INTERNATIONAL CONFERENCE: DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES IN VIETNAM IN THE CONTEXT OF INDUSTRIAL REVOLUTION 4.0 THE SMES POLICY OF SOUTH KOREA AND LESSONS FOR VIETNAM Nguyen Minh Trang, Diplomatic Academy Abstract: Small and medium enterprises (SMEs) play an important role in the economic development Therefore, many countries have applied combined policies to support the SMEs South Korea is one typical country that was successful in implementing policies and measures to promote and develop the SMEs in many sectors For Vietnam, SMEs also play an important role and make positive contributions to the development of the economy However, the activities of SMEs in Vietnam are still limited and lower than expectation Vietnam and South Korea are in the same region with some similarities in culture and conditions Therefore, the study of SMEs policies in South Korea can help figure out some useful lessons to apply in Vietnam economy Key words: SMEs, policy, South Korea, Vietnam CÁC CHÍNH SÁCH HỖ TRỢ DOANH NGHIỆP VỪA VÀ NHỎ CỦA HÀN QUỐC VÀ BÀI HỌC CHO VIỆT NAM Tóm tắt: Các doanh nghiệp vừa nhỏ (DNNVV) đóng vai trị quan trọng phát triển kinh tế Do đó, nhiều quốc gia áp dụng sách kết hợp để hỗ trợ doanh nghiệp vừa nhỏ Hàn Quốc quốc gia điển hình thành cơng việc thực sách biện pháp nhằm thúc đẩy phát triển doanh nghiệp vừa nhỏ nhiều lĩnh vực Đối với Việt Nam, doanh nghiệp vừa nhỏ c ng đóng vai trị quan trọng đóng góp tích cực cho phát triển kinh tế Tuy nhiên, hoạt động doanh nghiệp vừa nhỏ Việt Nam hạn chế chưa mong đợi Việt Nam Hàn Quốc nằm khu vực với số điểm tương đồng văn hóa điều kiện phát triển Do đó, nghiên cứu sách phát triển doanh nghiệp vừa nhỏ Hàn Quốc giúp Việt Nam đề xuất số giải pháp hữu ch để phát triển doanh nghiệp vừa nhỏ nước Từ khóa: Doanh nghiệp vừa nhỏ, sách, Hàn Quốc, Việt Nam Introduction In most economies, SMEs play a necessary function as they often account for a large proportion, even overwhelming the total number of enterprises In Vietnam, the number of 88 HỘI THẢO QUỐC TẾ: PHÁT TRIỂN DOANH NGHIỆP NHỎ VÀ VỪA CỦA VIỆT NAM TRONG BỐI CẢNH CUỘC CÁCH MẠNG CÔNG NGHIỆP 4.0 registered SMEs is over 95% The contribution of them to the total GDP and job creation is significant If large enterprises often locate in the economic centers, then SMEs are present in all localities They are an important contributor to budget revenue, production and create local jobs for people, which reduces the income gaps between different regions in one country SMEs are subcontractors for large enterprises, which partly create the value and qulity of the manufacture SMEs are small in size, it is easy and more flexible for them to adjust with the change of the market SMEs often specialize in producing some of the components used to assemble into a finished product, which contribute to the success of the heavy industries Because SMEs have such important roles, many countries have implemented policies to promote their development such as: Institutional support, capcity support and credit support Base on particular economic conditions and financial capcity, each economy will have different and suitable strategy to support for SMEs As a developing country, Vietnam can learn the policies and implementation from successful economies in the region including South Korea to achieve the best result from this important economic contributor SMEs policy in South Korea SMEs in South Korea play a strategic role in the development of the economy, accounting for 99.9 percent of the total number of enterprises, contributing over 102.9 million USD for exporting and creating jobs for 88 percent of the total workers In 2018, exports of Korean SMEs reached 114.6 billion USD, accounting for 18.9 percent of the total exports Since the early 1980s, Korea has issued many policies to encourage SMEs to develop and make them become the suppliers for large corporations and the Government keeps on amending them to be most suitable with the context of international developmetn There are many acts and regulations to support and promote the activities of SMEs including: Acts and regulations for SMEs Target Regional credit guarantee Facilitating financial accommodation, revitalize the regional foundation act in 1999 economy and contribute to the promotion of welfare of the populace by establishing credit guarantee foundations and the Korean Federation of Credit Guarantee Foundations to enable them to guarantee obligations of small enterprises, micro enterprise, etc., and individuals short of security solvency in the district Act on the promotion of Contributing to the development of the national economy technology innovation of through the strengthening of the technological competitiveness SMEs in 2001 of SMEs by expanding infrastructure to promote technological innovation of SMEs and