Innovative SMEsand Promotion Policies in Korea

8/8/2019 Innovative SMEsand Promotion Policies in Korea

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20 Jan. 2006

Prof. Brian H. Lee

Kwangwoon University

Innovative SMEs and

Promotion Policies in Korea


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I. SMEs in the Korean Economy

II. Innovative SMEs in Korea

III. Government Policies and Promotion Program

IV. Recent Initiatives to promote SME innovation

Contents

Contents


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I. SMEs in the Korean Economy


4/40Prof. Brian H. Lee 4

The shares of SMEs in the Korean Economy

3 million Korean SMEs employ 12 M. people, while 4,808 large firms offer only 1.5 M. jobs

Since IMF crisis in 1997, SMEs have been the main source of new jobs

In 2002, total production of SMEs was 455 tril. KRW, 52% of total industry production

2001 2002 2003

Total 2,876,817 2,953,124 3,004,105

SMEs 2,871,951 2,948,171 2,999,297

[%] [99.8] [99.8] [99.8]

Large Firms 4,866 4,953 4,808

[%] [0.2] [0.2] [0.2]

Total 11,650,034 11,975,672 12,041,387

SMEs 9,969,797 10,385,020 10,474,630

[%] [85.6] [86.7] [87.0]

Large Firms 1,680,237 1,590,652 1,566,757

[%] [14.4] [13.3] [13.0]

Number of Employees

Number of Businessentities

Source: www. stat2.smba.go.kr



The shares of SMEs in Manufacturing Sectors

In Manufacturing Industries, there are about 110,000 SMEs that employ 5 -300 persons

The share of SMEs in the employment and in the industry production have steadily increasedover the last 10 years

SME share in exports is 42.2% in 2003

2000 2001 2002 2003

Total 98,110 105,088 109,489 111,363SMEs 97,379 104,406 108,819 110,691

[%] [99.3] [99.4] [99.4] [99.4]

Large Firms 731 682 670 672

[%] [0.7] [0.6] [0.6] [0.6]

Total 2,652,590 2,627,250 2,675,292 2,716,752

SMEs 1,962,908 1,990,688 2,057,816 2,090,216

[%] [74.0] [75.8] [76.9] [76.9]

Large Firms 689,682 636,562 617,476 626,536

[%] [26.0] [24.2] [23.1] [23.1]

Total 5,648,341 5,750,923 6,282,853 6,720,605

SMEs 2,675,619 2,822,854 3,189,619 3,402,313

[%] [47.4] [49.1] [50.8] [50.6]

Large Firms 2,972,722 2,928,070 3,093,234 3,318,292

[%] [52.6] [50.9] [49.2] [49.4]

Production

(A hundredmillion)

Number ofEmployees

Number of

Businessentities

Source: www. stat2.smba.go.kr



International Comparison

Compared to other OECD countries, Korea has more relied employments and production on

SME

Korea Japan USA Germany Tiwan

Shares of

Manufacturing Sectorsin GDP(02)

29.0

99.5

74.7

53.3

21.0 15.0 23.0

The share of SMEs in

total number of

businesses

98.9 98.5 99.2 96.7

26.0

The share of SME

employments72.1 41.1 56.8 79.9

The share of SME

production51.3 24.8 42.5 33.4

Source: OECE, Small and Medium Enterprise Outlook, 2002



Competitiveness Gap Between Large firms and SMEs

The widening gap between large firms and SMEs in the productivity and competitiveness

Value added per capita (M. KRW) in manufacturing sectors

1990 1995 1998 2000 2002

Large Firms 31.7 93.3

36.3 (38.9)

133.8 158.4 188.3

SMEs 16.5 (52.2%) 51.8 (38.7) 56.1 (35.4) 60.5 (32.2)

Operating income to sales (%)

