KDI "Jungso Gieop Jeoghap Eopjong System Has Low Effectiveness... Should Be Gradually Abolished"

(Data provided by KDI)

The 'Small and Medium Enterprise (SME) Suitable Industry System,' which aims to enhance the competitiveness of SMEs by restricting large companies' entry, has been suggested by a government-funded research institute to have low effectiveness and to require gradual abolition.

On the 3rd, the Korea Development Institute (KDI) stated in its report titled "Economic Effects and Policy Directions of the SME Suitable Industry System" that "after the introduction of the SME Suitable Industry System, the production and employment activities of large companies contracted, but the activities of SMEs did not change significantly."

This system was introduced in 2011 to protect SMEs and small business owners from indiscriminate business expansion by large companies. Once designated as a suitable industry, large companies are restricted from entering or expanding businesses in the related industries or items for three years.

Kim Min-ho, a KDI research fellow who authored the report, conducted a study comparing the performance of SMEs producing items selected as suitable industries with SMEs producing other items using mining and manufacturing surveys from 2008 to 2018, and pointed out that there was no significant difference.

In fact, the shipment value of large companies in suitable industry items decreased significantly from 7.3 trillion won in 2008 to 4.2 trillion won in 2018, while the shipment value of SMEs increased from 39.3 trillion won in 2008 to 57.5 trillion won in 2018, which is a growth rate similar to that of other items.

In the report, Research Fellow Kim stated, "The SME Suitable Industry System needs to be operated considering not only the effectiveness of policies for SMEs but also the negative impacts on industrial growth, decreased efficiency in investment and resource allocation due to uncertainty in item designation, and consumer welfare."

He further explained, "Even if the number of items designated as suitable industries is not large, the scope of the target industries is broad, so almost all industries can be designated as suitable industries at any time, facing restrictions on market activities. This uncertainty is the biggest problem of the SME Suitable Industry System."

Research Fellow Kim emphasized that new applications for agreements on SME suitable industries should be stopped and the system gradually abolished, while measures should be prepared to effectively regulate unfair practices and support the growth of SMEs.

He said, "Public relief measures that the Korean Intellectual Property Office and the Fair Trade Commission can implement should be strengthened so that SMEs can respond to unfair competition and unfair trade practices," adding, "It is also necessary to focus on creating a fair competition ecosystem by strengthening the creation and protection system of intellectual property."

This content was produced with the assistance of AI translation services.