establishing and implementing policies related thereto Special act on support for Contributing to the balanced development of the national human resources of SMEs in economy and society by enhancing the competitiveness of 2003 SMEs and promoting the employment thereof with support for programs facilitating the supply and demand of human resources, upgrading human resource structure and improving awareness of SMEs 89 INTERNATIONAL CONFERENCE: DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES IN VIETNAM IN THE CONTEXT OF INDUSTRIAL REVOLUTION 4.0 Special act on the promotion of business conversion in SMEs in 2006 Promoting the business conversion of SMEs that suffer difficulties due to changes in the economic environment, which will enhance the competitiveness of SMEs and upgrade the industrial structure, thereby contributing to the healthy development of the national economy Act on the promotion of collaborative cooperation between large enterprises and SMEs in 2006 Sharpening the competitiveness of large enterprises and SMEs by consolidating win-win cooperation between them and to attain their shared growth by resolving the polarization between large enterprises and SMEs with the aim of laying the foundation for sustainable growth of the national economy Framework act on SMEs in 2007 Providing for basic matters concerning the direction-setting for SMEs and measures for fostering SMEs with the aim of supporting their creative and independent growth, improving their industrial structure, and facilitating the balanced development of the national economy Support for SMEs establishment act in 2007 Contributing to the establishment of a solid industrial structure through sound development of SMEs by facilitating the setting-up of small and medium businesses and developing a firm basis for their growth SMEs cooperatives act in 2007 Providing for the matters concerning the establishment, management, and development of cooperative organizations, through which SMEs consolidate and promote collaborative projects, with aims of providing equal economic opportunities to SMEs and encouraging their independent economic activities to improve the economic status of SMEs and accomplish the balanced development of the national economy Act on facilitation of purchase of SMEs manufactured products and support for development of their markets in 2009 Contributing to the enhancement of the competitiveness of SMEs and to the management stability thereof by facilitating the purchase of SMEs manufactured products and supporting the development of markets 10 SMEs promotion act in 2009 Strengthening the competitiveness of SMEs through their structural advancement, and expand the business sphere for SMEs, thereby contributing to the balanced development of the national economy 11 Act on the fostering of self-employed creative enterprises in 2011 Contributing to the growth of the national economy by fostering self-employed creative enterprises through the promotion of the establishment of self-employed creative enterprises by the people who have creativity and specialty and through the creation of the foundation for the growth thereof 12 Special act on support for small urban manufacturers in 2014 Contributing to the development of the national economy by establishing a support system for the growth and development of small urban manufacturers and encouraging their economic activity 90 HỘI THẢO QUỐC TẾ: PHÁT TRIỂN DOANH NGHIỆP NHỎ VÀ VỪA CỦA VIỆT NAM TRONG BỐI CẢNH CUỘC CÁCH MẠNG CÔNG NGHIỆP 4.0 13 Act on the protection of and support for micro enterprises in 2015 Improving the social and economic status of micro enterprises as well as to the balanced development of the national economy by promoting independent business activities of micro enterprises and furthering the management stability and growth 14 Act on Support for Protection of Technologies of SMEs in 2016 Strengthening the capability of SMEs to protect technologies and their technical competitiveness, by expanding infrastructure to protect technologies of SMEs and by formulating and implementing policies related thereto, thereby contributing to the development of national economy According to Korean regulation, the Government designates a number of industries, as well as some products in these industries as auxiliary products, which the large businesses have to buy these designated products from external companies rather than self-produce This policy creates more chances and opportunities for SMEs to participate in the production chain and have a stable demand for their product, which play the utmost role in maintaining the operation and existence of the company Besides, the Govt also focuses on improving the capability and competitiveness of SMEs by issuing many suitable policies for each stage of the firm‘s growth