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Government R&D Support for SMEs in Korea: Systems by Innovation Capabilities

Author Minji Kang et al. Date 2019.12.19 Page

This study investigates the need for R&D policies to solve market failures of SMEs and discusses the need to enhance innovation capabilities through the increase of the “market capabilities” of SMEs as the primary way to resolve market failures. Because the innovation output without market value does not mean much to firms, the incentive for the innovation of the firms must be low unless the factors that impede innovation by the weak market capability are resolved. Therefore, it should not be just the realization of the innovation, but rather an enhancement of its market capabilities through the achievement of the innovation, as the primary policy objective of R&Dpolicies. Therefore, this study proposes the market capability that represents the nature of market failure faced by SMEs as a new criterion of the innovation capability for each step of the “early-leap-mature” along with the will-ingness of innovation. For the analysis, the pooled cross-sectional firm-level data of the Korean Enterprise Innovation Survey manufacturing sector in 2014, 2016 and 2018 are merged with the firm-level financial statements from the Korean Enterprise Data(KED), information on the export volume by firm during the 2010-2018 period of the Korea Trade Statistics Promotion Institute, and a list of firms that participated in R&D support projects organized by the Small and Medium Business Administration or the Ministry of SMEs and Startups during 2011-2018. Then, we apply the proposed criteria to the data to figure out the distribution of supportable groups of SMEs by each stage of the “early-leap-mature” and draw out policy implications.