2000 2001 2002 2003 2004

Large Firms 8.21 6.03

4.54

7.54 8.16 9.43

SMEs 5.83 5.29 4.64 4.11

Source: Bank of Korea

Source: Korea Research Institute for Small and Medium Industries, 2004

R&D expenses and R&D manpower

10 B KRW

R&D

expenses

2001

R&D

manpower

2001

R&D

expenses

2002

57,019 9,337

3,68354,280

R&D

manpower

2002

R&D

expenses

2003

R&D

manpower

2003

Large Firms 8,737 62,459 11,084 71,698

SMEs 3,537 55,701 3,425 52,332Source: Korea Ministry of Science and Technology. 2004



The importance of SME innovation in the Korean Economy

To enhance the overall competitiveness and technological capability of SMEs

To reduce the gap between the large firms and SMEs in profitability and competitiveness

- For the period of 1998-2002, capital stock(book value of equipment per worker) in large firms had

increased 16.5 % annually while it had increased only 12.8% annually in SMEs

To create new jobs for the younger generation

- For the period of 1998-2002, employees of large firms decreased 207,000 persons while those of SMEs

increased 206,000 persons

- Estimated unemployment is about 1M

- Need to create at least 400,000 new jobs by innovative SMEs to fulfill the demands of the unemployed


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II. Innovative SMEs in Korea



The estimation of innovative SMEs

The number of SMEs which make substantial investments in technology development is

estimated to be about 20,000 firms The ratio of innovating SMEs

1995 1998 2000 2002 2003

% 8.3 7.6 12.0 18.1 19.6

Source: SMBA survey result, 2004

About 9,000 SMEs have R&D departments- Korea Industrial Technology Promotion Association

About 6,500 SMEs are officially certified as venture business by the government agency

- Venture business is not a common noun in Korea, it is a proper noun that explains a special group of

innovating firms which have somewhat a legal status based on Venture business promotion special

Act in 1997

About 2,500 SMEs are approved by the government agency as innovating SMEs

Lee, et al(2005) estimated that 2.5 % - 3% of SMEs has technological competence and achievesabnormal profitability

An international comparison by STEPI

- The percentage of innovating firms in Korea is still lower than in the other OECD countries

Korea Germany France Italy Sweden

% of innovating SMEs 37 67 46 40 48Source: STEPI, 2004



Employment and Production of innovative SMEs

Ventures and Inno-biz firms explain about 10 % of employment and production in

manufacturing sector

A recent survey by KOTEF reports that the aggregated total revenue of 5,438 innovative SMEs

is 111 trill. KRW in 2003 and total exports of 3,693 innovative SMEs is 14 trill. KRW

- These figures also show that innovative SMEs explain a significant portion of production and exports

Total SMEs Ventures Inno-biz Large firms

Number offirms

111,363 110,691 6,469 2,557 672

% 100.0 99.4 5.8 2.2 0.6

Employees 2,716,752 2,090,216 297,512 116,087 626,536

% 100.0 76.9 10.9 4.3 23.1

Production

(B. KRW) 672,060 340,231 58,026 20,992 331,829

% 100.0 50.6 8.6 3.1 49.4

Exports

(M. USD)193,817 81,698 7,078 8,889 112,015

% 100.0Source: National office of Statistics, Small and Medium Business Administration, 2003



Venture Business

The Special Measures Act for the Promotion of Venture Business enacted in August 1997

Key measures to support innovative SMEs in the Act

- certification and registration of venture business by the government to identify and to support

the target SMEs

-deregulation of KOSDAQ, and IPO market for ventures

delimiting foreign investor ownership

lowering the IPO requirement for ventures

- lowering market entry barrier for start-up ventures

- providing public venture capital funds and matching funds for private venture investment funds

- providing credit loans for operating cash at a 2% lower interest rate

- sponsoring for the business incubators operated by universities, public research institutes and

local governments- providing tax benefit to the venture business and the investors

- being free of charge of military services for young entrepreneurs and engineers working for

ventures



Certification and Registration of venture business by the government

Criteria of Venture Business defined by the Korean government

-Korean government set up an official criteria to publicly recognize and to certify venture businesses

