Empty Factories Signal Deepening Crisis for South Korean SMEs

In a stark depiction of the economic downturn, a loading dock at a factory in Gumi, North Gyeongsang Province, lay deserted on March 6. This scene, along with idle construction equipment in Eumseong, North Chungcheong Province, underscores the dire situation faced by South Korea's small and medium-sized enterprises (SMEs). The operating rate for companies with fewer than 50 employees in national industrial complexes has plunged to 69.6% in the fourth quarter of last year, marking the first drop below 70% since the COVID-19 pandemic began in 2020.

Economic Pressures Mount

The decline in operating rates, a 7.7 percentage point drop from the previous year, is attributed to a combination of factors. These include the deteriorating management environment of domestic large corporations, particularly in the semiconductor and secondary battery sectors, alongside the triple threat of high inflation, high interest rates, and high exchange rates. Regions like Incheon Namdong, Siheung MTV, and Gwangju Cheomdan have been especially hard hit, with operating rates significantly below the national average.

Seeking Solutions Amidst Uncertainty

With 315 companies voluntarily closing their doors last year, a 15.38% increase from the previous year, the urgency for solutions has never been greater. Industry representatives express a deep sense of uncertainty, with some factories ceasing operations for days at a time. The economic policy uncertainty index's significant rise further complicates the landscape, forecasting a substantial decrease in domestic facility investment in the first half of this year.

Pathways to Resilience

Experts advocate for a dual approach of self-innovation among SMEs and robust government support. Technological advancements, particularly the establishment of smart factories, alongside exploring global market dynamics, are seen as vital strategies for overcoming the current challenges. As the South Korean government has historically supported SMEs, the effectiveness of its policies in this new economic climate is under scrutiny, with calls for increased intervention to navigate these turbulent times.