The Korea Federation of Small and Medium Businesses (KFSMB) recently announced the results of its survey of problems experienced by medium sized companies in the course of supplying conglomerates with parts and other goods. Also, on Tuesday, the Fair Trade Commission (FTC) released a list of measures for correcting unfair trade practices between conglomerates and medium sized companies. The eradication of high-handed tactics on the part of conglomerates in supply transactions has long been an issue for the Korean economy in need of attention. It is not hard to hear the heads of medium sized companies say that conglomerates are paying them just barely enough to keep their doors open. That is why decades of calls for the need to foster growth in the parts and materials industry have been in vain.
Some 31.2 percent of the 205 companies that participated in KFSMB's survey said they have experienced unfair subcontracting deals. The FTC has classified unreasonable practices on behalf of conglomerates into various types of behavior. Big companies have been known to pay less for parts after parts companies raise wages, saying the smaller company must be enjoying too much profit. Commonly they insist on lowering the price even after selecting the subcontractor who bid at the lowest price. They even try to incite further competition by taking the documentation about prime cost submitted by a company that a contract is about to be signed with and giving those figures to other companies. It is probably a matter of course that in 1998 wages at mid-sized companies was 76.2 percent of conglomerates and by 2003 was only 65.8 percent.
The FTC is trying to resolve the problem by cracking down on unfair trade practices. The plan is to create decision models for determining prices and adopting a structure for compulsory arbitration in order to aid those unfairly treated more effectively. That is an improvement over the traditional dependence on mere enforcement. Nevertheless, you still do worry that the new plans, too, will not have much bite. People have heard government promises enough to be sick, and yet not much as ever improved. This time let us hope that it is more than just for show.
The problem can no longer be ignored, and not just because of the realistic urgency about resolving social disparity, but also for the sake of restoring the basis for economic growth. A changing in the way conglomerate CEO's think will be more important than the role of the government. If you look at it over the long run, a conglomerate without good parts suppliers will not have international competitiveness. They really need to have a long-term perspective and think of it as common growth.
The Hankyoreh, 20 April 2005.
[Translations by Seoul Selection (PMS)]
[Editorial] 'Common Growth' by Conglomerates and Their Suppliers |
