Globalization of small and midsize companies

The key to economic vitalization is globalization of small and mid-sized companies. One of the main causes for Japan’s “lost two decades” was that Japan focused on domestic market and failed in globalization after the low growth trend began in 1995. Korean economy should learn from Japan’s mistake. Korean small and medium-sized companies already show “Galapagos syndrome” of isolated development. On May 13, the president called the 2015 National Finance Strategy Meeting, where government research and development reform was included in the ten economic reform tasks.

Korea’s government R&D has been consistently growing in the past ten years, and investments of 54.2 billion dollars were made in 2013, the sixth in the world in size. It is 4.15 percent of the GDP, which is the largest in the world. However, the outcomes from expanded investment have been unsatisfactory. The policy paradigm change is quite appropriate at this juncture, as the government is to shift the focus of R&D assistance to small and mid-sized companies through reform plans.

There are three key elements necessary for successful implementation of improved government R&D assistance program.

First of all, systematic foundations to guarantee stable expansion of R&D investments on small and medium-sized businesses need to be established. While Korea’s R&D investment relative to GDP is largest in the world, investment on small and medium-sized businesses with less than 250 employees is 18th among 28 OECD member countries. While the overall R&D investment size has been growing, investments on small and medium-sized companies actually decreased by 3.6 percent in 2013. Therefore, exclusive assistance system for small and medium-sized companies needs to be set up.

Secondly, a system that manages commercialization of technologies developed through R&D investment must be established. The success rate of technology development promoted by government R&D projects is over 90 percent. However, about half of the developed technologies become successfully commercialized. When government’s R&D investments lead to successful businesses, a productive cycle of investments to technologies to commercial success to increased revenues and more jobs can be created, which leads to further investments.

Thirdly, strategic R&D assistance to promote global expansion of small and mid-sized companies needs to be enhanced. Small and medium sized companies’ share in export and foreign investment is considerably smaller than employment and production, and it is lower than developed countries. Export-oriented small and medium-sized companies make seven times more investment in R&D than other companies on average, and the portion of R&D costs for revenue is twice more. They also have four times more research and development workforce. Strategic R&D support for global expansion of small and medium-sized companies is especially important.

Through substantial improvement and reform, we hope the government R&D assistance plans to create new growth engines for the next five decades and bear fruits for 3 million small and medium-sized companies and all citizens.

Kim Ki-chan, Professor of business administration at Catholic University of Korea