Some Assessments on the Development Process of Korean SMEs

Unlike NITI and RITIs, which operate under the direction of the IAA, the SMEs Promotion Corporation (SMIPC), established in 1979, not only provides technical support services to SMEs but also provides a wide range of financial, information, management and training support services. In addition, SMIPC also acts as an intermediary to help Korean SMEs easily access foreign technology and experts.

Along with the establishment of public organizations for technology and technical support, the Korean government also facilitated both administrative and financial procedures for SMEs to establish private research and development centers. SMEs that were unable to establish their own R&D centers were encouraged to form R&D consortia with large enterprises or other small enterprises. As a result, the number of research and development institutes and associations increased rapidly, especially in the 1980s and 1990s.

* In addition to establishing many support centers, the Korean Government also offers many financial incentive programs for technology development projects of SMEs .

For example, 75% of the costs of implementing projects to develop new products or improve existing products by SMEs will be funded by the government, with the highest level of financial support being up to 150 million Won/enterprise.

Public organizations also responded to this preferential policy by allocating more than 5% of their annual budget to support SMEs' R&D activities.

Maybe you are interested!

In addition, the government also applies preferential tax policies. According to the Law on Promotion of Industrial Technology Development and some other laws, private SMEs will be entitled to a tax reduction within 3 years (maximum of 5% of total revenue) if the enterprise allocates money to establish a fund for technology development, technical information, human resource development and equipment for R&D. At the same time, enterprises will be entitled to a tax reduction of up to 15% of the total cost of training technical staff; 10% of the investment cost in equipment for R&D and accelerated depreciation of this equipment at a rate of 90%/year.

In particular, faced with the reality that due to lack of resources, SMEs not only face difficulties in developing technology but also in commercializing the research results they create, the Korean Government has introduced many measures to maintain a healthy market mechanism. The most typical of which is the

KOSDAQ Technology Exchange (similar to the stock market) was established in July 1996. This event has really helped SMEs to allocate capital and commercialize new industrial products much more effectively and flexibly.

In addition, a program to guarantee the purchase of new technology from SMEs was also implemented by the Government. Accordingly, state agencies and public organizations including the Ministry of National Defense, Korea Electric Power Corporation (Kepco), Korea Gas Corporation (Kogas), Korea Railway Corporation and many private business groups committed to purchasing products applying new technology from SMEs within a specified period. As a result, in 2005 alone, 80 technology development projects were carried out under this system.

Thus, it can be seen that the preferential technology policies that the Korean Government gives to SMEs are not small. This has really been a powerful support for the innovation and technology development process of SMEs.

1.3.5 Human resource support policy

The Korean government always considers human resources and talents as the decisive factor for national development, not the resource factor. In addition, the shortage of labor, especially skilled labor, is always a major obstacle to the operation and development of SMEs. Therefore, many policies and programs on training and using human resources have been clearly and effectively introduced and implemented by the Korean government.

The most characteristic of the human resource support policies for Korean SMEs is that the Korean government has issued a special law allowing “Exemption from Military Service for Certain Special Cases” (EEAS) . Accordingly, those with a master’s degree or higher in the field of scientific research will be exempted from military service if they work at SMEs’ research centers for at least 5 years. Some engineers and technicians will also be exempted from military service if they have worked at SMEs for 3 years or more. As a result, about 4,500 workers subject to this law have been working for SMEs nationwide every year. (13)

13 According to the Korea Small and Medium Business Administration (SMBA)

Another solution to fill the labor gap in SMEs is for the Korean government to allow and facilitate SMEs to hire workers from abroad , especially from less developed countries. Because it is a fact that long-term labor shortages often occur in business areas with 3 “D” working conditions (difficult, dirty, dangerous), “importing” labor is proving to be an effective solution to this problem. Specifically, many training programs have been introduced such as:

* Industrial Trainee Program (TTS)

To meet a part of the unskilled labor for about 2.5 million SMEs, the Korean trainee program was implemented from the late 80s and early 90s of the 20th century, receiving workers from 15 Asian countries: Nepal, Mongolia, Myanmar, Bangladesh, Vietnam, Sri Lanka, Uzbekistan, Iran, Indonesia, China, Kazakhstan, Thailand, Pakistan, Philippines, Cambodia to train in Korea. In fact, they work and thereby can learn a trade, improve their skills according to a separate regulation within a period of 3 years (1 year of training and 2 years of working). The average training allowance is from 650 - 700 USD/month; trainees and workers are allowed to work overtime to increase their income to 850 - 950 USD/month. The program will be assigned to 4 Korean associations, which are non-governmental organizations, to manage and implement, including the Korean Federation of SMEs (KFSB); Korean Construction Association (CAK); The Korean Agricultural Association; the Korean Fisheries Association. The total number of trainees, about 150 thousand foreign workers, accepted through the above four associations, is distributed on the basis of "ceiling quotas" for authorized companies of each country. The number of trainees added to enter Korea is mainly to replace the number of workers who have completed their training contracts and returned to their home countries. Twice a year, the quality of labor of each country is evaluated and ranked. Companies with many good workers will be accepted by the Korean Government to increase the number of labor quotas.

