Business consolidation for export promotion
 Inactivate SMEs
SME manufactured daily items  key role in light
industries
Economies of scale pursued for export growth  larger
businesses  SME less active
Policies for the development of heavy / chemical
industry and quantitative growth of SME
SME produced parts and materials consumed in the
heavy and chemical industry, replacing imported parts
and materials (localization)
Korean government active promotion policies to
nurture SMEs  active start-up and facility investment
by SMEs  rapid growth of SME
SME restructuring and Improved responsiveness to
market opening
SMEs dealt with adjustments to rapidly changing
industry environment
Policy shift: protect and support SMEs  induce
competition and cooperation  support self-reliant and
innovate SMEs
% of number of SMEs(to the total number of enterprises): 99.9%
% of number of employees in SMEs(to the total number of
employees in the whole enterprise): 87.4%
% of those were 99.3% and 75.1%, respectively in 1994
Small and Medium Enterprise(%)
Small enterprise
Micro enterprise
Medium
enterprise
Total
Number of
enterprise
87.6 (91.8)
96.6 (98.7)
3.3 (1.1)
99.9 (99.8)
Number of
employed
40.5 (29.7)
61.2 (50.4)
27.2 (17.0)
88.4 (67.4)
Source: 1) Korea; 2009 Profile of SMEs, K-biz (2011).
2) ( ) is in 2008 figures for EU SMEs, Financial sector is excluded. Annual Report on EU SMEs, Eurostat (2009).
More than 50% of SMEs are engaged in subcontracting relationship
while only 30% of European SMEs are
Most subcontractors are 1st tier subcontractors (68.3%),
while % of 2nd tier and 3rd tier subcontractors are 24.7% and 7.0%
Engaged in any subcontracting
Contractor
only
Subcontractor
only
Both
Total
Not engaged in
any
subcontracting
Korea
8.9%
29.6%
13.6%
52.1%
47.9%
EU-27
14%
16%
n/a
30%
70%
Source: 1) Korea; 2009 Profile of SMEs, K-biz (2011).
2) EU 27: EU SMEs and Subcontracting, EIM (2009).
Export oriented, emphasizing the role of Large enterprise
Performance of the model has been quite successful
Manufacturing sector(%)
Debt ratio
Net profit to
net worth ratio
SME wage to L-E
wage ratio(average)
2000
2003
2006
2009
L-E
225
113
85
96
SME
193
166
145
148
L-E
31
47
54
51
SME
34
38
41
40
SME
56
52
53
50
Source: 2009 Profile of SMEs, K-biz (2011).
Pressure on margins exerted by contractors are common phenomena
As a ‘New Development Model’ for sustainable growth
Shift of paradigm from competition between companies to competition
between company network
Cooperation of suppliers are needed to secure competitiveness of Korean
enterprises
Foundation for a society where fair competition, equal opportunity, and
sharing of fruit according to their contribution can be realized
Boost vitality of business ecosystem to create sustainable growth engine
of the economy
Vitality of SMEs is the key to the creation of new jobs
From ‘old habit of relying on government support’ to ‘voluntary/
ongoing innovation to reform their entrepreneurial spirit’
Transparency in accounting and business practice, compliance, etc.,
Innovation for technology and productivity upgrading, etc.,
Invest in a higher value-added industry (green, higher value-added parts
and components)
Improve work environment, invest to develop a fine training/education
program for employees
Need to provide an environment to attract young people
Information sharing (technology, market, etc.,), production sharing
To induce voluntary involvement of entities in the collaboration scheme,
but not in supporting the scheme directly
To provide legal/administrative support to induce the scheme to be in
effect
Prohibit on-site visit/request of cost & technology information without
written notification
Impose heavy compensation load or responsibility for damage caused by
illegal dispossession/appropriation of technology
Extended application of ‘subcontracting law’ to the lower tier
subcontractors
Intensify surveillance on unfair business practice of large distributors
However, Korea has been striving to encourage
collaboration scheme between large enterprise and SMEs .
And, Korean government was very cautious of selecting
implementation method
Again, the core spirit of this scheme is voluntary
involvement of entities of the scheme, and the role of
government should be restricted as a mere supporter
It seems like that the scheme has been quite successful so far
However, there could be some side effects in the future
To break off subcontract relationship with L-E
SMEs cannot survive in domestic market
19.3%
Lack of Information
37.7%
Weak Brand Power
20.0%
Absence of Overseas Sales
Network
27.3%
33.3%
ISO Standards Certification,
Trade & Technology Barriers
and Regulations
Difficulty in Entering New
Markets
Source: Survey: Globalization, K-biz (2010).
To use various SME policy instruments
To advance to other countries, especially ASEAN by FTA
To advance to US, China and Japan by FTA in the near future
Korea SMEs are not willing to cooperate with foreign companies
because of lack of experience
Too high proportion of heavy and chemical industry
Korea
EU
(%)
Light
Heavy
Light
Heavy
Enterprise
34.6
65.4
49.6
50.4
Value-added
27.4
72.6
38.7
61.3
Source: KSBA. European Commission, SME Performance Review.
Since 1981 this program has been ongoing to support the stable
management for SMEs market expansion
• Size : about 103 billion in US dollars
(c.a 11.5% of GDP)
• Amount of SME products purchased
record by government institutions :
about 62 billion in US dollars
(c.a 60% of total public procurement)
Source: KSBA
• Under US $0.18million contracts competes only between SMEs (Large
enterprises are excluded)
• Restricting joint bidding between large enterprises
• The product which is eligible to improve its quality & technological
development sets for the ‘excellent joint brand’ cooperated with more
than 5 SMEs
• Help to find public market through giving advantages not through
bidding but with special appointment when public purchasing
• Defense Ministry, KEPCO (Korea Electric Power Corporation), KOGAS
(Korea Gas Corporation), and Korea Railroad Corporation etc.
• To develop a new technology with the assurance that they will purchase
the technological products.
• Under this program, the SMBA finances the technological development of
SMEs, while public institutions purchase the products for a certain period
of time.
• As of 2007, about 55 institutions are participated as purchasing
corporations, and the SMBA has supported ca. 170 technology
development projects (budget ca. US $ 30 million) and plans to expand
the participation of government agencies, public institutions and
private businesses in this program.
• 75% of entire R&D expenditure (max. US $ 100,000, 2 years) is granted
www.kbiz.or.kr
www.korcha.net
www.korcha.net
www.sbc.or.kr
you will find some difficulties
Exhibition, Seminar, Forum etc.