In a changing business climate where creativity, flexibility and quick response to market conditions are the key factors of success, small companies are winning the race for global markets with new technologies and innovative ideas.
In a changing business climate where creativity, flexibility and quick response to market
conditions are the key factors of success, small companies are winning the race for global markets with new
technologies and innovative ideas.
In late 1996, the winds of layoff blasted hard through the ranks of Korean business, creating an opportunity for office workers to seriously rethink their futures. Labeled with the elegant name "Honorable Retirement," because only volunteers are chosen for early retirement, and given a few years' salary at one time to do so, the system is basically another name for a general layoff. Since selected employees cannot avoid it, though, it becomes a dishonorable retirement in the real sense.
Just after an announcement from Sunkyong Industries that it would release about 800 employees, more than a quarter of its entire workforce, the honorable retirement system became somewhat of a fad among many Korean companies. Though the word "Honorable Retirement" was introduced long ago, it is just recently that Korean companies have started using it as a method of rationalization of management to deal with the recent business slowdown.
Most Korean employees accepted their jobs in Korea's fast-growing industrial enterprises, expecting lifetime employment. The recent lay-off storm, however, has changed their view. "Comfortable office workers" that showed up for work, read the newspapers and stared out the window to draw their salary are now put in the position of choosing between competing with their colleagues or "honorable" retirement. In this season of downsizing, guaranteed employment no longer exists. Many workers find themselves out of work in an environment where it is difficult to simply move into another position, or pressured by the over-competitive climate in their companies. Many are driven to places such as "schools for starting a business".
They see stories every day about entrepreneurs who achieved success. But what percentage of
newly established small and medium sized companies can really be crowned with the laurels of business
victory? One analysis, by Kim Chun-Yul, leader of a Consulting Team at Kookmin Venture Capital, puts the
probability at about 0.1 percent. "In the early 21st century, around 150,000 small and medium sized companies
will be operating in Korea. About 150 of them will be able to enjoy high profit through high growth, and only
several companies will become superpowers in the business world," he said.
In Korea, it is widely believed that a few large business groups, the chaebol, control the entire
economy of the country. That perception is certainly not the whole story, as small businesses seem to
be gaining more and more power as time goes on. It's a worldwide trend that is not passing Korea by.
The importance of capital, size, the number of employees, and such, which were the key factors for prosperity
in the past business climate, has diminished. Meanwhile creativity, flexibility, and quick response, which are
the hallmarks of small businesses, have become the factors that most determine
the success of a company today.
Recently the small and medium sized companies in Korea (locally known as SMCs) are being seen in a different light than they have been in the past. The Korean government understands the importance of their contribution to the future of the economy and in a detour from past thinking, it is encouraging entrepreneurs to strive to become the Korean Bill Gates.
To see where Korean SMCs are distinguishing themselves, and what kind of businesses will emerge as a new powers, it will help to take a look at some of the small companies that are "making it" in the land of the giants.
In contrast to the far-reaching, diversified efforts of Korea's chaebol, small companies often find success by focusing their efforts into one item or group of items. Such is the case with Clover Plastics Co., Ltd. in Kyonggi-do, which has concentrated on plastic chemical containers for the last twenty years. The plastic containers, in sizes ranging from 20§¤to 220§¤, are used for storing various foodstuffs, pharmaceuticals, and acid and alkaline toxic chemicals. Lee Hwang-Hee, the company's director of sales, said, "Since the containers are to hold dangerous materials, we need high technology. We have special know-how in making optimum thickness for the containers so as not to leak or break upon impact." The company has a technical tie-up with the well-known German plastic container manufacturer, Mauser Werke, and it also acquired quality certification from the International Marine Organization (IMO), an affiliate of the UN. The company has a plan to manufacture the highest quality products by sticking only to the field it knows.
Another Korean company, operating out of the Hanam Industrial Complex in Kwangju, Hanam Electronics Company, Ltd., is the third largest supplier of aluminum cases for condensers in terms of world market share. The company, which developed the technology for manufacturing the aluminum cases, which is an essential part in TVs, refrigerators, and the like, has exported 600 million units 16 percent of the world market and 60 percent of the domestic market. Total sales volume in 1995 was $15.6 million with $10.8 million dollars worth of exports. The estimated sales volume of 1996 is $16.9 million. The president of the company, Ha Seung-Gi, shows a strong self-confidence in saying, "It will be possible to be the biggest aluminum case supplier in the world by the year 2000."