- Venture businesses are classified into three different types

Venture capital investment firms

- more than 10 percent of equity is invested and shared by venture investment companies or funds

R&D investment firms

- their annual R&D investment exceeds 5 percents of total sales and their total R&D expense is more than

50 M KRW a year

New Technology Development Firms

-Firms whose sales from patent rights or new technologies developed with government supports

- High tech firms invested by foreign companies

- Firms commercializing new technologies developed by universities or institutes

Venture capitalinvestment firms

R&D investmentfirms

New TechnologyDevelopment Firms

Total

Number of Ventures as of

July 2004 (%)

551 (6.6%) 1,567 (18.7%) 6,252 (74.7%) 8,370

Source: Korea Venture Association, www.venturenet.or.kr


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Prof. Brian H. Lee 14

Profiles of Venture Businesses(I)

A venture business employs 40 persons on average

- An average employment is about 12 persons at the first year of operation and 20 persons at the second

year

Small revenue, but high growth rate

- Average revenue is 7.3 B. KRW in 2003

- In 70% of ventures, the revenue was less than 5 B KRW

- Average growth rate is 24%

Most of ventures have founded in the high tech industries including IT and S/W

ManufacturingIT

S/W

R&D

Service

Construction

and

Transfortation

Retail

industryAgriculture Etc Total

number 5,755 1,899 330 138 153 26 69 8,370

% 68.8 22.7 3.9 1.7 1.8 0.3 0.8 100.0

Source : Small and Medium Business Administration, Korea venture research institute, Venture business research on the

actual condition(2004).

Industry Distribution of Ventures


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Profiles of Venture Businesses(II)

Performance comparison of Large, Small & Medium and Venture businesses

Performance ItemsLarge

Firms

SMEsVenture

(high-tech/general manufacture)2002 year 7.2 10.2 16.4

2003 year 6.6 5.4 25.3

2002 year 7.5 5.4 19.7

2003 year 8.2 4.6 8.3

Return on sales (%)

Sales growth rates (%)

Source : Korea Bank , Business management performance analysis (2003)

Distribution of Venture businesses by sales size

Less than 1 1-5 6-10 11-50 50-100 More than 100 Total

711

(15.5)

552

(12.0)

936

(20.4)

926

(20.2)

625

(13.6)

840

(18.3)

4,590

(100.0)

(unit: A hundred million won, % )

Firm age distribution of Venture businesses

Year 12 - 4 12 2-4 1-2 Total

number 731 2,108 2259 658 5756

% 12.7 36.6 39.2 11.4 100.0

Source : Small and Medium Business Administration(SMBA), Korea venture research institute, 2003

Source : Small and Medium Business Administration(SMBA), Korea venture research institute, 2003

i i


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Inno-biz Firms

Definition

- Inno-biz is another type of innovative SMEs supported by government policy

- Inno-biz certification program started in February 2001 to complement Venture Business Program

- Inno-biz is defined as innovative SMEs in the traditional manufacturing sectors, older and bigger than

venture business- SMBA evaluate the innovativeness of SMEs and select highly innovative SMEs as Inno-biz firms

Evaluation criteria and process

- A multidimensional index was developed based on Olso Manual which had been designed to evaluate

and to assess technological capabilities and innovations in SMEs

- The criteria consist of 92 items representing technological innovation output, technological innovation

capability, technology commercialization capability, and innovation management capability

- Evaluation is done by an independent government agency

- SME is approved as Inno-biz if the firm get more than 700 points of total 1000 points

Benefits to Inno-biz firms

- provide low interest loans and funding

-preferential support by the many other government innovation support programs

P fil f I bi Fi


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Profiles of Inno-biz Firms

Most of Inno-biz firms come from traditional manufacturing sectors

More than half of Inno-biz firms founded before 1998 Average number of emloyees is 45.5 and average revenue is 8.2 B KRW in 2003

