This study examines the causes of the sudden deterioration of the productivity and management of small and medium businesses (SMBs) in Korea during the 1990s, and it explores possible policy solutions. The production costs in Korea began to rise in the late 1980s amid soaring land prices and wage levels. The industrialization of other developing countries has also significantly compromised the competitiveness of Korean products on the international market. In response, Korean businesses of all sizes set out to increase their productivity by investing more in automated facilities (to cut the demand for human labor) and outsourcing their tasks. SMBs, however, joined this game with a weak equity capital basis, while the Korean financial sector remained inelastic to the changes in the real economy, failing to accommodate the increase in the number of transactions based on promissory notes and also the demand for increasing investment in facility construction and expansion.
In the late 1980s, the multiplication of promissory note transactions and the shortage of discounts on the paid promissory notes, as well as the increasing financial burden associated with the automation of production facilities, all added to the dramatic increase in the amounts of SMBs’ long- and short-term debts. In the meantime, a persistent economic boom well in excess of the potential growth rate has radically increased the demand pressure exerted on the Korean job market, making it difficult for SMBs to find the workers they need. The shortage of workers for SMBs is especially pronounced with respect to smaller SMBs and longer-lasting economic booms. This is because smaller businesses have less ability to pay wages, while the prolongation of economic booms increases the excessive demand for labor. Although Korea’s SMBs played the most important role in enhancing the price appeal of Korean goods exported overseas by hiring workers at low costs, such an arrangement is no longer viable in the 1990s given the absolute shortage of workers. As the pace of SMBs’ growth continues to slow down, SMBs will no longer play the central role they once played in Korea’s industrialization.
Because the Korean industrial structure heavily favors assembly and processing trades that crucially depend upon partnerships between large corporations and SMBs, it is vital to improve the productivity of SMBs not only for the purpose of leveling the industrial ground, but also to improve the growth potential of the overall national economy. The Korean government needs to provide more assistance in the forms of investment and capital contributions rather than loans that may increase financial burdens on SMBs in the long run. The government also needs to foster human resources that can enhance the added values of SMBs in the long run, while inducing these businesses to improve their productivity by enhancing the stability of the business cycle and providing greater technical assistance.
90년대 중소기업의 생산성 제고 제약요인과 대책방향(Factors limiting the improvement of small and medium businesses’ productivity and policy solutions)
|Series Title; No||정책포럼 / 제117호(9620)|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Industry and Technology < Entrepreneurship|
|Holding||KDI; KDI School|