Government Policy for the Promotion of New Growth Industries

Transcription

1 Government Policy for the Promotion of New Growth Industries Joint German-OECD Conference : Benchmarking ISRs Berlin, October 16-17, 2000 Moon-seob Youn, Yong Soo Kwon and Sungchul Chung Science & Technology Policy Institute(STEPI)

2 Contents 2 1. Introduction 2. Why NTBFs? 3. Structural Problems of SMEs 4. Policies for SMEs and NTBFs 5. Performance of NTBFs and the Role of Public Sector 6. Evaluation of the Policy Programs for NTBFs 7. Policy Issues

3 Introduction 3 1. Objective of the presentation - To review the growth of NTBFs(New Technology Based Firms) and policies to promote NTBFs in Korea - To derive policy issues from the analysis 2. The data employed to analyze the NTBFs are based on the survey u ndertaken by the Korea SMBA(Small & Medium Business Agency) for 4,000 firms registered as NTBFs. - The questionnaires cover 600 items of questions - Survey period : Sept 1, 1999 ~ Oct. 20, Out of the 4000 firms, 3693 NTBFs responded

4 Why NTBFs? 4 1. The limit to growth-oriented economic development! Excessive reliance on chaebols(conglomerates) for quantitative growth res ulted in the financial crisis of 1997! Many large firms went bankrupt or had to undergo restructuring Increasi ng unemployment and rising need for creating new jobs GDP Unemployment

5 Why NTBFs? 5 2. The emergence of new growth industries! The decline of heavy machinery, chemical, textile industries as well as the emergence of new industries such as TFT-LCD, cellular phones, semicond uctors leading economic growth. The need for the development of high-tech industries supplying parts and accessories! The emergence of ICT, e-commerce, biotech, and services as major sourc es of value-added. Increased participation of young entrepreneurs with S&T backgrounds.

6 Why NTBFs? 6 Rate of Increase in Export of 5 Major Products TFT-LCD 53.1% 268.2% Cellurar Phone 67.5% 146.2% PC -19.1% 85.7% Semiconductor 2.4% 14.1% M otor V ehicles -7.1% 18.2% Average of 5 m ajor products -2.4% 33.9% Totalexport grow th excluding the above ite m s -3.0% -5.6%

7 Why NTBFs? 7 3. Policy responses! Reform the corporate system : From Chaebol-oriented industry structure t o one based on market competition Reform the corporate governance structure Accommodate the global business practice Let the market select winners and losers! Policy transformation from growth-oriented development to technology-or iented development - Foster a business environment conducive to creative & risk- taking ventures! Promotion of market competition and deregulation - Market opening, deregulation of goods and factor market

8 Structural Weakness of SMEs 8 1. Disadvantage of smallness! SMEs share in number of firms 99.2% and in employment 75% (1998) - Total number of SMEs : 276 thousand of which 197 thousand firms employing less than 5 workers! But only 46% in production and 34% in export (1998)

9 Structural Weakness of SMEs % 25% 99.2% SMEs 0.02 millio n firms 2.6 million firms 75% SMEs 2.3 millio n pe rs o ns 7.7 millio n pe rs o ns Number of Firms (1998) Number of Employee (1998) 34% 46% SMEs 54% SEMs 66% $1906 billion $163 billion $94 billio n $49 billio n Production in Manufacturing Industry (1998) Export (1998)

10 Structural Weakness of SMEs Weak R&D capability of SMEs! SMEs account for 13.2% of the total business R&D expenditures! SMEs explain 20.4% of the total business research manpower! Top 20 firms explain 72% of the total business R&D expenditures R&D Expenditures (hundred million won) SMEs Large R&D Personnel(10 persons) SMEs Large

11 Structural Weakness of SMEs Industry-Science Relationships! Weak linkage between academics and GRLs(Government Research Labor atories) SMEs R&D Expenditure Government $ 0.22 billion (21%) Own Funds $ 0.83 billion (79%) ISRs $ 0.1 billion(9.5%) External R&D Network Universities, GRLs etc. Large Firms R&D Expenditure Government $ 0.14 billion (2%) Own Funds $ 7.26 billion (98%) ISRs $ 1.1 billion (15%) External R&D Network Universities GRLs etc.

