Authored by Prof Yong Suhk Pak, Dr. SungHo Lee and Dr. Kyoung-jin Park, Reviewed and revised by WTI Advisors. This report was commissioned and financed by the European Commission. The views expressed herein are those of the contractor and do not represent the official view of the European Commission.
SMEs hold a pivotal role in the South Korean national economy and are of prime focus and support by the South Korean government. Despite increased government support, SMEs continue to face multiple challenges including (i) low labour productivity, (ii) low export of goods and services and (iii) low utilization of online sale platforms.
The Paper introduces the country’s main SME policies and the supporting regulatory and institutional frameworks and provides an overview of key government programs and measures supporting SMEs and startWups. Taking note of the key challenges facing South Korean SMEs and inspired by ideas generated during discussions with stakeholders, the Paper explores ideas and presents suggestions for possible cooperation between the EU and the Republic of Korea to promote and support South Korean SMEs as part of the ongoing EUWKorea SMEs Policy Dialogue and beyond.
The findings in this paper are based on publicly available information and resources and, expert opinion and advice generated from a series of consultations with stakeholders complemented by legal and policy analyses.
The first chapter offers a brief overview of Republic of Korea’s key SME policies and the supporting
regulatory and institutional frameworks. The chapter offers an insight into the current policies and their (inadvertent) limitations to foster the growth of South Korean SMEs. It further analyses the network of institutions tasked with regulating South Korean SMEs coupled with exploring the existing policies to foster the exports and overseas activities of SMEs such as policies designed to promote SME exports, enhance the digitalization of SMEs, provide financial assistance to SMEs in addition to policies to promote R&D generally and in light of the recent trade tensions with Japan more specifically. This chapter explores the currently applied (positiveWtype) regulatory system in Republic of Korea. It is seen that such a system acts as a prohibiting element to business activities and business creation. Reversing the system to a negativeWtype regulatory system that allows for all business activities except those which are specifically prohibited would liberate untapped potentials and enable South Korean SMEs to grow their businesses locally and internationally.
The Paper observes that despite various government support schemes, South Korean SMEs lack participation in R&D projects and in global innovative collaborations. South Korean SMEs have also lagged behind in digitization, partially due to the lack of specialized human resources and partly due to leakage of internal technology to larger firms.
The second chapter introduces Republic of Korea’s future policy directions and provides an overview of policy objectives announced by the Moon JaeWin administration. One such policy by the South Korean government is the regulatory sandbox program which aims to enable speedier launches of new services and goods and ensures reasonable levels of regulations.
While the South Korean government seeks to enhance internationalization of South Korean SMEs, the current administration appears more focused on expanding to the ASEAN markets seeking little economic cooperation with other regions including Europe.
The paper further explores the actions undertaken by the South Korean government to promote R&D in South Korean SMEs including in light of Japan’s export restrictions directed at Republic of Korea.
While the Ministry of Science and ICT has actively participated in international R&D collaboration in
the public sector, MOTIE and MSS have not contributed much to R&D promotion schemes. The Paper explores policy options for the MOTIE and MSS to advance internationalization of R&D in South Korean 9 SMEs.
Also elaborated upon in this paper is the scope for vocational education and training (VET) to contribute to enhancing the productivity of South Korean SMEs. It has been highlighted that despite the budgetary expansions by the South Korean government, vocational education and training are not sufficiently delivered to the most needed SMEs.
The third chapter highlights the Republic of Korea’s major ongoing biWlateral and multiWlateral SME dialogues and cooperation initiatives on SME policies and provides an overview of the country’s engagement in various processes and initiatives to advance SMEs and startWups with its bilateral and regional partners.
The fourth chapter provides recommendations to leverage the bilateral relationship between the Republic of Korea and the EU especially in the context of the EUWKorea SME Policy Dialogue to advance the discussion on and promote SMEs and Startups. Building on ongoing bilateral and multilateral dialogues and initiatives to support SMEs and startups, the EU and Republic of Korea could focus on sectorWspecific or topic specific issues or explore cross cutting collaboration initiatives to promote SMEs and Startups. The ideas below serve to offer the EU and the Republic of Korea some suggestions and ideas for their bilateral collaboration on SME development and promotion:
• Share best practices and foster regulatory cooperation and convergence in areas of interest to
SMEs including services and eWcommerce;
• Enhance R&D collaboration between European SMEs including in Germany, the Netherlands,
and other relevant European countries. South Korean SMEs could, in turn, provide an
opportunity for import diversification;
• Develop a joint initiative on innovation and standardization for smart manufacturing, targeting
SMEs (and large manufacturers) to revitalize their manufacturing competitiveness;
• Support the Republic of Korea’s Smart Factory Initiative by sharing the experiences of
Germany’s “Platform Industrie 4.0” initiative and developing collaborative efforts with SMEs
on both sides. This would enable EU firms to expand and share their experiences with the
Republic of Korea;
• Expand EU’s collaboration with South Korean SMEs for VET and to help them with training
labour and enhancing labour productivity. Such training packages could be a service package
or business model, which might provide business opportunities for European firms who have
wellWestablished career training and development programs;
• Upgrade the EUWSouth Korea Free Trade Agreement to foster and promote SMEs. The parties
may want to consider modernizing or upgrading the FTA to address pertinent issues to SMEs
including the creation of helpdesks, enhancing regulatory cooperation and cooperation on
matters related to intellectual property rights and technical barriers to trade (TBT);
• Establish an international conference with experts from each region mandated to discuss
various issues related to SMEs’ future growth. Additionally, the Executive Training Program in
South Korea, which started in early 2000 and terminated a few years later, could be reW
envisioned.
