By Chung Min-uck
Rep. Sohn Hak-kyu, chairman of the opposition Democratic Party (DP), Wednesday urged big businesses to retreat from the economic sectors of small- and medium-sized enterprises (SMEs).
His remarks came as the predatory practices by Korean conglomerates against their employees and subcontractors have become a core issue.
Hanjin Heavy Industries and Construction came under criticism for layoff of workers though it made big profits, paying 17.4 billion won to shareholders in dividends.
“Chaebol and other big companies should stay away from sectors best suited for SMEs and operations such as MROs (maintenance, repair & operations) and SSMs (super-supermarkets),” said Sohn during a radio speech on Wednesday.
Chaebol are family-owned, family-managed conglomerates in Korea.
According to a report released by the Korea Fair Trade Commission, the total assets of the top-10 conglomerates accounted for 76.4 percent of the nation’s gross domestic product (GDP) as of April 2011. The figure was 55 percent three years ago.
Along with the increase in the size of their assets, the number of the top-10 conglomerates’ subsidiaries also jumped 49.5 percent to 649 during the same period. This shows the businesses penetrate into numerous markets regardless of type and location.
Such business practices directly hurt the sales and profits of SMEs as they rely heavily on the domestic market and have no choice but to comply with “chaebol’s unreasonable” demands.
“The big conglomerates have been taking away the technologies and the human capital of SMEs. They also deliberately set the prices of products from SMEs lower than they are supposed to be. They should stop that,” added Sohn.
MROs and SSMs have long been classic examples in Korea when talking about chaebol or other big companies’ predatory exploitation of small companies or them forcing mom-and-pop stores and traditional businesses out of the market.
MRO is a business area that enhances in the procurement of everyday consumables essential for the maintenance, repair and operation of a company. It was once thought as a link of mutual interests between the chaebol and SMEs.
Following the establishment of specialized MROs as chaebol subsidiaries in 2000, SMEs lost their competitiveness, being forced to leave the market or undertake unfair contracts.
On Monday, Samsung decided to back down from its MRO business by selling 58.7 percent shares of its iMarketKorea.
SSMs are Wal-Mart-like chains operated by large retailers. In Korea, they were was first launched in 1993 by Shinsegae under the name of E-mart. Since then Korean SSMs have gone through rapid expansion to dominate the distribution channel.
In turn, the government recently came up with several measures restricting the boundaries of SSMs for the protection of small stores.
“Chaebol have to share growth together with SMEs,” Sohn said.
The monopolistic position of the chaebol has long been a key factor of social conflicts in Korea such as economic polarization and income disparity. Chaebol’s domination of the Korean economy started in the 1960s when the central government backed countable companies aiming for rapid growth led by a few conglomerates.