Posted on : Dec.17,2018 17:08 KST

Gap in profitability (operating profits, %) between large corporations and SMEs in manufacturing sector

Operating profit ratio for small manufacturers dips below 5% for first time since 2015

The gap in operating profits between large corporations and small businesses in manufacturing has grown to its largest in history. The situation is being attributed to growth focusing almost exclusively on semiconductors produced by large corporations, which have only a very minor ripple effect for smaller partner businesses supplying parts.

Figures released by the Bank of Korea (BOK) on Dec. 16 gave a third-quarter operating profit ratio of 10.7% for large manufacturing businesses, up by 1.0 percent point from 9.74% for the third quarter of last year. In contrast, the third-quarter operating profit ratio for small manufacturing businesses amounted to 4.73%, a decline of 0.85 percentage points from 5.58% a year earlier. At over 10%, the operating profit ratio for large manufacturing businesses was the highest since the BOK first began compiling related statistics according to 2015 standards.

The operating profit ratio for small manufacturing businesses was also the first to come in below 5% since the first quarter of 2015. With the respective ratios rising for large businesses and falling for small ones, the gap in manufacturing stood at 6.01 percentage points for the third quarter of 2018, up from 4.16 percentage points for the third quarter last year.

While the imbalance grew between large and small businesses in the operating profit ratio indicator showing profitability, a marked decrease was also seen for small businesses in sales, which is seen as a major indicator of growth. The growth rate in sales for small manufacturing businesses (relative to the same period the year before) fell from 6.7% in the third quarter of 2017 to 1.71% in the second quarter this year; for the third quarter of 2018, it stood at -3.38%, indicating minus growth. In contrast, the growth rate in sales for large manufacturing businesses rose sharply to 18.1% in 3Q17, dropped to 4.96% for 2Q18, and rose again to 8.39% for 3Q18.

The growing disparity in operating profit ratios and sales between large and small businesses was seen as indicative of dependence on semiconductors for growth. As an industry, semiconductors are seen as having a relatively small downstream effect on small companies and other business categories and industries.

“In the case of large corporations, profitability has risen amid a positive environment for machinery, electrical devices, and electronics,” a BOK official explained.

“Small businesses experienced the aftereffects of a construction slump, and the dire situation for automobiles, which have a large downstream effect, resulted in a decline in conditions for partner companies supplying parts,” the official added.

By Cho Kye-wan, staff reporter

Please direct comments or questions to [english@hani.co.kr]

original

related stories
  • 오피니언

multimedia

most viewed articles

hot issue