SMEs constituted 99.9% of Korean enterprises in 2013; the vast majority of these were micro-enterprises employing up to 9 employees (93.2% of employer enterprises). Small and medium enterprises accounted for another 6.7% of all employer enterprises. Large enterprises with more than 250 employees constitute only 0.1% of all employer enterprises.
SMEs in Public Procurement
Practices and Strategies for Shared Benefits
OECD Public Governance Reviews
24. Korea
24.1. SMEs in the national economy
Table 24.1. Distribution of firms in Korea, 2013.
(By firm size, percentage of all firms)
Note: Data includes financial enterprises with the exception of holding companies (ISIC Rev. 4 sector 642).
Source: (OECD, 2017[1]).
24.2. National policy framework to support SMEs in public procurement
Supporting SMEs is a priority at the Public Procurement Service (PPS), the central purchasing government agency in Korea. Thus, SME consideration is reflected in the policy and the operations of PPS, which co-operates with the Ministry of SMEs and Startups, the main government body for supporting SMEs.
PPS provides support to SMEs in public procurement through a number of measures. These include the following:
Set-side products, identified by the Small and Medium Business Administration (SMBA), are exclusively procured from SMEs.
SMEs are given bid preferences, by being given additional points in eligibility tests.
Contracting authorities can purchase products that are certified as “Excellent Products on Government Procurement” directly.
A network loan policy whereby SMEs can obtain loans from partner banks for carrying out PPS contracts at low interest rates.
An upfront payment policy stipulating that procuring entities pay up to 70% of contract amount applies to contracts over USD 30 000 for goods and public works, and over USD 5 000 for services.
Use of the Subcontract Management System for Government Contracts (SMSGC) helps promote fair and transparent subcontracting practices. It especially allows for project owners to effectively monitor the subcontracting processes for government projects.
SME consideration is also reflected in policies on green public procurement and public procurement for innovation, including:
Minimum Green Product Purchasing, which applies to goods contracted through the Multiple Award Schedule, run by PPS.
“Venture Nara”, a specialised e-platform launched in 2016, which helps ventures and start-ups promote their new technology and innovative goods and services. Through this platform, user entities can directly search and order new innovative items.
Priority purchase for SME-developed technology products which account for at least 10% of SME purchases).
A purchase-conditioned new product development policy.
24.3. Implementation mechanisms
PPS hosts period roundtable meetings with SMEs, and – through various online channels – recognises their needs and collects their opinions. Furthermore, Public Procurement Training Institute, which is under PPS, runs training for all suppliers (a total of 2 744 suppliers were trained in 2016) on topics such as framework contracts; quality management policies; determining contract prices and construction claims; and how to register and use new e-procurement platforms for start-up companies.
24.4. Monitoring performance
Korea considers the nature of each industry (different thresholds concerning the number of employees and annual sales for each industry) when defining SMEs. The status identification process for SMEs takes place during the supplier registration process and continues through the entire contracting process through KONPES (Korean e-Procurement System).
Korea monitors SME participation in public procurement in terms of the value of contracts awarded to them (Figure 24.1). This is made available through the KONEPS and Public Procurement Statistics System which collect procurement spending data from public entities.
Figure 24.1. Share of contracts in terms of value awarded to SMEs in Korea, 2014-16
Source: Country response to the 2017 OECD survey on strategic use of public procurement to support SMEs.
Reference
[1] OECD (2017), Financing SMEs and Entrepreneurs 2017: An OECD Scoreboard, OECD Publishing, Paris, http://dx.doi.org/10.1787/fin_sme_ent-2017-en.