No. of Mid-size Companies Plummets

The number of Korea’s mid-size companies, the backbone of the country’s industrial base, is plummeting amid shrinking facility investment.

Experts say many smaller companies are choosing not to grow further because mid-size companies are ineligible for a host of government benefits, including tax breaks and financial support.

According to a report by a think tank of Industrial Bank of Korea released yesterday, big companies employing 1,000 or more people invested 36.94 trillion won (32.23 billion U.S. dollars) to expand or upgrade facilities last year, up 8.5 percent from 2004. Facility investment by small companies with 299 or fewer employees also increased two percent to 3.03 trillion won (2.64 billion U.S. dollars) over the same period.

Mid-size companies with 300-399 workers, however, saw their capital investment decline 14.6 percent to 4.06 trillion won (3.5 billion U.S. dollars) over the five-year period.

The annual average growth of mid-size enterprises’ facility investment also decreased 2.4 percent, while those of larger companies rose 2.1 percent and that of smaller companies grew 0.8 percent.

According to the Korea Medium Industries Association, the number of mid-size corporations plunged from 866 in 1996 to 525 in 2007. Over the same period, the number of smaller companies increased from around 100,000 to 120,000.

Experts say the number of mid-size companies fell not because many grew to become large corporations, but because smaller companies refused to grow further. This point is shown by the fall in the number of large companies from 262 to 118 over the five-year period.

“A small company that grows into a medium company gives up some 70 benefits all at once, including those on taxes, finances, personnel, technology development and sales support,” said the think tank’s Director Roh Kang-suk.

“This fear prevents small businesses from trying to grow further. The government should reform the support system more flexibly and help medium businesses so that they can continue to grow.”

sukim@donga.com swon@donga.com