『Financing the Technology Innovation of SMEs in Korea 』 i SME K H Hong Jae-Keun (Ph.D) J K (Ph D)
CONTENTS Ⅰ . Why SME Technology Financing Matters? Ⅰ . Why SME Technology Financing Matters? Ⅱ . How Korean SMEs Finance for R&D? Ⅱ . How Korean SMEs Finance for R&D? Ⅲ . Sophisticated Technology Financing Infrastructure Ⅲ . Sophisticated Technology Financing Infrastructure Ⅳ . Less Accessibility & Availability of the Infrastructure Ⅳ . Less Accessibility & Availability of the Infrastructure Ⅴ . Conclusion and Suggestions Ⅴ . Conclusion and Suggestions 2
I. Why SME Technology I. Why SME Technology Financing Matters? g 3
Ⅰ . Wh . Why SME T y SME Technology nology Financing Financing Matt Matter ers? s? Why SME Technology Financing is important? More balanced and sustainable growth is needed • A strong and innovative SME sector is the key for the balanced and sustainable growth Innovation-led competitive paradigm for SMEs prevails • From factor-input to innovation led economy development paradigm Market failure is needed to be fixed • Due to the information asymmetry of SMEs’ technology innovation, Due to the information asymmetry of SMEs’ technology innovation bridging the gap between financial market and intangible future asset is getting important A ripple effect on the national economy The social rate of return of technology financing exceeds the private • The social rate of return of technology financing exceeds the private rate of return 4
Ⅰ . Wh . Why SME T y SME Technology nology Financing Financing Matt Matter ers? s? European paradox? Now, Korean paradox in SME R&D The success rate of government-granted R&D project exceeds 90%, but the rate of commercialization of the R&D output lies at about 40% -Small and Medium Business Administration- 5
Ⅰ . Wh . Why SME T y SME Technology nology Financing Financing Matt Matter ers? s? Further evidences of Korean paradox in SME R&D 80%↓ � � � � � � � ���� �� � � � � � � � ��� � � � � � �� ����� � 75.8% 74.6% 74.9% ���� 74.7% 2005 2005 2007 2007 2009 2009 2011 2011 [unit : million won] [unit : million won] [unit : %, LEs = 100] 15,064 12,904 32.4 「 � 」 � � � � � � � � � � � � � �� � � � � � 12,244 30.7 28.8 28.1 26.6 26.58 10,464 �� � ���� � 9,803 sales �� �� �� � � � �� � added value 2008 2009 2010 2007 2009 2009 2010 2011 70.0% 69.3% ��� � � � � � �� 54.1% � �� � � ��� �� � ���� � ���� � � � �� � � �� � �� 30.6% � ����� ����� KOREA UK USA JAPAN 6
Ⅰ . Wh . Why SME T y SME Technology nology Financing Financing Matt Matter ers? s? Financing gap results in the paradox Hurdles against Hurdles against The most required policy for The most required policy for R&D commercialization of SMEs R&D commercialization of SMEs Technology appraisal based Lack of funds financial support Preferential public procurement High price of product of new technology product Consulting support as market analysis Difficulty in sourcing Human resource support for production Emergence of similar product The most necessary policy for Human resource support for marketing the R&D commercialization of SME Immature market Support for exhibition S t f hibiti and overseas exploitation Incomplete product Support for domestic and global standardization Others Others Source: Survey on SME technology and R&D 2011 (SMBA). 7
『 Technology Financing 』 to bridge the financing gap Ⅰ . Wh . Why SME T y SME Technology nology Financing Financing Matt Matter ers? s? In a broad sense, ‘Technology Financing’ is a high risk enterprise financing, that covers life-cycle of‘start-up’,‘R&D’,‘R&D output commercialization’ by means of technology appraisal In a narrow sense, ‘Technology Financing’means loan or investment executed after the opinion of technology appraisal institution, not depending on the collateral collateral 8
The Paradigm shift in SME policy also Ⅰ . Wh . Why SME T y SME Technology nology Financing Financing Matt Matter ers? s? influenced on the emergence of Technology Financing influenced on the emergence of Technology Financing Before currency crisis After currency crisis • Competitiveness • Competitiveness • Protection & Growth • Protection & Growth The Paradigm Shift The Paradigm Shift Requires Change in Business Strategy of SMEs 9
