Financing the Technology Innovation of SMEs in Korea. Hong Jae-Keun (Ph.D)

Transcription

1 Financing the Technology Innovation of SMEs in Korea Hong Jae-Keun (Ph.D)

2 CONTENTS Ⅰ. Why SME Technology Financing Matters? Ⅱ. How Korean SMEs Finance for R&D? Ⅲ. Sophisticated Technology Financing Infrastructure Ⅳ. Less Accessibility & Availability of the Infrastructure Ⅴ. Conclusion and Suggestions 2

3 I. Why SME Technology Financing Matters? 3

4 Why SME Technology Financing is important? Ⅰ. Why SME Technology Financing Matters? More balanced and sustainable growth is needed A strong and innovative SME sector is the key for the balanced and sustainable growth Innovation-led competitive paradigm for SMEs prevails From factor-input to innovation led economy development paradigm Market failure is needed to be fixed Due to the information asymmetry of SMEs technology innovation, bridging the gap between financial market and intangible future asset is getting important A ripple effect on the national economy The social rate of return of technology financing exceeds the private rate of return 4

5 European paradox? Now, Korean paradox in SME R&D Ⅰ. Why SME Technology Financing Matters? The success rate of government-granted R&D project exceeds 90%, but the rate of commercialization of the R&D output lies at about 40% -Small and Medium Business Administration- 5

6 Further evidences of Korean paradox in SME R&D Ⅰ. Why SME Technology Financing Matters? 80% 75.8% 74.6% 74.7% 74.9% [unit : million won] ,064 [unit : %, LEs = 100] 9,803 10,464 12,244 12, sales added value % 70.0% 69.3% 54.1% KOREA UK USA JAPAN 6

7 Financing gap results in the paradox Ⅰ. Why SME Technology Financing Matters? Hurdles against R&D commercialization of SMEs Lack of funds High price of product The most required policy for R&D commercialization of SMEs Technology appraisal based financial support Preferential public procurement of new technology product Difficulty in sourcing Emergence of similar product Immature market Incomplete product Others Consulting support as market analysis Human resource support for production The most necessary policy for Human resource support for marketing Support for exhibition and overseas exploitation Support for domestic and global standardization Others the R&D commercialization of SME Source: Survey on SME technology and R&D 2011 (SMBA). 7

8 Technology Financing to bridge the financing gap Ⅰ. Why SME Technology Financing Matters? In a broad sense, Technology Financing is a high risk enterprise financing, that covers life-cycle of start-up, R&D, R&D output commercialization by means of technology appraisal In a narrow sense, Technology Financing means loan or investment executed after the opinion of technology appraisal institution, not depending on the collateral 8

9 The Paradigm shift in SME policy also influenced on the emergence of Technology Financing Ⅰ. Why SME Technology Financing Matters? Before currency crisis After currency crisis Protection & Growth Competitiveness The Paradigm Shift Requires Change in Business Strategy of SMEs 9

10 New business strategy requires a new financial instrument Ⅰ. Why SME Technology Financing Matters? Business Strategy Technology Strategy Cost Technology leader or or Differentiation Fast Technology follower SME Technology Financing Traditional SME Financing 10

11 II. How Korean SMEs Finance for R&D? 11

12 High R&D intensity of Korean SMEs Ⅱ. How Korean SMEs Finance for R&D? <R&D Intensity of Top 1,000 R&D Enterprises by Firm Size> 6.00 (unit: %) LEs SMEs source: Korea Institute of Advanced Technology (2012). 12

13 Government is a key source of external R&D financing Ⅱ. How Korean SMEs Finance for R&D? [Manufacturing sector] government loan others 10% 5% [Business service sector] government loan, 1.8% others, 0.2% Government grant 64% private loan 9% private investment 12% Government grant, 6.8% private loan, 1.7% private investment, 3.8% external finance, 17.5% External finance, 14.2% Internal finance, 82.5% Internal finance, 85.8% Source: Survey on SME Technology & R&D 2011(SMBA) 13

14 Small Portion of Technology Financing Ⅱ. How Korean SMEs Finance for R&D? Government direct loan 8,657 8,897 Technology guarantee * 151, ,914 Private finance 1, Venture capital 16,028 20,309 Total (a) 176,884 hundred million 181,674 hundred million Bank SME loan (b) trillion trillion a/b 4.09% 4.10% *: public loan guarantee by technology appraisal 14

15 Boosting the loan guarantee by technology appraisal Ⅱ. How Korean SMEs Finance for R&D? KOTEC has rearranged all the branches into technology appraisal centers to guarantee the loan by KTRS(Kibo Technology Rating System) since 2008 [Portion of technology guarantee in outstanding guarantee of KOTEC] 91.4% 93.4% 54.0% 15.4%

16 Evolution of technology financing: public loan guarantee Ⅱ. How Korean SMEs Finance for R&D? In respond to the global innovation trend of technology convergence Amount of guarantee approval is calculated in reference with the expected future cash flow of the patented technology - Currently, expected sales in 1yr has been used to calculate the guarantee amount Estimate the required fund during the life-cycle phase of R&D and set the maximum guarantee amount for the whole life-cycle Provide the guarantee at each phase of life-cycle billion in 12yr 16

17 Evolution of technology financing: private sector Ⅱ. How Korean SMEs Finance for R&D? To redeem the collateral based underwriting practice and weak technology screening capability of private financial institutes - KOTEC and KIPA issue technology appraisal certificate to the innovative SMEs - The contracted banks approve loan in reference with the certificate (loan approval rate of '11 : 93.8%) 17

