The Park Geun-hye administration announced its so-called May 15 Plan for the realization of the creative economy through the promotion of venture firms and startups a year ago. During the past year, a lot of policy measures have been set up for the revitalization of investments in ventures and startups. Due to such efforts from the government, the industry has seen a rapid increase in the number of newlyestablished corporations, including startups.
BusinessKorea had an exclusive interview with Han Jung-hwa, Administrator of the SMBA, who has been trying to implement the Creative Economy by developing and nurturing ventures and startups. Here are excerpts from the interview with him.
It has been a year since you took office as the administrator of the Small and Medium Business Administration (SMBA). Why don’t you give your thoughts on your first anniversary?
I have been feeling a great responsibility and spending a busy year with the SMBA’s presence increasing as the middle-standing enterprise policy was transferred to my organization, and I myself was designated as a new participant in the Cabinet meetings.
All the way since inauguration day, I have been committed to the incumbent government’s pursuit of a creative economy. The SMBA has come up with various policy plans to assist in the establishment of venture and start-up companies and the growth of middle enterprises and small businesses while striving to provide them with a second chance. Also, we have focused our policy capabilities on a perfect balance between the creative economy and economic democratization.
In addition, our staff members have met with small entrepreneurs at least three times each week so that their voices can be directly reflected in our policy. We have held a total of 113 discussion sessions and on-site visits since the day we began.
As a result of such efforts, the venture investment increased from 1.2333 trillion won [US$1.2016 billion] to 1.3845 trillion won [US$1.3499 billion] between 2012 and 2013, and the number of newly-founded corporations and exports from small and mid-size enterprises (SMEs) and companies of middle standing jumped from 74,162 to 75,574 and from US$175.7 billion to US$184.6 billion during the same period, respectively.
You have mentioned the balancer theory for the promotion of the growth of SMEs. Please define it for us.
Korea has achieved excellent results during its industrialization process, but social conflicts have been intensified during the course due to efficiency-driven market competition.
Inequality has been increasing between major corporations, SMEs, and small businesses, and those that lost out in the competition with big businesses have fallen into the poor class. This has resulted in an increase in social costs and a decline in productive investment.
My creative balancer theory started from this point, so that creativity and balance can be sought after at the same time in overall SME policy. The purpose of the theory is to allow every individual economic entity to show their creative capabilities to the maximum for job creation and the rebuilding of the middle class, while addressing social asymmetry by means of economic democratization. It is important to note that this does not mean leveling down, but a balance oriented toward market expansion based on enhanced creative capabilities.
The SMBA has launched various projects to support start-ups and venture firms. Please summarize the outcome of the policy.
The administration has moved ahead with the Venture and Start-up Financing Ecosystem Support Plan since May 2013 and the Comprehensive Re-challenge Measures for SMEs since October 2013 to that end.
The Venture and Start-up Financing Ecosystem Support Plan is characterized by shifting the focus of investment in venture and start-up companies from loans to investment, so the beneficiaries can feel a lighter burden of failure. Tax incentives are provided for angel investors and policy funds have been set up for start-up investment. Additionally, M&A regulations have been repealed to facilitate intermediate investment recovery, and tax benefits are given to M&A deals for technology acquisition.
The Comprehensive Re-challenge Measures for SMEs are a set of programs for potential entrepreneurs to not hesitate in starting their own businesses out of concerns over failure. The specific measures include the exemption of joint surety for founders, tailored follow-ups for more vulnerable SMEs, and corporate business management systems for crisis handling.
The measures have created positive changes in the venture and start-up ecosystems. For example, the number of newly-founded corporations reached 75,574 in 2013, which is the highest since the first compilation of statistics in 2000. That of college start-up clubs jumped from 1,222 to 1,833 between 2012 and 2013, as well. Venture investment set a new high since 2001, and the number of registered angel investors soared 86.6 percent year-on-year to 4,870.
This year, we will work with angel investors qualified in terms of investment performance and career so they can act as not only an investor but also a guide for the others that have financing difficulties. R&D support will be provided for firms invested in by such angel investors as well. 150 exemplary corporate start-up models are going to be selected for up to one billion won in subsidies for three years, while at least 10,000 young future CEOs will be nurtured by 2017.
What plans does the SMBA have for the promotion of Korean-style hidden champions and local SME’s overseas market penetration?
Globalization is not an option to cope with the rapidly-changing trade environments as of late. Still, SMEs in Korea have a long way to go in this aspect. 78.3 percent of them, or 310,000 out of 397,000, were doing business mainly in Korea as of 2013, and the ratio of exports by SMEs to the national total was limited to 17.3 percent. 83.5 percent of exporting SMEs recorded annual exports of less than US$1 million in that year, too.
Under the circumstances, we will provide more market-specific measures to accelerate overseas market penetration by small firms. The Export Business Service System, which is introduced this year, is one such example in which design, consulting, and interpretation assistance is provided in a package. Also, exporting incubators are going to be run in Bangkok, Hanoi, and many more Southeast Asian markets as well as various provinces in China. Wider cooperation is planned with the Middle East and other emerging markets.
The inter-ministerial Korean Hidden Champion Promotion Strategy, which includes specific businesses and policy plans for each corporate growth stage, will be made available in July this year. It covers the establishment of standards for Korean-style gazelle companies and the building of a phased-growth ladder for the conversion of hidden champions into Pre-World Class and World Class 300 companies.
A hidden champion can be defined as a small firm not widely known to the public yet dominating the global market with great competitiveness.
According to Simon-Kucher & Partners Chairman Hermann Simon who mentioned the concept first in 1999, hidden champions refer to those enjoying the highest to third-highest share in the global market, or recording the highest market share in a continent, while posting yearly sales of five billion euros or less with relatively little public awareness. Mr. Hermann Simon added the presence of source technologies, specialization in niche markets, globalization, and rapid growth to the main characteristics of hidden champions.
At present, a total of 2,734 hidden champions are present worldwide, and 1,307, or 47.81 percent, of them are German. Korea ranks 13th on the list with 23 such firms. The government will set up the criteria suiting the business conditions of Korea in the framework of the Korean Hidden Champion Promotion Strategy.