The overseas expansion of South Korean small and medium-sized enterprises for continuous growth Sự mở rộng ra nước ngoài của các doanh nghiệp vừa và nhỏ
INTRODUCTION
South Korea's economy has experienced unprecedented rapid growth, becoming a model for many developing countries Following the war, the nation focused on industrial policies centered around large enterprises, which was essential for quick economic reconstruction in the absence of an established industrial base This strategic approach has been recognized as a successful policy, demonstrating effective economic development in a short timeframe.
‘Trickle-down effect’, which benefits economic players such as small and medium- sized enterprises (SMEs) and households through the expansion of consumption and investment by fostering large enterprises
In the context of the 4th industrial revolution, the traditional 'Trickle-down effect' from large enterprises is no longer a viable expectation As industry boundaries blur, it is essential for individual companies to enhance their competitiveness rather than relying on broader industrial units for growth.
According to Cho (2017), the dominance of large enterprises has significantly influenced the rapid growth of the Korean economy, necessitating a structured approach to their operations Consequently, this prioritization has limited the business opportunities available for small and medium-sized enterprises (SMEs) and led to a distortion in the overall growth framework.
Past experiences highlight the vulnerability of industrial unit policies focused on large enterprises, particularly during crises The 1997 Asian financial crisis exemplified this, as Korea, with its high concentration of large enterprises, suffered more than countries with diverse economic structures Chung (2017) noted that financial shocks significantly increase overall economic volatility, with large enterprises contributing to both direct impacts and substantial ripple effects In Korea, the phrase "Too big to fail" encapsulates this phenomenon.
Large enterprises play a crucial role in the economy, making their potential bankruptcy a significant concern This concept highlights the importance of economies of scale, as larger companies have a substantial influence on the national economy Consequently, even when facing management challenges, these enterprises can often rely on government support to navigate difficulties.
As large enterprises expand and increase their impact on the national economy, they often adopt a stable and conservative management approach instead of prioritizing continuous innovation This strategy can lead to a decline in their competitiveness in the global market.
Large enterprises have significantly contributed to Korea's economic development, but it is essential to address the monopolization by a few major players Policy support is needed to foster fair competition, enabling small and medium-sized enterprises (SMEs) to evolve into middle-market and eventually large enterprises Given the changing landscape, promoting coexistence and collaboration between large firms and SMEs is crucial This context inspired the author to select the thesis title: "The Overseas Expansion of South Korean SMEs for Continuous Growth."
There are three main objectives of this research:
(1) First, First, the thesis’ author reviews the theories about growth of SMEs and synthesize the theoretical framework for continuous growth of SMEs
(2) Second, the author uses the theoretical framework to assess the situation of Korean venture firms as of 2020
(3) Third, the author proposes overseas expansion as solutions for enhancing continuous growth of Korean SMEs
Entrepreneurs who run SMEs ultimately want their business to grow, but the direction and purpose of growth may be different For example, the goal may be to
Securing advanced technology and maximizing returns are key goals for businesses, including small and medium-sized enterprises (SMEs) that aspire to grow like large corporations These companies aim to enhance their value and eventually sell their stakes, reflecting a common desire for positive development By examining the growth of SMEs from multiple angles, we can redefine the concept of growth and clarify its underlying purpose.
To foster the growth of small and medium-sized enterprises (SMEs), it is essential to identify and understand the key factors that contribute to their development This insight is valuable not only for aspiring entrepreneurs and current SME owners but also for government bodies, local authorities, public institutions, and educational organizations involved in creating support systems for SMEs By recognizing the critical elements that drive the continuous growth of SMEs, these findings can be integrated into various policies and strategies, enhancing both business management and overall support for the SME sector.
Research into the growth of SMEs is crucial for their development, necessitating not only academic insights but also practical strategies for implementation One effective action plan for fostering SME growth is exploring overseas expansion Supporting SMEs does not entail imposing restrictions on larger corporations; rather, it involves creating a growth pathway that enables SMEs to evolve into mid-market enterprises, and subsequently, mid-market businesses to transition into large corporations This approach fosters a virtuous cycle that cultivates a robust business ecosystem and establishes a solid economic foundation When such a foundation is in place, the benefits of growth can be equitably shared among workers through the support of SMEs.
