SMEs of our country have exerted every effort in technology development for corporate survival and growth so far. In particular, SM manufacturers considered that development of products superior to that of competitors through sustained R&D is their top priority for securing competitiveness and the government also did not spare positive support to this management strategy as well. However, recently, it was opined that considerable portion of financial problems of domestic SM manufacturers was attributable to insufficiency of marketing capability, that is, lack of distribution strategy. For example, if self products should not be advertised to the consumers however excellent such products may be, such enterprise would be faced with default crisis by shouldering manufactured products as inventory as it is and if a rational delivery system should not be found even though market demand for the product is created, they are compelled to give up production and delivery.
Distribution market status that is important for SMEs is as shown on <Table 1> and it could be seen lately from this table that dependency on domestic demand is deepened compared with export. It means that export power of our SMEs is seriously weakened due to global economic recession, foreign exchange uncertainty, fluctuation of raw material price and active entry of Chinese low price goods in global market as a result of FTA conclusion on the one hand and relative importance of domestic demand market is greatly increased on the other. In view of this trend, it could be presumed that as sales utilizing self brand is decreased, it is very hard for SMEs in reality to secure sales network by establishing corporate brand power after manufacturing finished products.
Difficulty of SMEs for entry into domestic demand market is attributable to oligopoly of distribution industry by a few large enterprises and sluggish growth of domestic demand market. Concretely speaking, a few large firms that enjoy market dominance today dominate domestic demand market by operating both production and distribution and impose a contract that is absolutely advantageous to their position in dealing with SME suppliers by utilizing supremacy of bargaining power. At present, this problem under present corporate environment is represented not only in off-line but also in on-line distribution market and it provides serious entry barrier to our SMEs in their entry into sales market. In addition, long-term sluggish growth rate of domestic economy triggered by global financial crisis incites decrease of consumption propensity and a prospect that this trend would persist is dominant. In other words, this hardened industrial structure problem or global economic trend are the problems to be solved by SM manufacturers independently but it requires governmental support. In particular, if we may say that our government took the initiative in relevant support in order to remove risk factors of SMEs' technical development so far, now is the time that sales market is required to be supported in order to relieve such risk factors of the market.
Therefore, the objective of this study is to explore policy agenda for increasing local demand competitiveness of domestic SM manufacturers by researching on a method of supporting SMEs so that they may utilize on-line platform that is rapidly growing globally in particular.
Above all, major changes of domestic and overseas distribution environment could be summarized into three categories: First, sustained growth trend of domestic on-line distribution channel persists for the recent past app. 10 years (<Table 2>) and this trend is same world-wide including the USA, Europe and China. Second, ‘Reverse direct purchase’ business model using our on-line shopping by foreign consumers receives attention due to growth of domestic non-store retail business, spread of Korean wave including films, drama and K-POP. In particular, Chinese scale of overseas direct purchase was grown by more than 2 times from \13 tril. in 2013 to \27tril. in 2014 and it is expected to reach \180tril. in 2018. It was reported that 10% of \27 tril. being turned out by overseas direct purchase of Chinese consumers in 2014 is a purchase portion of Korean products. Finally, most of domestic large distributors had already made business foundation corresponding to omni channel and provides various services including click & collect (off-line pick-up after on-line order), virtual store (future type store in which business is operated by installing device enabling two-way communication in unmanned store), LBS (location-based service: service system of providing users with various services based on positioning information being obtained through mobile telecommunication network or GPS).
