Busan’s 40,000-Firm Succession Gap Tests the Future of Its Business Base

Busan’s next business shock may arrive not through a collapse in orders, but through the absence of someone willing and able to take over.

Figures cited in Korea’s latest business-succession debate put Busan’s successorless small and midsized enterprises at 40,449. The same figures identify 493,459 SMEs in the city, including 144,978 led by owners aged 60 or older. The 40,449 figure represents 27.9 percent of the older-owner SME group, not the entire SME base — a distinction that matters because a single number, handled carelessly, can either exaggerate the crisis or obscure it. 

The corrected denominator does not make the problem smaller in economic terms. It makes the problem more precise. Busan’s succession exposure lies inside a particular part of the economy: older, founder-led firms whose value depends on operating knowledge, workers, customer relationships and local supply chains. A firm can remain viable in the market and still fail as an institution if ownership cannot be transferred before the founder exits.

Busan has now moved the issue into policy. On May 18, the city signed an agreement with the Busan office of the Ministry of SMEs and Startups, the Busan Chamber of Commerce and Industry, Korea Technology Finance Corporation and BNK Busan Bank to support M&A-based succession. The program will mobilize 20 billion won in policy financing, provide a 2.0 percent interest subsidy and allow loans of up to 10 billion won per company. 

Those terms reveal both the ambition and the limit of the program. A 20 billion won financing pool can help selected transactions clear the credit barrier. It cannot directly answer a succession gap counted in tens of thousands of firms. The program is better understood as an attempt to build a succession market than as a rescue package for every aging company in the city.

The Number Behind the Warning

The 40,449 figure should be treated as a warning signal, not as a census.

Official regional SME data from the Ministry of SMEs and Startups put Busan’s 2023 SME base at about 499,000 firms, including roughly 476,000 microbusinesses and small merchants. The composition of that base is central to the succession debate. Busan has a wide business population, but much of it consists of small firms with limited internal management depth and few formal succession channels.

Measured against the full SME base, 40,449 firms would represent roughly 8 percent. The 27.9 percent share cited in succession-related reporting therefore appears to refer to a narrower pool: SMEs led by owners aged 60 or older. The distinction defines the policy target. The risk does not sit across the entire SME universe equally. It is concentrated among older-owner firms where retirement can turn a viable business into a closure case.

The national policy framework reflects the same pressure. The Ministry of SMEs and Startups has framed M&A-based succession as a response to the aging of SME owners and the weakening of family succession. Its policy package includes a proposed special law for M&A-based succession, a market-trust framework for SME transactions and post-succession growth support.

Korea Capital Market Institute gives the underlying pressure more detail. It reports that 20.4 percent of SMEs lack a suitable successor. Among firms without successors, 30.7 percent are considering M&A, while 9.4 percent are considering closure. The same research shows that succession still leans heavily toward family transfer, but non-family succession and M&A are already part of the market.

Busan brings those national pressures into sharper focus. The city’s economy is already shaped by older proprietors, aging industrial districts and a heavy dependence on small firms. The 40,449 estimate should not be used to suggest that one-third of all Busan SMEs face imminent failure. It should narrow the investigation to the firms most exposed to ownership discontinuity: older-owner companies that remain economically useful but could disappear because no successor, buyer or internal management team is ready to take over.

Why Busan Is More Exposed

Busan’s succession risk begins with an age profile that already separates the city from the rest of Korea.

In 2020, owners aged 60 or older ran 29.6 percent of all establishments in Busan, the highest share among Korea’s 17 metropolitan cities and provinces. The share had risen from 22.0 percent in 2012. Manufacturing showed a deeper exposure: 34.0 percent of Busan’s manufacturing establishments were led by owners aged 60 or older, the highest level among all regions. 

That distribution matters because succession pressure does not carry the same economic weight in every sector. A small retailer without a successor may close and be replaced by another tenant. The loss can still hurt a neighborhood, but the productive capacity may be easier to replace. A precision parts maker, ship-equipment supplier or industrial subcontractor presents a different problem. Its value may sit in trained workers, certification records, machinery settings, customer trust and production routines built over decades.

The pace of aging has been sharper in manufacturing than in the rest of the economy. Analysis by the Busan-Ulsan branch of the Korea Federation of SMEs found that the share of Busan manufacturing firms led by owners aged 60 or older rose by 14.7 percentage points between 2012 and 2020, while the non-manufacturing increase was 6.8 percentage points. 

District-level figures show how the problem overlaps with older urban and industrial geography. In 2019, Yeongdo-gu had the highest overall share of establishments led by owners aged 60 or older among Busan’s 16 districts and counties, at 35.5 percent. Among manufacturing establishments, Jung-gu recorded the highest share, at 41.7 percent. 

Those numbers point toward a local economy where succession risk is unlikely to be evenly distributed. Older industrial areas, port-linked service networks, manufacturing districts and old commercial neighborhoods are likely to carry more exposure than newer service clusters. In those places, succession failure can remove not only a company name but also a function inside Busan’s production system.

