Participating firms will get incentive points in bidding for public projects


The Korean government said it will kick off a new growth-sharing program between small and big enterprises in April amid the slower-than-expected adoption of shared growth practices in the country’s corporate sector.

The Ministry of Knowledge Economy said on Wednesday it will introduce a “growth-sharing certification program” next month, offering incentives to big businesses that support their suppliers or other small firms in a prearranged contract.

The certification will give the eligible companies advantages when bidding for government procurement contracts, national research and other public projects.

“The growth-sharing program is essential for both big and small companies in Korea to strengthen the corporate sector’s competitiveness and promote the fair distribution of results,” Knowledge Economy Minister Hong Suk-woo said.

The move came as the Lee Myung-bak administration put more administrative resources into securing the sharing of profits among local firms. But the latest program is a retreat from the initially proposed version in which big companies would have been forced to share their profits with smaller firms.

Chung Un-chan, the former prime minister who now leads the Commission on Shared Growth for Large and Small Companies, drew up the stronger measure, only to drop it after protests from large conglomerates.

Against this backdrop, the growth-sharing certification program is viewed as a compromise that reflects the government’s resolve to maintain its shared growth vision, though how much of an impact it will have remains to be seen.

Even Minister Hong admitted the problem facing the growth-sharing plan: “To make the program a universal contract model between large and small companies, the will of the CEOs matters most and I hope they will pay more attention to the program.”

The government expanded the scope of growth-sharing to attract more participating firms in its latest offering. Previously, only financial support to help reduce the costs of suppliers was accepted as sharing growth. The new certification program, in contrast, recognizes a wide range of corporate activities supporting the growth of smaller firms once they agree on the shared goal of their cooperation and sign a formal contract.

Overall, growth sharing is far from settling in the market. Except at POSCO and a handful of other firms, the government-led push is yet in its infancy. Between 2009 and 2010, only 28 firms signed up for the government’s official growth-sharing plan and the value of shared growth stopped short of 75.1 billion won.

The Ministry of Knowledge Economy, however, is pinning its hopes on the new program as its incentive system is “more market-oriented” in a way that encourages large companies to join in the shared growth vision voluntarily.

By Yang Sung-jin (insight@heraldcorp.com)