Many powerful people in South Korea say that they are interested in the growth of small and medium enterprises (SMEs) in the IT sector. This can be easily understood in a country which is dominated by huge conglomerates, just one of which can put its logo on products as diverse as computer parts, air conditioners, and cars. However, SME growth is hampered by a variety of factors, like weeds in a garden, and these weeds must be pulled up if SMEs are going to flourish.
The largest species of weeds in the SME garden resemble the long, clumsy arm of government interference. The national government in Korea shows an unprecedented interest in the private IT sector, and offers substantial programs, awards, and incentives in order to encourage SME growth. However, the value of these programs is dubious. As an example, the Korean government offers research grants to SMEs to research technologies it favors, such as augmented reality, robotics, and ubiquitous devices. However, the details of the research criteria, lack of expectation for adequate results, and evaluation procedures for proposed plans are sub-par. This has created a bubble of parasitic SMEs that exist only to create and present unrealistic research proposals to the Korean government in order to get free government money, which they then squander, without creating any worthwhile results.
But SMEs in Korea have another weed to contend with, local banks. The SME sector is still trying to come to terms with the recent KIKO disaster, which has already bankrupted one bright star among them, Taesan LCD Co. The company was a back-light supplier for Samsung Electronics, and was ranked as South Korea's thirdbiggest start-up in June after posting record sales. But by September the company had collapsed. It had bought risky KIKO currency options that offered limited profits while the dollar to won exchange rate was within a certain range. But when the won dropped swiftly against the dollar, it quickly exited the range allowed by the options and companies were stuck with depreciating assets. Over 500 Korean SMEs are struggling to pay back KIKO contracts. There are widespread complaints that local banks did not explain or actually lied about the risks associated with the contracts. There are even some reports that the contracts were presented to Korean businessmen in English, and they were unable to understand them at all.
Of course, there are also some internal weeds that Korean SMEs should pull out of themselves. One common problem seems to be a lack of transparency in basic operations, something that investors really appreciate seeing. This transparency is not just a lack of financial and procedural documentation, but also a linguistic lack. One online publication about investment referred to the definitions of transparency which are relevant to investment as "easily understood", "very clear", "frank", and "candid." However, these qualities are hardly ever present in SMEs in Korea. In fact, their opposites are often actively pursued by the company in a misguided attempt at security. This leads potential business associates or investors to become frustrated and move on.
The reason for such lack of transparency in the typical SME business environment is also another problem of its own, another weed that must be expunged. There is not enough respect for the idea of intellectual property in the country's business and court system. Companies often make a business of outright copying the products of other countries for the local market. For instance, at a popular robotics exposition, one Korean company was displaying an outright copy of the Segway. When questioned about its similarities, the creators said that their electronics used different algorithms from the Segway. However, such a small change might not qualify as different in a US copyright court.
The lack of respect for copyright law is not limited to SMEs in Korea; their larger cousins also have problems understanding it. In fact, Samsung, the archetypical Korean company, is currently defending itself in US district court for patent infringement complaints concerning its NAND flash memory chips.
The weeds of ham-handed government interference, dishonest banking institutions, a lack of business transparency, and a lack of respect for intellectual property choke the life out of potential SMEs in Korea which could otherwise potentially contribute to the global economy in a positive way. If Korea ever wants to see competition for its existing conglomerates, or see a budding SME mature, it must take care to remove these choking factors from its SME garden.