A port city can hide that weakness for a while. Busan Port handled 24.882 million TEU in 2025, including 10.785 million TEU of import-export cargo and 14.097 million TEU of transshipment cargo. The port remains globally significant, but port scale alone does not show whether the smaller firms around logistics, repair, fabrication, packaging, machinery and subcontracting remain locally rooted. 

That gap defines the succession issue. Busan can move more cargo while losing local firms that support the city’s industrial depth. Exports can rise while smaller suppliers age. A logistics hub can remain busy even as ownership, production know-how and supplier capacity thin out behind the headline figures.

The Weak Replacement Pipeline

Succession would matter less if Busan were replacing old firms with a strong flow of new ones. The business demography points in the opposite direction.

Busan had 453,922 active enterprises in 2024 and 49,531 newly born enterprises. In 2023, 56,124 enterprises disappeared, the highest number since the statistics began in 2011, according to reporting based on national business demography data. The figures are not a simple one-year replacement ratio, because enterprise births and deaths are measured across different statistical years. Even so, the direction is difficult to ignore: the city is producing new firms, but business disappearance is exerting heavy pressure. 

National business demography data confirm the wider pattern. In 2024, Korea had 7.642 million active enterprises, while new enterprises fell 3.5 percent to 922,000. Disappeared enterprises in 2023 rose 5.3 percent to 791,000. The one-year survival rate for firms born in 2022 was 64.4 percent, while the five-year survival rate for firms born in 2018 was 36.4 percent. 

These numbers change how Busan’s succession problem should be read. If a viable older firm closes, the city does not automatically gain a better company in its place. A workshop may become storage. A small factory may be divided into lower-value uses. A skilled production team may scatter. A supplier that spent years qualifying for a customer’s standards may disappear from the local chain.

New incorporation data offer only partial relief. A newly registered corporation does not automatically replace a 30-year-old supplier with machines, workers, certifications and repeat customers. A new company may create growth, but an existing operating firm often holds capacity that cannot be rebuilt quickly after closure.

This is why succession policy and startup policy should not be treated as substitutes. A software startup in Centum City and a 35-year-old parts manufacturer in Sasang answer different economic needs. One may create a new market. The other may prevent an existing supply chain from breaking. A durable regional strategy has to account for both.

Busan’s manufacturing sentiment adds pressure to the same picture. The Busan Chamber of Commerce and Industry’s 2026 second-quarter manufacturing Business Survey Index stood at 70, down from 79 in the previous quarter and well below the neutral level of 100. Export-oriented manufacturers scored 64, while domestic-demand manufacturers scored 71. 

The city’s trade figures are not uniformly weak. Busan’s April 2026 exports rose 6.5 percent year-on-year to $1.357 billion, while imports fell 5.8 percent to $1.334 billion, producing a small trade surplus. But the detailed movements were uneven: ships, electrical and electronic products, and machinery or precision equipment rose, while passenger cars and auto parts declined. 

That unevenness matters. Busan’s economy still has export capacity and port scale. The risk lies in the continuity of the firms that hold local production knowledge. A city can show trade gains while its smaller, privately held industrial base struggles to transfer ownership.

M&A as a Market, Not a Rescue

Busan’s M&A program should be judged by the kind of market it creates.

The financing structure can help selected deals. An interest subsidy can lower borrowing costs. Kibo guarantees can reduce lender exposure. BNK Busan Bank can provide a regional lending channel. But financing alone cannot make an unprepared company transferable. Buyers still need credible accounts, traceable contracts, disclosed debt, clear labor arrangements, stable customers and a founder willing to support the transition. 

Many founder-led firms carry value that lenders and outside buyers struggle to measure. A founder may know which customer pays late but never defaults, which machine requires informal adjustment, which supplier can deliver in a rush and which worker can solve a production defect without written instructions. Those details keep a company operating, but they do not translate neatly into collateral.

The policy therefore faces a bottleneck before money moves. Busan needs a pipeline of firms that are not only searching for successors but also ready for due diligence. Financial records must be credible. Contracts must be documented. Tax and debt issues must be disclosed. Ownership must be clean enough to sell. A company can be useful to the local economy and still be difficult to acquire if decades of founder-led management have left little institutional structure behind.

A real succession strategy would begin before an owner decides to sell. By the time a founder formally enters the M&A market, the company may already have lost value. Customers may have sensed uncertainty. Key employees may have started looking elsewhere. Investment may have been delayed for years because the owner did not know who would inherit the machinery, debt and client relationships.

The city therefore needs more than lending. It needs accounting cleanup, valuation support, tax advice, buyer matching, management training, legal templates, and post-transfer monitoring. It also needs multiple succession routes. Some firms will remain in family succession. Others may be better transferred to managers, employees, local competitors, younger entrepreneurs or outside buyers. Treating all aging firms as ordinary M&A targets would flatten the problem and favor only the cleanest transactions.

