Smaller businesses and ventures are considered by many to be the future of the Korean economy, as it will make a break from large conglomerates in the next few years. BusinessKorea sat down with Han Jung-hwa, administrator of the Small and Medium Business Administration, to talk about the advantages and disadvantages of their support policies, the Peter Pan effect, and the mismatch between jobs needed and job holders. What follows are excerpts from the interview.
You have emphasized the importance of the growth of the venture ecosystem. What are the accomplishments of the Small & Medium Business Administration (SMBA) in this context?
The SMBA has implemented various measures to that end for the past two years, including those for the circulation of financial resources of May 2013 and promotion of M&As and the deregulation of March 2014. These plans have added vitality to the domestic venture industry, while meeting most of the demands from it, such as full tax deductions for angel investors.
Between 2012 and last year, the number of college student groups preparing their own businesses increased from 1,222 to 2,949, and the number of new corporations went up from 74,162 to 84,697, exceeding 80,000 for the first time since records began. In addition, the number of venture firms exceeded 30,000 in January this year, and that of venture firms with sales of more than 100 billion won (US$91 million) reached the new high of 453 in 2013.
In 2014, a total of 2.5 trillion won (US$2.28 billion) was raised in venture funds to show a 62 percent increase from a year earlier, and the new venture investment amounted to 1.6 trillion won (US$1.46 billion), the highest since the venture boom in 2000. This has led to the revitalization of KOSDAQ, which rose from around 496 to 650 points between 2012 and April this year.
Some people are pointing out that the SMBA’s assistance of small and medium enterprises is blocking the restructuring of those that are less competitive. What do you say?
It is true that the government’s support might have some unintended side effects such as the delay in corporate restructuring. However, it is striving to prevent them by means of tighter screening procedures and management of the history of the application for the assistance.
I believe what matters most in government policy for SMEs is balance, that is, providing an opportunity for fair competition for them so that they can show everything they are capable of during their competition with larger companies. Equal opportunity for creative and promising SMEs and young entrepreneurs is the top priority for us.
It is said that many SMEs are unwilling to be classified as enterprises of middle standing, and lots of enterprises of middle standing are unwilling to be regarded as major companies these days. What is your comment?
Fifty-seven support measures are gone and 16 new regulations appear when an SME turns into one of middle standing. This might be one of the biggest reasons for the Peter Pan syndrome.
The government, well aware of that, has carried out various programs since 2013 so that small firms can find it attractive to increase their size and expand their businesses to overseas markets. A special law for those of middle standing is on the anvil, too.
We have three plans in mind regarding the acceleration of the quantitative growth of SMEs. Firstly, we are going to classify the companies based solely on sales from this year, which will deter them from keeping their position by adjusting the capital or the number of employees. Another one is a gradual reduction of the benefits to ensure that the assistance they need can be maintained even after reclassification. The other one is the expansion of the World Class 300 Project for the sustainable growth of enterprises of middle standing, in which comprehensive help will be made available for technological development and overseas market penetration.
Many small firms say that it is difficult for them to hire the people they need. What is your solution?
In February this year, the number of unemployed reached 1.203 million, with 484,000 of them aged between 15 and 29. In the same month, 177,000 jobs were vacant in those firms, implying a severe mismatch.
Education failing to reflect the field has made it increasingly difficult for small firms to hire the people they need, and job seekers are shunning the firms due to relatively poor working conditions. SMEs pay an average of 59.5 percent of the salary in comparison to larger companies, and the former’s employee benefits stand at 52.4 percent of those given by the latter.
Under the circumstances, we are trying to encourage job seekers to land at SMEs by providing customized training, while providing income tax and social insurance benefits for the companies, so that those working for them can enjoy higher real income and better working conditions.
Another matter of great importance is those starting their business in their third age. What support measures does the SMBA have for them?
Thirty-seven percent of online shopping malls in Korea are owned by those aged at least 40, and the number of startups led by those in the same age group is equivalent to 27.3 percent of the number of the employed in their 40s and older. Fifty-four percent of the startups are self-employed businesses, meaning that we need a policy for turning them into firms handling high technology.
According to the Korea Institute of Startup & Entrepreneurship Development, approximately 1.4 million startups were set up by people in this age group, and 54.2 percent of them were selfemployed ones, while just 8.8 percent and 16.7 percent of them were manufacturing and knowledge service firms, respectively. Between 2002 and 2011, 75.4 percent of self-employed companies went out of business or closed temporarily.
In order to tackle this situation, the SMBA has carried out tech-oriented startup support programs for senior citizens since 2010. Also, we modified the criteria for beneficiary selection last year, so as to reduce the ratio of owner-operators and raise that of startups capable of creating more added value in the manufacturing and knowledge service sectors.
Trade conditions are changing fast, with the expansion of free trade to compel small firms to go abroad. What are some examples of the SMBA’s policy to help them?
Global business is not an option for SMEs in Korea, which has a narrow domestic market and is highly dependent on international trade, as is well known.
We have come up with tailored support measures for the globalization of SMEs along with chances for their participation in overseas exhibitions, online shopping malls, and business meetings. We have set up export incubators across the world so that they can settle in by making the office space and consulting services provided there. Nowadays, we are working on similar measures for those preparing to do business in China, with which Korea signed an FTA half a year ago.