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A Study on the Korea Business Ecosystem (II)

Author Park Moonsoo et al Date 2020.12.09 Page

 This study intensively examines three topics related to the building of an innovative corporate ecosystem from the perspective of interconnection and dynamism. In Chapter 2, we first review the changes and distribution of firm productivity by various indicators in the corporate ecosystem, and examine the distribution characteristics of frontier firms and laggard firms based on productivity. In addition, we empirically analyzed the influence of various factors determining the level of productivity of companies, such as the transactional relationship between companies.


 In Chapter 3, we analyze the existence of the trickle-down effect in the Korean corporate ecosystem based on the transactional relationship among core companies and their partner firms. To this end, the trickle-down effect was examined based on sales and profit.

In particular, unlike previous studies, the analysis targets were expanded to include 5th-tier partners. Moreover we consider inter-industrial as well as intra-industrial transactions, whereas previous research focused on intra-industrial transactions only.


 In Chapter 4, we examine various determinants affecting the survival of Korean companies in 16 major industries using large-scale enterprise data and survival analysis methodology. In particular, we investigate business-to-business transaction variables which might have significant effects on firm survival however seldom considered due to the data availability. We analyze the effect of the transaction variables on firm closing risk and survival probabilities based on discrete-time risk model results. In addition, using the estimated discrete-time risk model results, firm closing risk and survival probabilities were predicted by the firm’s inter-enterprise relationship.


 The overall results of this study show that increasing the productivity of a company is regarded as a priority condition for expanding the survival rate and enhancing the trickle-down effect. If the survival rate of companies increases and the trickle-down effect intensifies the virtuous cycle in which the health of the business ecosystem also increases can be strengthened. However, in order to sustain such a virtuous cycle in the corporate ecosystem, it is necessary to take into account various side effects that may occur in the process of ecosystem evolution.


 Policy measures to accomplish this are as follows. First, it is necessary to ensure that productivity improvements - the driving force for the growth of the business ecosystem - are not confined to any one specific industry or company. This is because, as mentioned in Chapter 2, the productivity gap between companies is regarded as a main cause of low growth and widening inequality experienced by countries around the world. In this regard, Korea is no exception. In other words, productivity gaps were identified by industry type, industry level, company size, and by the relationship of business-to-business transactions. It may cause disproportionate productivity growth which results in unequal benefits to a specific group of workers. And if this persists, the evolution of the business ecosystem itself may be hampered, and eventually it may threaten the growth of the corporate ecosystem. Therefore, policies should focus on reducing the productivity gap between companies in the ecosystem by considering ways to increase the productivity of low-performing companies.


 Second, preparing policies to increase firm dynamism is also important in sustaining the virtuous cycle of Korea’s business ecosystem. The basic condition for enhancing dynamics in the business ecosystem is to encourage the entry of innovative, highly productive companies and the exit of inefficient companies. The efficient entry and exit from within the business ecosystem is not adequately lubricated, this ecosystem might eventually come to resemble a lemon market, where a high portion of weak or zombie companies with low productivity dominate. This will have a negative impact on the overall vitality of the nation’s economy.


 Therefore, a policy plan is needed to create an institutional environment in which the entry and exit of companies in the market occurs naturally and actively. In particular, in the case of the service industry, a drastic improvement of related systems is required to promote the application and commercialization of new technologies and business models, focusing on new industries related to the Industry 4.0. On the other hand, it is necessary to strengthen related laws and systems to allow for bold and swift decisions to be made in restructuring insolvent companies in the business ecosystem.


 If specific policy measures are prepared and effectively implemented to mitigate the productivity gap in the ecosystem and strengthen firm dynamism, the trickle-down effect in the ecosystem can be naturally strengthened by promoting technology transfer and the redistribution of resources between companies.