Year 1 below 1~3 below 3~5 below 5~10 below 10 over Total

Total 29 636 798 712 587 2,762

Year Manufacturing ITS/W

Bio Service environmentt

Total

2001 730 177 - - - 907

2002 555 211 - - - 766

2003 364 116 15 12 12 519

2004 425 106 12 15 12 570

Total 2,074 610 27 27 24 2,762

Source : Small and Medium Business Administration (www.smba.go.kr)

Firm ages distribution of Inno-Biz business

Source : Small and Medium Business Administration (www.smba.go.kr)

Distribution of Inno-biz firms: industry and the year of registration

P fil f I bi Fi


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Profiles of Inno-biz Firms

Year 0Less

than 100M KRW

100~500

M KRW

500~1,000

M KRW

1,000~2,500

M KRW

2500~5,000

M KRW

5,000~10,000

M KRW

10,000~20,000

M KRW

Morethan

20,000

M KRW

Total

2001 12 44 111 126 170 155 145 83 61 907

2002 40 44 95 76 146 135 120 60 50 766

2003 2 13 35 45 99 124 101 61 39 519

2004 2 9 41 45 128 125 88 87 45 570

Total 56 110 282 292 543 539 454 291 195 2,762

Year 1~5 5 ~10 10 ~50 50 ~100 100~200 200 over Total

2001 26 90 581 128 54 28 907

2002 3 72 534 106 35 16 766

2003 5 32 348 88 31 15 519

2004 3 45 370 97 44 11 570

Total 37 239 1,833 419 164 70 2,762

Distribution of Inno-Biz firms, by the volume of sales

Source : Small and Medium Business Administration(www.smba.go.kr)

Distribution of Inno-biz business by employee size

Source : Small and Medium Business Administration(www.smba.go.kr)


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III. Government Polices and Promotion Programs

Historical Development of SME innovation Policy in Korea


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Historical Development of SME innovation Policy in Korea

Before 1990s:- No explicit policy to promote innovative SMEs

- Many rules and regulation to protect SMEs from direct competition with large firms and Chaebuls

- Providing public funding for SMEs by founding Korea Credit Guarantee Fund(KCGF) in 1976

ex) government procurement for SME products, prohibit large firm entry into SME specific industries

In the early 1990s

-Policies to increase productivity of SMEs in response to wage increase in the late 1980s

- Restructuring labor intensive SMEs into capital intensive ones by investment in the productionequipment

- Deregulation of large firm entry into SME business sectors

ex) low interest loans and credit backing program for SMEs adopting new facilities

- Begin to provide credit guarantee to high ventures by establishing Korea Technology Credit GuaranteeFund(KOTEC) in 1989

In the late 1990s and the early 2000s- Promotion of venture business, facilitating venture IPOs at KOSDAQ market

- SME innovation support program government sponsoring for R&D projects done by SMEs

- Public finance for private venture capital industry

Since 2003, in the Roh administration- Integration of SME innovation policy with regional innovation policy by building up regional

technology service centers for local SMEs

- Facilitating cooperative R&D and technology transfer among SMEs, universities and public R&Dinstitutes

- More focused support on the R&D activities of innovative SMEs

Government Programs to promote innovative SMEs


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Government Programs to promote innovative SMEs

Fourteen government organizations including SMBA and Ministry of Commerce, Industry and

Energy (MOCIE) perform 230 programs to support SMEs

- There are 525 non-private organizations and 38,369 working staffs to implement the government

support programs

-Presidential Commission on Small and Medium Enterprise was organized in 1998 to coordinate andintegrate these programs and organizations

Government support programs are consist of:

-

Business Restructuring and Production equipment support program- R&D and technological innovation support

- Entrepreneurship training program

- Incubating program

- Funding program

- Human resource supply program

- Sales and marketing support program

-information technology and e-commerce implementation support

Government Budget to promote SMEs


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Government Budget to promote SMEs

