Research Methods In order to find out the value of overseas expansion as a method forcontinuous growth of SMEs, this study will first review various research datarelated to SMEs, growth
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South Korea's economy has experienced unprecedented rapid growth, becoming a model for many developing countries Following the war, the nation focused on reconstructing its economy by implementing industrial policies that prioritized large enterprises, despite lacking an established industrial base This approach has proven successful and is now regarded as a benchmark for economic development worldwide.
“Trickle-down effect’, which benefits economic players such as small and medium- sized enterprises (SMEs) and households through the expansion of consumption and investment by fostering large enterprises.
In the context of the 4th industrial revolution, the traditional 'Trickle-down effect' from large enterprises is no longer viable As industry boundaries blur, enhancing the competitiveness of individual companies has become crucial for success.
According to Cho (2017), the dominance of large enterprises has played a significant role in the rapid growth of the Korean economy, leading to a structured prioritization of these corporations Consequently, this focus on large businesses has diminished opportunities for small and medium-sized enterprises (SMEs) and distorted the overall growth framework.
Industrial policies focused on large enterprises have proven to be vulnerable during crises, as evidenced by the 1997 Asian financial crisis, which disproportionately affected Korea due to its high concentration of large firms Chung (2017) highlights that financial shocks significantly increase economic volatility, with large enterprises contributing to both direct impacts and substantial ripple effects The phrase “Too big to fail” is often used in Korea to denote the critical importance of these large firms to the economy, suggesting that their potential bankruptcy is unacceptable This notion underscores the economies of scale associated with large enterprises, which, despite facing management challenges, can often rely on government support due to their significant influence on the national economy.
As large enterprises expand and increase their influence on the national economy, they often adopt a stable and conservative management approach instead of focusing on continuous innovation This shift can lead to a decline in their competitiveness within the global market.
Large enterprises have significantly contributed to Korea's economic development, but it is essential to address the monopolization by a few large firms Policy support is needed to foster fair competition, enabling small and medium-sized enterprises (SMEs) to evolve into mid-sized and eventually large enterprises Given the changing landscape, promoting coexistence and collaboration between large corporations and SMEs is crucial This context inspired the author to title the master’s thesis: ‘The Overseas Expansion of South Korean SMEs for Continuous Growth.’
There are three main objectives of this research:
(1) First, First, the thesis’ author reviews the theories about growth of SMEs and synthesize the theoretical framework for continuous growth of SMEs.
(2) Second, the author uses the theoretical framework to assess the situation of Korean venture firms as of 2020.
(3) Third, the author proposes overseas expansion as solutions for enhancing continuous growth of Korean SMEs.
Entrepreneurs managing SMEs share a common ambition for business growth, though their objectives may vary significantly Some aim to adopt cutting-edge technology, while others focus on maximizing profits or aspiring to elevate their SMEs to the stature of large enterprises with the intent to sell at a higher valuation Regardless of these differing goals, all entrepreneurs desire to advance their companies to a more favorable state than their current position By examining SME growth from multiple angles, one can redefine what growth truly means and clarify its underlying purpose.
To foster the sustained growth of SMEs, it is essential to identify and understand the key factors that contribute to their development This insight is valuable not only for aspiring entrepreneurs and current SME owners but also for government bodies, local authorities, public institutions, and academic organizations involved in creating support systems for SMEs By recognizing the critical elements that drive SME growth, these entities can implement effective policies and enhance business management practices tailored to the needs of small and medium-sized enterprises.
Extensive research on the growth of SMEs is essential for fostering their development, emphasizing the need for practical strategies alongside academic insights One effective action plan is to explore the value of overseas expansion as a means to promote SME growth Supporting SMEs does not entail imposing restrictions on large enterprises; rather, it involves creating a growth pathway that enables SMEs to evolve into middle market businesses and subsequently into large corporations This approach fosters a virtuous cycle that cultivates a robust business ecosystem and establishes a strong economic foundation When such a foundation is in place, the benefits of growth can be equitably shared with workers through the support of SMEs.
This study utilized data from the "2020 Survey of Korea Venture Firms," conducted by the Ministry of SMEs and Startups in Korea, which was published in December 2020 The survey, based on a sample of 2,500 companies, is an annual initiative recognized as a nationally approved statistic, rigorously managed by the Korean government in compliance with relevant laws It serves as a reliable foundational resource for research in Korea, reflecting a high level of public trust.
This study aims to evaluate the significance of overseas expansion as a strategy for the sustained growth of small and medium-sized enterprises (SMEs) It will begin by examining a range of research findings concerning SMEs, including their growth trajectories, essential growth factors, and the impact of international expansion The analysis incorporates data from multiple countries, alongside insights specific to Korea.
