[Editorial] Good Companies Should Get Benefits

In its report "How to Become a Medium-size Company" released last year, the Korea Small Business Institute proved that small companies that maintain a small business scale instead of trying to make volume bigger have competitive advantages. Among CEOs of small and middle-size enterprises, 87 percent of companies with less than 100 employees and 65.5 percent of those with more than 100 and less than 300 employees said they will not increase the volume of their business.

Companies with less than 300 employees are given benefits such as investment tax credit or structure improvement funds. Those with more than 300 employees cannot receive a benefit. That means smaller companies should not enlarge their business scale or create more jobs if they want financial support from the government. According to the Korea Development Institute, only eight of 56,472 small companies grew to have more than 500 employees from 1993 to 2003. Given Korea’s policy toward small companies, this is not surprising at all.

Worse, large corporations are also subject to heavy regulations. Companies designated as large-scale conglomerates with assets of five trillion won (3.62 billion U.S. dollars) or more are restricted by rules on mutual investment, prevention of obligation guarantee, and limitation on voting rights of financial and insurance affiliates. Moreover, conglomerates with assets of 10 trillion won (7.24 billion dollars) or more face the additional challenge of cross-shareholding limits. Certainly, a considerable number of companies struggle not to increase the volume of their business when their assets gets closer to the limit.

In Korea, well-managed companies that keep growing face harsh regulations and disadvantages. Accordingly, the number of Korean companies on the Fortune 500 increased a mere two from 12 in 1995 to 14 in 2007. On the other hand, the number of Chinese companies jumped from two to 24 over the same period. In 2007, Korea’s large conglomerates had two trillion won (2.1 billion dollars) in assets on average, less than a quarter of the figure of 8.7 trillion won (9.1 billion dollars) of the world’s top 500 companies.

It is ridiculous that companies that keep growing through competitiveness and technological innovation and hire more employees face disadvantages instead of getting more benefits. It is no different from developing or underdeveloped nations that avoid becoming developed to get benefits given only to developing or underdeveloped nations. It is high time that CEO-turned-president Lee Myung-bak overhaul policies that block corporate growth.