The total government expenditure to promote SME competitiveness and innovation is 6 trillion

KRW in 2004, which is about 5.5% of the total government budget in Korea

1.2 trillion KRW, 21 % of the total expenditure is used to sponsor technology development

program

2.3 trillion KRW, 37.6 % is loaned to SMEs adopting new production equipment and facilities2001 2002 2003 2004

amount % Amount % Amount % amount %

ProductionEquipment 1,498 25.7 1,651 28.0 1,990 30.7 2,288 37.6

IT 43 0.7 118 2.0 137 2.1 147 2.4Technology

Development1,320 22.7 1,208 20.5 1,214 18.7 1,277 21.0

Incubation andventure 719 12.3 650 11.0 623 9.6 527 8.6

Sales andmarketing 151 2.6 246 4.2 342 5.3 384 6.3

Managementconsulting 693 11.9 598 10.1 739 11.4 133 2.2

HumanResources 292 5.0 314 5.3 351 5.4 451 7.4

local SMEs 1,111 19.1 1,119 19.0 1,086 16.8 886 14.5Total 5,827 100.0 5,904 100.0 6,482 100.0 6,093 100.0

categories

Methods of the Government Budget Expenditure


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Methods of the Government Budget Expenditure

4.1 trillion KRW, more than half of the total SME support budget is provided to SMEs by loans

Subsidy or grant type is 1.7 trillion KRW, most of that money support R&D projects andtechnology development of SMEs

The amount of equity investment is a very little, only 1.2 % of total expenses

Types of expenditure

2001 2002 2003 2004

Amount % Amount % Amount % amount %

Loans 4,175 71.6 4,026 68.2 4,501 69.4 4,120 67.6

Subsidy or

grant1,304 22.4 1,572 26.6 1,740 26.8 1,758 28.9

Equity

investment307 5.3 269 4.6 211 3.3 138 2.3

others 41 0.7 38 0.6 31 0.5 76 1.2

Total 5,827 100.0 5,905 100.0 6,483 100.0 6,092 100.0

Source: Presidential Commission on Small and Medium Enterprise, 2005

(Unit: billion won, %)

Funding for SMEs innovation


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Funding for SMEs innovation

Sources of Capital of Korean SMEs (Korean Federation of Small and Medium Business, 2004)

-Loans from commercial banks : 72.7%

- Government funding: 19.8%

- Equity Financing: 0.3%

Types of government funding for SMEs : international Comparison

Types of funding Korea(2004) USA(2004) France(2002)

Credit guarantee 94.6%(0.2) 66.0%(26.0) 78.0%(52.0)

Direct loan 5.2% 0.1% 21.7%

Equity Investment 0.2% 33.9% 0.3%

2003 year 2004 year

# of Guarantees amount # of Guarantees amountKorea Technology Credit

Guarantee Fund100,258 13.4 66,000 11.6

Korea Credit Guarantee Fund 315,584 32.9 329,010 30.9

( Unit: trillion won )

Source : Korea Technology Credit Guarantee Fund (www.shinbro.co.kr), Korea Credit Guarantee Fund(www.kibo.co.kr)

Source: Korea Ministry of Finance and Economy, 2004

The volume of credit guarantees

Venture Capitals


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Venture Capitals

Korean venture capital industry had grown rapidly from 1998 to 2000, at the time of internet

venture boom In recent years, the amount of funding and investment has significantly decreased and most of

funds have relied more on government funding

Venture capital investment is much less than it was five years ago Compared to the amount of credit guaranteed loans for SMEs, the amount venture capital

investment takes very small portion of SME innovation funding In order to increase equity type investment in innovative SMEs, venture capital industries andinvestment banking firms should be more developed by providing various kinds of governmentsupport including tax incentives

