Since its establishment as part of the Ministry of Commerce, Industry and Energy, the Small and Medium Business Administration (SMBA) has been instrumental in making small firms and technology startups a growth engine of the national economy. Our editor interviewed Ryu Chang-moo, the administrator of the SBA. Ryu tells of major plans and gives us his take on the future prospects of the economy.
by Lee Kyung-soon, Reporter / kslee@ittimes.co.kr
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Exports by Small Firms Grow Markedly
Recently, small-scale manufacturers regained their capacity use rates to a level comparable to early last year while increasing their output. SMBA's own survey indicated that the hiring crunch has eased somewhat, too. Currently, however, smaller firms are making intensive efforts to overcome the domestic consumption slump; they are also preparing measures to deal with the expected drop in brisk demand from China.
The number of new businesses created declined in 2003 from the previous year while bankruptcies have also been on the rise. Interest rates for small business loans have increased slightly because of an across-the-board rise in market rates. Although the aggregate amount of loans taken out has decreased temporarily as the government tightened its monetary policy at the end of last year, overall lending conditions have been improving. Since last year, it is reported, the amount of foreign investment made by small businesses has surpassed that by larger counterparts.
Considering all the indicators, the domestic economy is expected to get better than last year, due to more favorable conditions in export markets and gradual recovery in domestic consumption. As the overall economy improves, small businesses will benefit as well starting in the latter half of this year.
The Small Business Administration has implemented all the policy measures the newly elected President initiated for the last one year, including "Long-term Small Business Nurturing Strategy" and "Special Measures for Technology Ventures." In particular, the SMBA revised regulations on mergers and acquisitions in a way that would encourage them. The move promoted the growth of technology industries despite severe recession following the 'bubble burst. In terms of market capitalization, 12 tech ventures are ranked within the top-100 companies in Korea while the tech industries exported $6.5 billion, or a 24.6 percent growth from the previous year.
Policy Focus Shifted onto Innovative Small Firms
Last year, SMBA set up a long-term development plan and roadmap for small business support. Based on the blueprint, the dministration is proud of an impressive array of achievements, including restructuring through tech venture mergers and acquisitions, and infrastructure for manpower support. For this year, the administration aims for job creation for youngsters, improvement in innovation support system, and elimination of manpower supply bottlenecks.
The SMBA is seeking to enhance the symbiotic relationship between large and small firms, and develop regional markets through support to local entrepreneurs and merchants.
As part of an effort to alleviate the problems of youth unemployment, the administration set forth a 10-point plan including revision of related rules and regulations, improvements in business creation infrastructure, and support for new industries. For this, it has provided \320 billion (approximately $280 million) for venture seeding money, streamlining of lending procedures, and expansion of credit loans.
However, it has faced difficulties because of the general economic recession and resulting sluggishness in investment. It is true that the current system of support is inadequate in dealing with rising demand from those wanting to start business.
To address the problem, the Small Business Administration raised its financial aid amount for policy loans, credit guarantees, and other channels. For example, it set aside \2.4 trillion ($2.1billion) for policy loans and \40.7 trillion ($35.4 billion) for credit guarantees. It also opted for an international standard of rating companies, instead of their erstwhile point-rating system.
The administration plans to adopt a negative system and optional repayment scheme for small business loans.
"Concentration on boosting innovation capacity of small, medium enterprises"
Q: What are your plans for improving the competitiveness of technology ventures
A: We are initiating a plan to overhaul rules and regulations regarding mergers and acquisitions among small startups. By doing so, we want to make technology industries the engine of growth. One such plan is organizing an M&A fund of 30 billion in partnership with foreign investors. The other is setting up an M&A transaction information network through which companies obtain information and thus can buy and sell businesses more easily. We are also trying to arrange a "global star fund" of $100 million while talking to pension fund managers for their investment in tech business.
Q: How are you going to support small firms suffering from cash shortages
A: We are increasing policy loans for these firms while insisting that they start improving their credit ratings. I expect these firms will be able to breathe easier as they receive a one percentage point discount for investment in plants and equipment, and they benefit from streamlined procedures for loan applications. This year, we plan to expand the technology evaluation guarantee for promising ventures.
Q: What do you think of the challenge of diversifying export markets and increasing export items
A: Diversifying export markets is a task this nation has to confront head-on. Already, trade associations are sending task forces to emerging markets such as the Americas and Africa while participating in overseas trade shows. This is not a job that can be done overnight.
I believe we need policy support such as establishment of an export agency and transfer of know-how. We plan to select 3-5 companies with overseas sales of more than $2 million for each industry and nurture them as leading exporters in terms of design, brand development, and marketing.
Supporting companies to get internationally recognized certifications and resolving non-tariff barriers are good examples of these sorts. I am optimistic that these problems will be addressed soon as we work closely with companies in overseas marketing and market research.
