We cannot overemphasize the importance of enhancing the productivity of small and medium-sized companies. Currently, Korea faces an explosion in welfare demands. With its limited budget, the government can hardly meet this challenge. The most effective solution to this problem is to create more jobs, since the best welfare program is a job.

In Korea, SMEs account for 90 percent of employment. Hence, to create more jobs, the first step is to boost the job creation potential of SMEs. SMEs can create jobs when they are on a fast growth path. To attain growth, they must be competitive, and to become more competitive, productivity improvement is the prerequisite.

The best way to enhance SMEs’ productivity is to bolster their R&D capabilities. In this context, the Ministry of Knowledge Economy made a step in the right direction when it decided on Wednesday to raise the share of SMEs in its R&D spending from the current 26 percent to 40 percent by 2015.

The ministry executes about 30 percent of the government’s entire R&D expenditure, set at 16 trillion won in 2012.

The ministry needs to use its increased R&D spending for SMEs in a way that stimulates their R&D investment. According to government data, the growth rate of R&D investment by SMEs and venture companies has been decelerating in recent years. In 2006, SMEs increased their spending on R&D by 25.7 percent. Last year, the increase was 8.1 percent. During the same period, R&D spending growth among venture companies dropped from 34.8 percent to 0.8 percent.

Among manufacturing SMEs, those that invest in R&D account for less than 30 percent. Their spending on technological innovation stands at around 2 percent of their sales revenue. This implies the need to enhance SMEs’ awareness of the importance of R&D. At the same time, it is necessary to use the state-offered R&D support to catalyze the transformation of SMEs into innovation-based companies.

The data also shows that SMEs face difficulty beefing up their R&D staff as researchers prefer large companies. Last year, SMEs with less than 300 employees increased their R&D personnel by 3.6 percent. Companies with between 300 and 999 staff posted an even smaller increase of 1.7 percent. In contrast, large firms with 1,000 or more employees saw their R&D workforce grow 12.9 percent.

As SMEs have difficulty retaining high-caliber researchers, it is necessary to encourage them to undertake R&D in cooperation with large companies, universities and public research centers. To facilitate collaboration among the four parties concerned, the government needs to promote networking and foster R&D clusters.

Another way that can help SMEs to complement their limited innovation capabilities is to cultivate R&D services providers -- companies that undertake R&D on behalf of their client companies. SMEs, which often face technological bottlenecks, can promote joint R&D in cooperation with professional R&D service companies.

According to the ministry, some 220 R&D service providers were in operation in Korea in 2009. They were mostly small, with the average number of researchers standing at 17. To help these companies grow, the government submitted a bill to the National Assembly last month. Lawmakers need to speed up the legislative process as the bill can create many R&D jobs, while at the same time helping SMEs become more competitive.