Conglomerate-championed shared growth cuts cash settlements

Shared growth between conglomerates and smaller businesses has been a buzzword for a long time, but buyers at large business groups have reduced their ratio of cash settlements in paying their smaller business sellers.

A survey by the Korea Federation of Small and Medium Businesses of 1,363 small and medium businesses found Monday that cash settlements in the first half of this year was 68.9 percent, down 2.65 percentage points from the second half of last year.

The cash settlement ratio, which had been hovering over 70 percent since the second half of 2010, fell to its lowest level in two years. The ratio of suppliers of conglomerates was 66.5 percent, which was less than average and the lowest since the first half of 2010.

Smaller businesses have long been asking conglomerates to pay cash for their products to help ease financial difficulty. Business groups have promised to raise the ratio of cash payments to achieve shared growth, but their actions have belied their claims.

A source at the business federation said, “With growing uncertainty in the global economy due to the eurozone fiscal crisis, more companies are trying to secure cash. They tend to issue checks rather than pay cash to their suppliers."

The survey was conducted with responses from not only direct suppliers to conglomerates but also subcontractors in many layers, which means conglomerates’ increase in cash payments might not benefit those subcontractors.

“If this economic slump continues, small businesses won`t be able to survive,” the federation said. “Conglomerates must put more efforts into pursuing shared growth by having their suppliers pay subcontractors in cash."

jhk85@donga.com