such as: Flexibility to start a business, supporting for human resource training and improving management mechanisms; simplifying procedures to shorten the establishment time; giving priority for adventure businesses All the acts and policies are designed to give the firms the best conditions and favourable environment to start, operate and grow Regarding the support of start-up capital for venture enterprises, Korea has an Act on special measures for the promotion of venture businesses since 1997 (amended in 2015) to promote the firms This act stipulates measures to make capital mobilization for businesses easier, more convenient and more flexible Specifically, based on the activities of each business, particular funds are established by decision of the President, or in accordance with the provisions of the national financial regulations These are very effective and necessary support because most start-up firms are bankrupted because they are lack of financial facilities Along with the above regulations, Korean Governmnet has given priorities to develop manufactured industries and established the "Korean Silicon Valley" for SMEs These policies support 50 percent of equipment costs and reduce corporate tax and land fees Those firms in this sector are given more opportunities to research on technological innovations and they can quickly receive and apply new research achievements In Korea, the SMEs financial support system includes a credit guarantee system under the Central Bank, other government financial intermediaries and the tax policy The Government has implemented a tax refund policy for SMEs since 1980, which focuses on new product and R&D activities such as: 15 percent return on R&D investment and human resource training; exmption of VAT, registration tax for houses and land for R&D activities The Government also has a policy of commercializing products for SMEs, associating with the policy of selling those products to the Government and large industrial corporations All these activities create a great incubation hub for the firms to grow 91 INTERNATIONAL CONFERENCE: DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES IN VIETNAM IN THE CONTEXT OF INDUSTRIAL REVOLUTION 4.0 and develop, supporting for the SMEs not only in short term but aslo for the long term Firms receive both financial and technical help will gradually improve the capacity and become strong ones in the market Human is the most important factor in the development of any firms because that is the irraplacable resource In order to stabilize the human resources for SMEs, the Government has found out many solutions such as encouraging and giving priority to students who apply their intership in SMEs by plus adding points, adding some subjects of SMEs in the training programs and encouraging SMEs to attract foreign experts With such chances, the SMEs can access to a great quality labour force and strengthen the capability to maintain and compete with other existing firms in the market In general, the policies for SMEs in South Korea are very completed in both quanity and quality The acts and regulations aim at supporting and promoting the firms in all aspetcs from procedures, technical issues to financial help in many forms More important, the Government assists SMEs in consuming the products, which is very useful and effective in helping the firms improving the capacity Lessons for Vietnam According to Vietnam Association of SMEs (VINASME), 96% of enterprises in Vietnam are SMEs This sector generates up to 40% of GDP and more than million new jobs each year In the near future, SMEs will be the main drive of the Vietnamese economy However, SMEs in Vietnam only thrive in areas with modest profit and low technology due to the lack of economies of scale, finance and market share SMEs still have to operate and link themselves to business South Korea has achieved a great success in promoting the SMEs, which can be a good example for Vietnam to learn The Government of Vietnam needs to raise awareness and about the role of SMEs in all the public media so that SMEs can attract more attention and investment from the investors In Vietnam, although SMEs contribute a huge share in the economy, the awareness of these enterprises is still not sufficient and correct Even for a long time, Vietnam has focused on large enterprises and left SMEs aside Therefore, the Governmet needs to invest more on SMEs, which is equivalent with the potential and capcity In Korean law, there are clear definitions and regulations on SMEs, which partly prove the importance of this economic sector Since 1979, all Presidents of Korea have highly appreciated the role and implemented many supporting policies for SMEs They also have a very clear target of SMEs sectors for different stage of development like focusing on SMEs