Innovative SMEsand Promotion Policies in Korea
Transcript of 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
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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
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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
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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
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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
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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
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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
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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
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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
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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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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
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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
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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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Prof. Brian H. Lee 36
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!