S. Korea needs more major conglomerates to foster growth: KDI study

Multinational companies such as Samsung Electronics, Hyundai Motor and POSCO have driven South Korea’s rise to a developed economy and Asia’s fourth largest economy should allow more to join the big conglomerate club by facilitating their growth through innovation, Korea’s state-run think tank concluded after months of research.

“Simply put, the development of the national economy is the same as the enterprise growth. This is our conclusion,” said Koh Young-sun, Senior Vice President and Chief Research Officer of Korea Development Institute (KDI), during an interview with Maeil Business Newspaper on Tuesday.

This means that the number of large, high-quality (competitive) enterprises active in export determines the level of national income or the growth of a country's economy, he explained. The KDI’s new study report on Korea’s economic development is about to be completed.

The study was conducted jointly by the World Bank Group Korea Office and KDI. The World Bank proposed the study in the summer of 2020, paying attention to the secret of Korea's escape from the 'middle-income trap' in the 1990s and rise to a developed country. The study is the first international organization’s report that reveals the process and factors behind Korea’s economic growth over the past 20 years after 1997 when the country was hit by a currency-cum-banking crisis.

“In order for Korea to continue its growth, SMEs and micro-enterprises need to grow further and hire more people. The number of large conglomerates with 300 or more employees need to be added,” said Koh, who has led the research on behalf of KDI. To put it bluntly, companies with 250 or more employees account for 27 percent of total employment in Korea, while the figure is 60.5 percent in Germany and 60.0 percent in France.

“The government should not interfere with or protect enterprises excessively to allow them to increase their capabilities and productivity through the principle of market competition," Koh added.

Another factor behind the rapid growth of Korean transnational companies is the owner management system unique to Korean business. “There are various evaluations of the owner management system, but it is difficult to find large enterprises that have grown with export and manufacturing in other developing countries,” said Koh, adding “The secret to the growth of large corporations is technology investment, and the owner management system may have played a positive role in it.”

“Of course, there is no guarantee that the current system will remain effective in the future. However, rather than judging whether a specific management model is good or bad, it is important for companies to innovate freely and to establish a cooperative system in which the government resolves market failures," he stressed.

But in reality, Korean companies face growing regulations. The Korean National Assembly passed the Serious Accident Punishment Act designed to impose criminal liability on business owners even without intention, who are responsible for serious accidents. This law will take effect on Jan. 27.

On Monday, the National Assembly also passed a labor director system, allowing workers' representatives to join the board at 131 quasi-governmental organizations and public corporations from the second half of this year.

[ㄏ Maeil Business Newspaper & mk.co.kr, All rights reserved]