In a bid to drive the growth of small and medium-sized enterprises (SMEs), the South Korean Ministry of SMEs and Startups, led by Minister Oh Young-joo, has announced a transformative initiative titled ‘Leap Forward for Small and Medium Enterprises.’ This strategic roadmap outlines mid to long-term policy directions aimed at bolstering the capabilities and global competitiveness of SMEs, which are pivotal contributors to the Korean economy.
SMEs are a key player in the Korean economy, accounting for 99% of the total number of businesses, giving 81% of employment, and offering 65% of added value. Also the ratio of R&D investment to sales of SMEs exceeds that of large companies, showcasing that the foundation for innovation is solid. But SMEs face escalating challenges in the global business landscape, including intensified competition, evolving trade dynamics, and the imperative for digital transformation.
Since January, Minister Oh has conducted more than 60 on-site visits to SMEs, startups, ventures, and small business owners. The Ministry of SMEs and Startups collected on-site difficulties and opinions from experts in each field. Recognizing SMEs as the backbone of the economy, the Ministry has devised a multi-faceted approach comprising five strategic pillars: ‘innovative growth’, ‘sustainable growth’, ‘growth together’, ‘global leap’, and ‘smart support’.
1. Innovative Growth
Under the ‘innovation growth’ agenda, the Ministry endeavours to facilitate SMEs’ entry into new industries by overhauling the business conversion system through a multifaceted approach.
- Firstly, by reforming the business conversion system, promising SMEs in stagnant industries are encouraged to explore new sectors, with the government sharing risks through exclusive packages and regulatory provisions, treating this transition as a ‘second startup.’
- Secondly, leveraging artificial intelligence (AI) and digital transformation, efforts are underway to enhance productivity by establishing manufacturing data standards, fostering digital connections, and supporting AI startups for comprehensive growth.
- Thirdly, a significant emphasis is placed on R&D innovation, with R&D support expanding to strategic technology fields, prioritizing technology commercialization, and ensuring R&D project effectiveness through expert verification.
Finally, promoting market-led venture investment and M&A, the Ministry aims to attract private funds, establish an M&A platform, and devise long-term operational strategies to bolster SME growth and competitiveness in the global market. Minister Oh Young-joo underscores the transformative potential of these initiatives in driving productivity improvements and R&D innovation across industries, positioning Korean SMEs for sustainable growth and international collaboration.
2. Sustainable Growth
The South Korean government is committed to fostering sustainable growth in small and medium-sized enterprises (SMEs) by capitalizing on the transition to a green economy. This strategy aims to leverage carbon reduction regulations and strengthened Environmental, Social, and Governance (ESG) standards as opportunities for SMEs to enhance their global competitiveness.
Initiatives include integrating ESG factors into evaluation indicators for SMEs, establishing a joint public-private support system for ESG, and preparing integrated ESG guidelines. Moreover, a preemptive crisis response system will be established to help SMEs identify and address financial risks early, with strengthened financial support mechanisms.
Additionally, to ensure sustainable management in the face of demographic challenges, the government will expand the concept of corporate succession beyond family business to include mergers and acquisitions (M&A). Support will be provided at all stages of M&A processes, and standards for SMEs will be reformed to strengthen the foundations for growth.
3. Growth Together
The South Korean government’s ‘Grow Together’ strategy aims to foster symbiotic relationships between large corporations and small and medium-sized enterprises (SMEs) while fully supporting the development of local SMEs.
To enhance the supply chain, a win-win approach will be adopted, moving away from traditional cooperation frameworks to promote innovation that benefits both large and small businesses. This includes encouraging Environmental, Social, and Governance (ESG) innovation across the supply chain and facilitating collaboration in overseas markets. Additionally, support will be provided to revitalize startups in non-metropolitan areas by extending the startup recognition period.
Furthermore, efforts will be made to create inclusive workplaces where companies and workers can grow together. This involves reducing the wage gap between large and small businesses, strengthening incentives for SME employment, and expanding welfare support for SME workers, including benefits like English camps for their children and assistance with vacation expenses and wedding hall rentals.
4. Global Leap
In the South Korean government’s ‘Global Leap’ strategy, efforts are directed towards positioning Korean SMEs as formidable players in the global market. To achieve this, the strategy focuses on leveraging global talent and attracting international capital while promoting technology exchange.
- Firstly, initiatives are in place to alleviate manpower shortages in SMEs by promoting domestic employment for foreign students and professionals from renowned overseas universities. Comprehensive support will be provided for visa conversion and talent matching to facilitate their integration into the workforce.
- Secondly, measures are outlined to create an additional KRW 4 trillion (USD 2.9 billion) in global funds by 2027 to support domestic startups in attracting overseas investment and fostering R&D cooperation with leading overseas research institutes and universities.
- Lastly, the infrastructure supporting global expansion will be strengthened through the establishment of a ‘Public-Private Global One Team’ to resolve local difficulties for SMEs, alongside the creation of a ‘Global Center’ to provide integrated overseas market information and regulatory trends.
Revisions in related laws will ensure that overseas corporations maintaining cooperation networks with domestic companies receive government support, with emphasis placed on contributions to domestic employment and added value creation.
5. Smart Support
The Ministry of SMEs and Startups is set to revolutionize its support system through the ‘smart support’ strategy, leveraging AI and big data technologies. With a focus on ensuring stable growth, policy finance will be directed towards new growth areas and innovative companies, increasing the proportion allocated to these sectors from 53% to 70% by 2027.
Additionally, efforts will be made to enhance the success rate of commercialization by aligning policy finance with startup and R&D support projects. To streamline operations and promote business agility, field contact regulations will be abolished, replaced by a proactive ‘Regulation Navigation’ system that provides timely information on policy changes and regulations.
Moreover, a ‘Tentative Startup Regulation Tree’ will assist businesses in navigating regulatory requirements, particularly in emerging industries. Regulatory monitoring teams will be established across 13 local SME offices to identify and address unreasonable on-site regulations, ensuring a conducive business environment for SMEs to thrive and contribute to the dynamic growth of the economy.
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