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Conglomerates help SMEs enter overseas markets

International expansion for SMEs emerges as new engine of shared growth

Shared growth between large companies and small- and medium-sized enterprises is one of the current administration’s main economic policies.

Many of the country’s largest businesses have taken up the cause and now operate a number of schemes to help smaller companies grow.

While many of the efforts have been limited to the companies’ operations in the domestic market, the government and local firms are directing increasing efforts to facilitate shared growth on the international stage.

In July, the Ministry of Knowledge Economy held a forum for reviewing the results of large companies’ efforts at helping SMEs enter overseas markets and drew up guidelines for related projects.

While smaller firms that provide parts and services to major exporters have benefited from rising sales of Korean products, some conglomerates have taken a more direct hand in helping suppliers gain a foothold in overseas markets.

Some of the more widely known overseas expansion support activities have been carried out by Hyundai Motor Group’s two carmakers Hyundai Motor Co. and Kia Motors Corp. Since the late 1990s, Hyundai and Kia have been expanding their global production network and currently operate plants in seven countries including China, Russia and the U.S.

Where the carmakers have set up plants, some of their parts suppliers have followed with a number of larger suppliers setting up their own plants near those of Hyundai and Kia.

“Not all of the companies have set up facilities abroad with us, but some have achieved overseas expansion in other forms including exporting parts made here,” a Hyundai Motor official said.
Participants in Hyundai Motor Group’s R&D Motor Show from Hyundai and Kia’s suppliers inspect a vehicle at the carmaker’s research center in Gyeonggi Province on Oct. 5. The event is designed to support suppliers to see the latest in automotive technologies. ( Hyundai Motor Co.)
Participants in Hyundai Motor Group’s R&D Motor Show from Hyundai and Kia’s suppliers inspect a vehicle at the carmaker’s research center in Gyeonggi Province on Oct. 5. The event is designed to support suppliers to see the latest in automotive technologies. ( Hyundai Motor Co.)

“Larger suppliers like Sejong Industrial have set up operations in many of the countries where we have production facilities.”

Sejong Industrial, which specializes in parts for car exhausts, has set up operations in most of the countries with Hyundai and Kia plants including China, Russia and the U.S.

According to Hyundai Motor Group, supplying parts to its carmakers has also helped parts makers such as Hanil E-Wha Co. to win contracts with foreign carmakers including Ford Motor Co. and Nissan Motors Co.

However, a much larger number of auto parts makers associated with Hyundai and Kia have benefited from their overseas expansion.

According to the group, the number of suppliers, including second-tier suppliers, which were able to expand overseas in collaboration with Hyundai and Kia stood at 430 at the end of last year.

Hyundai Motor Group’s related efforts have brought significant changes for local parts makers.

According to industry data, the combined exports of Hyundai and Kia’s suppliers went from 3.8 trillion won in 2002 to 17.1 trillion won in 2010. In addition, the number of suppliers with more than 100 billion won annual sales has increased from 62 in 2001 to 131 at the end of last year.

Other Korea-based carmakers have also supported local parts makers to open and expand dealings with foreign carmakers.

Through GM Korea, which formed a shared-growth and fair trade agreement with suppliers in May, local parts makers have increased sales to GM’s global operations. The carmaker has also been holding trade fairs in collaboration with Korea Trade Investment Promotion Agency to aid local firms in signing contracts with GM. While Renault Samsung Motors Co., which is majority owned by the French automaker Renault S.A., has been providing export consultation services through its purchasing department to suppliers.

While the automotive industry’s main players seek to aid parts makers gain access to overseas carmakers, retailers such as Lotte Mart are providing Korean SMEs with a route to sell their products in other countries.

In June, Lotte Mart set up a website dedicated to operations regarding shared growth that includes a section on overseas expansion.

In addition, Lotte Mart provides legal and marketing support, and mentoring service for making market-specific modifications to SMEs’ products through its overseas expansion support program.

Lotte Mart’s strategy for supporting SMEs’ overseas expansion is closely tied to its own plans. Lotte Mart plans to increase the number of suppliers that enter foreign markets in collaboration with the company along with the number of its overseas stores.

This year the company plans to have products from 20 Korean firms sold through its 130 overseas stores. By 2018, the company hopes to have increased the number of overseas stores to 415 and the number of Korean firms supplying products to 200.

While such efforts from larger firms have resulted in a number of SMEs gaining access to foreign markets, the Ministry of Knowledge Economy says that problems remain in related strategies.

According to the ministry and the Small and Medium Business Administration, large firms’ related plans continue to be focused on their needs rather than the need for smaller firms to open new revenue sources. In addition, the authorities point to the lack of synergy between large companies and SMEs, as well as the absence of a systematic support system for aiding SMEs to expand overseas.

By Choi He-suk (