to work in Korea. This is the policy of the Korean Government to encourage and attract talented workers to work for SMEs. 14

14 Duc Vuong (2006), Research topic : Studying the economic and social policies of Korea.

* Program to attract skilled workers and foreign experts to work in Korea (PWPS)

Many researchers from different countries have the same opinion about the reason why Korea's economy has developed so quickly, not much less than Japan's, because the Korean Government knows how to make good use of truly talented people. All foreign professors who come to work in Korea, especially experts who come to support SMEs, are welcomed and highly respected by the Korean Government. This respect is not only in words, but also in real work. The Government's policy is to pay high salaries to professors; at the same time, let the professor's whole family live with the professor and provide allowances for those in the professor's family. The " Golden Card " (a special type of entry card) has been issued by the Korean Government since November 2000, allowing the relaxation of visa forms, granting multiple entry visas to experts regardless of nationality, increasing the maximum residence period (as desired) along with preferential treatment in life and living. This policy has attracted many talented people from all over the world to Korea. Many people consider Korea a country of hope and love. 15

In particular, since January 2008, not only foreign professors and experts but also skilled foreign workers can be granted permanent residence in Korea. This is one of the special preferential policies of the Korean Government for foreign workers to overcome the permanent labor shortage in SMEs and at the same time increase competitiveness in the industrial sector, thereby generating tax revenue for the State. Accordingly, in order to obtain permanent residence in Korea, foreign workers must have at least 5 years of experience, must have certificates and diplomas issued by the State. In addition, they also need to have certain assets, know how to use Korean, and have a certain understanding of Korean culture. In particular, their records and background must be clear, not related to crimes and criminal acts. Korean officials hope the new immigration policy will attract 2,500 to 4,000 foreign workers to Korea in 2009. According to statistics from the Korean Ministry of Justice,

15 Duc Vuong (2006), Research topic : Studying the economic and social policies of Korea.

Currently, there are about 500,000 foreign workers living and working in Korea, including illegal immigrants. 16

Along with policies to attract new workers, the Korean government is also interested in improving the quality and working conditions of SMEs to encourage old workers to stay and work for these enterprises for a long time. Many projects to upgrade equipment and apply new technology to minimize noise pollution, dust, dirt, humidity, and heat have been encouraged and supported by the government, specifically the SMEs Management Agency (SMBA). Many consortiums linking businesses, universities, and research institutes have also been established to assist SMEs in this regard.

Finally, as a long-term solution to thoroughly solve the problem of shortage of skilled labor, through small business management and support organizations, the Korean government has organized many training programs to improve the skills of SMEs' workers . A training center dedicated to SMEs has been established. This is a public training organization, specializing in providing low-cost professional training services for SMEs' workers. Accordingly, many diverse training programs on production technology, information technology, automation, and digitalization have been continuously implemented by the center. In addition, the Korean government also cooperates with many foreign universities and academies to create conditions for SMEs to send their engineers or key workers to study in countries with advanced science and technology.

III. SOME EVALUATIONS ON THE DEVELOPMENT PROCESS OF KOREA'S SMEs

Through the presentations on the current situation and policies for developing SMEs in Korea in the above sections, it can be seen that the process of forming and developing SMEs in Korea has achieved many encouraging results. However, besides that, this process still has certain limitations.

1. Achievements in the development of SMEs in Korea

As mentioned in the above sections, since the early 1970s, the heavy and chemical industry (HCI) development policy has been especially focused by the Korean Government.

16 According to www.lanhdao.net(April 25, 2007), Korea welcomes foreign skilled workers.

attention and focus. Fiscal and financial policies during this period were all oriented towards directly supporting these two industries. Many preferential terms on financial loans, special discount subsidies, low tax rates, and administrative support for HCI were continuously introduced. As a result, no one other than corporations and large enterprises, the main "players" in these two industrial sectors, had favorable conditions to develop. Meanwhile, SMEs, due to not being able to participate in the "playground", not only did not enjoy incentives but also inevitably faced many disadvantages if they had to compete with large enterprises in the market.

