Decentralizing business essential for R&D growth

Academics call for stronger IP protection and incentives for R&D programs


Famed scholars of management consulting said decentralizing Korea’s business model driven by a few conglomerates is essential for inclusive growth based on innovations by smaller businesses.

Management experts including Hermann Simon, author of “Hidden Champions of the 21st Century,” and Harvard University professor George Whitesides urged the government to provide better incentives for and protection of innovations at smaller businesses. Such financial, regulatory support will solidify growth of smaller players and decentralize the nation’s growth model, which is fueled by a small number of giant exporters, they said. 

“There is a huge potential for growth based on innovations from a wider number of participants. I would encourage giant corporations to spin off their smaller units and government to provide better protection on intellectual property,” Hermann Simon, chairman of Simon-Kucher & Partners, told the audience of the Global R&D Forum in Seoul on Tuesday.

About 30 percent of the country’s gross domestic product comes from less than 10 conglomerates. There is a widening gap in R&D funding between large and small players. According to the Science and Technology Policy Institute, the top 30 companies by market capitalization spent about 75 percent of the total R&D expenditure by listed firms here last year. The gap is widening every year, it added.

Simon took the example of Finland to make a point about how dangerous it is to rely on a small number of giant exporters.

“Finland flourished in the 1990s on one product from Nokia, and it now seems to be collapsing. You need a more decentralized economy to develop all sorts of other aspects, and that’s where support of research and development work is important,” he added.

The three-day annual forum was launched last year by the Ministry of Knowledge Economy to open a platform for in-depth discussions on investment for sustainable growth.

Whitesides, an advisor to the ministry’s Office of Strategic R&D Planning, said the government should better allocate their support of R&D to nurture smaller companies capable of making technological breakthroughs.

“Managements investing heavily on R&D should have more incentives. In the U.S., investors pay half the income tax for buying shares of those firms which ends up rewarding companies dedicated on innovations,” Whitesides told The Korea Herald.

The government invests about $30 billion on research work by key growth industries each year but is often criticized for funding only major exporters of cars and consumer electronics.

“Protecting intellectual property is a must and the government should make the R&D industry attractive for students in the long term, by giving them opportunities to experience development work abroad. Graduate salaries for R&D jobs should also be competitive,” Whitesides added.

According to the Korea Chamber of Commerce and Industry, one in three small- to medium-sized companies are experiencing a shortage of R&D manpower. The report on R&D infrastructure at 400 SMEs said 33.7 percent are finding it difficult to hire talent to develop new products. And 24.1 percent of the total reported said such a shortage of talent slowed or prevented them from expanding their product mix.

By Cynthia J. Kim (cynthiak@heraldcorp.com)