Last year, especially in the second half, most small and medium enterprises (SMEs) had to suffer heavy economic difficulties, and the situation continues this year. The global financial crisis of 2008 is now spreading into every part of Korea's real economy, and so SMEs are also experiencing a rapid economic slump. According to recent statistics, the sales of SMEs are falling and their inventories are on the increase. Compared to the first half of 2008, about 59% of SMEs saw a reduction of sales in the second half of the year. Many large enterprises have curtailed their operating hours. Domestic demand and exports are simultaneously decreasing, and accordingly production activities are shrinking.
Thanks to the government's efforts to expand financial liquidity as a way of breaking through the recent credit crunch, commercial banks' capacity for funding has increased, but financial institutions are not yet positive about providing loans to companies, making an excuse for their necessity of keeping Bank for International Settlements (BIS) ratio requirements. Due to the worries about economic depression and an unstable financial market, people are reluctant to invest in the long-term economy. Instead, they want to put their idle funds into a short-term money market. Some of them are invested in financially stable companies alone. For the time being, it will not be easy to improve this situation unless the real economy recovers and the overall credit standing of SMEs changes for the better.
Main Points of SMBA's Business Plan for 2009
The main points of the SMBA 2009 business plan include four core tasks. The first task is emergency measures for small businessmen during the winter season. To this end, the SMBA will provide funds to SMEs including a credit guarantee of 8.6 trillion won (US$6.2 billion). It also plans to give special assistance to small businessmen who run roadside stands. Finally, it will encourage traditional markets, public organizations and large companies to sign sisterhood agreements with SMEs so that the SMEs can sell more products and create programs such as gift coupons.
The second task is to help young people found new companies and to give them employment assistance. Through these efforts, the SMBA will create 70,000 new jobs. This includes encouraging universities and research institutes to found venture businesses and introducing internships for new technology companies. It also includes stimulating the foundation of knowledge service companies, making use of the shops in traditional markets, and connecting job creation programs between government organizations.
The third and fourth tasks are, first, to create broad demand for the products of SMEs by way of promoting joint purchases of 78 trillion won (US$56.6 billion). And then, to take special measures for SMEs that have difficulty borrowing money from banks. These special measures include increasing policy financing for small businesses to 67 trillion won (US$48.6 billion), a 13.1 trillion won (US$9.5 billion) increase over the previous year. A full 70% of this budget will be executed in the first half of this year.
Tailored Support Strategy for SME Exports
In order to cope with the global economic crisis, much more effort should be made to explore overseas markets and to develop niche markets. Compared with large companies, however, SMEs are in a weak position to respond to global environmental changes such as exchange rates, raw materials price movements, and various trade regulations. Therefore, in an effort to solve these problems, the SMBA has adopted the following three export support strategies.
The first strategy is to adopt the twotrack approach of export infrastructure expansion and the intensive fostering of promising exporters. The first track will transform 5,000 domestic market-based companies into exporters by 2012. The other track will foster 500 exporters with a target export amount of US$5 million per year until 2012.
The second export support strategy that the SMBA has developed is to expand infrastructure to support SME entry into the global market. To this end, exportrelated organizations such as KOTRA, the Small and Medium Business Corporation, and the International Trade Association will cooperate in order to improve efficiency and develop new support policies. Also, overseas strongholds will be expanded to help SMEs launch into promising niche markets.
The third export support strategy is to perform the foregoing business programs according to the SME's stage of growth. Intensive support will be custom-tailored for each company based on which of three categories they fall into: a beginner category, a category for developing companies, and a third category for well-established enterprises.
Financial Hardship Assistance
As mentioned above, one of the most urgent problems that SMEs are now facing is financial difficulties. This is especially true for SMEs that lack collateral for loans that they would like to take out. Banks usually require too much collateral for small business loans to businesses with a low credit rating. Some banks are disinclined to give small businesses loans at all. In an effort to solve these problems, the SBMA has decided to transform their existing 1357 Mobility Team into an Emergency Financial Hardship Assistance Team. Under this new system, SMBA staff members will accompany SME personnel while they visit financial organizations in order to give assistance in SME financing.