in manufacturing sector at the moment To support for SMEs, Korean Government invited consultants from developed economies such as Japan, Germany, the US and Canada to share experiences The, the Korean experts will have chances to exchange and learn advanced techniques and technologies to popularize their SMEs They also invites both domestic and foreign experts who have retired or worked at home to collaborate These experts have the capacity, experience of advising suitable policies for Korean SMEs with the lower costs and for a long term Vietnam has good relations with many partners in many fields, which are favourable conditions to utilize the assistance from good experts and managers on SMEs 92 HỘI THẢO QUỐC TẾ: PHÁT TRIỂN DOANH NGHIỆP NHỎ VÀ VỪA CỦA VIỆT NAM TRONG BỐI CẢNH CUỘC CÁCH MẠNG CÔNG NGHIỆP 4.0 It is necessary to have an Act on SMEs to facilitate SMEs to develop their potentials and contribute to the national economy Along with it, the Governmetnt should issue sub-law documents for effective implementation Vietnam has enacted the Law on supporting for SMEs with many policies to encourage the development of this sectors However, the Law and complementing documents have many unspecific and unclear points, which bring a lot of trouble for the firms to follow In particular, the measures and guidance how to implement the law are still limited, leading to the difficulties of SMEs to apply and develop Therefore, Vietnam's supporting policies need to be revised and supplemented to be suitable with each stage of development and SMEs conditions On the other hand, the supporting policies need to be consistent with the regulations in the basic laws such as Enterprise Law, Investment Law and Labor Law In addition, more updated policies are needed to support for SMEs start-up Most start-up businesses are small and vulnerable that they are easy to be failed without adequate policies On Korean experience, in August 2018, the Government added measures to facilitate creative startups, by abolishing a series of binding rules and create a fair market for SMEs to escape from the influence of the giant corporations They also requires large corporations not to put competition pressure on SMEs and even urges them to share benefits with each other In each market place, Korea has a very specific policy At the end of 2018, the Korea Small & medium Business Corporation (SBC) supported up to 1,000 billion won (889.3 million USD) for its startups in Seattle, USA In addition to Seattle, SBC is also considering about establishing the research centers to promote global innovation in other cities, such as Beijing and New Delhi Vietnam is a developing country with limited budget However, the Government can support for SMEs start-up in terms of facilities, policies and creating a linkage between firms in the same sectors so that they can connect and share experience The Government needs to provide financial support for SMEs Korea was very successful in implementing this measures For example, the years support program is conducted as follows: Every year, the workers contribute million won (125 thousand won each month); Enterprises pay million won and the Government supports million won After years, the worker is received 16 million won and interest though he just contributed million won In fact, this is a support program in the form of savings Both businesses and especially workers have received tremendous support from the Government but not at once Thanks to this program, SMEs can retain workers for the longterm and maintain the personnel stability The workers are also happy and consensus to contribute because they get a huge benefit from that contribution The supporting period of years is enough for the SMEs to operate, develop and find their own path to grow In Vietnam, despite many difficulties, financial supporting for SMEs at the beginning is necessary because at this moment they are vunerable and weak We can learn from Korea's experience and base on specific conditions, the level of contribution and support will be more flexible Besides, it is necessary to have a long term capital solutions for SMEs Vietnam is not the only country in the world that SMEs are always in need for capital This is the problem of all SMEs in the world In Korea, SMEs must have a plan, financial forecast, feasible operation plan to meet banks, financial institutions or funds to convince them to invest or sponsor In Vietnam, 93 INTERNATIONAL CONFERENCE: DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES IN VIETNAM IN THE CONTEXT OF INDUSTRIAL REVOLUTION 4.0 many SMEs already have long-term operational plans However, these plans still have many unconvincing contents and they could not persuade the financial investors The SMEs need to impove themselves in both manufacturing and dealing with