[Exclusive] "They said supplementary budget is all about timing"... 'Full of loopholes' SME non-face-to-face projects

Kim Jeong-jae, member of the People Power Party. Photo by Kim's office

[Asia Economy Reporter Moon Hyewon] The government’s new project to provide non-face-to-face services to small and medium-sized enterprises (SMEs), which involved an additional supplementary budget of over 310 billion KRW to quickly respond to the COVID-19 era, is revealing several flaws. Only 25% of the target companies have been selected to receive the services, and since the service providers are limited to small and venture companies, concerns are rising that the effectiveness of the project may be diminished.

According to data on the "K-Non-face-to-face Service Platform Construction Project" submitted by the Ministry of SMEs and Startups to Kim Jeongjae, a member of the People Power Party, as of the 21st, the actual expenditure for this project was 2.313 billion KRW, with an execution rate of only 0.8%.

The government initially planned to select 80,000 service-demand companies within this year, but currently, only 23,043 companies have applied, which is about a quarter of the target. Among these, only 11,470 demand companies have been selected. Rep. Kim pointed out, "They say timing is everything with supplementary budgets, but at this pace, it is doubtful whether 80,000 demand companies can be selected within this year," adding, "There is a high possibility of a large amount of unused funds."

There are also criticisms that the process of selecting service supply companies is inadequate. According to the recruitment announcement for participating companies in this project, non-face-to-face service providers are limited to small and medium-sized enterprises and mid-sized companies. Based on this criterion, the Ministry of SMEs and Startups has finalized the selection of 359 service supply companies.

According to the criteria, Kakao Enterprise’s recently announced non-face-to-face solution cannot be purchased by SMEs using vouchers. Kakao Enterprise belongs to a business group restricted from cross-shareholding and is classified as a mid-sized or large company. On the other hand, Works Mobile, a subsidiary of Naver, is allowed to enter the market because Naver is not part of a business group restricted from cross-shareholding.

The Ministry of SMEs and Startups stated, "By limiting the participation of large companies, we aim to provide a stepping stone for supply companies to expand their sales channels and grow into global companies." However, industry insiders and Rep. Kim strongly doubt whether the ministry’s intentions for the new project will be properly realized in practice. An industry official criticized, "If the purpose of this project is to help SMEs quickly adopt non-face-to-face work systems such as telecommuting and video conferencing, which have rapidly increased during the COVID-19 crisis, then the focus should be more on introducing the highest quality technology that demand companies want," adding, "Limiting supply companies makes demand companies question whether the government is truly committed."

Meanwhile, Rep. Kim said, "After implementing the system restricting large company participation under the Software Industry Promotion Act, public software exports have been halved," and suggested, "We should take the software industry’s experience of restricting large company participation as a lesson and redesign the project."