Trade Promotion Teams Not Paying Off

According to a Korea Trade Promotion Corporation (KOTRA) official at a trade exhibition in Moscow, “Every export consultation doesn’t necessarily lead to a contract. But, it’s true that the competitive dispatching of trade promotion teams from each local government has reduced their effectiveness overall.”

Some point out that the trade promotion team program run by each local government to help local small and middle-sized enterprises (SMEs)’ exports is not as working as intended. While support for the teams from local governments has increased over the last three years, the export performance of smaller local enterprises has decreased for two years in a row.

Shrinking performance-

According to KOTRA, local governments dispatched 265 trade promotion teams last year, the most since the program was introduced in 1964.

The number of the teams dispatched surged from 129 in 2002 to 198 in 2003, and to 230 in 2004. Their expenses have also increased from 4.9 billion won in 2003 to 7.4 billion won last year.

However, according to Korea International Trade Association, the amount of total export of SMEs with less than $1 million (about one billion won) of annual export performance has decreased for two consecutive years from $4.785 billion in 2003 to $4.426 billion last year. The number of SMEs that generated profits in export fell by 15 percent for the same period.

Considering that target beneficiaries of the trade promotion program are SMEs, the current support in export does not seem to produce satisfactory results.

Trade promotion teams were operated by provincial governments until 2002.

However, after the current administration took office, smaller local governments such as each city, county and district offices started dispatching the exploitation teams under the banner of balanced regional development. The government also provided part of expenses by setting up special account.

However, that didn’t work out well. Export items don’t vary among local governments and their competitive edge is not as sharp. Some local governments are even struggling to fill the number of companies that would join and go abroad with the teams.

An official of the KOTRA said “Average 10 companies are suitable for consisting of a market exploitation team at a time, but some local governments failed to fill the adequate number. So, their exploitation teams bring four or five companies. Sometimes, the local governments insist on sending out companies even when local trade officials did market research and told them their products are not competitive abroad.”

Experts raise questions whether the program is worth the tax used when the teams are told to have deteriorated into excursion parties.

Jang Jae-cheol, a senior researcher at the Samsung Economic Research Institute, pointed out “There is a limit in an export assisting system in which local governments take the initiative, and local companies follow them. The trade promotion teams run by each local government need to be adjusted for the sake of economy of scale.”

Chang-Won Kim changkim@donga.com