Cooperation in SMEs Between Korea and Latvia

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Forum on the 20 th Anniversary of Diplomatic Ties Between Korea and Latvia. Forum on the 20 th Anniversary of Diplomatic Ties Between Korea and Latvia. Cooperation in SMEs Between Korea and Latvia. Dr. Oh Dong Yoon. Korea Small Business Institute. Contents. Introduction. Cooperation. - PowerPoint PPT Presentation

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Cooperation in SMEsBetween Korea and Latvia

Forum on the 20th Anniversary of Diplomatic Ties Between Korea and LatviaForum on the 20th Anniversary of Diplomatic Ties Between Korea and Latvia

Dr. Oh Dong YoonKorea Small Business Institute

Introduction

Cooperation1Contents

Strategy2

Development History ProfileIntroduction23Development: 1st Stage Business consolidation for export promotion Inactivate SMEs

SME manufactured daily items key role in light industries

Economies of scale pursued for export growth larger businesses SME less active

1st Stage (1960s~Mid 1970s)

History of Korean SMEs3Development: 2nd Stage

2nd Stage (Late 1970s~1980s) Policies for the development of heavy / chemical industry and quantitative growth of SME

SME produced parts and materials consumed in the heavy and chemical industry, replacing imported parts and materials (localization)

Korean government active promotion policies to nurture SMEs active start-up and facility investment by SMEs rapid growth of SME

History of Korean SMEs4Development: 3rd Stage

3rd Stage (Late 1970s~1980s) SME restructuring and Improved responsiveness to market opening

SMEs dealt with adjustments to rapidly changing industry environment

Policy shift: protect and support SMEs induce competition and cooperation support self-reliant and innovate SMEs

History of Korean SMEs5Power of SMEs

Profile of Korean SMEs

% of number of SMEs(to the total number of enterprises): 99.9%

% of number of employees in SMEs(to the total number of employees in the whole enterprise): 87.4%

% of those were 99.3% and 75.1%, respectively in 1994Power of 99 and 87(2009)

Small and Medium Enterprise(%) Small enterpriseMedium enterpriseTotalMicro enterpriseNumber of enterprise87.6 (91.8)96.6 (98.7)3.3 (1.1)99.9 (99.8)Number of employed40.5 (29.7)61.2 (50.4)27.2 (17.0)88.4 (67.4)Source: 1) Korea; 2009 Profile of SMEs, K-biz (2011). 2) ( ) is in 2008 figures for EU SMEs, Financial sector is excluded. Annual Report on EU SMEs, Eurostat (2009). 6Role of creating jobs and keeping vitality of the economy

Subcontracting Activities

Profile of Korean SMEs

More than 50% of SMEs are engaged in subcontracting relationship while only 30% of European SMEs are

Most subcontractors are 1st tier subcontractors (68.3%), while % of 2nd tier and 3rd tier subcontractors are 24.7% and 7.0% SMEs are heavily engaged in subcontracting activities

Source: 1) Korea; 2009 Profile of SMEs, K-biz (2011). 2) EU 27: EU SMEs and Subcontracting, EIM (2009). Engaged in any subcontractingNot engaged in any subcontractingContractor onlySubcontractor onlyBothTotalKorea8.9%29.6%13.6%52.1%47.9%EU-2714%16%n/a30%70%There is a widening gap between L-E and SME

7Collaboration Scheme

Profile of Korean SMEsManufacturing sector(%)2000200320062009Debt ratioL-E2251138596SME193166145148Net profit to net worth ratioL-E31475451SME34384140SME wage to L-E wage ratio(average)SME56525350

Export oriented, emphasizing the role of Large enterprise

Performance of the model has been quite successful The widening gap results from traditional growth model

Source: 2009 Profile of SMEs, K-biz (2011). 8

Pressure on margins exerted by contractors are common phenomena SMEs are always standing on the weak side of the value chain

New Development Model

Profile of Korean SMEs

Korea began to aware of the importance of collaboration

As a New Development Model for sustainable growthChange of paradigm of competition

Shift of paradigm from competition between companies to competition between company network Cooperation of suppliers are needed to secure competitiveness of Korean enterprisesBoost vitality of business ecosystem to create sustainable growth engine of the economy Vitality of SMEs is the key to the creation of new jobs Foundation for a society where fair competition, equal opportunity, and sharing of fruit according to their contribution can be realized

