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Innovative Growth Policy of the EU and Its Implications for Korea: SME Policies Economic reform, Economic development

Author KIM Heungchong, OH Taehyun, and LEE Hyun Jean Series 18-28 Language Korean Date 2018.12.31

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   When speaking of the European economy, small and medium -sized enterprises (hereafter SMEs) have been playing a pivotal role in creating jobs and adding value to products. In this sense, the EU and the Member States are focusing on SMEs for innovative growth as a core element of sustainable development. The Korean government is also eagerly supporting SMEs to enhance their competitiveness. Yet there is room for policy improvement. This report will overview the important aspects of SME policies of the EU and selected Member States. Based on the findings we will make suggestions for the advancement of Korea’s SME policy.
   European SMEs take a share of 99.8% among the total number of enterprises and account for 66.4% of the number of jobs, and 56.8% of value creation. Despite this high performance by European SMEs, their innovative competitiveness does not necessarily match that of the large enterprises in Europe. Moreover, many European SMEs complain about the hardships of internationalisation, particularly in finding international buyers, competing with other companies in similar fields, financing, etc., which is another indicator of their competitiveness. Considering this situation, the EU has been providing a number of guidelines and policies to support SMEs, such as the Small Business Act (SBA), COSME programme, funding, and programmes to assist their internationalisation and standardization. The SBA proposes 10 principles in promoting entrepreneurship, such as “Think Small First”, and access to finance, innovation and technology, based on which the governments of Member States have established domestic legislation on SMEs. COSME, an SME competitiveness enhancing programme, involves financing, internationalisation, protection of intellectual property rights, etc. In terms of funding, the EU is trying to ease the gap between SMEs and large-companies’ loan interest rates and to support market access and technological innovation by utilising EIC funding. In particular, the SME Instrument has been used to financially support SMEs with innovative technology. The EU has announced a strategy for the circular economy and is supporting the transition to an environment-friendly economy. The EU has also been reinforcing its support for standardization, not only for SMEs but enterprises of all sizes, to harmonise differing standards within the Member States as well as to have the EU standards adopted at the international level. Stronger financial support is being provided for the stakeholders in the discussion of standardization, to lessen their burdens in order to participate in the discussion actively.
   As the Member States ultimately lead policies to support SMEs with EU-level policy playing a supplementing role, it is important to analyse policy features at the national level. Therefore, based on the national competitiveness index and industrial characteristics, in this research we selected Germany, France, Italy, and the Netherlands for our case study. Germany, famous for its “hidden champions,” has been carrying out the “Future of the German Mittelstand” Action Programme to secure financial support and boost the growth of its SMEs. Based on this programme, the “Mittelstand-Digital” strategy operates to convince SMEs of the need to digitalize their operations and provide customized services. The Central Innovation Programme for SMEs (ZIM) not only provides financial support for R&D at SMEs but has since been expanded into an international cooperation network to support SMEs. The management and technical innovation consulting programme “go-Inno” and technology transfer support programme “INNO-KOM” are also assisting SMEs in practical terms.
   France, facing a similar problem with Korea of ensuring the growth of both large companies and SMEs, announced the Action Plan for Business Growth and Transformation (PACTE) in 2018. PACTE provides a wide range of support, such as to facilitate the establishment of firms, revitalise unsuccessful companies, company transfer, financing, R&D technology support, compensation for employees, etc. with the aim of easing the burden of emerging companies. The “competitive cluster” policy provides additional benefits for SMEs struggling with competitiveness issues and technical development, and the “La French Tech” policy aims to nurture regional start-up clusters and invite competitive start-ups.
   Italy is supporting start-ups to become competitive SMEs through investment cooperation. The nation actively manages the brand “Made in Italy” and exercises strict quality control over SMEs authorized to use it, providing a good example of brand management at the national level having a positive effect on companies. Italy also operates regional clusters to increase the competitiveness of its SMEs.
   The Dutch industrial policy is based on a top-sector approach. The nation operates an innovative incentive scheme (MIT) that aims to help SMEs take part in innovation, and which has been positively evaluated for the role it plays. SMEs and start-ups can receive specialised support such as from the Netherlands Organisation for Applied Scientific Research (TNO). These research institutions link the companies with the government and complement the role of the government by providing the practical support that SMEs need.
   Just like the SME policies of the EU and the Member States, Korea’s SME policies are comprehensive in scope and involve many different ministries in various ways. Despite these similarities, Korea’s policies mostly differ from the EU and the Member States at the micro level and enforcement processes. This indicates the need to measure the effectiveness of existing policies, obtain feedback, and perform an overall re-examination of their performance efficiency. In this context, and based on the case studies, we are suggesting the following implications for Korea.
   First, it is essential to support the establishment of an online cluster network to improve utilization of the clusters. This online cluster network will enable the companies to receive integrated support directly by intra-cluster or inter-cluster support. To achieve this goal it is important to prepare a detailed phasing strategy.
   Second, we can consider establishing nation-wide competence centres in Korea. Korea already has numerous types of SME support centres. For better performance it is crucial to present a clear and specific objective, for instance, providing specialised support for digitalisation of the SMEs. This should be done considering regional characteristics, such as logistics digitalisation for regions specializing in logistics and e-commerce support for regions where marketing and online business is active.
   Third, it will also be necessary to greatly expand the functions of technical research institutions, which play a significant role in the Netherlands, Sweden, Denmark, and Germany. Offering more assistance for research support institutions will help SMEs to receive the support they need with specific issues in the areas of R&D, technical difficulties, training human resources, finance and taxation problems, etc.
   Fourth, the introduction of an integrated nation brand of Korea would help SMEs to export or expand overseas, especially those who lack a well-known brand name. Considering the elevated nation brand value of Korea, thanks to developments such as the Korean wave (Hallyu), establishing an integrated nation brand will have a significant impact. Once Korea establishes an integrated nation brand, SMEs who wish to utilise it would voluntarily participate in efforts to improve their product quality and competitiveness in order to acquire the rights to use the integrated nation brand.
   Fifth, it would be wise to establish an institutional basis for outward processing in advance to provide for the internationalisation of SMEs and their involvement in value chains. Policies to facilitate trade will be of great help toward this. Considering the future of the Korean Peninsula, establishing an area for outward processing would also be important for cooperation between the two Koreas. 

 

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