Small and midsize businesses are facing a compound headwind of tighter labor regulations and external uncertainty. With the so-called "the yellow envelope law, a new labor law aimed at strengthening the bargaining rights of subcontract workers" taking effect and raising the likelihood of strikes on shop floors, and international oil prices rising amid clashes among the United States, Israel and Iran, concerns are mounting that SMEs' output could fall while the expense burden rises.
With the amendment to the Trade Union and Labor Relations Adjustment Act, known as the "the yellow envelope law, a new labor law aimed at strengthening the bargaining rights of subcontract workers," taking full effect on the 10th, tension is rising across the SME sector. The revision expands the scope of "employer" beyond the parties to an employment contract to include those in a position to substantively and specifically control or determine working conditions. It also broadens the scope of labor union disputes from traditional working conditions to include a corporation's managerial decisions.
◇ A strike at a prime contractor would hit partner SMEs directly… concerns over "reduced production and cuts to R&D support"
Implementation of the "the yellow envelope law, a new labor law aimed at strengthening the bargaining rights of subcontract workers" is expected to increase cases in which subcontractor unions demand collective bargaining with prime contractors. Previously, talks centered on the prime contractor's union, but the new framework allows subcontractor unions to demand bargaining with the prime contractor as employer.
In fact, small unions account for a significant share. According to data the Ministry of Employment and Labor (MOEL) released at the end of December last year, unions with fewer than 30 members numbered 2,421, or 39.5% of all 6,125 unions. In this structure, concerns are emerging on the SME front that bargaining demands and labor-management conflicts could increase.
SMEs are particularly worried that a strike at a prime corporation could lead to reduced production volumes at partner SMEs. If a strike occurs at a finished carmaker or a large manufacturer, output falls and orders to partner firms may decline.
The head of auto parts maker A said, "If strikes increase at finished carmakers, partner suppliers inevitably see volumes fall," adding, "With profitability already low, a further drop in output would sharply raise management burdens." The executive added, "Because of the current 52-hour workweek, it is also hard to flexibly increase production, leaving us with limited capacity to respond."
Similar concerns are emerging in industries with large partner networks such as shipbuilding, steel and construction. Contrary to the government's stated intent to use the "the yellow envelope law, a new labor law aimed at strengthening the bargaining rights of subcontract workers" to create a more horizontal relationship between prime and subcontractors, some forecast that expanding labor disputes on the ground could instead shake the cooperation structure between large corporations and SMEs. Large corporations may increasingly use overseas components instead of domestic parts suppliers to reduce labor dispute risks.
Jin Byung-chae, professor in the Department of Management Engineering at KAIST and president of the Korea Small Business Institute, said, "The relationship between large corporations and partner small and midsize enterprises has evolved beyond simple supply to a cooperation model in which large corporations support partners' research and development (R&D) and jointly improve productivity and quality," adding, "If both prime contractors and subcontractors are simultaneously drawn into labor disputes, the cooperation ecosystem between large corporations and SMEs itself could be shaken."
The Korea Federation of Small and Medium Enterprises emphasized the need to supplement the system. Yang Ok-seok, head of human resources policy at the Korea Federation of Small and Medium Enterprises, said, "There needs to be a policy mechanism to mitigate side effects expected after implementation of the 'the yellow envelope law, a new labor law aimed at strengthening the bargaining rights of subcontract workers'," adding, "We should consider ways to guarantee employers' rights of defense to some extent and minimize situations in which both prime and subcontractors are simultaneously drawn into labor disputes."
◇ Oil spikes on Middle East risk… higher manufacturing expense burden
Instability in the Middle East is also cited as a factor adding to the burden on SMEs. As military clashes among the United States, Israel and Iran spread, international oil prices are rising and raw material price volatility is growing.
On the 9th, international oil briefly topped $100 per barrel. Higher oil prices push up both corporations' production expenses and logistics costs. With the "the yellow envelope law, a new labor law aimed at strengthening the bargaining rights of subcontract workers" raising the possibility of lower production volumes, a rise in energy expenses and raw material prices could further increase the management burden on small manufacturers.
Meanwhile, President Lee Jae-myung will on the 10th host a "coexistence roundtable," inviting executives from large corporations such as Samsung Electronics, Hyundai Motor and Naver and their partner SMEs. The government plans to share best practices of win-win cooperation between large corporations and SMEs at the meeting and explore ways to spread such models. It is also expected to discuss the impact on shop floors and response plans following implementation of the "the yellow envelope law, a new labor law aimed at strengthening the bargaining rights of subcontract workers." Minister Han Seong-sook of the Ministry of SMEs and Startups will also attend.
A business administration professor at a domestic university said, "With the 'the yellow envelope law, a new labor law aimed at strengthening the bargaining rights of subcontract workers' increasing labor-management conflict risks for large corporations and SMEs, the government's emphasis on win-win cooperation could lead to confusion on the ground," adding, "A meticulous review is needed of how changes in labor policy will affect the cooperation ecosystem between large corporations and SMEs."