legal procedures On the other hand, financial institutions in Vietnam are not really attached to SMEs because they not want to risk Therefore, the Government shoud issue some specific policies for financial institution in supporting for SMEs The Govenrment should have timely and accurate amendment for existing policies in unexpected situation In 2018, Korean economy has experienced a period with many negative fluctuation In August, the Government increased tax incentives and added a number of measures to support for SMEs They also reduced credit card usage fees for small business owners to help them overcome the economic difficluties Besides, the Government spent 1,800 billion Won (equivalent to 1.6 billion USD) of low-interest credit for small businesses In total, the support package is 7,000 billion Won, reflecting Korea's determination in implementing comprehensive measures to address difficulties for SMEs Many economic experts said that Korea's increasing budget spending to share difficulties with SMEs at the moment is a necessary and timely decision Recently, Korea's SME Ministry has a plan to support for 15,000 online exporters and 5,000 key local potential exporters from 2019 to 2022 From this experience, Vietnam can learn how to support and when to support The Government should have an accurate evaluation of the real economic situation and implement necessary changes if neeed A timely financial help is more important than anything because it can help the firms overcome the edge of bankruptcy and develop The Government needs to create the favourable conditions for SMEs to reach out to the world market In 2009, Korea set a target to become the 8th largest exporter in the world in 2014 with the target of over 10,000 enterprises with export value of million USD/year and the Government supported 31,500 billion won for the exported SMEs By that time, they have sent many delegations abroad to connect, cooperate and open the new market for the firms For example, on June 27th, 2018, Professor Jongouk Kim of the Faculty of Vietnamese Language, in Chungwoon University, a member of the Korean-Vietnamese Friendship Association (KOVIFA) led a group of 27 Korean businesses to visit and work in Vietnam to promote cooperation between SMEs on both sides Obviously, the Government of Vietnam can apply this method because we are having good relationship with many partners in the world More important, SMEs need to actively expand the business and reach out to the world market This is a crucial strategy to develop the business in all the sectors because the domestic market has the limitation If the firms not operate and develop themselves, the Government‘s support will become meaningless Korean SMEs are very proactive and they know Vietnam has many SMEs that have successfully started their businesses and reached overseas markets Therefore, on November 8th, 2016, Vietnam SME Development Fund (SMEDF) and SBC signed a memorandum of understanding to promote the cooperation In the era of 4.0, technology innovation becomes more significant then ever before Particularly, SMEs are small, flexible and easy to adapt to the new change of the technology 94 HỘI THẢO QUỐC TẾ: PHÁT TRIỂN DOANH NGHIỆP NHỎ VÀ VỪA CỦA VIỆT NAM TRONG BỐI CẢNH CUỘC CÁCH MẠNG CÔNG NGHIỆP 4.0 revolution and they can catch up in this sector Korea is one of the leading countries in electronics - telecommunications technology One of the reasons for this success is that the country has issued a lot of preferential policies for individuals and organizations to set up businesses in the field, passing a number of Acts in this sectors In addition, Korea has issued a number of regulations such as supporting 50% of the cost of buying equipment for production activities, prioritizing land and property use, as well as providing funding for high tech projects Vietnam is a latecomer country, but according to many international assessments, we have a lot of potential to participate in this brain competiton Therefore, it is necessary to have a technology support policy, especially for SMEs to fully utilize the strength of human resource Vietnamese SMEs also need to change their mind set about learning new technologies and updating information They should not only study and imitate but also create and invent new product with their own value and special marks Training and providing human resources for SMEs are another lesson that Vietnam can learn from the experience of South Korea In South Korea, large enterprises have solved labor problems because they have good reputation and high salaries, which are quite attractive to the talents However, this is one of difficulties for SMEs The Government has enacted the Special act on support for human resources of SMEs in order to help SMEs in human resources Through distance education