This article evaluates the overseas expansion of SMEs using data from the 'Survey of Korea Venture Firms,' which is particularly relevant as these firms align closely with the study's focus While the term 'venture firm' varies internationally, it generally describes companies backed by venture capital, startups, and technology-driven SMEs with significant R&D investment In South Korea, however, the definition is shaped by the 'Act on Special Measures for the Promotion of Venture Businesses,' which categorizes venture firms as SMEs with strong technological innovation and growth potential Thus, this data serves as a valuable foundation for analyzing the relationship between the international expansion and growth of SMEs.
The structure of this paper is as follows.
The first chapter of the thesis includes rationale, motivation, objectives, scope,methods, structure The reason and justification for this study are explained.
LITERATURE REVIETW - LH HH HH ng ng ệt 6 2 1 Theoretical backgTOUnd . ¿<< + +4 <1 3E 1 E11 HH kg 6 2 1 1 Small and medium-sized enterprises (SMES) .- ô<5 5<c<<<<++ 6 2 1 2 Growth Of SMES - 2G G1 HH ng TH HH 8 2 1 3 Factors necessary for growth Of SMEs Gà HH it 10 2 1 4 Overseas expansion of South Korean SMIEsS - -scôsssskssees 11 2 2 Hypothesis developMent 0n
The relationship between overseas expansion and sales of SMEs
Previous studies indicate that sales volume is the most significant indicator of SME growth (Short et al., 2009; Birch, 1981) The primary objective of any profit-driven company is to generate profits, making sales a fundamental financial metric While reducing expenses is important for profit maximization, prioritizing sales growth is essential Thus, evaluating sales expansion as a measure of company growth is a widely accepted perspective Based on these insights, the following hypotheses have been established.
HI : Overseas expansion of SMEs will have a positive (+) effect on the sales growth.
H1-1 : The generation of overseas sales by SMEs will have a positive (+) effect on the sales growth.
HI-2 : The establishment of overseas branches of SMEs will have a positive(+) effect on the sales growth.
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The first chapter of the thesis includes rationale, motivation, objectives, scope, methods, structure The reason and justification for this study are explained.
Chapter two will explore key concepts, prior research, and relevant theories and policies concerning the growth and international expansion of small and medium-sized enterprises (SMEs) This study's direction is established through a comprehensive review of existing findings, leading to the formulation of a research model that outlines hypotheses defining the independent and dependent variables.
RESEARCH DESIGN AND METHODOLOGY
The third chapter introduces measurement methods to validate the hypothesis, detailing data collection approaches and the process of establishing the relationship between the independent and dependent variables Additionally, it outlines the step-by-step procedure for analyzing the relationship of each data point.
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In Chapter Four, each hypothesis is rigorously tested to determine its acceptance The chapter also elucidates the significance of the analysis results while addressing the validity of the analysis conducted.
The final chapter of the thesis, conclusion based on research result and
5 applicable implication contained And, the disappointing points during the research and the points that can be referred to in future research are suggested.
2 1 1 Small and medium-sized enterprises (SMEs)
Small and medium-sized enterprises (SMEs) in South Korea are defined by the 'Framework Act on Small and Medium Enterprises,' which establishes specific criteria for classification These criteria include sales thresholds based on industry; for instance, in the electrical equipment manufacturing sector, companies with average sales of 150 billion won or less qualify as SMEs Additionally, a uniform total asset limit of 500 billion won applies across all industries Ownership and management independence are also critical factors; if a non-SME entity holds 30% or more of a company's shares, it may lose its SME status While special categories like social enterprises and cooperatives have distinct criteria, the overarching determinants for SMEs revolve around sales, assets, and ownership independence.
The standards for small and medium-sized enterprises (SMEs) globally are quite similar to those in Korea According to the Korea Federation of SMEs (2021), the classification of SMEs varies by industry in the United States; for instance, the wholesale sector defines SMEs as having fewer than 100 employees, while the art, culture, and entertainment industry sets the threshold for annual sales at under 6 million dollars Thus, the determination of whether a business qualifies as an SME is based on either employee count or annual sales, depending on the specific industry In the European Union, similar criteria apply to define SMEs.
6 less than 250 employees and less than 50 million euros 1n annual sales or less than
Medium-sized enterprises, classified as SMEs, encompass a total of 43 million euros in assets across various industries Definitions of SMEs vary by country: Canada considers companies with fewer than 500 employees, while Australia sets the threshold at 200 employees In China, the classification is based on sales and employee count within specific industries, whereas Japan uses employee numbers and capital as criteria These global standards for defining SMEs are primarily established by government regulations, focusing on factors such as sales, employee count, assets, and capital.
