Globalization of SMEs is crucial

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Globalization of SMEs is crucial

Revitalization of a Korean economy facing slower growth depends on whether or not small and midsize enterprises (SMEs) will be globalized. When Japan focused only on its booming domestic economy, it entered an age of austerity in 1995 after failing in overseas expansion and endured the so-called two lost decades. We should learn from that failure. Korean SMEs have already showed the Galapagos syndrome, which refers to economic isolation like that of Japan’s electronics sector. The Korean government announced an R&D reform plan ? one of 10 such plans in various fields ? in a 2015 national finance strategy meeting held May 13. Participating were President Park Geun-hye, cabinet members and experts in the field. The plan involves restructuring the existing R&D support system to an SME-centered scheme, building up a demand-oriented R&D ecosystem and strengthening the government’s role as a control tower.

As of 2013, Korea’s R&D investment had grown over the preceding 10 years to sixth in the world in investment scale ($54.2 billion) and first in investment as a share of GDP (4.15 percent). However, experts from academia, industry, science and technology say expansion of investment alone has yielded neither a fair nor satisfactory outcome. In such circumstances, the government’s decision to implement a new R&D reform plan, especially changing the system to support the R&D of SMEs, is both welcome and necessary.

This shift in policy also comes at the right time.

I would like to mention three aspects that should be considered if the government’s R&D reform plan is to succeed.

First of all, an institutional basis should be set up to secure the stable expansion of R&D investment to SMEs. Korea’s R&D investment in SMEs with fewer than 250 employees stands at only 18th in the world. Even though the overall R&D investment scale has grown, investment in SMEs declined 3.6 percent last year compared to 2013. This is why an institutional basis is vital for R&D support to SMEs .

Second, a managerial system should be established for turning technologies developed through R&D investment into money-making businesses. The success rate of R&D development backed by the government’s R&D support scheme stays above 90 percent, but the commercialization rate is half that, although the rate differs by department. When new technologies are successfully commercialized, a virtuous cycle could result. R&D investment leading to technology development, commercialization, increased earnings and job creation finally goes to the expansion of R&D and the healthy repetition is established. In terms of securing financial efficiency, revising various managerial systems supporting commercialization of new technologies is crucial.

Third, strategic R&D support that can stimulate the expansion of SMEs overseas should be strengthened. The Korean economy became a great success because of export-oriented growth led by large companies and this resulted in many global conglomerates. Based on past experience, we should now support SMEs’ overseas expansion. Korean SMEs receive a small share of exports and overseas investment compared to their contributions in manufacturing and job creation.

Also, they rank low in exports and overseas investment compared to major advanced countries. Export-oriented SMEs have seven times the average investment, twice the R&D fees and quadruple the R&D labor force of other SMEs. We should strategically support SMEs to help their overseas expansion.

I hope the government’s R&D reform plan will create a new driving force for the next five decades through a pragmatic approach, benefiting the nation’s three million SMEs and the Korean people.

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