[On the Ground] A 20-won increase in supply prices over 17 years, followed by a retaliatory cut when he sought more

The owner of a small auto-parts factory on the outskirts of Gyeonggi Province drives the forklift, takes delivery trucks weighing more than eight tons to the main contractor and handles basic equipment maintenance himself. “Running a factory means you end up doing everything,” he said.

His company’s workforce fell from seven to three after the coronavirus pandemic, while its equipment dropped from nine machines to three. Yet its supply price rose by only 20 won over 17 years. During the same period, he said, the minimum wage climbed from 4,000 won to around 10,000 won, industrial electricity prices rose from the 70-won range to the 180-won range, and consumable parts became 40% to 50% more expensive after the pandemic.

“

Running a factory means you end up doing everything.

Several years ago, he submitted cost data to the main contractor and asked for a price increase. Instead, he said, the company demanded a reduction equal to the increase he had requested. “I thought of the main contractor as the parent company and worked hard. I made that desperate request because I had no other choice, but what came back was an attitude that they did not care,” he said.

The company generates about 500 million won in annual sales and relies on the main contractor for more than 80% of its revenue. Because orders arrive as needed, a sudden end to the relationship or even a small reduction in volume could trigger a serious crisis. The owner says he avoided requesting an adjustment for years because he feared retaliation, including reduced orders or a refusal to renew the contract.

“

I thought of the main contractor as the parent company and worked hard. I made that desperate request because I had no other choice, but what came back was an attitude that they did not care.

Korea’s supply-price indexation system began in October 2023 and requires advance written agreements to reflect certain material-price changes in supply payments. From December, the system will also cover energy costs such as electricity and gas. But it does not cover transactions in which the main contractor provides materials free of charge and the subcontractor merely processes them. Labor and maintenance costs therefore remain with the smaller company. The owner says labor, welfare and safety expenses account for about 45% of his costs, and that a 10- to 20-won increase would cover a monthly deficit of about 5.4 million won while leaving a 5% profit.

A separate adjustment-consultation system requires the main contractor to begin talks within 10 days of an application. But the owner says more than a month passed before he received even a response that his proposal had been reported to management. “The fact that such a system exists and the fact that you can apply without fear at the worksite are completely different,” he said. He wants automatic indexation to cover labor and equipment-maintenance costs for small processing firms.

“

The fact that such a system exists and the fact that you can apply without fear at the worksite are completely different.