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Protective policy for SMEs did not lead to enhanced competitiveness: KDI report
By Yi Whan-woo
The Yoon Suk-yeol administration is being urged to scrap a longstanding, over-decade-old policy aimed at holding back conglomerates from entering businesses designated exclusively for small and medium-sized enterprises (SMEs), by a state-run think tank in a recent report.
Introduced in 2011, the policy was intended to protect SMEs from larger businesses and help them enhance their competiveness.
Conglomerates are barred from entering the aforementioned sectors for up to six years after they are designated. The sectors have varied from kimchi making to tofu processing, designated driver services and ready-mixed concrete manufacturing.
Released by the Korea Development Institute (KDI), the report said that the policy turned out to have less of an effect on bolstering the competitiveness of the targeted SMEs.
The overall value of the SME-only markets grew 46 percent to 57.5 trillion won ($43.8 billion) between 2008 and 2018, compared to the 52-percent growth of markets where conglomerates were allowed to operate.
During the cited period, the overall employment rate in the SME-only markets shrank to 10.9 percent from 12.5 percent.
The report went on to say that some SME-only markets grew after they were delisted and the much larger conglomerates stepped in.
"The policy may have protected the SMEs to go on with their business, but it had limitations in terms of enhancing the achievements or competitiveness of the SMEs," the report analyzed. "It is possible that they saw no need to develop their competence under the protective policy."
It suggested lifting the entry ban on conglomerates gradually, saying that such move would be in line with the joint prosperity of the businesses regardless of their size in the long term.
The report called on the government to support SMEs to develop technologies and enhance patent rights to protect such technologies as well as other intellectual property rights.
"A policy should be directed in a way to as to have any companies contribute to growth in employment and industries, not the other way around," it said.
President Yoon has said that he intends to "set the market economy upright" as an economic recovery strategy by easing business regulations.
For SMEs, the Yoon government has promised to help them "utilize the Fourth Industrial Revolution as an opportunity for new growth."
It also promised to expand SME-focused investment in research and development (R&D) and provide more tax incentives for R&D spending.
While the Yoon administration's policy direction is to serve both conglomerates and SMEs fairly, some argue the measures taken so far such as lowering the maximum corporate income tax rate.
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