Korea will be able to unlock
its full economic potential only when its SMEs are
restructured and fully supported by the government
Having witnessed more than
three decades of unprecedented
economic development,
aptly known as the ‘Miracle
on the Han River’, it can be a little perplexing
to see Korea facing slow economic
growth in recent years. GDP
growth rates in the 1980s soared at over
10 percent, but such rates have slowed
down with the stagnant growth rate of
national income. Export, once the crown
jewel of Korean economic growth, has
been lackluster for more than 20 consecutive
months.
Neither the lack of corporate leadership
nor the capability of technocrats should
be to blame, as corporations like Samsung
and Hyundai Motor Company (HMC)
have grown to become globally recognized
companies. Many banks in Korea
have also transformed into global players.
All the people working there are fully
equipped to compete against global competitors.
Indeed, Korea’s top five conglomerates
have shown spectacular performances
throughout the last two
decades. Their sales, as well as assets,
have doubled since 2001. Some of their
products have taken top share in the global
markets. Despite such strong competent
players, however, Korea has more
room for growth.
One of the fundamental reasons for the
slow growth in Korea can be attributed to
the country’s small and medium sized
enterprises (SMEs). Although SME
employees account for more than 77 percent
of the labor force in Korea, the global
competitiveness of domestic SMEs has
slowed down over the last two decades.
insufficient capital, outdated equipment, lack of talented human resources and technological training have made it
difficult for global markets to
perform on the level of Samsung or
HMC. Because a majority of the labor
market work at SMEs, slow SME growth
translates into not enough income for
expenditure, which further implies no
domestic demand and sustained economic
growth.
Therefore, new economic growth can’t
be achieved without the revival of SMEs.
So how do we spark this growth?
First, the prime focus of government
policy should be less on big conglomerates
and more on SMEs. Most of government
budgets should be allotted to SMEs
instead of funneling to big players.
Second, production equipment and systems
of SMEs should be replaced with
cutting-edge technologies. People working
for SMEs should also be constantly
and regularly trained so that they can
keep up with changes in the technological
field.
Third, fundamental restructuring of
SMEs should take place in size and
scope. Most SMEs in Korea are too small
and inadequately capitalized. Most of
them are self-employed and face a number
of obstacles. For these “micro” SMEs, technological development or
extending its size globally is an unthinkable
luxury. It thus seems imperative to
transform these micro SMEs into competitive
SMEs through restructuring. By
restructuring these businesses, Korea’s
economic growth will be closer to reaching
its full potential.
Finally, in order for these objectives to
be achieved, various ministries should
work together on spearheading policy initiatives.
Thus, the Ministry of Strategy
and Finance should work more closely
with the Ministry of Trade, Industry and
Energy and the Ministry of
Science, ICT and Future Planning. By restructuring policies centered
on SMEs, Korea's economic growth
will soon be able to see more positive
growth.