Distribution improvement and social cohesion

Growth engine as a booster of vitality of economy

9Role of SMEs

Profile of Korean SMEs

Make an effort reform their entrepreneurship

Provide a better quality working condition

Strengthen the business network among SMEs

From old habit of relying on government support to voluntary/ ongoing innovation to reform their entrepreneurial spirit Transparency in accounting and business practice, compliance, etc.,Innovation for technology and productivity upgrading, etc., Invest in a higher value-added industry (green, higher value-added parts and components)Improve work environment, invest to develop a fine training/education program for employees Need to provide an environment to attract young peopleInformation sharing (technology, market, etc.,), production sharing

10Role of Government

Profile of Korean SMEs

The goal of government

Protection of SMEstechnology

To induce voluntary involvement of entities in the collaboration scheme, but not in supporting the scheme directlyTo provide legal/administrative support to induce the scheme to be in effect

Prohibit on-site visit/request of cost & technology information without written notification Impose heavy compensation load or responsibility for damage caused by illegal dispossession/appropriation of technology

Others

Extended application of subcontracting law to the lower tier subcontractorsIntensify surveillance on unfair business practice of large distributors

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Globalization Advantage & DisadvantageCooperation1213 ..

Limitation of CollaborationHowever, Korea has been striving to encourage collaboration scheme between large enterprise and SMEs . And, Korean government was very cautious of selecting implementation method

Again, the core spirit of this scheme is voluntary involvement of entities of the scheme, and the role of government should be restricted as a mere supporter

It seems like that the scheme has been quite successful so farHowever, there could be some side effects in the future

The best way

To break off subcontract relationship with L-E

SMEs cannot survive in domestic market

Reason for Globalization13

Obstacles to Globalization of SMEsSource: Survey: Globalization, K-biz (2010). Globalization to Survive

Obstacles to Globalization14Cooperation bet. Korea & Latvia SMEs in Korea

Advantage

To use various SME policy instruments

To advance to other countries, especially ASEAN by FTA

Disadvantage

Korea SMEs are not willing to cooperate with foreign companiesbecause of lack of experience

Too high proportion of heavy and chemical industry

To advance to US, China and Japan by FTA in the near future KoreaEU(%)LightHeavyLightHeavyEnterprise34.665.449.650.4Value-added27.472.638.761.3Source: KSBA. European Commission, SME Performance Review.

Advantage Vs. Disadvantage15

Public Procurement Purchasing Assurance Who Will You Call?Strategy1617 1 Size : about 103 billion in US dollars (c.a 11.5% of GDP)

Amount of SME products purchased record by government institutions : about 62 billion in US dollars(c.a 60% of total public procurement)

Source: KSBASince 1981 this program has been ongoing to support the stablemanagement for SMEs market expansionPublic Procurement Market

Purchasing SME products by public procurement

Korea Public Procurement Market(2009)

Public Procurement 17Under US $0.18million contracts competes only between SMEs (Large enterprises are excluded)Restricting joint bidding between large enterprises Public Procurement Market

Providing an advantageous position to SMEsThe product which is eligible to improve its quality & technological development sets for the excellent joint brand cooperated with more than 5 SMEsHelp to find public market through giving advantages not through bidding but with special appointment when public purchasing

Introducing excellent joint brand products system

Public Procurement 18Defense Ministry, KEPCO (Korea Electric Power Corporation), KOGAS (Korea Gas Corporation), and Korea Railroad Corporation etc. To develop a new technology with the assurance that they will purchase the technological products. Under this program, the SMBA finances the technological development of SMEs, while public institutions purchase the products for a certain period of time. As of 2007, about 55 institutions are participated as purchasing corporations, and the SMBA has supported ca. 170 technology development projects (budget ca. US $ 30 million) and plans to expand the participation of government agencies, public institutions and private businesses in this program. 75% of entire R&D expenditure (max. US $ 100,000, 2 years) is grantedNew Technology Purchasing Assurance

Purchasing Assurance19Who Will You Call?

Korea Federation of Small and Medium Businesswww.kbiz.or.kr

The Korea Chamber of Commerce and Industrywww.korcha.net

Korea Trade-Investment Promotion Agencywww.korcha.net

Small & Medium Business Cooperationwww.sbc.or.kr

Contact 20MOU

When you contact to those organizationsyou will find some difficulties

Memorandum of Understanding between organizations

Exchange Program conducted by organizations

Cooperation between SMESExhibition, Seminar, Forum etc.

Contact 21

Thank YouChart10.60.4