Venture capital industry statistics

1999 2001 2004

Number of investment companies 97 145 105

Total capitalization of investment co.(B KRW) 1,240 2,2194 1,652

Number of Funds 149 395 422

Total amount of funds raised (B KRW) 488 791 527

The amount of government funding( B KRW) 27(5.4%) 122(14.4%) 158(30%)

Number of invested venture businesses 1,457 1,117 510

Total amount of funds invested (B KRW) 950 889 564

Source: SMBA, 2005

Start up venture incubation program (I)


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Start up venture incubation program (I)

Public Venture Incubators

-Over the last 10 years, 291 venture incubators have been established by universities, public R&D

institutes and local government

- 4,000 ventures had been incubated and 4,217 start up companies are being incubated

- According to a survey in 2004, the incubated companies produced 1.3 trillion KRW and employed

45,000 persons

Government financial aids to incubators

- SMBA grants 50 % of total construction costs

- SMBA grants 50 M 100 M KRW per a year for incubators operating costs

Number of incubators and incubated companies

Number of incubators

Number of start ups

In incubators

Number of venture

Incubated

291 4,217 3,925

Source: www.bi.go.kr

Start up venture incubation program (II)


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Start up venture incubation program (II)

Incubation services provided to the tenants

-Providing office space at a low rate

- Linking outside investors with tenant ventures

- Business consulting and management service

Technology Business Incubation Program of MOICE

-seed money funding program

- the program loans interest-free 100 M KRW to a start up company

- from 1995 to 2003, 130 B KRW had been loaned to about 1,500 start ups

Techno-park construction program

-This program started in 1999 to form a regional innovation cluster of local universities, innovative

SMEs and start up companies

- Central and local government have invested 400 billion KRW to build 14 techno-parks throughout the

nation

-Techno-parks provide office space, R&D facilities and opportunities to cooperate with universityresearch teams

Performances and limitations of venture incubation program

- Government led venture incubation efforts stimulate many start up ventures

-However, the program failed to provide professional incubation services and resulted in the high failurerate

SME Technology Development Program


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SME Technology Development Program

Government agencies involved: SMBA, Ministry of Science and Technology (MOST), Ministry

of Commerce, Industry and Energy (MOCIE), Ministry of Information and Communication(MIC)

Two types of support programs

- Building physical infrastructures for technology developments

-Sponsoring the R&D projects and technology development activities

(Unit: billion won, %)

Representative Programs

Programs 2003 2004

Industrial Technology Infrastructure Building Program by MOICE

- Providing grants to universities and institutes for building research facilities, R&Dcenters and engineer education centers that can be used by SMEs

363 375

Prarts and Raw Material Development program by MOICE- Providing subsidies as matching funds to SMEs in material and parts manufacturing

sectors that fund from venture capital for new product commercialization

132 172

IT Commercial Technology Development Program by MIC

- IT industry oriented R&D subsidies128 210

New Product Development Program By SMBA

- Providing grants to SMEs who are to commercialize new patents55 75

SME Technology Innovation and Development Program by SMBA- Providing grants to various type of innovation activities in SMEs 110 130

( Unit: billion KRW )

Infrastructures for SME innovation(I)


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( )

Government Sponsored Research Institutes(GSRI)

-Since the end of 1960s, 20 GSRIs have been founded for industrial technology development

- In 2004, the total annual budget of GSRIs is 2.1 trillion KRW, and total number of R&D professionals

is 12,000

- One of the key missions of those institutes is to support SMEs technology development

GSRI supports to SMEs

Source: B. H. Lee, et al(2005)

Types of Supports 2003 2004

Number of GSRI-SME Cooperative R&D projects 855 990

Number of contract R&D for SMEs 529 468Number of Technology Transfer to SMEs 628 471

Number of technology consulting and advice 1,186 1,345

Number of SME engineers educated and trained 3,274 3,338

Limitations

- SMEs are not satisfied with the GSRIs supports

- There exists a mismatch between the technology supplies from GSRIs and the demands of SMEs

