Eximbank Bolstering Hidden Champions

Korea Eximbank CEO Kim Dong-soo listens to an employee of a small and mid-sized enterprise in Busan, March 29, which produces equipment for wind power plants. / Courtesy of Korea Eximbank

By Kim Jae-won
Staff Reporter

``People only remember winners,'' a television commercial said a few years ago. It is very true in the export industry. People only know the names of big conglomerates, such as Samsung, LG and Hyundai, but are not interested in small- and mid-sized enterprises (SMEs).

However, the Export-Import Bank of Korea (Korea Eximbank) argues that those SMEs are the backbone of the Korean economy, and hopes to evaluate their value and support them, as they have been shadowed by chaebols for the last few decades.

Korea is well-known for its export-driven economic development. Exports rose from a meager $28 million in 1952 to more than $400 billion in 2008. Despite such a drastic growth, its contribution to job creation has reduced.

According to the Bank of Korea, in 1995, 26.2 new jobs were created for every 1 billion won of products were exported,. However, in 2007, only 7.1 jobs were created from the same amount of exports.

Analysts say that it is largely due to the structure of chaebol-oriented exports. In 2008, the number of conglomerates made up just 0.5 percent of all firms, but occupied 69.5 percent of total exports, while SMEs made up the rest, but they employ 88.4 percent of the total labor supply.

Eximbank has played a leading role in tackling the issue by initiating the nation's ``hidden champions'' project. Hidden champions refers to those which are not recognized because of their small size but are highly successful companies.

According to the definition by Hermann Simon, who popularized this concept, a company must meet three criteria to be listed as a hidden champion. It should be number one, two or three in the global market or number one on its continent, and this is determined by market share. Its revenue should be below $4 billion. Low level of public awareness is another condition to fit the title.

In Germany, one of the biggest export nations in the world, these hidden champions number 1,000 and take up 26 percent of exports. Those firms also contribute to creating jobs as the average number of employees for a hidden champion is 2,037.

The state-run lender localized the concept defining Korean hidden champions as an SME, which has exports of more than $100 million and has a sustainable overseas market share. The bank uncovered 114 companies meeting these conditions.

CEO Kim Takes Lead

On June 4, 2009, ahead of its 33rd anniversary, Eximbank hosted a ceremony to celebrate the inauguration of the Small and Medium Exporters Forum with 34 member firms in attendance at the Lotte hotel in Seoul.

The forum was founded in order to enhance support for SMEs by establishing a channel of communication between Eximbank Chairman, Kim Dong-soo and the CEOs of SMEs. Kim stated in his welcoming address that ``Korea Eximbank will establish a comprehensive support system for SMEs to become backbone enterprises that are export-oriented so that they may serve as Korea's hidden champions.''

Kim acknowledged hidden champions as major players in the Korean economy. ``I will support those small and medium-sized enterprises fully to make them the backbone of the Korean economy, which connect conglomerates and other SMEs. I hope that they can play major roles to lead in economic development and create many good jobs.''

Eximbank established the comprehensive system designed to provide financial aid for small and medium exporters to support R&D, market entry and facility expansion by entrusting them to an external consulting firm in June, 2009.

Kim added, ``We held this forum to establish regular visits to SME job sites by management and a joint support system with related institutions such as the Korea Federation of Small and Medium Businesses.'' The bank said that it will also provide forum member companies with preferential financial support, complimentary foreign exchange services, overseas expansion consulting, international contracts and legal services.

Tax Benefits

The lender's support for SMEs encouraged cooperation from other government ministries. The Ministry of Knowledge Economy announced a plan last month to nurture 300 hidden champions with high growth potential, to become competitive global players by 2020.

The firms will enjoy tax cuts and other financial incentives as well as technological support from state institutes under the so-called World Class 300 Project, Knowledge Economy Minister, Choi Kyung-hwan said in a report to President Lee Myung-bak.

The measure reflects worries that Korean SMEs, the key supplier of parts and technicians to leading conglomerates, such as Samsung, LG and Hyundai, are largely unknown outside of the country, making it difficult for them to compete globally.

Many small firms are suffering a shortage in their manpower due mainly to the salary gap with large firms and their weaker reputation even though the country's youth unemployment has soared.

The government will support their overseas marketing activities and provide ``corporate doctors'' to help them improve their financial health, develop new technologies and create long-term growth strategies, Minister Choi said.