[Herald Interview] Procurement system revamp to spur growth of innovative SMEs

South Korea‘s central government procurement agency has been putting efforts into bridging innovation-oriented small and medium-sized enterprises and aspiring buyers of their prototypes and goods, its chief said in a recent interview with The Korea Herald.

As the state-run Public Procurement Service is looking to strengthen a separate web-based procurement platform created in February, in addition to its flagship Korea Online E-Procurement System, the agency will stay committed to the role of supporting inclusive growth of innovative companies, said PPS Administrator Kim Chung-woo.

“The new procurement platform will serve as a platform where innovative products are transacted more actively and freely,” Kim said, referring to the new platform as “Hyeokshin Jangteo,” meaning “innovative market” in Korean.

“The PPS will continue to make efforts to build new platforms so that it can serve as a growth ladder of innovative suppliers.”

Along with the new platform exclusively for innovative goods, the PPS seeks to further encourage public organizations to buy products with innovative technologies.

For next year, the PPS has allocated a state budget of 44.5 billion won ($41 million), rising over fourfold compared to this year’s 9.9 billion won, in order to induce more public institutions to buy innovative products.

This will be part of the total 2021 budget allocated to the PPS at 133.8 billion won, up 82.8 percent on-year.

Such moves are meant to “help small and medium-sized enterprises and venture firms overcome the coronavirus crisis,” Kim said.

This comes in sync with PPS’ effort to identify and expand the demand of such innovative products from the public sector, under the state initiative that was first proclaimed in 2019.

The PPS -- which also serves as the regulator -- has laid out a legal framework to keep the doors wide open for public organizations’ purchasing of innovative products on the PPS platforms, revising the Government Procurement Act that went into effect in October.

Since 2019, the PPS has seen a combined 48 billion won in transactions of some 159 innovative prototypes -- designated by the PPS. Such prototypes include a wheeled patient aid that allows a patient to be isolated in a negative pressure environment while being carried, as well as a window air purifier.

Along with this, another part of the 2021 budget will be used to upgrade the flagship electronic platform Koneps, also known as “Nara Jangteo” in Korean.

For over the next three years from 2021, the PPS is expected to inject a combined 132 billion-won state budget to establish a full-fledged paperless procurement system.

Of the total, 23 billion won budget will be allocated to the revamp project for the first year of 2021.

“The next-generation Koneps is aimed at becoming more user-friendly by refurbishing the current procurement platform,” Kim said.

“The new Koneps will be equipped with novel digital technologies, and at the same time integrate the individual procurement platforms of other state-run institutions into a single one,”

This is a major leap forward for the electronic procurement system that was first established in 2002. Koneps has since risen to the integrated procurement platform where goods worth a combined 102.8 trillion won were transacted throughout 2019. This accounted for over three-fourths of the total public procurement volume last year.

In the meantime, another e-procurement platform run by PPS -- dubbed “Venture Nara” -- will continue to play its original role to help connect startups with prospective buyers. Since it was created in 2016, startups’ goods worth 133.4 billion won have been transacted over the past four years.

Leveraged by three platforms -- Venture Nara, Hyeokshin Jangteo and Nara Jangteo -- the PPS will “strive to help companies find the right buyers based on their stage of growth,” Kim said.

On the other hand, the PPS will continue to contribute to governmental virus containment efforts next year.

The PPS has allocated 1 billion won to help makers of “K-quarantine products” such as virus testing kits tap into foreign public buyers. It will also spend 2.4 billion won in state money to maintain the quality of the state emergency reserve of 150 million face masks.

Earlier this year, the agency played a crucial role in nationwide face mask distribution schemes, when a mask supply shortage led to face masks to be rationed to two per person each week. This allowed nearly 1.2 billion masks to be fairly distributed as Korea was suffering a mask shortage from March to September this year.

“Using the budget, the PPS next year will push forward to achieve core initiatives such as procurement of innovative goods, foundation of the next-generation Koneps, support for K-quarantine products’ foray into foreign markets and growth of digital service capability,” he said.

Formerly a lawmaker of the ruling Democratic Party of Korea, Kim has served as the PPS administrator since November.

By Son Ji-hyoung (consnow@heraldcorp.com) and Lee Kwon-hyoung (kwonhl@heraldcorp.com)