New business strategy requires a new financial instrument Ⅰ . Wh . Why SME T y SME Technology nology Financing Financing Matt Matter ers? s? Business Strategy Technology Strategy SME C Cost t Technology leader T h l l d Technology or or Financing Differentiation Fast Technology follower Traditional SME Financing g 10
II. How Korean SMEs Finance II. How Korean SMEs Finance for R&D? 11
Ⅱ . Ho . How K w Korean SMEs Finance f rean SMEs Finance for R&D? r R&D? High R&D intensity of Korean SMEs <R&D Intensity of Top 1,000 R&D Enterprises by Firm Size> (unit: %) 6.00 4.84 5.00 4.62 4 06 4.06 4.00 2.77 3.00 2.50 2.51 2.00 1.00 1.00 0.00 2008 2009 2010 LEs SMEs source: Korea Institute of Advanced Technology (2012). 12
Ⅱ . Ho . How K w Korean SMEs Finance f rean SMEs Finance for R&D? r R&D? Government is a key source of external R&D financing [Manufacturing sector] [Business service sector] government loan others, government others 10% 0.2% loan, 1.8% 5% 5% private investment private Government 12% investment, grant, 6.8% Government 3.8% private loan p a e oa grant grant 9% 64% private loan, 1.7% External External external external finance, finance, 14.2% 17.5% Internal Internal finance, finance 82.5% , 85.8% Source: Survey on SME Technology & R&D 2011(SMBA) 13
Ⅱ . Ho . How K w Korean SMEs Finance f rean SMEs Finance for R&D? r R&D? Small Portion of Technology Financing 2010 2010 2011 2011 Government direct loan 8,657 8,897 Technology guarantee * 151,181 151,914 Private finance 1,018 554 Venture capital 16,028 20,309 Total (a) 176,884 hundred million 181,674 hundred million Bank SME loan (b) 429.7 trillion 441.0 trillion a/b 4.09% 4.10% *: public loan guarantee by technology appraisal 14
Ⅱ . Ho . How K w Korean SMEs Finance f rean SMEs Finance for R&D? r R&D? Boosting the loan guarantee by technology appraisal KOTEC has rearranged all the branches into technology appraisal centers KOTEC has rearranged all the branches into technology appraisal centers to guarantee the loan by KTRS(Kibo Technology Rating System) since 2008 [Portion of technology guarantee in outstanding guarantee of KOTEC] 91.4% 93.4% 54.0% 15.4% 2004 2007 2011 2012. 10 15
Ⅱ . Ho . How K w Korean SMEs Finance f rean SMEs Finance for R&D? r R&D? Evolution of technology financing: public loan guarantee In respond to the global innovation trend of technology convergence Amount of guarantee approval is calculated in reference with the expected future cash flow of the patented technology future cash flow of the patented technology - Currently, expected sales in 1yr has been used to calculate the guarantee amount Estimate the required fund during the life-cycle phase of R&D and set the maximum guarantee amount for the whole life cycle maximum guarantee amount for the whole life-cycle �� ���� �� �� � �� �� � � � � ����� ���� �� �� � � �� �� � �� �� � ����� ���� �� �� � � �� �� � �� �� Provide the guarantee at each phase of life cycle Provide the guarantee at each phase of life-cycle - 100 billion in 12yr 16
Ⅱ . Ho . How K w Korean SMEs Finance f rean SMEs Finance for R&D? r R&D? Evolution of technology financing: private sector To redeem the collateral based underwriting practice and weak technology screening capability of private financial institutes - KOTEC and KIPA issue 『technology appraisal certificate 』 to the innovative SMEs - The contracted banks approve loan in reference with the certificate (loan approval rate of '11 : 93.8%) 17
Ⅱ . Ho . How K w Korean SMEs Finance f rean SMEs Finance for R&D? r R&D? Evolution of technology financing: venture capital New investment (Unit: hundred million won) Outstanding [annual Investment amount] (Year) ( ) Source: Korean Venture Capital Association (2013). 18
III. Sophisticated Technology III. Sophisticated Technology Financing Infrastructure g 19
Ⅲ . Sophisticat ophisticated ed Technolog nology Financing Financing Infras nfrastructure ructure Kibo Technology Rating System KTRS provides the grade of technology or the enterprise holding the technology through the appraisal of the technological level marketability profitability through the appraisal of the technological level, marketability, profitability, environmental condition 20
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