Korean Mayor Crusades Against Samsung, Hyundai In Bid To Boost Country's SME

Sep 26, 2016 @ 11:59 PM Donald Kirk , contributor
 

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Seoul Mayor Park Won-Soon is leading a “minority shareholders’ movement” that raises far-reaching questions about how to revitalize Korea’s stagnating economy in a time of high youth unemployment and low growth. Twice elected mayor of the Korean capital, Park is crusading from Seoul’s modern city hall against domination of the South Korean economy by enormous conglomerates known as chaebol. He believes the chaebol have lost their dynamism as “engines of the Korean miracle” – an outlook shared by many experts but derided by others as politically motivated.
 

The question, however, is whether small and medium enterprises (SMEs) can ever gain the heft and momentum of the giants, led by the Samsung, Hyundai Motor , LG and SK empires, to compete worldwide against rising competition from China. Those “big four” account for half of Korea’s gross domestic product, but they’re under fire while Korea’s economy this year grows at a rate of 2.7% compared with China’s 6.7%.


Nobody disputes the rising power of China, but can any company, besides those belonging to a chaebol, market its products worldwide?

“Few industries can compete with the Chinese economy,” said Ha Tae-Keung, a member of the National Assembly from Busan, Korea’s second-largest city and by far its biggest port. “Government policy should promote the competitiveness of our economy. No matter how we support SMEs, they cannot be competitive.”

Others, however, agree that Korea needs to promote SMEs much more aggressively while dealing with an unemployment rate of nearly 10% among young people between 15 and 29 years old. “In an aging society, young people can’t find the jobs they want,” said Jeff Jones, a lawyer and former president of the American Chamber of Commerce in Korea. “It’s individual SMEs that create most of the jobs.”
 

Park sees the problem as worsening while young people face an increasingly tight job market. “Youth from all over Korea flock to Seoul,” he said, meaning “we will need to create 400,000 new jobs” in a few years. “It’s the economy, stupid,” he said, borrowing a term made famous in Bill Clinton’s victorious 1992 presidential campaign. “The Seoul economy is affected by the Korean economy, which is in dire straits.”
 

Underlying the job squeeze and low growth rate is the reality that Koreans simply don’t buy enough locally. “People aren’t consuming as they should,” said Jones. “The SMEs and the chaebol find it difficult to survive.” While SMEs struggle at home, “the chaebol have huge markets outside Korea.”
 

That’s a pattern that Park is working to reverse, declaring Seoul an “economic democratization city” in which SMEs compete effectively in the shadow of the chaebol. If that outlook makes him “somewhat progressive in Korean society,” he believes that in Europe “I would be a moderate conservative.” In the U.S. and Britain, “we see anti-trust policies,” he said. “These policies can really help start-ups.”
 

Park this month carried his campaign to San Francisco and New York, where he promoted Seoul at a “demo day” featuring ten Korean start-ups ripe for investment – and for expansion in the U.S.  “Eliminating the gaps in our society is essential in providing hope to those who are hard-working,” said Park, the highest elected official of Korea’s opposition Democratic Party. He would, he said, “come up with policies that help reduce the gap in our society.”
 

Tom Pinansky, a lawyer with a long background in Korea, saw the Samsung empire as emblematic of the problem, noting that Samsung alone accounts for 20% of the entire Korean economy. “I do not believe there has ever been a modern economy so large and complex where one business group accounts for over 20% of the entire economy,” he said. “How to manage this unique situation to the maximum benefit of the nation is an extraordinarily difficult challenge.”
 

The question, said Pinansky, is “how to create new companies that may start as SMEs but have the potential to grow into viable companies with international reach and without being squeezed out by the chaebols before they get there.”
 

Park has been studying Korea’s chaebol close-up from his days as a founder of the People’s Solidarity for Participatory Democracy, a grouping that often issues critical reports about the economy. “Our top ten companies are the same now as 20 years before,” he noted. “Stronger, more substantial policies need to be carried out.”
 

But exactly what can be done to make that happen?
 

“There is no doubt that the SMEs need to play a larger role in the economy,” said Tom Coyner, an economic consultant who has worked for both large and small firms. “The economy is dangerously over dependent upon a relatively few chaebol companies. The challenge is how to develop a transition to a more balanced economy.” For example, the chaebol “directly or indirectly control the distribution of goods throughout the market, so alternative distribution channels need to be developed in such a way that there will not be retaliation to retailers by existing distributors.”
 

Coyner suggests, however, insuperable obstacles.
 

“Asking the current distributors to fairly distribute SME products may be asking too much given the leverage of chaebol suppliers,” he said. “There is a need for greater access to capital by the SMEs by the highly risk-adverse banks who are not beholden to the SMEs as they are to the chaebols.” At the same time, “purchase agreements for goods and services between the chaebol and SMEs routinely suck the latter dry, by the chaebol changing terms of payments.”
 

“If corporate bullying causes smaller companies to go bankrupt said Coyner, “there will always be other desperate SME willing to enter into agreements with chaebol bullies.”