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By Anna J. Park
Samsung and LG are entering into strategic cooperation to facilitate the growth of small- and medium-sized (SME) suppliers, particularly in the materials, components and equipment sectors. The partnership is aimed at enhancing the competitiveness of their local partners, which in turn will provide a secure technological edge for the Korea-based global firms amid growing trade protectionism around the world.
Earlier this month, Samsung Display and LG Display jointly launched a consultative body consisting of 30 display businesses targeting mutual growth for them and their local SME suppliers.
The Ministry of Trade, Industry and Energy as well as six components companies including SFA Engineering and Duksan Neolux attended the launch event held in Seoul. Such public-private partnerships for win-win growth among SMEs and conglomerates in the semiconductor and display sectors began in February 2018.
The consultative body aims to induce technological advances by local suppliers. For instance, local SMEs plan to domestically develop ion implantation equipment and stepper exposure systems, equipment that conglomerates have mostly imported from overseas countries ― and the conglomerates will support the development process.
"Only close cooperation among conglomerates and SME suppliers will provide domestic display industries with the solid groundwork to maintain their global competitiveness, when the sector is faced with competing countries' companies catching up, as well as Japan's export restrictions," said Trade Minister Sung Yun-mo.
The cooperation between the display arms of Samsung and LG in fostering local suppliers' growth is nothing new ― several of their affiliates have strengthened efforts in recent years to support competent local SME suppliers.
Samsung Electronics, for example, acquired equity in two of its important suppliers ― S&S Tech and YIK Corporation ― for its semiconductor business in late July. The two companies raised capitals from Samsung worth 65.9 billion won ($57.3 million) and 47.3 billion won, respectively.
LG Display also held its annual 2020 Tech Forum recently, inviting 20 local and overseas suppliers in the materials and components sectors. The online forum aims to strengthen strategic partnerships among the companies in a time of ever-changing digital transformation.
LG Chem has also long supported its key suppliers in the battery industry, such as Dongshin Motech and Shinsung FA, through various means. One such method was creating a 43.2 billion won fund, to be used for interest-free loans to key components companies. Consulting services as well as administrative support are also provided to some innovative suppliers to pursue medium- and long-term joint growth strategies.
Tax benefits to key SME suppliers
Fostering local suppliers is key to ensuring technological advances by the country's exporting companies. That's why the government, aiming to strengthen the nation's global value chain (GVC) competitiveness, announced a set of measures in August 2019 to induce further growth of local materials, components and equipment businesses through tax benefits and other incentives.
The government announced a set of policies that included investing 5 trillion won by 2022 in over 338 key components companies, while 1.5 trillion won has been assigned in tax benefits and subsidies for local businesses. In addition, companies that "reshore" their overseas factories will also get various incentives.
"The ministry will foster companies that could lead future industries' value chain with global competitiveness," Minister Sung said.
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