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Business consolidation for export promotion  Inactivate SMEs SME manufactured daily items  key role in light industries Economies of scale pursued.

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Presentation on theme: "Business consolidation for export promotion  Inactivate SMEs SME manufactured daily items  key role in light industries Economies of scale pursued."— Presentation transcript:

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4 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

5 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

6 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

7 % 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 Medium enterprise Total Micro enterprise 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).

8 More than 50% of SMEs are engaged in subcontracting relationship while only 30% of European SMEs are Most subcontractors are 1 st tier subcontractors (68.3%), while % of 2 nd tier and 3 rd tier subcontractors are 24.7% and 7.0% Source: 1) Korea; 2009 Profile of SMEs, K-biz (2011). 2) EU 27: EU SMEs and Subcontracting, EIM (2009). Engaged in any subcontracting Not engaged in any subcontracting Contractor only Subcontractor only BothTotal Korea8.9%29.6%13.6%52.1%47.9% EU-2714%16%n/a30%70%

9 Manufacturing sector(%) Debt ratio L-E SME Net profit to net worth ratio L-E SME SME wage to L-E wage ratio(average) SME Export oriented, emphasizing the role of Large enterprise Performance of the model has been quite successful Source: 2009 Profile of SMEs, K-biz (2011). Pressure on margins exerted by contractors are common phenomena

10 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 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 Foundation for a society where fair competition, equal opportunity, and sharing of fruit according to their contribution can be realized

11 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

12 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

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14 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

15 Source: Survey: Globalization, K-biz (2010).

16 To use various SME policy instruments To advance to other countries, especially ASEAN by FTA Korea SMEs are not willing to cooperate with foreign companies because of lack of experience Too high proportion of heavy and chemical industry To advance to US, China and Japan by FTA in the near future KoreaEU (%)LightHeavyLightHeavy Enterprise Value-added Source: KSBA. European Commission, SME Performance Review.

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18 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 Since 1981 this program has been ongoing to support the stable management for SMEs market expansion

19 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

20 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

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22 you will find some difficulties Exhibition, Seminar, Forum etc.

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