[Contribution] Scaling up SMEs, startups as key export players

By Cho Ju-hyeon

South Korea’s small and medium-size enterprises and startups are facing challenges in exports amid bleak economic outlook and Chinese-dependent business. For survival, small companies should alter their course to diversify exports.

As of February, the total amount of exports has decreased for five consecutive months, along with a trade deficit for 12 consecutive months. Exports from SMEs, which came to $117.5 billion last year, however, has been on a downward trend since June 2022.

The recent decline in exports has been driven by the global economic downturn with ongoing geopolitical risks, leading to poor exports to China, a major country of export for SMEs.

Still, there can be a silver lining for small companies if they diversify exports, moving from the China-focused business.

Companies that only export to a single country are bound to be greatly affected by its political and economic risks. For risk management, it is crucial for exporting companies to expand exports to other countries.

Many SMEs are already trying to target the new markets in the Middle East, Latin America and the Caribbean. When I visited Mobile World Congress in Barcelona, Spain last week, I witnessed a number of innovative startups making efforts to partner up with large companies to create foothold there.

In order to support small companies’ exports, the Ministry of SMEs and Startups has announced “measures to support exports of SMEs” in January. It states that the ministry will not discriminate SMEs carrying out indirect exports – for instance, providing raw materials to large companies’ export products -- to those directly shipping their goods overseas.

For SMEs, the companies carrying out indirect exports take up 21 percent of the total exports, higher than the direct exports of 18 percent.

Also, when selecting SMEs that will receive support, the ministry will establish additional evaluation criteria -- export diversification and prioritize SMEs that aim to venture into emerging markets. Companies that successfully exported to new countries will also be eligible for incentives, including a reduction in policy fund interest rates and greater voucher limits.

But the government should take more actions to revive SMEs’ exports. Small companies still struggle with customs issues and foreign regulations. The only solution is to provide support that addresses startups’ genuine hardships. It can only be done by carefully listening to what the startups industry has to say and resolving those issues as quickly as possible.

Currently, SMEs take up 40 percent of entire exports in Korea. The Ministry of SMEs and Startups previously announced “Vision 50+,” which aims to increase this figure to 50 percent during the Yoon Suk Yeol administration.

The ministry will always make sure that small companies can overcome challenges and help them to become the key players in Korean exports.

Cho Ju-hyeon is the vice minister of SMEs and startups. Views expressed in this column are his own. – Ed.