KOREA FOCUS

In the face of a global financial crisis, one of the policy measures the government has particularly emphasized is the prevention of mass insolvencies among small and medium-size enterprises (SMEs). Now that the economy has stabilized with little chance of the crisis aggravating further, people have cautiously begun to discuss an exit strategy, preparing for post-crisis economic normalization that would include restructuring SMEs after the government discontinues emergency financial support for them.   

 

Against this backdrop, this study would like to discuss the government`s policy on SMEs` restructuring in the wake of the 1997 Asian financial crisis, when the situation was similar to now, and what lessons we can learn from them.

 

 

Low-level growth of SMEs has been cited as one of the primary reasons behind the nation`s slow economic growth in recent years. In particular, there are mounting concerns that the SMEs` sluggish growth since the 1997-98 currency crisis and the consequently yawning gaps with large enterprises have created a bipolar economy.

 

But the widening productivity gulf between SMEs and large companies actually was visible already in the early 1990s. (Refer to Graph 1). So far, the government has implemented strong support measures to help raise SMEs` productivity. They will likely continue. Nevertheless, the gap between large enterprises and SMEs has hardly narrowed as shown by <Graph 1>.

 

<Table 1> divides SMEs according to their growth rates before and after the Asian currency crisis, and their proportion to the total.  

 

In the pre-crisis period between 1992 and 1997, the number of SMEs (with employees of five or more) totaled 73,657 in 1992, and the number of firms that increased annual output at an average rate of 30 percent or higher amounted to 4,531, or 6.2 percent of the total.

 

In the post-crisis period between 1998 and 2003, the number of SMEs (with employees or five or more) totaled 78,869 in 1998, and the number of firms that increased annual output at an average rate of 30 percent or higher amounted to 5,551, or 7.0 percent of the total.

 

Accordingly, the number of high-growth SMEs that raised production by 30 percent or more increased by 1,020, or 0.8 percentage point, after the crisis ended. Also, the number of SMEs with output growth rates of 0 percent to 30 percent rose by 3,733 from 19,919 before the crisis to 23,652 after the crisis, with its proportion climbing from 27.0 percent to 30.1 percent.

 

The trend of output growth points to the higher growth of SMEs after the currency crisis ended, thanks to the expansion of government`s support.