Another Korean company that is well on the way toward making a name for itself in the world market is Medison Company, Ltd. It accounts for 70 percent in the domestic market and 20 percent of the world market with its main product, ultrasound scanners. Medium and large sized ultrasound scanners, color doppler ultrasound scanners, and MRI are the company's primary products, and by acquiring the Austrian company, Kretz-technik AG, Medison has become the proprietor of world-class technology in the field of three dimensional ultrasound scanners. The company will also introduce black-and-white digital ultrasound scanners in the near future, and then within this year expects to start selling digital color doppler ultrasound scanners.
As proven in cases such as these, for the SMCs there is no better path to success than to acquire technology. Another example supporting that axiom is provided by Dooin Electronics Company in Seoul. Perhaps better than most cases, it represents what a company can do if it can put together advanced technology.
Dooin's sales volume rose from $21.9 million dollars in 1995 to $52.5 million in 1996, and has recorded sales increases of almost 300 percent per year. The company developed "PC Vision" for the first time in Korea, which is the card which enables us to watch TV through a PC. It subsequently introduced the multimedia cards, "Media Camp 7," and "Oscar ¥±" for PCs, making the company the top technology obtainer in the field of PC multimedia cards. The company will also market "DVD Vision" which is a card required for DVD (Digital Video Disk) players. DVD is believed to have much higher quality in its picture and sound and more than three times the capacity of a CD (Compact Disk). With a variety of interactive functions and a great deal of potential demand in the future, DVD is a field in which many companies are focusing investment.
Dooin has a workforce of 130, but no manufacturing facility. The company reduces production costs by subcontracting the actual production to the other companies. It maintains control over design, however, with more than 30 percent of its manpower, about 50 people, in R&D, and 60 percent as engineers.
Besides these companies, Korea has many other SMCs that are recognized in the world market, are specializing in their unique businesses, and developing their own technologies. It needs not be repeated that for a company to have its own technology is directly connected with its success.
In-house development of new technology among the SMCs has recently been booming. Mass media is publicizing their accomplishments in some detail, and the Small & Medium Business Administ-ration held its first SMCs' technology exhibition last November. The exhibition was designed to transfer the technologies developed by universities and institutes to SMCs for commercialization. A spokesman for the organizer said, "The purpose of this exhibition is to provide SMCs which are relatively weak in technology development with the technologies developed by various institutes."
This does not mean that every successful small company has used advanced technology to get them where they are today. Development of new technology, after all, requires a lot of time, money and research. Some companies can find success in commercializing ideas which look trivial in daily life, in which case capital and research manpower become less of an issue.
Jungwon Company, Ltd. in Inchon is one of the companies which has drawn success by commercializing small ideas. Won Jae-Don, the president of the company, has developed more than twenty unique products since he established the company in 1979. Early in the company's history, he made a "UFO Lunch Box" which incorporated a unique heating device under the lunch box, and the product became a big hit at the time. Next came a fishing lantern, the light of which would not flicker in the wind-a product that also became very popular among fishermen.
The company's main products of late are special restaurant supplies for hotels, such as cocktail shakers, champagne coolers, roast and bake pans, and bake sets, exporting them to thirteen countries, mainly in Europe and the United States. The company also supplies one-touch vacuum bottles and one-touch stoppers to the top Korean vacuum bottle manufacturers, like Livingstar, Kitchen Art, and Kitchen Flower, as well as exporting them to about twenty countries. The company is also active in overseas investment. It established a factory in China in 1994 which can make 1.2 million one-touch vacuum bottles per year. Mr. Won frequently participates in overseas exhibitions and tries to understand international lifestyles and foreign cultures to get new ideas. Responding to the question of the secret of developing new products, he said, "First of all, I don't think of the products other people already came up with. Instead I challenge myself to find the product which seems almost impossible to develop. Also important is the effort to obtain enough information and understanding and to apply it to real products."