This study used the data of the ‘2020 Survey of Korea Venture Firms’
The '2020 Survey of Korea Venture Firms,' conducted by the Ministry of SMEs and Startups, is based on a sample of 2,500 companies and was published in December 2020 This annual survey is recognized as a reliable source of national statistics, strictly managed by the Korean government in compliance with relevant laws It serves as essential data for research in Korea, reflecting public confidence in its findings.
This study aims to evaluate the significance of overseas expansion as a strategy for the continuous growth of small and medium-sized enterprises (SMEs) It will begin by reviewing a range of research data concerning SMEs, including their growth dynamics, essential growth factors, and the implications of international expansion The analysis will incorporate studies from various countries, including Korea, to provide a comprehensive understanding of the topic.
The article evaluates the overseas expansion of SMEs using data from the 'Survey of Korea Venture Firms,' which is particularly relevant as these firms align with the study's focus While the term 'venture firm' varies globally, it generally encompasses companies backed by venture capital, startups, and technology-driven SMEs In Korea, however, the definition diverges slightly, as the 'Act on Special Measures for the Promotion of Venture Businesses' characterizes venture firms as SMEs demonstrating significant technological innovation and growth potential Thus, this data serves as a solid foundation for analyzing the relationship between SMEs' overseas expansion and their growth.
The structure of this paper is as follows
The first chapter of the thesis includes rationale, motivation, objectives, scope, methods, structure The reason and justification for this study are explained.
LITERATURE REVIEW
In the second chapter, key concepts will be defined, including prior research and existing theories related to the growth and international expansion of SMEs This study's direction is established through a review of current research findings, leading to the development of a research model that outlines hypotheses detailing the independent and dependent variables.
RESEARCH DESIGN AND METHODOLOGY
In the third chapter, various measurement methods are introduced to validate the hypothesis, alongside detailed explanations of data collection approaches The chapter outlines the process of deriving the relationship between the independent and dependent variables, and it also describes the step-by-step procedure for analyzing the relationships within the collected data.
RESEARCH RESULTS
In Chapter Four, each hypothesis is rigorously tested, leading to a decision on whether to accept or reject it The results of the analysis are thoroughly interpreted, and the validity of the findings is also examined.
CONCLUSION AND SUGGESTIONS
The final chapter of the thesis, conclusion based on research result and
6 applicable implication contained And, the disappointing points during the research and the points that can be referred to in future research are suggested
2 1 1 Small and medium-sized enterprises (SMEs)
Small and medium-sized enterprises (SMEs) in South Korea are defined by the 'Framework Act on Small and Medium Enterprises,' which establishes clear criteria for classification Key standards include average sales by industry, with specific thresholds such as 150 billion won for the electrical equipment manufacturing sector Additionally, a uniform total asset limit of 500 billion won applies across all industries Ownership and management independence is another critical factor; companies with 30% or more shares owned by non-SMEs may lose their SME status While special types of enterprises like social enterprises and cooperatives have distinct criteria, the main determinants for SMEs are sales, assets, and ownership independence.
Standards for small and medium-sized enterprises (SMEs) globally are similar to those in Korea According to the Korea Federation of SMEs (2021), the definition of SMEs varies by industry in the United States; for instance, the wholesale sector considers businesses with fewer than 100 employees as SMEs, while the arts, culture, and entertainment sector has an annual sales threshold of under 6 million dollars Thus, the classification of SMEs is determined by either the number of employees or annual sales specific to each industry In the European Union, similar criteria are applied to define SMEs.
7 less than 250 employees and less than 50 million euros in annual sales or less than
Medium-sized enterprises, classified as SMEs, encompass total assets of 43 million euros across various industries Different countries define SMEs based on specific criteria: Canada considers companies with fewer than 500 employees, while Australia sets the threshold at 200 employees In China, the classification depends on sales and employee count within specific industries, whereas Japan uses employee numbers and capital as its metrics Globally, governments are establishing clear definitions for SMEs based on standards such as sales, employee numbers, assets, and capital.
Table 2.1: Scope of SMEs in Each Country
Governments worldwide, including Korea, define the scope of small and medium-sized enterprises (SMEs) to provide essential support for these businesses In the European Union, SMEs are crucial to the economy, representing 99.8% of all companies, 67% of jobs, and 57% of total value-added production, according to Korea's Ministry of Foreign Affairs (2020) Additionally, the OECD (2021) reports that SMEs account for 42.4% of employment in the United States, 88.5% in Canada, 67.7% in Australia, and 60% in Japan, highlighting their significant role across OECD countries.
