In this study, we focused on the business relations between small suppliers and large buyers to examine how the buyer-supplier relationship affects small supplying companies. In particular, we focused on analyzing large business groups (Samsung, LG, SK, and Hyundai Motors) that are subject to the regulation. In the result of the analysis, we can see that the performance of buyers has a positive relationship with the performance of suppliers. With the exception of the gross profit margin, performance of buyers and performance of suppliers are moving in the same direction. It is unlikely that buyers are exploiting suppliers in order to improve their own performance and dropping the performance of suppliers.

The performance of buyers has a positive effect on suppliers, but suppliers could have been able to make more profit if it were not in a buyer-supplier relationship with large companies. In order to verify this, this paper compares the performance between the suppliers and non-suppliers. In the result of the study, suppliers’ gross margin was significantly lower than comparing with the non-suppliers' gross margin and we were able to see that there was a discount occurring in the unit price of suppliers. On the other hand, profits that reflect other costs (such as operating profit and profit margin on sales) rather than cost of goods sold did not show any signs of under-performance of suppliers compared with non-suppliers. This can be interpreted as that suppliers could reduce SG&A costs, except for the costs of goods sold, in order to compensate for the loss in the gross profit margin. In the result, we were able to see that the final outcome, return on assets (ROA) and return on equity (ROE) of suppliers were significantly higher than non-suppliers.

To further investigate reasons why suppliers’ ROA and ROE are higher than non- suppliers’, we looked into companies’ asset utilization. In the results of empirical analysis, we could see that the supplier’s asset turnover rate was significantly higher than the non-supplier’s. Higher asset turnover rate is interpreted as ‘having the same amount of assets but causing more revenue’; therefore even though return on sales is lower, it is possible to make higher ROA and ROE according to the Dupont identity. In the result of analysis, except for ROA and ROE, we were not able to identify any differences in supplier’s profit margin on sales compare to non-supplier’s profit margin on sale. As we have expected, supplier’s receivables turnover rate was higher, which implies that suppliers received bills rapidly from large companies compared with non-suppliers. The combination of shorter receivables and inventory conversion periods make suppliers to have shorter cash conversion cycles.

Finally, we analyzed the concentration effect of sales ratio of suppliers’ to large companies. In the result, the sales concentration has a negative effect on the gross profit margin but has no significant effect on the operating profit margin or net profit margin. However, the sales concentration has a positive effect on ROA and ROE. Since the sales concentration does not have any effects on net profit margin, but has a positive effect on ROA, we can assume that the sales concentration has a positive effect on asset turnover of suppliers. Consistent with the hypothesis, the sales concentration raises both turnover ratio of receivables and inventories of suppliers. In conclusion, the sales concentration also shortens cash conversion cycle of suppliers.

From these results, we are able to recognize that existing perception of the buyer-supplier relationship between the large companies and their suppliers is not entirely correct. Of course, large companies that disturb the market order and making unfair trading must be restricted and punished. However, in order to determine to what extent it should be considered as unfair trading, and in order to improve buyer-supplier partnership, we must consider an objective and accurate analysis of actual relationship between larger buyers and small suppliers.