and online training policies, they have established an education network to equip and consolidate professional knowledge Not only that, Korea has also developed training through websites, making it easier and more flexible to access information (Article 12) In addition, the Government has also established close relationships between SMEs with universities, colleges and academies, linking the SMEs into the training programs Therefore, SMEs in Korea can meet the needs of human resources by region, by business type and sector Currently, there are many existing training facilities in Vietnam While these facilities are facing difficulties in finding the jobs for the students after graduating, SMEs are lacking of qualified and experienced personnel Therefore, it is necessary to have a mechanism to link them so they can cooperate with each other in dealing with the labour demand and supply In addition to the above successes, Korean SMEs often have lower labor productivity, less than 1/3 of the large enterprises In 2015, the labor productivity of SMEs was only 32.5, while that of large enterprises was 100 The reason is that Korea is losing its economic growth motivation and facing with serious income inequality Therefore, Korea is seeking a breakthrough for the potential of Korean SMEs In Vietnam, there are no comprehensive statistics on productivity like Korea, but this experience is very valuable for us to avoid falling into the same situation Most notably, the income inequality is not only affect to economy, but also to society and the development of the country in the long term In conclusion, the SMEs policy of South Korea has achieved many positive outcome that Vietnam should learn Besides the Government policies for SMEs, financial, human resouces and technology support, the SMEs themselves need to be proactive and improve the capability in production, marketing and management to be able to compete and develop not only in the domestic but also in the international market 95 INTERNATIONAL CONFERENCE: DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES IN VIETNAM IN THE CONTEXT OF INDUSTRIAL REVOLUTION 4.0 References Act on the promotion of technology innovation of SMEs, 2001, Korea legislation research Institute Act on the promotion of collaborative cooperation between large enterprises and SMEs, 2006, Korea legislation research Institute Act on facilitation of purchase of SMEs manufactured products and support for development of their markets, 2009, Korea legislation research Institute Act on the protection of and support for micro enterprises, 2015, Korea legislation research Institute Act on Support for Protection of Technologies of SMEs, 2016, Korea legislation research Institute Act on the fostering of self-employed creative enterprises, 2011, Korea legislation research Institute Jung Suk-yee, 2019, Exports by S Korean SMEs Reach US$114.6 Bil in 2018, http://www.businesskorea.co.kr/news/articleView.html?idxno=28482 Joo-Yong Kim, 2007, SME Innovation Policies in Korea, The Policy Environment for the Development of SMEs, pp129-149, Published by Pacific Economic Cooperation Council and the Chinese Taipei Pacific Economic Cooperation Committee Ministry of SMEs and start-ups, https://www.mss.go.kr/site/eng/02/10202000000002016111504.jsp 10 Regional credit guarantee foundation act, 1999, Korea legislation research Institute Korea SMEs and start-ups agency, Contribution by Big Corporations and SMEs in Manufacturing to Economic Development, https://www.kosmes.or.kr/sbc/SH/EHP/SHEHP025M0.do 11 SMEs cooperatives act, 2007, Korea legislation research Institute 12 SMEs promotion act, 2009, Korea legislation research Institute 13 Special act on support for human resources of SMEs, 2003, Korea legislation research Institute 14 Special act on the promotion of business conversion in SMEs, 2006, Korea legislation research Institute 15 Special act on support for small urban manufacturers, 2014, Korea legislation research Institute 16 Support for SMEs establishment act, 2007, Korea legislation research Institute 17 Yong-Hwan Noh, 2017, Status of Korean SMEs and Policy Tasks for the Implementation of SME-centered Economy, 2017 Journal of Economic Policy Conference 96 ... Contributing to the enhancement of the competitiveness of SMEs and to the management stability thereof by facilitating the purchase of SMEs manufactured products and supporting the development of markets... improve the economic status of SMEs and accomplish the balanced development of the national economy Act on facilitation of purchase of SMEs manufactured products and support for development of their... cooperation between them and to attain their shared growth by resolving the polarization between large enterprises and SMEs with the aim of laying the foundation for sustainable growth of the national