Sun-Bin Kim
Research Fellow Samsung Economic Research Institute

The Doctrin of the Mean delves into the meaning of this term, as well as how to apply it to one’s life. To the author, the only grandson of Confucius, the mean does not necessarily refer to the middle ground. Both extremes have to make a careful compromise to ultimately achieve the perfect balance. It can be a means to reach the innate morality of human nature. The guiding principle of the mean being that one should never act in excess.

I believe the concept can provide some guidelines on solving mounting challenges we are faced with. The problem is, the society we live in depends on mechanical compromise and spontaneity in dealing with such challenges. These approaches seem viable at a first glance, but end up creating new problems. I am only bringing it up since it is also applicable to today’s corporate scene.

There is much buzz about mutually benefi c i a l corporate cooperation these days, particularly that of biggersmaller enterprises. What roles can it play in this market economy which promotes competition and efficiency? How can we maximize its impact on the economy? The market economy, as it evolves, is composed of smaller and larger enterprises. They constitute critical pillars of the market economy. The size of business is irrelevant when it comes to contribution to the economy, though. More crucial is well balanced and mutually beneficial cooperation

As such, we need to stay away from mechanical compromises and one-sizefits- all approaches. Smaller corporations cannot afford to maintain the status quo. Vertical cooperation may yield some immediate results, but ends up depriving SMEs of crucial opportunities to enhance competitiveness. In the long term, it perpetuates marginalization. Then, what needs to be done? The answer may lie in inter-dependent relations where larger and smaller corporations can work together side by side. In other words, the former should serve as a solid foundation for the latter and vice versa. That is what we call a mutually beneficial relationship.

That is where network cooperation comes in. It can help activate a virtuous cycle: The growth of large corporations renders SMEs more competitive, which in turn adds fuel to the former. In the end, the organic form of collaboration helps all the stakeholders complement each other, maximizing the positive impact of mutual cooperation.

To conjure up such a win-win situation, all stakeholders need to play their part. At the same time, there should be consistent government policies and institutional support. The virtuous cycle can be further stimulated when an institutional overhaul combines with careful implementation and innovation efforts of all stakeholders. The cycle flows as follows: Smaller businesses display enhanced innovation capacity, which prompts larger businesses to expand mutually beneficial cooperation. It, in turn, improves the profitability and innovation capacity of SMEs.

On another note, there is a need to look beyond collaboration between smaller and bigger corporations. We live in a closely intertwined world where businesses are engaged in a multi-faceted competition. One’s competitive edge these days is determined by the evolution of corporate ecosystem based on mutually beneficial cooperation. What advances the corporate ecosystem is a wealth of SMEs with innovation capacity and active interaction among them.

That is where network cooperation comes in. It can help activate a virtuous cycle: The growth of large corporations renders SMEs more competitive, which in turn adds fuel to the former. In the end, the organic form of collaboration helps all the stakeholders complement each other, maximizing the positive impact of mutual cooperation.

Unfortunately, the Korean corporate ecosystem has failed so far. The SMEs lag far behind their bigger counterparts in future competitiveness indicators such as productivity and information technology utilization. Those at lower levels of the supply chain show particularly weak performance in scale, productivity and globalization. To address these issues, the government should work diligently to find a breakthrough to transform SMEs, never hesitating to choose the best option available.

While coping with increasing global competition and evolving market conditions, they need to go beyond passive policies such as protection and support. Looking back, the most effective government programs were those that provided incentives to raise SMEs’ selfsupporting ability.

The policy direction should be applied across the board. After all, they are aimed at promoting the inherent competitiveness of SMEs, which is a basis of the mutually beneficial network cooperation. Network cooperation, an organic and horizontal collaboration mechanism, can help SMEs accumulate innovative tools, build a foundation for innovation by voluntarily sharing technology, human capital and resources. It fosters horizontal cooperation among SMEs and lowers dependence on vertical subcontracting with large corporations. SMEs cannot deliver all the functions of a value chain such as planning, development, production and marketing, and network cooperation among heterogeneous industries allow for division of labor. This form of collaboration also enables businesses to better cope with customer needs and develop cutting-edge technology. Hence, it is a shortcut to improved competitiveness.

Network cooperation is divided into two groups depending on the existence of a fixed coordinator: coordination and consortium cooperation. They are further broken into four different categories: homogeneous coordination, heterogeneous coordination,homogeneous consortium, and heterogeneous consortium. These diverse forms of cooperation models are frequently witnessed in Japan and Germany, where smaller corporations actively cooperate. They help business respond to customer needs promptly and effectively, while facilitating technology innovation.

Despite all the emphasis on intra-SME cooperation and a wealth of success cases found in other advanced countries, market conditions in Korea are not ripe for such collaboration. Some smaller companies have joined hands to produce new products and technologies, but the overall awareness is low. Few SMEs understand the advantages in partnering with other firms and there are few cases of Korean

SMEs with different expertise jointly developing a new product. According to a survey on SMEs with less than 300 employees, those who displayed high awareness came to less than 40 percent. In fact, the level of cooperative relations is proven to be proportional to the corporate size.

It is simply because the ecosystem is not working right. A detailed diagnosis of the ecosystem reveals a number of problems and issues: Resources are tight. Policies, institutional supports, cooperation networks have room for improvement. When external resources are insufficient, smaller corporations face challenges in enhancing innovation capacity. What is worse, even the most innovative ones experience difficulties finding the right partner with specialties in certain fields.

So, it does not come as a surprise that we witness so many projects that end up as a one-off incident, which confirms that corporate co-evolution efforts are bound to hit the wall. Another problem is a lack of evaluation system that would measure the probability of cooperation and select the best candidate worthy of support. To address this issue, we should build a network cooperation model specific to Korean market conditions. First and foremost, we need a seamless consolidation of infrastructure ? both off-line and on-line. And what follows is a variety of viable cooperation to be bred in the eco-system. Add to that indepth information exchange and we may have the right recipe for a long-term relationship.

If solid SMEs are one of the prerequisites for a mutually beneficial relationship with bigger corporations, there is a consensus that government support is critical. The government certainly can play a central role in creating a sound corporate ecosystem. Therefore, a major policy overhaul will be a step in the right direction. Institutional systems can be streamlined so as to encourage more intensified collaboration. New policies should stimulate network collaboration with a special focus on four major areas.

First, the government should promote SME manufacturing clusters and nurture coordinating companies to lead cooperation. Technology coordination experiences, CEO reputation, and ability to utilize knowledge should be among the selection criteria for coordinating companies. Second, Selected companies can enhance their capability to build a system and develop new product based on government support. A SME Cooperation Fund would be a great support strategy. Third, it is necessary to bolster trust and transaction security to ultimately improve network cohesion. Fourth, an overhaul of the legal framework and institutional system should follow.