- New policies and programs are required to strengthen the R&D cooperation between GSRIs and SMEs

Infrastructures for SME innovation(II)


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( )

Korean government has installed many R&D centers in the universities to facilitate cooperative

R&D between universities and SMEs- 45 nationwide Technology Innovation Centers(TICs) to provide R&D equipment and facilities for SME-

university joint R&D

- 52 Regional Technology Development Centers to support region specific industrial technology

developments

-13 local universities which have special mission to support local SME innovation

Key Roles of the university R&D centers in SME innovation

- Providing research equipment and facilities to SMEs who can not afford to invest in R&D facilities

- Joint R&D to develop technologies that can commercialized by SMEs

-Education and training of SME engineers

- Providing university graduate R&D personnel to SMEs

Performances and Limitations of University R&D center program

- Over the last 5 five years, physical research infrastructures had been fulfilled to support SMEs

technological innovation activities on the supply side- However, most of the cooperative activities between universities and SMEs have been driven by the

university researchers, technology suppliers

- Most of the R&D centers could not operate without government financial supports

- Too many R&D centers are distributed across the nation, which leads to the lack of operating resources

and strategic focus in each R&D centers

Government granted SME innovation program


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g p g

National R&D Programs to Support SME Innovation

-In 2004, 757 billion KRW, 12.7 % of total government R&D expenditure, is granted to SME innovations

SME Technology Innovation and Development Program by SMBA- A direct financial subsidy given to the innovating SMEs

- Providing 100 M. KRW research grant at maximum as a matching fund to SMEs which are developingnew technology and/or products

-1,500 2,000 SMEs are annually granted through this program

National R&D program to build SME-university and SME- GSRI joint R&D projects- Most of Korean national R&D programs which aim to support SME innovation have a priority to

support cooperative R&D projects

- For the last 10 years, more than 20,000 cooperative R&D projects have been funded by national R&D

programs KSBIR

- It is a Korean version of SBIR which make all public organizations to reserve 5% of their R&D fundsfor award to SMEs

Performance and Limitations of national R&D program to support SME innovation

-Many SMEs in manufacturing sectors as well as in IT and BT sectors have been reported to succeededin technology development with the help of the R&D program

- However, a series of recent surveys done by SBMA and other government agencies revealed that only 10 30% of SME technology development projects funded by government had succeeded incommercialization

-The low rate of commercial success seems to be resulted from the poor project selection and the lack ofcomplementary resources for market entry.

R&D Cooperation between SME and University/R&D institute


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The number of SMEs involved in cooperative R&D activities

-From a recent survey, about 6,200 SMEs, 5% of total manufacturing SMEs are estimated to be involvedin various kinds of cooperative R&D activities

- To enhance the commercial success of cooperative R&D projects, the more active commitment of SMEs

and partners will be required

Recent Survey Results on the SMEs participated in cooperative R&D

Cooperative R&D with R&D institutes

None

None850

(78.9%)

55(5.1%)

14(1.3%)

919(85.3%)

96(8.9%)

13(1.2%)

Less than one in

a year

More than one in

a year

Total

959(89.0%)

Less than one ina year

23(2.1%)

10(0.9%)

88(8.2%)

More than onein a year

11(1.0%)

130(12.1%)

30(2.8%)

Total

5(0.5%)

28(2.6%)

1077(100%)

Number of

Cooperative

R&D withUniversity

Source: Lee, et. al(2005)

Human resource supply program


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Supplying human resource is one of key SME innovation policies

-In Korea, most of innovative SMEs and technology ventures are in short of competent R&D personneland sales and marketing managers

- Most of competent and young professionals want to work for large firms

- Most of SMEs do not have sufficient resources to pay the qualified personnel or to train young

employees

Key Incentive policy for the young engineers working for SMEs- Exempt from 2 year military service

Incentives for SMEs employing university graduates and young engineers

- Refund the half of salaries for the first 6 months

Education and training program for SME employees and university students who want to workfor SMEs