Management buyouts deserve particular attention. In many founder-led firms, the most credible successor may not be a family member or a private investor. It may be the plant manager, senior engineer, sales director or operations team already running the company in practice. These insiders often have knowledge but not acquisition capital. A succession policy that ignores them may miss one of the few paths capable of preserving both operating capacity and local continuity.

Outside acquisitions require a different test. A buyer from Seoul, another region or overseas may bring capital that a local buyer cannot provide. Rejecting outside buyers would be unrealistic. But public financing should distinguish between deals that preserve Busan’s economic role and deals that merely absorb local firms into external networks. Headquarters retention, local employment, production continuity, supplier relationships and future investment should become part of post-deal evaluation.

The current announcement does not yet show whether those safeguards will exist. It states the financing scale, the participating institutions and the lending terms. It does not clearly state whether supported deals will be assessed by buyer location, employment retention, headquarters retention or continued local investment. That gap should become a reporting priority, not an afterthought. 

The Missing Ledger

Busan cannot manage a succession crisis it has not measured at deal level.

The city has enough public data to show exposure. Owner age, industry, district, enterprise births, enterprise deaths and manufacturing sentiment all point toward a structural risk. Those figures establish the outline of the problem. They do not identify the firms that can be saved, the firms that should be transferred or the firms already too weak to survive a change in ownership.

The first missing ledger is the seller pipeline. Busan needs to know how many older owners are actively seeking successors, how many would consider selling, how many prefer family succession, how many have managers who could take over, and how many have delayed the decision until closure becomes more likely than transfer.

The second missing ledger is the buyer pool. A succession market requires more than owners willing to sell. Local competitors, younger entrepreneurs, employees, managers, private investors and outside firms must be able to buy. Each buyer type carries a different consequence for Busan. A local competitor may preserve capacity but consolidate employment. A management buyout may protect continuity but require patient financing. An outside buyer may bring capital while moving control away from the city.

The third missing ledger is firm quality. Succession support should not become a blanket subsidy for weak businesses. A company with falling demand, obsolete equipment and no credible buyer belongs in a different category from a profitable supplier whose founder has no heir. The first may require closure planning, worker transition and site reuse. The second may require valuation, buyer matching and acquisition finance.

The fourth missing ledger is post-acquisition performance. Public agencies often count approvals, guarantees and loan volume because those figures are easy to publish. A succession policy should be judged after the founder exits. The relevant measures are whether the company keeps operating in Busan, whether employment remains stable, whether headquarters functions stay local, whether facility investment continues, and whether supplier relationships survive.

The city does not need to disclose private transaction details to build accountability. It can publish aggregate indicators: number of firms assessed, number deemed transfer-ready, number matched with buyers, number financed, average loan size, industry distribution, buyer location, jobs retained after one year and headquarters retention after acquisition.

Those indicators would reveal whether the program is reaching firms that matter or merely supporting a handful of easy transactions. They would also help separate two very different outcomes: a firm that survives as part of Busan’s productive base and a firm that survives legally while control, profit and future investment move elsewhere.

The Political and Economic Test

Business succession will test whether Busan’s economic policy can move beyond project announcements.

The city has no shortage of large ambitions. It wants to be a global logistics hub, a financial center, a tourism destination, a startup base and a gateway for southern Korea. Those goals rely on infrastructure, branding and new investment. Succession requires a different kind of governing discipline. It asks whether the city can protect economic capacity that already exists, firm by firm, before it disappears.

That work is less visible than opening a new facility or attracting a headline investment. A successful succession deal may involve a small manufacturer in an old industrial district, a founder who agrees to stay for two years, a local manager who takes on acquisition debt, a bank that accepts cash-flow risk and a guarantee agency that helps close the gap. No ribbon-cutting ceremony captures that work. Yet the economic value may exceed another short-lived campaign to promote entrepreneurship without addressing the firms already employing people.

The issue also changes how Busan should evaluate business policy. Regional development debates tend to privilege the new: new industries, new districts, new events, new startups and new global slogans. That emphasis can be justified when an economy needs future growth. It becomes incomplete when the existing business base is aging faster than the next generation of firms can replace it.

Succession policy should not only help older owners exit. It should help younger operators enter. Acquiring an existing company can be a serious form of entrepreneurship: less glamorous than launching a startup, but often more important for industrial continuity. A young founder may need seed capital and mentoring. A young successor may need acquisition finance, operating training, legal support, customer-retention help and time with the outgoing owner. Busan should build both pathways.

The political risk lies in delay. Founder-led firms rarely collapse all at once. A company first stops investing. Then it loses younger workers. Then customers sense uncertainty. Then the owner cuts back orders, rejects expansion and waits for a buyer who never appears. By the time closure becomes visible, the transfer window has already narrowed.

Busan’s first task is therefore not simply to lend. It is to count correctly, classify carefully and follow outcomes after the deal. The city needs to know which companies are merely old, which are succession-constrained, which are transfer-ready, which need professionalization and which have no viable future.

The 20 billion won program has opened a financing channel. It has not yet proved that Busan can transfer an economy. The harder task is to show that what survives after the founder leaves is not only a company name, but the city’s productive capacity.