Stalled-Growth SMEs and Directions for Policy

Recent research says 20 percent of Korean manufacturers are stalled-growth small and medium enterprises (SMEs), or companies that have been business for at least 20 years but have under 50 employees, with market factors causing 65 percent of such stagnation and the businesses themselves 35 percent. Market factors included excessive competition in main markets (18.5 percent), low market growth (17.6 percent), and small market scale (16.7 percent), while chronic shortages of both workers and money (10.6 percent) and a lack of marketing capacity (8.3 percent) were among the faults of businesses. Most stalled-growth SMEs lacked growth capacity and experience and stuck to strategies targeting conventional business areas with limited growth opportunities rather than those eyeing development of new high-growth markets. Accordingly, many such SMEs are not expected to overcome growth stagnation on their own without policy support. Seen this way, the problem is serious and broad. Even so, policy interest in such SMEs has been lukewarm and related support lacking. This explores the shape that an effective future-centric response to the problem might take. It proposes aggressive expansion and reform of core policies that support changes to the way business is done, and in particular generous aid (in the form of both consulting and funding) to boost the capacity of such SMEs to pursue alternative lines of business.