South Korea Sales, Assets, Independency of management
US Number of employees, Sales
EU Number of employees, Sales, Assets
China Sales, Number of employees Japan Number of employees, Capital
< Source : Korea Federation of SMEs (2021) >
Table 2.1: Scope of SMEs in Each Country
Governments worldwide, including Korea, define the scope of Small and Medium Enterprises (SMEs) to provide essential support, recognizing their significant economic impact In the European Union, SMEs constitute 99.8% of all businesses, contribute to 67% of employment, and account for 57% of total value-added production, according to Korea's Ministry of Foreign Affairs (2020) The OECD (2021) reports that SMEs represent 42.4% of employment in the United States, 88.5% in Canada, 67.7% in Australia, and 60% in Japan On average across OECD countries, SMEs employ 69.4% of the workforce, generate 59.3% of value added, and engage in 38.9% of exports These statistics underscore the critical role SMEs play in national economies, prompting governments to implement proactive policies to support their growth.
South Korea US Canada Australia Japan
Figure 2.1: Proportion of employees in SMEs
To effectively assess the growth of small and medium-sized enterprises (SMEs), establishing a standard measurement is essential According to Short et al (2009), sales serve as a key indicator of a company's growth, allowing for easy comparison across various business types, sizes, and locations This makes sales a crucial criterion for categorizing companies Additionally, Birch (1981) introduced the term "gazelles" to describe fast-growing firms, defining them as those that achieve more than double the industry average growth rate over a four-year period.
Acs et al (2008) introduced the employment growth rate as a key indicator for measuring overall growth, alongside traditional metrics like sales The OECD (2002) highlighted that high-growth firms play a crucial role in expanding employment opportunities However, many developed countries are facing the challenge of "jobless growth," where economic growth and increased production do not translate into higher employment rates To ensure sustainable economic progress, it is essential to create a virtuous cycle that fosters both job creation and investment, as prolonged periods of jobless growth can hinder continuous development.
Wernerfelt (1984) posited that a company's growth can be assessed by the extent of its productive resource utilization Various studies have identified key growth indicators, including assets, financing, market share, profitability, and technology levels Additionally, some countries actively support a select group of SMEs based on specific criteria; for instance, Germany employs the Hidden Champion policy to identify SMEs with significant global market share but limited sales, while Japan's Monozukuri policy focuses on aiding SMEs that produce top-quality goods.
Numerous studies have explored the sequential growth stages of companies, highlighting the structured nature of corporate development Greiner (1972) identified five distinct stages: Creativity, Direction, Delegation, Coordination, and Collaboration Building on this, Scott & Bruce (1987) categorized these stages into Inception, Survival, Growth, Expansion, and Maturity, providing insights into the evolution of small and medium-sized enterprises (SMEs) Additionally, Kazanjian (1988) outlined challenges faced at each stage, distinguishing four key phases: Conception and Development, Commercialization, Growth, and Stability.
Growing pains, as defined in 2012, refer to the challenges that arise from inconsistencies during a company's growth and organizational development This process can be categorized into four distinct stages: New Venture, Expansion, Professionalizing, and Consolidation.
Coad (2007) highlighted that small and medium-sized enterprises (SMEs) exhibit distinct growth patterns compared to larger companies that can afford long-term investments Headd & Kirchhoff (2007) noted that firms experiencing rapid growth in one year often revert to average performance in subsequent years Additionally, de Geus (1997) emphasized that consistent survival is a key characteristic of enduring companies, as identified by Davis et al.
(2006) also argued that company growth is affected by macroeconomic indicators.
2 1 3 Factors necessary for growth of SMEs
The essential factor driving the growth of small and medium-sized enterprises (SMEs) is the underlying cause that leads to this expansion This article explores the dynamics of SME growth, referencing Gibrat's theory, which is one of the oldest and most recognized frameworks for understanding the growth factors influencing companies.
The 'Law of Proportionate Effect' (1931) posits that a company's growth, as suggested by Gibrat, is not influenced by its employee count from the previous year This theory has been further validated by subsequent research conducted by Hart & Prais (1956) and Simon & Bonini, reinforcing the notion that past size does not determine future growth.
(1958), and Lucas (1967) On the other hand, contrary to Gibrat’s argument, Kumar
(1985), Hall (1987), and Mata (1994) said that there is a negative (-) correlation between the size of a company and its growth Conversely, Singh & Whittington
(1975) argued that there is a positive (+) correlation between size and growth of a company.
Research indicates a link between a company's history and its growth potential The 'Jovanovic hypothesis' posits that older companies tend to exhibit lower growth rates due to heightened administrative inefficiencies Furthermore, Evans (1987) found that both the age and size of a company negatively impact its growth, suggesting that as a company's history extends, its growth diminishes.
The 'Resources-based view' theory offers valuable insights into the growth factors of a company, allowing for a systematic discussion of issues related to resource management By leveraging this perspective, businesses can better understand how to optimize their resources for sustainable growth.