dong-hak of STX Engine, Division Head Kwon Oh-cheol of KDB, and CEO Park Jong-dae of STX Members. The fund, which was established with 5 billion won from STX Engine and 5.1 billion won from KDB, will be lent to subcontractors experiencing financial difficulties. By setting up the fund, STX Engine’s subcontractors are now able to take out loans with interest rates 2.25% lower than commercial interest rates. At this time of deepening global financial crisis, STX Engine is expected to contribute to the stabilization of the financial management status of subcontractors.

“Thanks to this fund, we have built a solid foundation for subcontractors to have vibrant business activities. We will grow together with subcontractors in a healthy manner by providing them with practical assistance,” said STX Engine CEO Jung Dong-hak.