Middle Market Enterprises Warn of Growth Ladder Disruption from Expansion of SME Criteria

KOFIME Releases Report on “Review and Recommendations on the Criteria for Defining SMEs, Directly Related to the Criteria for Defining Middle Market Enterprises”

There are concerns that the Ministry of SMEs and Startups’ plan to expand the scope of SMEs, citing price fluctuations and other factors, could undermine SMEs’ voluntary growth ambitions and hinder the effective functioning of the growth ladder.

The Korea Federation of Middle Market Enterprises (KOFIME) stated this in its report released on the 13th, titled “Review and Recommendations on the Criteria for Defining SMEs, Directly Related to the Criteria for Defining Middle Market Enterprises.” The federation emphasized, “In order to enhance the competitiveness of the entire industry, from SMEs to large corporations, there needs to be a shift in perception and practice toward strengthening ‘growth-promoting’ policies that ease burdens, such as deregulation and expanded support, when companies enter the middle market category.”

The Ministry of SMEs and Startups previously announced plans to revise the Enforcement Decree of the Framework Act on Small and Medium Enterprises. The proposed revision includes raising the maximum sales standard for SMEs from 150 billion KRW to 180 billion KRW, increasing the number of sales brackets from five to seven, and expanding the sales range for 16 out of 44 business sectors.

According to the KOFIME report, the current maximum sales standard for SMEs in Korea, set at 150 billion KRW, is about twice as high as that of major advanced countries such as the United Kingdom and the United States. By applying a three-year average, Korea also proactively reflects the effects of inflation and industrial changes, unlike other countries. The report explained that the SME sales ceiling is 94.1 billion KRW in the United Kingdom and 64.1 billion KRW in the United States, even though their economies are respectively twice and fifteen times the size of Korea’s.

KOFIME stated that, based on a simulation of raising the SME sales standard by 10?30%, up to 18.7% (492 companies) of middle market enterprises, as defined by size, would revert to SME status. This figure is 1.7 times the number of companies that grew into middle market enterprises in 2023 alone. A KOFIME official said, “We need to carefully consider the fundamental reasons why, over the past four years, only about 0.5% of medium-sized companies have grown into middle market enterprises on average. If we continue to relax the conditions for remaining an SME while leaving unaddressed the chronic situation in which regulations increase sharply and support decreases significantly upon becoming a middle market enterprise, this cannot be a sound solution for economic and industrial development.”

Lee Hojun, Executive Vice President of KOFIME, stated, “To enhance the effectiveness of revising the SME sales standard, a rigorous process?including gathering broader stakeholder opinions, inter-ministerial review, and external verification?must be conducted before amending the enforcement decree.” He added, “In particular, we must pool our wisdom to maximize policy consistency with related ministries, such as the Ministry of Trade, Industry and Energy’s ‘Growth Promotion Strategy for Middle Market Enterprises’ and the Ministry of Economy and Finance’s ‘Corporate Growth Ladder Initiative.’”