Major companies are devising plans to support their suppliers in line with a government-led campaign for “shared growth” between large and small firms.
A range of companies are coming up with plans to help their smaller partners with financing, research and materials procurement despite a recent feud with the government over the profit sharing scheme.
The push on big businesses to extend their profits to their subcontractors intensified with former Prime Minister Chun Un-chan’s recent speech about rating businesses on their devotion to the goal of mutual growth.
Chung, head of the semi-official agency the Commission of Shared Growth for Large and Small Companies, on Feb. 23 said that his team will develop a “win-win index” to assess 56 local corporations on how well they distribute their wealth with their smaller business partners.
The proposal is part of the Lee Myung-bak administration’s priority policy of promoting broader-based growth and wide diffusion of wealth.
Large businesses, that instantly slammed the plan through lobby groups they’re part of, are at the same time competing with each other to come up with a better profit sharing scheme aiming for a higher spot in the index ranking.
Construction companies are preparing programs to widening financing opportunities for smaller players who are exposed to credit risks.
They are setting up funds to provide low-rate loans and other financial incentives to layers of subcontractors.
LG Group is making a move to comply with the government-led campaign.
“We shouldn’t regard subcontractors as inferior party in the power hierarchy tree. Subcontractors should be partners in equal rights to establish better consumer products,” LG Group chairman Koo Bon-moo told LG executives at a meeting held Thursday.
He said he will not attend the Federation of Korean Industries meeting set for Mar. 10, suggesting that LG won’t be part of the lobby group’s resistance against the profit sharing scheme.
The FKI is the nation’s biggest business lobby group. The FKI on Feb. 20 submitted a letter to the shared growth commission listing the shortcomings of then soon-to-be announced plans about the win-win index.
It said the index does not reflect opinions of big businesses and is likely to harm their reputation abroad should the ranking be disclosed in the future.
“If the profit sharing system takes place, Korean companies will lose out from their competition with China, Taiwan and Japan because local suppliers also sell their products abroad,” an official at a conglomerate said.
Doosan Group, the nation’s oldest conglomerate, last week said it is granting stock options on four executives for carrying out the group’s profit sharing scheme well.
Doosan Infracore CEO Kim Yong-sung, Anthony Helsham, the head of the group’s construction equipment business and two other executives will receive stock options up 40 percent from their present amount.
Hyundai Heavy Industries Co., the world’s largest shipbuilder, last month completed a 30 billion won ($26.8 million) fund in partnership with the Small & Medium Business Administration to help suppliers develop new products.
It plans to support up to 75 percent of Research & Development cost under a 1 billion won budget per project.
POSCO, the only A-rated corporation in pursuing mutual growth by the Fair Trade Commission, recently made “shared growth team” a bigger unit overseeing the group’s relationship with its subcontractors.
Insiders say challenges are with chains of suppliers behind conglomerate’s subcontractor.
Government-led push on profit sharing is likely to reach only the first subcontractors of big businesses, leaving second and third subcontractors down the chain still unprotected, they say.
The profit sharing scheme is a controversial one among politicians and academics.
Knowledge Economy Minister Choi Joong-kyung on Thursday rebuked Chung’s proposal.
“It seems problematic, applying a profit sharing scheme on businesses,” Choi told reporters after a conference on energy savings.
“Even if the scheme fits into the overall profit sharing campaign, how we go about doing it should carefully be brainstormed.”
He was joining in a growing number of critics of the government program including Prime Minister Kim Hwang-sik and Rep. Hong Jun-pyo of the ruling Grand National Party.
Hong billed Chung a left-leaning populist.
“(Chung’s) remarks are very much of left-leaning progressive kind, and is quite a surprise given his experience as a former prime minister,” he said.
Free-market economists criticize Chung’s idea of disclosing big businesses’ supplier-friendly scores, arguing the scheme breaches the free market economics.
“In a market economy, shareholders should decide how the conglomerates will spend their profits,” Chung Gap-young, an economics professor at Yonsei University, was quoted as saying.
By Cynthia J. Kim (email@example.com