18 Evolution of technology financing: venture capital Ⅱ. How Korean SMEs Finance for R&D? (Unit: hundred million won) [annual Investment amount] New investment Outstanding (Year) Source: Korean Venture Capital Association (2013). 18

19 III. Sophisticated Technology Financing Infrastructure 19

20 Kibo Technology Rating System Ⅲ. Sophisticated Technology Financing Infrastructure KTRS provides the grade of technology or the enterprise holding the technology through the appraisal of the technological level, marketability, profitability, environmental condition 20

21 System Models of KTRS Ⅲ. Sophisticated Technology Financing Infrastructure KTRS technology appraisal system Level of technology business KTRS Technology appraisal index (34) Economic environmental factor Future Marketability of Technology Risk in Commercialization Environmental risk Business organizational capability Technology Marketability Profitability Risk level Matrix Evaluation grade of Technology Business KTRS-Startup technology appraisal system KTRS Start-Up Technology appraisal index (23) Future Marketability of Technology Risk in Commercialization C Level of technology business Risk level Matrix Evaluation grade of Technology Business 21

22 Brief performance of KTRS Ⅲ. Sophisticated Technology Financing Infrastructure 60.8% of KTRS beneficiaries i i could have been Guarantee default rate: 60.8% 1.33% rejected the guarantee approval KTRS (133%) (1.33%) < Financial model (214%) (2.14%) by the financial information ('05. 7 ~ '09. 5) based rating system KTRS had been nominated as a candidate Prize for the Edelman Patents Several BM patents prize(06.12) 22

23 Institutional infrastructure for technology financing Ⅲ. Sophisticated Technology Financing Infrastructure Government has appointed 9 institutes such as KOTEC, SBC as technology appraisal institutions and apprehensively supported the cultivation of technology appraisal manpower and linked various commercialization support process 23

24 Link with other SME financing infrastructures Ⅲ. Sophisticated Technology Financing Infrastructure Technology appraisal certificate based loan is added into the regional headquarters ceiling(c2) of aggregate credit ceiling loan(bok) ('11.12) Performance of technology appraisal certificate based loan approval is taken into account to allocate the on-lending fund to the banks ('11. 5) 24

25 IV. Less accessibility & availability of the Infrastructure 25

26 Voice of stakeholders Ⅳ. Less accessibility & availability of the Infrastructure Technology appraisal institutions estimate the value of the technology too conservatively Technology Financing is generally available only at the start-up stage, since collateral is still required during the whole commercialization process The unpredictable risk is so big that the technology appraisal result is not fully reliable without the loss sharing scheme 26

27 Deterioration of financial access of Korean enterprises Ⅳ. Less accessibility & availability of the Infrastructure Ranking Source: The Global Competitiveness Report (World Economic Forum) 27

28 Unbalanced status in Korean SME finance Ⅳ. Less accessibility & availability of the Infrastructure According to the Financial Development Index 2012 by WEF, Korea has been ranked at 15/62 in total. But, in regarding to the financial access of enterprises, Korea has been ranked at 58/62. 15/62 58/62 28

29 SMEs use too small portion of equity finance Ⅳ. Less accessibility & availability of the Infrastructure (Unit: %) '08yr '09yr '10yr '11yr All LE SME Equity LE SME Corporate bond Source: Financial Supervisory Service. LE SME

30 Reliability as a infrastructure is still far to go Ⅳ. Less accessibility & availability of the Infrastructure Though standard technology appraisal model has been developed by SMBA, KOTEC and KDB in 2005, the diffusion has been failed - Currently, each institute uses their own appraisal model Positive response on the reliability of technology appraisal result (%) : (SMEs)48, (Bank)60, (VC)14 30

31 Less reliability harms the availability of the infrastructure Ⅳ. Less accessibility & availability of the Infrastructure According to the audit result by the Board of Audit and Inspection in May 2012, all the 6 banks don't have any preferential regulation to the certificate of technology appraisal and most loans seems to have been approved not using the certificate. 31

32 V. Conclusion and Suggestions 32

33 Recommended Direction of Technology Financing Ⅴ. Conclusion and suggestions More Accessibility More Direct financing More Efficient Infrastructure More Innovative Technology Of Enterprise 33

34 Technology Financing in Crowd funding Ⅴ. Conclusion and suggestions Creative idea Small investment Crowd funding Social participation Crowd funding is a well-fitted financing technique Creative Economy for the creative ideas Crowd funding allows creative entrepreneurs easily access Direct Financing to the direct financing But, in technology based project, an information asymmetry between investors Information and entrepreneurs Asymmetryshall hampers the facilitation of crowd funding 34

35 Technology appraisal certificate to facilitate Crowd funding Ⅴ. Conclusion and suggestions Crowd funding model with Technology Appraisal Certificate Project 1 Project 1 Project 6 Project 2 Project 2 Project 5 Project 3 Project 3 Project 4 35

36 Technology Financing in KONEX Ⅴ. Conclusion and suggestions Globally, the success of SME specialized stock market is not easily attainable. For the success of KONEX *, the efficient and active knowledge channel inside the market is necessary. Especially, the information on the value of technology is very sticky and hard to get. Thus, in KONEX, the technology appraisal certificate could meet the knowledge demand of NOMAD ** and Investors for the value of technology. * : Korea New Exchange for SMEs ** : Nominated Advisor 36

37 Thank you