Chapter 27. Korea

Figure 27.1. Structure and performance of the SME sector in Korea
Figure 27.1. Structure and performance of the SME sector in Korea

Sources: Charts A, C, D: OECD Structural and Demographic Business Statistics Database 2018, http://dx.doi.org/10.1787/sdbs-data-en; Chart B: For enterprise births, OECD Structural and Demographic Statistics Database 2018; for bankruptcies, OECD Timely Indicators of Entrepreneurship Database 2018, http://dx.doi.org/10.1787/sdbs-data-en; Chart E: OECD Structural and Demographic Business Statistics Database 2018, All enterprises Business Demography dataset.

 StatLink http://dx.doi.org/10.1787/888933925312

SME business conditions and access to strategic resources

Institutional and regulatory framework

Korea has a very supportive administrative and regulatory framework, especially in terms of resolving insolvency, but the regulatory system is constraining as it prohibits what is not legally allowed. The 2017 Liberalisation Plan, by targeting specific geographic areas and industries (e.g. ICT), has been a first step towards a system allowing everything except what is prohibited. Regulatory sandboxes were implemented in 2017 with temporary licenses in sectors using new technologies. Regulatory Free Zones were enacted in 2018 for new products and technologies. The government also encourages regulatory innovation in micro and small businesses by incentivising them to review ways of exempting or deferring regulations.

Market conditions

Korea’s growth model has been led by exports from large corporate groups (chaebols) and driven by key industries (e.g. semiconductors). Korea’s integration into GVCs is above the OECD median but SME contribution, including through indirect exports, appears limited. Korea is expanding assistance to SME exporters, such as through the on/off-line SME Export Support Centres that facilitate contacts between SMEs and overseas buyers. Since 2016, the Tech Incubator Program for Startup (TIPS) attracts initial investment from private accelerators to support mentoring, funding, and networking of start-ups, e.g. for establishing overseas subsidiaries or attracting foreign investment. Since 2017, the K-Gobal Accelerator programme supports SME overseas expansion in adapting products to global demand, setting a business model and liaising with foreign investors.

Infrastructure

Korea is one of the largest OECD investors in inland transport, ICT and R&D (relative to GDP). The country has built secure and affordable broadband networks. The 4th Science and Technology Basic Plan (2018-22) delineates heavy investments in the next industrial technologies, such as artificial intelligence (AI) or high-performance computing. I-Korea 4.0 (2018) aims to create intelligent networks with state-of-the-art digital technologies. The Mid- to Long-Term Master Plan in Preparation for the Intelligent Information Society (2016) develops data infrastructure, from 5G to brain science to maths for AI.

Access to finance

The stock of SME outstanding loans expanded in Korea in 2017 in a context of low interest rates. Venture capital investments also doubled since 2007 and, as a share of GDP, compare high to OECD levels. The government has focused efforts on targeting financial support towards SMEs and aims to allocate 60% of total public support to early-stage enterprises. The Innovation Venture Capital Fund earmarks KRW 10 trillion, of which KRW 6.3 trillion from private funds, to finance start-ups, ventures and SMEs over three years starting in 2018.

Access to skills

Korea’s adult population is highly educated but national data point to labour shortages with 10-15% of SMEs reporting difficulties in hiring over 2016-18. Korea is shifting from an export-led to an income-led growth model and is putting emphasis on increasing labour force participation of women, youth and the elderly. The government plans to enhance early childcare programmes and increase the take-up of parental leave. The 2017-21 Fiscal Management Plan increases subsidies for SMEs that hire young workers (under 34) and provides personal income tax deductions for youths employed by SMEs. In addition SMEs are encouraged to adopt profit-sharing plans with their employees and SME employees are provided with incentives for investing in employer funds. As part of its continued impulse to entrepreneurship, the Ministry of SMEs and Startups (MSS) carries out various educational programmes for developing entrepreneurial contents and curriculum, including the education business since 2015 and the professional development of 3 700 educators by end 2018.

Access to innovation assets

Korean SMEs are among the most active in R&D in the OECD but the less engaged in digital transformation and networks. The government aims to make SMEs a driver of the fourth industrial revolution. The MSS was created in 2017. It gathers all support programmes for SME innovation and entrepreneurship. It also supports the creation of corporate research centres based on industry-science cooperation and mainly targeted to SMEs, with a view to giving them access to cutting-edge technologies. The Korean government has been making efforts to help 30 000 SMEs establish smart factories by 2022 in collaboration with private sector.

The full country profile is available at https://doi.org/10.1787/34907e9c-en

References

OECD (2018), OECD Economic Surveys: Korea 2018, OECD Publishing, Paris, https://dx.doi.org/10.1787/eco_surveys-kor-2018-en.

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