Analyst: Business Policy May Not Work

A researcher pointed out that the government’s policy on promoting innovative small and medium enterprises (SMEs) cannot be seen as rearing new breeds of SMEs and can end up as a ‘slogan policy’ because the objects of the support fund overlap with venture businesses.

Yang Hyun-bong, the head of the small and medium enterprises and venture business section of Korea Institute for Industrial Economics and Technology, made the aforementioned statement in a report titled “Quality Growth and Policy Tasks for Small and Medium Enterprises.” He handed in this report to the Korea Industrial Economic Association and will make a presentation on it at the 2006 Spring Symposium. The Symposium takes place on June 2 at the Korea Chamber of Commerce and Industry.

Mr. Yang said in the report that after the Kim Dae-jung government presented the goal to cultivate 40,000 venture businesses, businesses with only the appearance of a venture business were mass-produced. He added, “This goal to promote innovative SMEs is likely to end up echoing to slogan without achieving the goals.”

His basis for the argument is that this policy is unlikely to foster businesses of new concepts, for the innovative small and medium businesses that the government plans to subsidize are no other than the venture businesses and tech-innovative SMEs that the Kim Dae-jung government once promoted.

Moreover, he said that 70% tech-innovative SMEs overlapped with venture businesses. As of August 2005, out of 3,106 tech-innovative SMEs, 2,203 are venture businesses.

Mr. Yang says, “Therefore the goal to create 18,500 innovative SMEs is hard to achieve, too.”

In addition, he said that the Roh Moo-hyun government’s emphasis on innovation only means that the existing support for SMEs is merely shifted to target innovative ones without additional funds. He stated, “It’s only running the existing policy after bridging some gaps.”

Regarding the government’s recent policy for win-win cooperation between large firms and SMEs, Mr. Yang said, “The programs for balanced development between large firms and SMEs in the early 1990s, such as promoting the transfer of businesses from large firms to SMEs, were not properly carried out because the large firms only agreed to the programs half forced by the government.” He said it is important to give large firms the incentives to cooperate voluntarily.

Mr. Yang, during a phone interview with this paper, said, “From the wider perspective, the policy on SMEs is sailing in the right direction. But the focus should be not on achieving quantitative goals, but on giving financial aid or other institutional support to promote start-up businesses.

Hyun-Jin Park witness@donga.com