Profit-sharing plan to hurt business

The chairman of the Commission of Shared Growth for Large and Small Companies said Thursday that the government will form a system under which large companies share profits with their small- and mid-size suppliers. The commission was launched as a private organization in December last year but is the de facto leader of government policy toward small and mid-sized companies. Chairman Chung Un-chan said it is up to big business to decide how to share excess profits with their suppliers. The commission, however, plans to use an index to measure shared growth between large and small companies, something which could lead large companies to feel as if they are under government pressure.

Chung’s profit-sharing system began from the awareness that while certain large corporations earn huge profits, their suppliers are often left behind. In 2004, the Federation of Korean Industries, the nation’s leading business lobbying group, recommended that its member companies share profits with their suppliers. In a prime example of voluntary profit sharing, top steelmaker POSCO shared with its suppliers profits earned by reducing costs through collaboration. It is a different story, however, if the government intervenes in rating profit-sharing performance.

Industry experts warn that if government policy for shared growth results in the arm-twisting of big business, it will likely discourage them from making investments or prompt them to move overseas, reducing jobs for Koreans. In automotive components, buyers from the Middle East and Southeast Asia have flocked to trade fairs held by Chinese parts makers but one held by Korean companies in November last year saw slack participation. This was because Korean-made auto parts are far more expensive than their Chinese competitors.

If Korea’s large corporations feel pressed to take care of their suppliers, they will likely choose to do business with foreign suppliers. The growth commission will evaluate 56 major companies, including Samsung Electronics and Hyundai Motor. A source at the Korean Chamber of Commerce and Industry warned that since most of the companies are global corporations, poor performers will likely suffer damage to their global image. It is unreasonable for the commission, which is funded by the Federation of Korean Industries, to monitor large corporations under the auspices of the government. The commission should provide information and consulting on exemplary cases around the world to help Korean businesses keep abreast of the global trend of sustainable growth.