12 Policies for SMEs and NTBFs Policy shifts! Adoption of so-called Venture-drive Policy Selective support for NTBF Special Act for the Promotion of Venture Business(1997) : Legal definition for venture business firms which are eligible for government supports.! Development of new mechanism for financing Creation of the KOSDAQ(stock exchange for new firms) 1996 Promotion of private venture capitals! Encouraging start-up business by scientists and engineers Financial support for new start-ups by university professor and research scientists. Allow leave of absence for venturing! Deregulation : lowering institutional entry barriers Abolishing market protection measures for SMEs

13 Policies for SMEs and NTBFs Policy Measures Item Policy Instruments Key Contents - Certification of NTBF(1998) o Criteria of NTBF - More than 5% in terms of R&D/Sales - Venture Capital company invests more than 20% share of capital - Product sales made by Patented technology exceeds more than 50% of total sales. - The sales of product developed from Government supported R&D projects exceeds more than 50% of total sales. Fund/Tax Credit - KOSDAQ(Open in 1996, o By easier requirements of IPO at KOSDAQ for new firms, promote its size as same as that of the existing Stock Promotion Scheme in 1997) Exchange market - Management Stabilizing Fund, Loan rate is below 1-2 Point % than market interest rate within the amount of 0.5 billion Won per enterprise Structural Adjustment Fund etc. - Technology Development o Government finances up to 50-70% of technology development cost for industries. Fund, Support for ISRs o Entice Cooperative Research between industries and Universities or Public Research Institutes - Venture Business Promotion(1998), Angel Capital o Tax exemption for stock transfer and dividend for venture capital o Tax reduction for Individual investor o Invest public fund to private venture capital - Credit Guarantee Program o Loan guarantee through evaluation of Technology Capability

14 Policies for SMEs and NTBFs 14 Item Manpower Policy Instruments Key Contents -Encouraging Permission on Temporary o For professors or researchers starting venture leave of absence bussiness - Military duty exemption for researchers o Permit researchers and technicians for working in firms of NTBFs instead of military duty -Support to the education and training o Corporate tax credit of 15% equivalent for the expenditures for technology manpower expenditure Infrastruct ure -Venture town -TBI -Start-up program in rerearch labs o Support for construction expenditure in establishing venture town by local government and civil business o Benefit for occupied venture enterprise o Support for operating TBI in University and Public Research o Permit to register plant in university and research labs Other Education, marketing etc -Consulting with new business and management training -Support to create homepage, Public procurement, Support for broadcasting advertisement, Support for export marketing etc

15 Performance of NTBFs and Role of Public Sector Birth and death of firms! Rapid increase in the birth of NTBFs NTBFs(1990) 1,794 NTBFs(1999) - The birth rate of NTBFs increased even during the period of the financial crisis, while the birth of new firms declined Tota l birth(x10 Firms ) Tota l de a th NTBF birth General Policy framework (Financing, Tax, HRD etcs.) KOSDAQ Legal Criteria for Venture Business Venture capital Start-up financing for NTBFs

16 Performance of NTBFs and Role of Public Sector The origins of NTBF! The origins of entrepreneurs(founders) - Established business: 69.6% - University and R&D institute : 5.6% - Others : 25.7%! NTBF founded by those from public sector(university or GRLs) and thos e based on the technologies licensed from public sector : 24.3% of the tot al Technology Source Parent O rganization of founder (Unit : %) Public Sector Private sector Total Universities & G RLs Large Firm s SMEs Student and others Total

17 Performance of NTBFs and Role of Public Sector The trend of public sector spin-offs! Spin-offs from GRLs have been increasing since 1990s. But the university based spin-offs have been increasing rapidly since 1998.! Public spins-offs( June, 2000) : 337(286 by professors, 51 by resear ch scientists from GRLs) Promoting the utilization of IPR of GRLs Leave - of - absence Government Unive rsity

18 Performance of NTBFs and Role of Public Sector NTBF by industries! Heavily concentrated in such industries as machinery, electronics, and IC T! ICT and biotech is leading the recent growth! NTBF based on universities and GRLs are mostly in the area of ICT and b iotech Machinery & material Machinery & material Chemical Te xile Electronics Chemical Te xile Electronics 7.10 Semiconductor Semiconductor ICT ICT Bio Environment Bio Environment Others Others NTBF Total Research-based Spin-offs

19 Performance of NTBFs and Role of Public Sector NTBF by product life cycle! Most of the NTBFs products are those of emerging stage(11%) and growt h stage(60%)! University & GRLs-based NTBFs are heavily geared to the production of goods at emerging(20%) and growth stages(61%) % 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Emerging Growing Mature Decline To ta l NTBF GRLs Spin-offs Universities Spin-offs

20 Performance of NTBFs and Role of Public Sector Performance of NTBFs! Employment size - The employment size of university and R&D institutes-based NTBFs is smaller than that of private company-based NTBF 20 :40! Average sales of NTBFs : $ 4 million (1998) - University and R&D institute -based NTBF : $ 1.7 million - Private company- based NTBF : $ 4.6 million S pin- offs from GRLs S pin- offs from university S a le s (Billio n wo n ) Nu mb e r o f Emp lo y ees Tota l NTBF

21 Performance of NTBFs and Role of Public Sector 21! Performance of NTBFs was very higher than SMEs & Large Firms. - Average annual growth : 71.2 % in sales, 25.3 % in employment, 4.0% i n current profit and 61.5% in export(1998). Export growth rate Current profit growth rate Employment growth rate Total Large Firms Total SMEs NTBF Sales growth rate % 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00%