 Good ideas and technologies are essential to move ahead of others in the economic war in which guns and swords are rendered useless. In the 21st century, capital competition will convert to technology competition allowing small bodies to be more powerful than big organizations by using their unique adaptability. This is giving birth to "Technology Hegemony" in which technology is the tool that will rule the world. In Korea, more than 2,050,000 businesses are busy working in their respective fields. Most outstanding among them are venture businesses that have small capital, small labor forces, and advanced technologies. They are attacking niche-markets with a well-concentrated focus and are growing rapidly after overcoming the difficulties that come with starting a new venture. By succeeding in its economic development plan, Korea was able to make investments in the development of component technology designed to replace imported components from the early 1970s. At that time, a matter of primary concern was the percent of Korean-made components in automobiles and electronic products like TVs. This new demand for high local content in major products brought about the necessity of venture business. And those companies which developed import substitute products could control markets. Trigem Computer, Soosan Heavy Industries, Newmax, Daeryung Precision, and others are those venture businesses. But the range of industry that venture businesses are covering is widening from mere component development to the development of new materials and software, and also in the information and telecommunication industries. Describing Korean venture businesses in plain language, they can be called "Technology Intensive Companies," "New Technology Business Companies," or "Promising Small and Medium Sized Companies." One of the most representative Korean venture businesses, Mirae Corporation is one of only two semiconductor manufacturing equipment makers producing their particular line of items in the world. Last November, on Korea's over-the-counter stock market (KOSDAQ) the company's stock was trading at a price 87 times higher than its face value as a empirical stock in just 14 years. Moreover, it is easy to find new companies making millions of dollars from small capital investments and little manpower after only a few years. These so-called venture businesses are moving fast toward forming new business groups in Korea. According to the Korea Venture Business Association (KOVA), established in December 1995 with 115 members, the average number of employees their members have is 46, and the average sales amount in 1995 was about $7 million. As the Korean venture businesses are showing marked results, the prices of their stocks are skyrocketing almost from the moment they are listed on the Korean Stock Exchange. This enables venture capitalists to make much money, sometimes as much as 10 times their original investment, inviting more new venture capital into the mix. Some venture capitalists, waiting for the listing of their ventures, estimate more than $50 million in profit. Meanwhile, the Korean government is taking a positive attitude toward supporting the venture businesses. The encouragement policy, which advocates technological cooperation between companies, schools, and research institutes, is focused mainly on information industries and telecommunication industries that have great future potential and that have become the main stage of most Korean venture business activities. The contribution the small and medium businesses have made to their national economies in America, Japan and Taiwan is already proven. Now the time has come when Korean venture businesses, which have strong entrepreneurial spirit, play their role of adding vitality to the Korean economy.
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There is another company that in 1996 exported 8.5 million dollars of a small item. The company is Se-A and the product is the Bandy Light Pen, which was introduced to the market in 1995. The product, a new idea with a polished design, will be very useful among the military, police, and in seminar rooms, because it has a small light at the end making it handy for writing in the dark. Armed with the idea, which he came up with as he watched a policeman try to write him a traffic ticket with a flashlight tucked between his head and shoulder one night, the president of the company began looking for a technician who could formulate it into a product. For three years he was frustrated, then finally the simple words, "Let's try," uttered from a brave technician moved him more than any novel or poem ever did in his entire life, he says.
So developing frivolous-sounding ideas which bring comfort to our lives may well be a very effective method of overcoming the weakness many small companies have when compared with the large businesses. Technology, unique ideas, and novel designs will be the tools that will help Korea's SMCs successfully face the expected difficulties in the coming "open competition era" stemming mainly from Korea's joining the OECD.
Recently, the products of those competitive small businesses have become well known to consumers through a variety of media. Korean cable TV now has two home shopping channels. Hi Shopping (channel 45) and Home Shopping (channel 39) introduce and sell many attractive products, and contribute considerably to the sales volume of these entrepreneurial products. A spokesman from Home Shopping TV said, "Before we introduce products to our customers, we perform a strict test for their quality. In this process, even we are surprised with the high quality and unique ideas coming from small companies. We also are witness to the satisfaction of consumers with the products."
Korean SMCs, in fact, are attracting more public attention these days than at any other time in the past. "The 21st century is the century of the SMC" is an oft heard expression now and surely the 21st century will see the emergence of SMCs which have a small number of employees and no plant, but high technology that will allow them to gain command of the world market. Among them the venture businesses have gained sudden prominence, swimming with the current of the times, and deserve at least as much success as the amount risk they take in their ventures. Many experts evaluate venture businesses very highly, saying that they will achieve high growth by utilizing their high-technology, adventurous spirit, and powerful ideas. In Korea, software, and equipment for semiconductors and telecommunications are the fields into which Korean venture businesses are eagerly jumping.
Mirae Corporation is representative of Korea's venture businesses. It recorded sales of about $8.1 million in 1993, which jumped to about $28.4 million in 1994, about $40 million in 1995, and around $57 million in 1996, averaging 134 percent sales increase every year. Moon-Soul Chung, the president of this company, explained his unique "Reverse Management" by saying, "If we follow the way other people are going, we cannot be successful. Only difference will lead to success. So, we should think of going in the opposite direction."
Mirae's main products are a memory test handler, which is a piece of equipment which classifies finished semiconductors into different grades, and a lead frame magazine. The memory test handler is high-tech product which is produced only by Mirae and one Japanese company. President Jung said, "In the field of semiconductor equipment, most important is who can develop new technology first. To win in this speed war, our company invests 27 percent of our total manpower, of a total 270 employees, into R&D activities."
