Helping small business at the cost of jobs?

The Joint Growth Committee will designate some 30 items to be exclusively sold by small and medium-size companies and recommend that large companies either transfer their relevant business lines to these smaller companies or refrain from expanding their business further. Under the guidelines, LG Household & Health Care have decided to suspend their detergent soap business, Lotte and Orion the traditional Korean rice wine "makgeolli," and Our Home the Korean-style pork sausage "sundae" and fermented soybean paste "cheonggukjang." Industry sources warn, however, that the business suspension by large companies will only reduce the number of jobs and cut consumer choices.

In 2009, Our Home set up a production facility for sundae and boiled meat slices worth a 10 billion won (8.73 U.S. million dollars). This has raised doubt over whether financially weak smaller companies can acquire the plant. The co-growth committee said, “Layoffs at smaller companies are inevitable if the acquisition fails to take place.” The government should closely examine the situation so that workers keep their jobs. The transfer of well-automated plants (like LG’s detergent soap plant) will only benefit the management of small businesses, which cannot be what the government’s co-growth plan intended.

This system for smaller companies is the revival of the “industry designation for small and mid-size companies” program that was abolished four years ago. Launched in 1979 and lasting for 28 years, the program not only failed to create globally competitive smaller companies but also allowed foreign companies to encroach on the territory of small businesses. Against this backdrop, many smaller companies opted to close. In January this year, the Small and Medium Business Administration decided to upgrade a smaller company to the status of a large company if its parent company was a large company or if it merged with another affiliate and was eligible to become a large company. Due to the system, more than 900 smaller companies were excluded from benefits that otherwise would have gone to them. Over the past three years, a combined 709 billion won (619 million dollars) of capital was injected into 319 smaller companies that were later recategorized.

In his book “Hidden Champion,” professor Hermann Simon of the University of Mainz in Germany said small and medium-size companies that are globally competitive showed clear devotion to market dominance than their counterparts. The Korean government’s protective measure only results in weaker desire for expansion. It should clearly present how it will nurture smaller companies over the next three or five years.