- Government subsidizes tuition fees for the SME workers and the unemployed

- Many universities operates technology education centers with financial support from the government

-

Government funded internship programs for university students Evaluation of policy and program

- Except military service exemption program, most of the programs failed to supply creative human

resources to innovative SMEs

- Need to develop more effective policies to create new jobs in SMEs and incentive system for R&D

professionals working for SMEs

Sales and marketing support program


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Types of sales and marketing support programs

- Preferential treatment in public procurement contacts

SME Innovation Promotion Act prescribes that public organizations should purchase the new

technology products of innovative SMEs

- Supporting the development of the shared brands among SMEs

- Supporting SME product advertising in alliance with CATVs

- Providing export incubators and overseas market information

- Supporting on-line sales with e-commerce portal

Performances and Limitations of the programs

- There is no explicit means to make public organization to purchase SMEs new products. SMEs new

products had been only 0.06% of the public procurement for the period of 2000 2003

- Most of the programs seem to be unsuccessful

- Innovative SMEs need more diverse resources in marketing & sales stage than ones supplied by public

sectors

-Need more market oriented policy to open markets for SME s innovative new products


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IV. Recent Initiatives to promote SME innovation

Expanding the pool of Innovative SMEs


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Objectives

-Increase the number of innovative SMEs to 30,000 firms by 2008

20,000 SMEs in manufacturing sectors, 10,000 SMEs in service sectors

Strategies

-Lowering entry barriers for start up ventures by abolishing the minimum capital requirement for

incorporation

- Facilitating process and management innovations of SMEs in traditional manufacturing sectors

-Increasing government supports for university spin-off ventures

- Identifying and supporting new types of innovators in service sectors

R&D company, Design company, Specialized sales and marketing company, IT contents producers,

etc.

- Concentrating government supports on the pre-innovation stage SMEs who are willing to innovate

Increasing Equity Financing for Early Stage Ventures and SME innovation


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Korean government tries to expand public and private investments in the SMEs innovation

-Deregulation on the venture capital industry and private equity market

- Government funding for early stage venture and innovative SMEs

Korea Fund of Fund (KFOF) established in 2005 to increase the government investment in

ventures- KFOF is a 100% government owned fund of funds

- KFOF will invest in the private venture capital funds to effectively leverage government funding for

early stage ventures

- KFOF currently has a fund size of US$170 million, with a government's commitment of US$1

billion in the next 3 years.

Increasing credit guarantees for the technology based small firms

Strengthening Collaborative Innovation Networks


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Fostering SMEs demand driven collaborative R&D activities

-Introducing new type of collaboration mechanism to increase the commitments of R&D partners

Between SMEs and Universities/Public research institutes

- Government funding for the R&D joint ventures developing and commercializing advanced

technologies

-Building regional collaborative R&D centers to develop production technologies and to provide

technical services to SMEs

These regional R&D centers will be run by R&D professionals in public research institutes and the local

universities

-Hosting SMEs R&D centers to university based R&D complexes

- Customizing university education programs to the needs of SMEs

Between SMEs and Large Firms

- Increasing financial support for the joint R&D between suppliers and customers in the supply chains

- Extending tax incentives for large firms investing in joint R&D with SMEs

- Fostering large firms direct investments in the innovative SMEs

Global cooperation between domestic SMEs and global companies

Restructuring Government Support Program and Organizations


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Presidential Commission on Small and Medium Enterprises has the authority and the

responsibility to coordinate the support programs implemented by diverse agencies

Increasing the efficiency and the effectiveness of Government Program

- Transforming many functional support programs into customer based integrated support

program

- Providing money+technology+ professional manpower as a package

Consolidation of Organizations to support SME innovations

-Consolidation of venture business incubators and regional R&D centers to achieve economy of

scale in their operation


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Thank you!Thank you!

Documents

Innovative SMEsand Promotion Policies in Korea