Another phenomenon we can see through the activities of Korean SMCs is the cooperative complex. Some venture businesses establish their facilities in close proximity to one another to best exchange information, develop new technology, and deal with common problems together. APEX Co., Ltd., a manufacturer of MOCDVD (Metal Organic Chemical Vapor Deposition), Kornic Systems Corp., a manufacturer of semiconductor equipment control systems and software, Darim System Co., Ltd., a manufacturer of software for multimedia applications and automobiles, and Bioneer Corp., a manufacturer of gene experimentation reagents and instruments, together established a cooperative complex in Chungwon, Chungbuk, Korea.
During the planning stage of the complex, they designed subsidiary facilities, such as restaurants, electricity, irrigation facilities, roads, etc., to be used in common. And they share a variety of information for their management and establishment of business strategy. Jung Ki-ro, president of Kornic Systems, showed that strategic cooperation among small companies becomes an effective way to gain competitiveness, saying,"The biggest merit I could get by joining this cooperative complex is the synergy effect by sharing various industrial and managerial information which is not so easy to gain by myself."
Another common trend is that small and medium companies in a like industry are using joint brands or establishing joint distribution centers as a method of enhancing competitiveness. The efforts are natural for the SMCs to adapt themselves to the changed new economic climate. Han Sang-Shin, president of UNICO Business Service, said, "Transforming themselves has become the essential choice for SMCs to survive. The time has come when a business cannot survive any longer when it holds fast to the past."
SMCs can certainly play an important role in the whole economic fortunes of a nation. Silicon Valley, armed with high technologies, brought about the recovery of industrial competitiveness in the U.S. in the 1990s, Italian SMCs forged the way for the nation's garment industry to become a high-value-added fashion industry, and Taiwanese SMCs contributed to the success of the nation's thriving PC industry. The SMCs of Japan and Germany have also done much for the respective economies of their countries. Now the Korean economy keenly needs to see this kind of SMC role.
The Korean economy is suffering the worst slowdown thus far in the 1990s accompanied by a snowballing current account deficit. In this situation SMCs are not excluded from the economic depression, but they are bringing a new vitality to the national economy as its hidden champions. They are widening their territory and using the external changes in the business climate to their advantage. In the past, SMCs were described as the "Weak Majority," but now have become the "Vital Majority." And many experts assert that "the SMC era has already begun." These SMCs are beckoning the "honorable retirees" and new college graduates to apply their experience and ideas in innovative small companies, using the slogan, "If you have a dream, come to a small or medium company."
| by Soo-Young Jang |
 I can't forget the last scene of the movie "Shane." In the scene, the hero, Alan Ladd, leaves for a new challenge, abandoning the peace he accomplished through many trials and tribulations. If he had stayed there and lived peacefully, my impression of the movie would surely have been diminished by half. That kind of pioneer spirit shown by the hero is just the thing that Korea's small and medium sized companies need to employ today. Recently the Korean economy has been facing dramatic changes. Korea's joining the OECD and the strong pursuit by developing countries call for Korea's small and medium sized companies to transform themselves. In addition, product life-cycles are shorter, a company's success completely depends on consumer satisfaction, and the range of choices for consumers has widened to include all the products in the world. The change in the world business climate is a big challenge for the small and medium sized companies, but presents new opportunity at the same time. Fortunate for them is the fact that instead of having to follow the old strategy--universal, traditional, and general--the new creative and unpredictable strategy in vogue can bring about better results in this new business climate. That's because small companies can specialize in a specific field by concentrating all their energy into it, and they can capture the niche-market with their creative ideas. Therefore, they should focus their attention, not on meeting or beating past results, but on acquiring technologies, brands, and ideas of their own and to overcome their weaknesses. Among the efforts they are employing to do this include establishing cooperative strategies and complexes with other companies to exchange technology, information, and management, and they are outsourcing most of their work except for a few nucleus functions to save on costs. These methods are without a doubt becoming very effective. I am fortunate to be able to experience the transformation efforts of small and medium sized companies by being in close contact with them. A most interesting phenomenon in this process is the fact that one success usually does not lead directly to another, when a company does not throw away the past success formula. For new success they need a new formula, because most significant achievements come from a pursuit of newness and success in a new field is possible only with a new strategy. In the next few years, we may witness the shutdown of lots of small and medium sized companies in Korea, and the void will be filled by even more new companies. Also certain is that only the companies that can exactly read the direction and speed of change will be able to take an active part in the business world.
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