With strong support from the Government, HCI in Korea has made very long and very fast progress, resulting in the Korean economy growing significantly. However, the over-focus on heavy and chemical industries, which resulted in over-focusing on the development of large enterprises, has caused an imbalance in the economy to arise and emerge as a hot economic and political issue. The gap between HCI and agricultural and light industrial areas, that is, between urban and rural areas and especially between SMEs and large enterprises, is becoming increasingly serious. Social problems such as inequality in income distribution, the gap between rich and poor, and the "over-concentration of population" in large cities, especially in Seoul, have therefore become more serious than ever. Faced with this context, since 1976, the Korean Government has had to make adjustments to its development policies. Notably, the government has begun to pay more attention to protecting, promoting and developing the small business sector. Many policies and measures to encourage development have been introduced. Thanks to that, SMEs have begun to have favorable conditions to develop.

Like SMEs in many other countries, Korean SMEs are small, flexible and dynamic enterprises. By making good use of these inherent characteristics, Korean SMEs have developed very quickly, accounted for a high proportion and increasingly demonstrated their importance in the economy.

- The presence of SMEs has significantly increased the number of enterprises in Korea . Production and business activities in the economy are no longer concentrated in the hands of a few large economic groups but have been shared with more and more SMEs. Competition in the market has therefore increased strongly. Enterprises

Enterprises that want to survive and develop must constantly innovate, rationalize production and find optimal business methods. At the same time, the process of cooperation between SMEs as well as between SMEs and large enterprises is also promoted, helping to improve the process of specialization and division of labor in production in Korea. As a result, both the quantity and quality of goods and services on the market have increased positively. Korean consumers have more and more choices and their needs are increasingly fully met.

- In addition, with a large number, SMEs have created a significant amount of jobs for Korean people, helping to significantly reduce the unemployment rate which has always been high in society. Besides, with the ability to distribute widely, from urban to rural areas, from lowland to highland areas, SMEs also contribute to creating the necessary balance of labor and income in the whole country. The income of Korean workers in each locality in particular and the whole territory in general has been raised. The gap between rich and poor has therefore been significantly narrowed.

In particular, with the advantage of small scale and easy startup, SMEs also create great attraction for young Koreans, attracting more and more young people in this country to participate in business startup activities. The entrepreneurial spirit in Korea is thus increasingly strengthened and enhanced.

- The existence of SMEs, especially the emergence of innovative SMEs, has become a major driving force for the development of technology and engineering in Korea. With their flexibility, SMEs are pioneers in applying new inventions in science and technology. In addition, due to competitive pressure, the need for innovation and application of advanced production lines has become urgent, while limited financial capacity has prompted many Korean SMEs to create new inventions and technical initiatives of high practical value. Although not groundbreaking, they are indeed a useful premise for the process of technological innovation in Korea.

- Being a resource-poor country, the presence of SMEs has helped Korea maximize the potential of its resources. The small and medium scale has allowed SMEs to effectively utilize available local raw materials, something that Chaebols often cannot do. In addition, with the ability to distribute

Widely distributed throughout the country, SMEs also play an important role in creating balanced development among economic regions of Korea, one of the most pressing issues in this country, especially during the first half of the 1970s.

Thus, it can be seen that in Korea, although SMEs were not given much attention by the Government from the beginning, since the mid-1970s, with the introduction of many policies and measures to promote them from the Government, this type of enterprise has grown rapidly. In the economic conditions of large-scale industry with large economic groups as the leader, for nearly 4 decades, Korean SMEs have strived to grow in an environment where they must both avoid competition from the Chaebols and create their own capacity to receive help from the Government.

2. Limitations still exist in the development of SMEs in Korea

In addition to the encouraging achievements that Korean SMEs have achieved in the past nearly 4 decades, the development of this type of enterprise in Korea still has certain shortcomings. First of all, we must mention the current situation:

- Many SMEs only think about short-term benefits without considering long-term investment. Business owners are hardly interested in long-term development plans. Their main concerns are often more "seasonal" such as selling products, thereby rotating production, avoiding inventory, avoiding debt and trying to gradually improve their development... In addition, SMEs are mainly established based on forms such as joint stock, LLC, private,... so if production is not profitable, they will be dissolved after a short time. This factor also makes businesses not very interested in building a "long-term" strategic system, instead they are concerned with their survival issues such as how to sign many contracts with partners so that production is not interrupted, interrupted, maintaining development... This has become a major obstacle making it difficult for SMEs to access bank loans. Because, normally, before lending, commercial banks often require businesses to clearly and convincingly explain their long-term development plans, however, this is something that SMEs often cannot do.

- Investment in R&D of SMEs is still limited: Although, compared to SMEs in many other developing countries, Korean SMEs are assessed to have recognized

Comment