The government has placed shared growth as the top priority in its economic policy and in response, conglomerates are making various efforts. However, in reality, the changes are imperceptible and far from what most people hope for.
Chung Un-chan, Chairman of the Presidential Commission for Shared Growth for Large and Small companies, gave a speech during the Dosan Academy Morning Seminar held on the 15th at the Millennium Hilton Hotel Seoul on the following subjects, "What is shared growth and why is it necessary" and "What are the values and vision that we must pursue from shared growth"
"Shared growth can be seen in part as a worldwide wake-up call for change, and the first step is to remind ourselves what our traditional and communal values mean today," says Chairman Chung. Furthermore, as the reasons for the need of shared growth, he pointed out larger communal values, sustainable growth of firms, and solution to the polarization in our society.
If so, what specific measures must be taken for shared growth "Changing the relationship between conglomerates and small businesses to horizontal growth, that is, a reasonable privity of contracts, and establishing conditions and regulations in which conglomerates and small businesses may fairly compete are the most fundamental tasks at hand," says Chairman Chung. He also says that changing the relationship with small businesses from the 'employer-contractor relationship' to a 'partner-partner relationship' is important and for this, the employer must make his value orientation clear and change the internal system such as employee performance management evaluation criteria.
Chairman Chung mentioned that considering the situation with the negotiation power gap between conglomerates and small businesses, as well as the practice of unfair deals, he tried to find ways to practically compensate for the imbalance derived from those situations. He explained that if a conglomerate made a considerable amount of excess earnings by fully employing the subcontractors, a certain portion of those earnings should be used for employee incentives, but another portion should be reserved for strengthening the foundation for the subcontractors' long-term growth, and this would actually be the more realistic idea. Therefore, in order to achieve shared growth, Chung proposes a 'Subcontractor Profit Sharing' model.
Profit sharing can be broadly defined as a system for providing incentives to the subcontractors and maximizing the shared profit by reasonably distributing that profit made together by two or more subcontractors according to their contribution. The reason why advanced countries are able to trigger participants' motivation for spontaneous efforts and maximize the outcome profit is by implementing profit sharing.
The cooperation between conglomerates and small businesses is expanding its way from the previous low-risk, low-value production sectors with manufacturing, assembling, and producing, to today's high-value, high-risk business sectors such as product design/R&D, product development/branding, marketing, and after-sales service. With this, the conglomerates and the subcontractors are being linked together more and more intensely as if bound together by one destiny. Although this common ground is building up, practices of excessively seeking cost-reduction better suited for the previous low-value manufacturing stages are being continued, and thus the social phenomenon of a growing profitability gap between conglomerates and small manufacturing businesses is deepening.
Shared growth is a barometer for Korea to take another leap towards being an advanced country as well as a more mature society. It is also an unconditional mission which can no longer be neglected, considering our critical social polarization which leads to splits and depressions. Shared growth can only be realized with this trinity in place - the strong will of the government, initiative changes from conglomerates, and self-helping spirit of small businesses. Not to mention, the significant role-performance from the political and social leaders is necessary. Also, shared growth starts from change of perception on values and relationships. A more fundamental organizational change rather than just a fence-mending with subcontractors is in demand.