Owners of small- and medium-sized enterprises (SMEs) often cite ``9988’’ when they emphasize their importance. The catchphrase refers to SMEs accounting for 99 percent of all companies and 88 percent of all employees.
Big companies, for their part, get all the attention because they are large and play a key role in exports. In between, midsize companies, which are defined as having annual average sales of more than 150 billion won over three years and not being affiliated with large conglomerates or chaebol, are neglected.
A report released by the Korea Trade-Investment Promotion Agency (KOTRA) Wednesday revealed this disappointing reality and raised the need for urgent remedial measures.
According to the report, midsize companies, which are often the backbone of the economy, numbered 1,291 as of 2010, accounting for only 0.04 percent of more than 3.12 million firms in the nation.
By international standards, Korea lags far behind in nurturing middle market companies. For instance, the number of German midsize firms ― defined as having revenue of 1 to 3 million euros a year ― reached 430,000, or 11.8 percent of the European country’s aggregate 3.6 million companies. The corresponding ratios were 13 percent in Sweden, 4.4 percent in China, 3.7 percent in Japan and 2.2 percent in Taiwan.
The number of workers hired by Korea’s midsize companies remained at 1.08 million or 7.6 percent of the nation’s total employed workforce of 14.13 million in 2010. In contrast, Germany’s mid-ranking companies employed 11.84 million, accounting for 46 percent of employment.
Given that sustained economic growth is not possible without fostering midsize companies, none will dispute the need to create an industrial ecosystem in which small firms grow to be midsize companies and then large ones. However, this virtuous cycle is hardly applicable here.
No wonder the monopolistic power of large companies hinders the normal growth of midsize firms. More importantly, the Peter Pan Syndrome is causing midsize companies to refuse to grow up for fear of reduced government support and benefits and increased regulation and burden. Some midsize firms ― in order not to lose their status as SMEs ― even spin off subsidiaries deliberately and lay off employees.
This is undesirable, considering that nurturing midsize firms helps spur job creation and economic growth. The incoming administration, in this regard, needs to come up with differentiated support policies and its goal should be to produce more solid midsize companies that are big enough to compete globally.