A diagnosis by the Korea Institute for Industrial Economics & Trade (KIET) said the operating profit margins of domestic large corporations and their partner firms show a marked gap, which is weakening regional industrial bases.
On the 20th, Research Fellow Jeong Yun-seon of the Korea Institute for Industrial Economics & Trade (KIET) said at the balanced growth policy seminar of the "Local Era Expo" hosted by the Presidential Committee for Decentralization and Balanced Development at the Ulsan Exhibition and Convention Center that "the slump in key industries due to changes in the global economic environment is transferring to a regional economic slump," adding, "It is characteristic that the deterioration in the management of large corporations shows a step-by-step transmission that leads to a deterioration in the regional economy."
Jeong said, "Germany, France and the United States show little difference in operating profit margins between large corporations and partner firms," while "in contrast, Korea's operating profit margin for large corporations reaches 7%, but that of partner firms is only 3%."
She added, "This is also a factor that limits small and midsize businesses from securing competitiveness," and "a certain level of operating profit must be secured to develop technology and new products and raise the competitiveness of corporations."
In particular, small and midsize businesses were found to have a large impact on regional employment. Jeong emphasized, "During the tough times for the shipbuilding sector in 2016 and 2017, employees at Hyundai Heavy Industries' headquarters fell by 12%, but employment at in-house partner firms plunged by as much as 46%." In headcount terms, while 2,692 people left Hyundai Heavy Industries over two years, 13,786 people were laid off at in-house partner firms.
Jeong said, "Regional industry policies centered on industrial complexes have limits," adding, "In particular, regional ecosystems centered on large corporations are quite vulnerable." She continued, "There is a need to consolidate and reorganize special zones by region to foster technology-focused mid-tier companies," and "the tilted playing field between large corporations and partner firms also needs to be normalized." Jeong suggested that when large, midsize and small corporations cooperate to produce the same product, operating profits and wages should be aligned at comparable levels.