Last year, the semiconductor-driven export boom continued, leading large corporations manufacturing production indices to hit the highest record since the relevant statistics were compiled. However, small and medium enterprises did not perform well due to sluggish domestic demand.
According to the Statistics Korea National Statistical Portal (KOSIS) on the 5th, from January to November last year, the manufacturing production index of large corporations recorded 114.8, a 5.2% increase compared to the same period the previous year (2020=100). This is the highest level for the same period since statistics were first compiled in 2015.
The industrial production index is an indicator that comprehensively and quickly assesses the production activities of South Korean industries. This has been further divided by business size to calculate the manufacturing production index of large corporations. The index is created with 2020 as the base year, meaning if the production index is 110, production has increased by 10% compared to the monthly average in 2020.
Production increased primarily in semiconductors and automobiles. In fact, semiconductor exports surged by 43.9% compared to the previous year, setting a record high of $141.9 billion, and thanks to this, total exports also hit a record for the 'largest ever.' Automobile exports maintained more than 10% of total exports despite global electric vehicle chasm.
On the other hand, from January to November last year, the production index of small and medium enterprises stood at 98.1. This reflects a 0.9% decline from the previous year, the lowest level since statistical compilation began. Manufacturing production of small and medium enterprises has continued to decline for two consecutive years in 2023 (-1.3%) and 2024 (-0.9%). Unlike the boom in large corporations, small manufacturing firms have struggled to escape recession.
Particularly, the chemical products and clothing sectors faced poor conditions due to reduced demand stemming from China's economic downturn. Clothing has been a representative sluggish sector in domestic demand last year. In the third quarter of last year, the average household expenditure on clothing and footwear (114,000 won) fell by 1.6% compared to the same period the previous year, dropping to the lowest share in overall consumption (3.9%) ever.
The prolonged sluggish domestic demand can be interpreted as closely related to the recession of small and medium enterprises manufacturing. In a survey conducted by the Korea Federation of Small and Medium Enterprises in November last year, 64.6% of 3,069 small and medium enterprises identified sluggish domestic demand as the most significant management difficulty (multiple responses allowed).
Concerns have arisen that the gap between large corporations and small and medium enterprises may widen this year. Uncertainties both domestically and internationally, such as the inauguration of a new U.S. administration and domestic political instability, could be more detrimental to small and medium enterprises, which are relatively vulnerable to external shocks. In particular, the persistent high exchange rate outlook may increase raw material prices, further tightening the management conditions for small and medium enterprises. According to the 'Analysis of Exchange Rate Risk for Small and Medium Enterprises' study released by the Small and Medium Enterprises and Startups Agency in September last year, it was found that smaller companies are more sensitive to foreign exchange losses.
The production gap between large corporations and small and medium enterprises is further problematic as it leads to income disparities among workers. In 'enterprises' with over 300 employees, the share of performance bonuses and other special payments in total wages is greater than in 'enterprises' with fewer than 300 employees. Consequently, if large corporations increase only their performance bonuses based on last year's results, the income gap with small and medium enterprises' workers, who have endured an unprecedented recession, can only widen.