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A Study on Radical Innovation of Small and Medium Businesses

Author Kang, Minji and Shin, Wiroy Date 2018.12.21 Page

This study formulates a model of radical innovation based on the model of Acemoglu et al.(2018). In this study, radical innovation is defined as an enhancement of economic performance through new ideas that are commercially viable, and the factors that constitute it are the arrival of new ideas, innovation capability, and the financial environment. In addition, through policy experiments using numerical examples, various policy experiments were sought to enhance radical innovation performance. As a result, the following implications are established through this study.

  First, SMEs (small and medium enterprises) are encouraged to radically innovate without financial restriction, but the reasons for not doing so are largely involuntary. This study shows that the reason for this is simply financial constraints. However, in reality, it is highly possible that SMEs cannot carry out radical innovation due to their market structure and market restrictions, as well as, trading relations with large companies.  

 Second, financial constraints can be solved to a certain extent by R&D support. However, support that is not related to the type of innovation and firm size is likely to crowd out radical innovation.

 Third, support by type (verification system or certification system) can also solve constraints, but there is a high possibility that the unnecessary efforts of companies are likely to be exerted. However, radical innovations can be promoted if the innovation capability can be increased by companies’ efforts in this certification process.

 Fourth, support for technology commercialization is most effective compared to other support policies. This is because, unlike persistent innovation, radical innovation requires the process of technology commercialization, and many companies succeed in technology development but fail to commercialize.

 Therefore, this study suggests the following concrete measures. First, differential R&D support according to firm size is the most basic way to promote the radical innovation of SMEs. In addition, the evaluation for innovative SME certification, such as the venture verification system or Innobiz system, should be based on the principle of policy only for identification purposes. However, further measures to enhance innovation capability should be prepared and evaluated. Finally, the elimination of involuntary factors should be the most fundamental resolution.?