Gov`t Aid to Smaller Companies to Fall in 2nd Half

Government support for small and mid-size companies will decline from the second half, while that to promising “middle-standing” enterprises will increase.

A master plan to support middle-standing companies could come out as early as this month, including measures on the concept and scope of such entities, stronger help for them to expand their businesses and invest in equipment, financial support for R&D, and tax benefits.

The Strategy and Finance Ministry and the Knowledge Economy Ministry yesterday changed its policy toward smaller companies to help them raise their own competitiveness instead of providing unconditional support. Accordingly, middle-standing companies will get priority in support measures to encourage smaller companies to learn from them.

Under the Enforcement Decree of the Framework Act on Small and Medium Enterprises, a small or mid-size enterprise has fewer than 300 permanent workers or under eight billion won (6.5 million U.S. dollars) in capital (in the case of manufacturers).

Companies other than small or mid-size ones have been considered large corporations, meaning the Korean government lacks a definition for middle-standing companies.

A high-ranking government official said, “The government will provide support for SMEs while pursuing restructuring from the second half of this year. It will strengthen R&D support and tax benefits for SMEs. On the other hand, it will let poorly performing SMEs leave the market.”

Accordingly, the government will determine whether to roll over existing loans of small or medium companies maturing in the second half of this year. By doing so, it wants to differentiate between which companies should go under and those which should be nurtured.

Late last year, the government urged banks to grant unconditional rollovers of existing loans held by small and mid-size companies due this year by six to 12 months.

Measures to support such companies introduced late last year will be phased out, including fund injections, stronger guarantees, and the setting of loan quotas at financial institutions.

The number of support measures for small and mid-size companies will be cut from 163 spearheaded by 13 government agencies. Under the new plan, the fate of most small companies will be determined by market competition.

State support for promising middle-standing companies will increase, however. The Knowledge Economy Ministry has asked several think tanks to suggest measures to support middle-standing companies.

A report obtained by The Dong-A Ilbo said the measures include law revisions to clearly define a middle-standing company; injection of a restructuring fund into promising middle-standing companies to help them to expand their businesses and sharpen their expertise; and financial support for them to develop new products by hiring R&D staff with master`s or doctorate degrees.

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