As a next step, when observing utilization reality of domestic SMEs for this on-line distribution market, as weight of enterprises that generally did not utilize such market at all is reduced, distribution rate of e-commerce may be said to be increased but on the other hand, as percentage of enterprises that utilize such market above average level falls short of 10%, utilization level of on-line channel by SMEs still remains at very early stage (<Table 3>). Existing researches explain cause of low utilizing reality as ‘Lack of personnel specialized in on-line marketing’ and ‘PR and sales promotion difficulties after entry into on-line channel’ and ‘difficulty in securing, maintaining product price competitiveness’. However, specifically, in case of TV home shopping, ‘complexity of contract process with on-line sales market provider and burden of expenses’ and ‘difficulty of securing hegemony in negotiating with on-line sales market provider’ are indicated as major difficulties and from this, it could be realized that negotiating power of TV channel is most superior. However, even under this difficulty, app. 90% of SMEs express their intention for utilization, development of on-line channel and they hope that the government would arrange ‘nurturing personnel specialized in marketing’, ‘PR support for SME products’, ‘loan of required fund’, ‘technology/manpower support’, ‘provision of responsible personnel’ and ‘provision of information relevant to procedure participating in on-line sales market’.
Even though on-line utilization level of SMEs is not so high but actually, products of domestic SMEs have relatively high competitiveness in on-line platform compared with off-line market. The reason of this is that under on-line shopping situation, consumers put importance on channel brand rather than product brand and their price sensitivity is high and so, SM manufacturers are advantageous in strategic approach to on-line channel as their brand awareness and reliability of the products are low but price competitiveness is relatively high compared with large firms.
In other words, the government suggests four policy directions based on recent distribution industry trend and reality of SMEs. First, creation of fair transaction culture with private on-line distributors is urgently required. Until distribution rate of internet and mobile is skyrocketed in our society and shopping through these services is generalized, on-line platform has been originally grown through competition of SM distributors and positive participation of SM manufacturers. However, at present, as a few firms enjoy monopolistic status in on-line distribution market and frequently commit unfair trade, it is impossible for SMEs to enter into this market independently. In other words, sales market support for SMEs should be basically made in settling down virtuous cycle structure of re-investing in enterprises under the guarantee of reasonable profit by supplying excellent products in the market after improving structural problem of the market. Therefore, together with current policy of Fair Trade Commission, through SMBA or SBC, ‘Report, reward system of on-line unfair trade’, ‘Distribution of fair trade guideline and frequent education for distributors/promising vendors’, ‘Distribution of standard contract for SM manufacturers and education for supply contract’ are required to be implemented and reinforced. Second, on the occasion of opening public home shopping enterprises on July, this year, our government supports those firms so that SMEs having excellent products could be advanced into consumer market based on reasonable fee and trade condition.
Therefore, future policy is required to support this public home shopping service so that it may rapidly respond to distribution environment and consumption pattern of the consumers and be furnished with market competitiveness as soon as possible and in particular, brand power shall be strengthened by increasing PR budget and omni channel integrating on-line and mobile based on present TV home shopping. In addition, synergy creation method with off-line platform is also required to be pursued extensively.
Third, existing survey analysis reports show that there is a difference in utilization possibility and potential of SMEs depending on on-line platform type. Therefore, a consulting service customized to the products and corporate features is required to be supported so that SMEs would map out optimized on-line distribution strategy. However, as existing support system utilizes 1:1 matching system between SMEs and distributors, there is a limitation that only a few firms receive benefit. Therefore, future policy shall be supplemented to the direction of collecting, disclosing turnover information by each distributor/item, regularly surveying, analyzing distribution structure based on big data of purchase behavior features of consumers by each channel (Flow, commodity search, shopping bag packing, order completion), distribution structure by each industry, item and providing its result.
Finally, ‘Profit sharing type alliance’ between SM manufacturers and marketing, distributors shall be supported so that SMEs receiving policy support may maintain transaction with distributors even after support. At this time, the government’s role is to induce participation of large distributors, protect technology of excellent SMEs, guarantee sales right and adjust proper contract level for revenue-sharing.
Major significance of this study is that improved ‘on-line platform support direction for SMEs’ was presented by reviewing change of recent distribution environment additionally after collecting diversified research reports and articles and confirming enforcement status of policy alternative based on diversified policy researches on existing sales market support for SMEs and on-line marketing support, in particular. In addition, it is expected that through these policy alternatives, domestic demand market experience, particularly platform utilization experience would spread to SMEs and furthermore, their opportunity of advancing into global market would be expanded.