Kim Soon-chul, Secretary General of the Foundation for Cooperation between Large, Small and Medium Enterprises and Agriculture and Fisheries
The novel coronavirus disease (COVID-19) crisis is prolonging. As the unexpected situation has surpassed 300 days, the difficulties faced by small and medium-sized enterprises (SMEs) are intensifying. The most significant global change due to the spread of COVID-19 can be found in the global supply chain. Companies that had previously expanded overseas to reduce costs are now experiencing cracks in international division of labor due to artificial trade barriers.
Last spring, in the automotive industry, many parts imported from China temporarily faced supply disruptions, causing worldwide repercussions. Since then, global companies have become interested in stable supply through regional supply chains. Nevertheless, large corporations cannot escape price competition, so even if they provide domestic SMEs with supply opportunities, SMEs find it difficult to resolve practical challenges. The main issue is the payment for supplies.
Considering these difficulties, the Ministry of SMEs and Startups revised the Win-Win Cooperation Act in July last year to protect SMEs in consignment transactions and to induce the guarantee of appropriate supply prices by introducing the 'Supply Price Adjustment Consultation System.' When supply costs such as material costs, labor costs, and expenses fluctuate and supply price adjustment is necessary, the consignee company can apply to the consignor company for supply price adjustment.
Given that it is difficult for consignee companies to negotiate supply prices directly with consignor companies due to transaction customs, if supply costs fluctuate beyond a certain standard and the consignee company wishes, a small business cooperative can negotiate supply price adjustments with the consignor company on their behalf. To enhance the system’s effectiveness and negotiation power, from April next year, the Korea Federation of SMEs will also be added as a new possible negotiation entity.
The Cooperation Foundation is promoting the government policy activation and early establishment of the system by preparing guidelines containing specific procedures and methods. They actively support consignment transaction companies to experience fair supply price payments by providing legal consultations through professional lawyers, reviewing the exercise conditions of negotiation rights by cooperatives, and conducting on-site consulting.
Additionally, the Ministry of SMEs and Startups is leading the realization of realistic supply prices for SMEs through the operation of the Win-Win Mediation Committee, which includes related ministries and private experts. In the first year of introduction, last October, through mediation and arbitration by the Win-Win Mediation Committee, SME A was able to reach an agreement on price adjustment with large corporation B, and also received previously unreflected costs. This mediation case protected consignee companies concerned about transaction termination and became an opportunity to contribute to the management stability of SMEs by applying the adjusted price in future transactions.
If we were to identify the most important topic in our economy now, it would be sustainable growth. Although the future is uncertain, it is important to prepare growth plans suitable for the given environment. Especially during the confusion caused by the COVID-19 crisis, appropriate supply by SMEs in consignment transactions plays a decisive role in creating a healthy regional supply chain.
In that sense, it is extremely important for consignee companies to receive appropriate supply payments. As the business environment worsens due to COVID-19, large consignor companies are easily tempted to cut prices. To prevent such problems in advance, the government is striving to help consignee companies practically utilize the system. What we should note here is that this system operates under the Win-Win Cooperation Act, not the Subcontracting Act. The supply price adjustment consultation embodies the spirit of the times of win-win cooperation beyond simple damage relief.
Kim Soon-cheol, Secretary General, Korea Foundation for Cooperation between Large, Small & Medium Enterprises and Agriculture, Fisheries
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