22 Evaluation of policy programs Financial support for start-ups! NTBFs reliance on government financial support program turned out to b e very low : 4% The major financial source : family support and self-financing! But the reliance on government financial support and venture capitals sho ws rising trend. (Govt. 2%(1996) 5%(1999), VC 1% (1996) 3% (199 9)) 2% 1%4% 3%1% Owner's personal reso urce Venture capital An g e l Government loan Bank loan 89% Others

23 Evaluation of policy programs Financial & tax incentives For the operation NTBF the government provides financial and ta x incentives - Most popular policy programs are ( ) R&D Grant 48.3% Credit guarantee : 42.3% Corporate tax relief: 37.6% Degree of Utilization Degree of Satisfaction Start-up Financing 21.7% 3.65 Credit Guarantee 42.3% 4.02 Loans for Restructuring 36.0% 3.91 Loans for Operation 37.3% 3.92 R&D Grant 48.3% 4.14 Grant for ISR 36.0% 3.11 Venture capital 20.3% 3.45 Tax reliefs 37.6% 3.79

24 Evaluation of policy programs Manpower support! The major policy programs : - Military duty exemption for technical manpower - Tax deduction for human capital investment - Granting leave of absence for technology ventures! The most popular program is the Military duty exemption. - Among university professors and research institute scientists the Leaveof-absence program is very popular Degree of Utilization Degree Of Satisfaction (5 Scale) Military Duty Exemption for R&D 43% 4.1 Manpower Leave-of- Absence 10.3% (Only University) 3.1

25 Evaluation of policy programs Facilities! The government facilitates new start-up businesses by providing various f acilities such as TBI and venture parks etc. - Most popular among them is TBI Utilization by Degree of Utilization by Utilization by NTBFs Satisfaction University GRLs Spin-offs (5 scale) Spin-offs Venture Town 8.4% % 16.7% TBI 9.4% % 53.9% Lab-based startups 6.5% % 16.7%

26 Evaluation of policy programs Other Supports! Other supports include business counseling, government purchase progra ms, etc. - It turned out that new start-ups depend very much on counseling services and marketing assistance, but less on the government purchase program. Degree of Utilization Degree of Satisfaction (5 scale) Consulting for start-up process 22.4% 3.1 Management Education 24.0% 3.4 Procurement 6.2% 2.9 Market protection for new 13.3% 3.2 product Expert support 20.6% 3.3

27 Evaluation of policy programs The major difficulties NTBF faces! The major difficulties of NTBFs in Korea faces - Financing and financial management - Marketing - Acquiring manpower - Government regulation Degree of Difficulty (5 scale) Financing 3.7 Accounting 3.3 Adminirative regulation 3.2 Acquiring Manpower 3.3 Site 3.3 Idea 2.5 R&D 3.0 Marketing 3.6

28 Evaluation of policy programs Overall Evaluation of the Government Support Programs! Overall policies evaluation for NTBFs has been positive - The higher the popularity, the higher the satisfaction! Particularly, the government financial assistance program has received hig hly favorable evaluation - Degree of satisfaction : 4.14/5! But evaluation was relatively less favorable in the case of tax incentive, go vernment purchase programs and venture parks etc. Degree of Utilization Degree of Satisfaction High Middle TBI Venture Town Low Public Procurement Leave of Absence Low Middle High Start-up Financing Venture capital Market Protection Export Support Management Training Military Duty Exemption Credit Guarantee Start-up Program in Research Labs. R&D Grant Management Stabilizing Fund Structural Adustment Fund Consulting Start-up Industry-Science Cooperation Support to create Hompage - -

29 Policy Issues Evaluation of NTBFs Policies! Venture-Promotion policy has been successful - Dramatic increases in NTBFs since 1998.! Booms in venture businesses revitalized the Korean economy - Creation of new job opportunities - Transformation of the economic structure Weakened market power of Chaebols Transformation into new technology-based industrial structure : ICT and Biotech - Active research spin-offs from universities and R&D institutes

30 Policy Issues 30! The major policy changes that made the venture boom possible : - The changes in economic framework condition Promotion of market competition - Corporate reform - Deregulation, liberalization Labor market reform : enhancing labor mobility Financial reform and fostering a system favorable and conducive to risky investment : KOSDAQ, venture capitals. - Under such new economic framework condition, government support policies could gain effectiveness. Many of the policy programs were introduced in the 1970s and 1980s, when framework condition was unfavorable, and thus had not been working effectively.

31 Policy Issues Policy Issues! How to develop a financial system that is conducive to active investment in risky new technology businesses.! How to maintain the momentum for new technology ventures in the face o f increasing moral hazard owing to excessive supports! How to develop an appropriate IPR management systems! How long will the government interventions remain effective? Policy should be reoriented so as to create an economic and social ecosystem where NTBFs can flourish