Small and medium-sized enterprises (SMEs) significantly contribute to national economies, with indicators showing a 69.4% reach, 59.3% value added, and 38.9% participation in exports These statistics highlight the crucial role SMEs play, prompting governments worldwide to implement proactive policies to support their growth and sustainability.
Figure 2.1: Proportion of employees in SMEs
To effectively assess the growth of SMEs, it is essential to establish a standard measurement criterion According to Short et al (2009), sales serve as a key indicator of a company's growth, allowing for easy comparison across different business types, sizes, and locations This makes sales not only a growth metric but also a primary criterion for categorizing companies Additionally, the term "gazelles," introduced by Birch (1981), describes rapidly growing firms that achieve more than double the industry average growth rate over a four-year period based on sales growth.
Since then, the employment growth rate has been added as an indicator to
According to Acs et al (2008), employment size is a key index for measuring company growth, alongside sales figures The OECD (2002) highlights that high-growth firms play a vital role in expanding employment opportunities However, many developed countries are facing the challenge of "jobless growth," where economic and production growth occurs without a corresponding increase in employment rates To foster a sustainable economic environment, it is essential to create a virtuous cycle that promotes both growth and job creation, as prolonged jobless growth can hinder ongoing economic expansion.
Wernerfelt (1984) posited that a company's growth can be assessed by the extent of its productive resource utilization Various studies have identified key growth indicators, including assets, financing, market share, profitability, and technology levels Additionally, some countries are intensively supporting a select number of SMEs based on specific criteria For instance, Germany employs the Hidden Champion policy to identify SMEs with the third largest global market share and limited sales, while Japan's Monozukuri policy focuses on supporting SMEs that produce top-quality products.
Numerous studies have explored the structured growth stages of a company, suggesting that growth follows a specific sequence Greiner (1972) identified five stages of growth: Creativity, Direction, Delegation, Coordination, and Collaboration In contrast, Scott & Bruce (1987) categorized these into Inception, Survival, Growth, Expansion, and Maturity, detailing the evolutionary phases of SMEs Additionally, Kazanjian (1988) highlighted the challenges encountered at each stage, dividing the growth process into four phases: Conception and Development, Commercialization, Growth, and Stability.
In 2012, growing pains were identified as challenges arising from inconsistencies in company growth and organizational development This process is categorized into four distinct stages: New Venture, Expansion, Professionalizing, and Consolidation.
Coad (2007) highlighted that SMEs experience a distinct growth pattern compared to large enterprises, which can afford long-term investments Headd & Kirchhoff (2007) noted that rapidly growing companies often revert to average growth rates in subsequent years Additionally, de Geus (1997) emphasized that consistent survival is a key characteristic shared by long-lived companies, as discussed by Davis et al.
(2006) also argued that company growth is affected by macroeconomic indicators
2 1 3 Factors necessary for growth of SMEs
The growth of small and medium-sized enterprises (SMEs) is influenced by various factors, which ultimately contribute to their overall success This article explores the essential elements that drive SME growth, drawing on Gibrat’s theory, one of the oldest and most recognized frameworks for understanding the dynamics of company expansion.
The 'Law of Proportionate Effect' (1931) posits that a company's growth, as indicated by employee numbers, is independent of its size in the preceding year, a theory initially proposed by Gibrat This concept was further supported by subsequent research from Hart & Prais (1956) and Simon & Bonini.
(1958), and Lucas (1967) On the other hand, contrary to Gibrat’s argument, Kumar
(1985), Hall (1987), and Mata (1994) said that there is a negative (-) correlation between the size of a company and its growth Conversely, Singh & Whittington
(1975) argued that there is a positive (+) correlation between size and growth of a company
Research indicates a link between a company's history and its growth trajectory Jovanovic (1982) proposed that older companies tend to exhibit lower growth rates due to heightened administrative inefficiencies, known as the 'Jovanovic hypothesis.' Furthermore, Evans (1987) found that both company size and history play critical roles in growth, revealing that as a company's history extends, its growth diminishes, demonstrating an inverse relationship with company size.
The 'Resources-based view' theory offers valuable insights into the growth factors of a company, allowing for a systematic discussion of issues related to resource management This perspective emphasizes the importance of effectively leveraging and managing resources to drive organizational success and sustainability.