Hankyung Research Institute "Increase in Large Corporations' Sales Leads to Increase in Small and Medium Enterprises' Sales"

[Asia Economy Reporter Dongwoo Lee] A study has found that when the sales and number of large corporations increase, the sales of medium-sized and small enterprises also increase. The study argues that instead of discriminatory policies based on company size, mutual cooperation and win-win relationships should be strengthened.

The Korea Economic Research Institute under the Federation of Korean Industries analyzed data from the 2010-2018 Corporate Activity Survey to examine the impact of sales of companies with over 1,000 employees (large corporations) in 13 manufacturing sectors including electronics, automobiles, and chemicals on the sales of companies with fewer than 1,000 employees (medium-sized and small enterprises). The correlation coefficient was 0.481, which is statistically significant at the 1% significance level, the institute announced on the 20th. The correlation coefficient between the number of large corporations and the sales of medium-sized and small enterprises was 0.644.

The correlation coefficient is an indicator showing the relationship between two variables; a value of 1 means the movements of the two variables are completely the same. Conversely, a value of minus 1 means the movements are completely opposite.

Furthermore, it was analyzed that while large corporation sales affect the sales of medium-sized and small enterprises, the reverse is not true. The number of large corporations and the sales of medium-sized and small enterprises mutually influence each other.

The Korea Economic Research Institute explained that in reality, when the sales of large automobile and trailer companies increased from 107.1 trillion won in 2010 to 141.6 trillion won in 2018, and the number of companies rose from 19 to 25, a 1.3-fold increase respectively, the sales of medium-sized and small enterprises increased from 49.1 trillion won to 70.6 trillion won, a 1.4-fold increase.

To understand how much the sales of medium-sized and small enterprises increase when large corporation sales and numbers increase, a regression analysis was conducted. The results showed that when large corporation sales increase by 1%, the sales of medium-sized and small enterprises increase by 0.07% in the short term and 0.27% in the long term. When the number of large corporations increases by 1%, the sales of medium-sized and small enterprises increase by 0.43%. Regression analysis is a statistical method used to determine the degree of influence one or more variables have on a specific variable.

Based on these results, the Korea Economic Research Institute argued that discriminatory policies based on company size are undesirable. It explained that the relationship between large corporations and medium-sized and small enterprises should be viewed not as competitors in the domestic market but as cooperative and mutually beneficial partners competing against global companies.

Choo Kwang-ho, Director of the Job Strategy Office at the Korea Economic Research Institute, said, “Discriminatory policies against large corporations are like tying the ankles of national team players fiercely competing in the global market, encouraging the outflow of investment and production activities overseas. We must recognize that economic growth is achieved through the joint growth of large corporations and medium-sized and small enterprises regardless of size.”