SMEs, The Driving Force of the Korean Economy

The critical role of Small- and Medium-Size Enterprises (SMEs) cannot be overlooked when considering the South Korean economy. As a key driver of Korea’s economic growth, the new administration led by President Moon Jae-In has put a strong focus on supporting SMEs, which account for more than 50 percent of Korea’s total manufacturing output and form the backbone of the economy.[1]

To support this agenda, last November the Small and Medium Business Administration (SMBA), previously a division under the Ministry of Trade, Industry and Energy, has been elevated to the ministry level and re-launched as the Ministry of SMEs and Startups. On the day of its launch, President Moon shared his desire for this new ministry to be a beacon of hope for all SMEs.[2]

According to the data provided by the Ministry of SMEs and Startups, SMEs in Korea represent 99 percent of enterprises, 89 percent of total employment and 38 percent of exports.[3] This is a significant percentage considering the domestic presence of MNCs and other large firms.

Since more than 80 percent of Korea’s jobs are created by SMEs, the government views SMEs and startups as the key to resolving the country’s high youth unemployment rate.[4] In December 2017, the Ministry of SMEs and Startups announced that the government will inject more than 3 trillion won to create more jobs with SMEs.[5]

Recent research commissioned by FedEx Express[6] found that most SMEs in South Korea operate in the manufacturing (22%) and wholesale/retail industries (11%). On average, exports account for more than half (59%) of an SME’s total revenue; this is a double digit increase of 15 percent over the past three years.  The research also shows that the export patterns out of Korea have changed with a significant increase in exports within the Asia Pacific region over the past three years. Korean SMEs exporting within Asia Pacific is up by 45 percent over three with 67 percent now exporting within the region. Exports to Vietnam have increased by double digits (13%) over the past three and it is now the third top export market in Asia Pacific following China and Japan.

The new era of the fourth industrial revolution requires all industries to adjust and adopt new methods and technologies. SMEs need to keep up with the latest technology and trends to be competitive in the market. The research found that the majority (59%) of SMEs are using emerging technology, and 45 percent use e-commerce to find new customers outside of South Korea while 49 percent predict an increase in revenues from e-commerce in the next 12 months.

An increase in e-commerce trade also means SMEs must rely more heavily on their logistics providers, and it is critical that they receive the support they need to continue the growth of their business. The findings show that South Korean SMEs are optimistic about future growth in export revenues and believe that the support of logistics providers can be a key factor in this growth. SMEs find currency exchange and logistic/delivery are the most critical issues for their import/export business and cross-border trade. Almost four out of ten SMEs feel that their logistics partner is helping them respond to their exporting challenge.

When using logistics providers, SMEs generally are most concerned with reliability, expenses and navigating customs forms. To better support SMEs’ e-commerce trade, FedEx launched the FedEx Delivery Manager service in Korea in January. It provides customers the flexibility to customize the pickup and delivery location and schedule at no extra cost.

To support SMEs’ success in international trade, FedEx offers a range of services including consultation on international shipping, logistics, and regulatory issues. In fact, FedEx has established its own customs clearance team to assist SMEs with complicated customs documentation.

Given the key role SMEs play in the Korean economy, it is critical that SMEs maintain steady growth in the export and import business. A healthy market environment must be provided to help them grow and steps being taken by the Korean government is positive. In addition, equally important is a trustworthy logistics partner that is committed to providing quality service specifically designed for SMEs, such as the discount shipping service FedEx developed for SMEs in Korea. FedEx will continue to focus on providing the services SMEs need to be competitive in the global marketplace.

 

 

[1] http://www.korea.net/NewsFocus/policies/view?articleId=151693

[2] http://www.korea.net/NewsFocus/policies/view?articleId=151693

[3] http://www.mss.go.kr/site/eng/02/10202000000002016111504.jsp

[4] http://koreajoongangdaily.joins.com/news/article/article.aspx?aid=3048543

[5] http://www.nocutnews.co.kr/news/4897629

[6] FedEx commissioned research by Harris Interactive “Global is the New Local: The Changing International Trade Patterns of Small Businesses in Asia Pacific” South Korea About the Research Study The independent study, entitled “Global is the New Local: The Changing International Trade Patterns of Small Businesses in Asia Pacific”, was conducted by Harris Interactive on behalf of FedEx Express to offer insights into import and export opportunities and challenges facing SMEs. The results are based on interviews with 4,543 senior executives of SMEs held online and by telephone in nine markets in Asia Pacific between March and April 2018. The markets included in the research were: Mainland China, Hong Kong, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam. Interviews were split equally by market with a representative mix of company sizes: micro (1-9 full-time employees), small (10-49 full-time employees) and medium (50-249 full-time employees). The sample size was approximately 500 respondents per market.

 

   E-Commerce, SME