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Management Report

Management reports, briefs and video-clips issued by Samsung Economic Research Institute

SMEs Go Global

SMEs Go Global

KIM Jung-Woo

Nov. 11, 2010


Welcome to our video program. I’m Jung-Woo Kim, Research Fellow at the Technology and Industry department.

When describing Korea’s small and medium enterprises, or “SMEs” we usually cite the number “9988,” which means SMEs account for 99% of Korean businesses, and employ 88% of workers. This emphasizes the important role SMEs play in the Korean economy.

According to a recent study by the Small and Medium Business Association and the Korea Federation of Small and Medium Business, SMEs focusing on exports tend to enjoy better results. In fact, SMEs with more than half of their sales from exports have better operating profits.

Then, how do they do that?

First, they think about the global market when developing products and services.

Auroraworld, the third largest stuffed toy maker in the global market, is targeting the US, where, unlike Korea, 80% of toy products are non-character based. The toy manufacturer was able to soak up a large market share by operating research centers around the world and hiring local designers to cater to local customers’ life styles and needs.

On the high end luxury front, there is Simone.the world’s No.1 handbag manufacturer. The company exports 100% of its end products, supplying 25% of Coach, 90% of Michael Kors and 80% of Marc Jacobs bags. The purse manufacturer dominates the market, so much so that 40% of handbags you can encounter at high end department stores in the US are made by Simone. The company is an original design manufacturer (ODM) that designs and manufactures products for 25 international brands.

Korean franchises also are venturing into overseas markets.

Bibigo is a Korean cuisine restaurant which offers a customized culinary experience for local people and opened a branch in Beijing in August 2010. The restaurant company’s plan is to open more than 1,000 branches across the globe by 2015.

Caffe Bene is another Korean franchise that is aimed at the global market and the first Korean coffee chain to open a store in Manhattan.

Now, many Korean companies providing different services are expanding their presence abroad. To name a few, Beauty parlors.Lee Chul, Hair KerKer, Park Seung-Chol Hair Studio, Laundromats.Cleantopia, eyeglasses provider.Davichi, and office supplies store.Office 1009 have expanded into global markets.

Another strategy to reach out to the global market is to leverage existing business partners. It takes a long time for an SME to build trust in the global market, but this is not the case when it joins hands with large corporations. Automobiles and IT are good examples.

Many companies in those industries have gained credit by building partnerships with companies that are well known abroad and expanding partnership with global companies based on their technological competence.

Telechips is a manufacturer of car audio semiconductors that supply products to Hyundai Motors. Based on its credit, the company now supplies semiconductors to Nissan Motors as well.

By working with companies that already have a presence in the overseas market, you can also expect to gain information and reduce costs and risks. Sewon Precision Industry cut storage costs by 37% by using the extra storage facility of Hanjin group in the US. In return, Hanjin also enjoys additional revenues by renting the space.

Last but not least, you can also make forays into overseas markets by joining hands with other companies. Although you can expect large gains when expanding into new industries or making new products, this also comes with high risk.

The high-speed electric car BlueOn is praised as a successful collaboration between large companies and SMEs. Around 130 companies are involved in developing the car’s core components, and 88% of them are subcontract partners.

For core environmental technologies, 10 domestic SMEs, SK Energy and Korea Environmental Industry and Technology Institute have forged an agreement to cooperate with each other.

As these cases demonstrate, it is crucial for SMEs to capture opportunities by collaborating with other companies that have core technologies when they set eyes on a new industry or new product.

So far we have looked at what makes small businesses successful.

To help SMEs, the government needs to provide information on global markets and risks, while coming up with various measures to handle troubles promptly.

In particular, for its part, the government should support small businesses to launch new projects abroad by helping them with establishing marketing infrastructure and by providing information on the local business environment.

Also, proactive marketing and support should be provided by the government to improve SMEs brand value. For example, putting a brand tag on ‘Made in Korea’ can help.

More importantly, SMEs need to nurture their core competence by making continuous efforts in research and development to devise technologies. In order to distinguish themselves from competitors, they need to care about business networks and partnerships with local companies as well as invent their own technologies. It also matters to hire the right people. On that front, hiring those who just retired from major corporations can help because they have experience and knowledge.

Thank you for watching. I’m Jung-Woo Kim.

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