Hidden Champion Initiative

Background

Korean exports have been increasing steadily except for 2009 when the world economy was in recession. Exports have also been the engine driving the Korean economy for 10 years (2001~2011), with the contribution of exports to economic growth standing at 62% as of 2011.
     * Contribution of exports to economic growth: (export growth/ GDP growth) X 100

 

Such figures, however, mask a structural problem that may undermine future growth.

Korean exports rely disproportionately on the performance of large companies. Large companies accounted for 0.1% of all Korean businesses in 2010 but their sales in exports accounted for 65.1% of total Korean exports. On the other hand, while SMEs and medium-large companies made up 99.9% of all Korean companies they only accounted for 34.5% of total exports.

Such over-reliance on large companies has led to a weakening of the contribution of exports to the national economy. The employment inducement coefficient of exports had decreased from 26.2 in 1995 to 7.9 in 2010, meaning that every KRW 1 billion in exports created 26.2 jobs in 1995 but only 7.9 jobs in 2010, representing a 70% decline.

The value-added inducement coefficient of exports also dropped from 0.7 in 1995 to 0.563 in 2010. Whereas every KRW 10 billion of Korean exports generated an added value of KRW 7 billion in 1995, the same would only generate KRW 5.6 billion in added value in 2008.

 

Finally, the global market share of Korean exports has been trapped below the 3% mark ever since breaking through the 2% threshold in 1988. The spike in global market share in 2009 was due to the exceptional performance of large companies exporting cars, display panels, mobile handsets, semiconductors, and ships.

Exports have thus led Korea's economic growth, but SMEs which constitute the backbone of the Korean economy have been largely excluded from this export-led growth story. In searching for a remedy for this situation, Korea Eximbank stumbled on the concept of 'Hidden Champion'.

Dr. Hermann Simon, a world-renowned professor of business administration, in his book 'Hidden Champions: Lessons from 500 of the World's Best Unknown Companies,' attributed Germany's success as an exporting nation to the existence of about 1,000 Hidden Champions, or SMEs with little public recognition that are focused on one or two product categories, but which dominate the global markets in their respective segments.

In contrast to Germany, Korea has just 25 Hidden Champions. Furthermore, whereas exports of German Hidden Champions accounted for 26.1% of all German exports, those of Korean Hidden Champions (KHC) accounted for just 0.35% of all Korean exports.

The German example illustrates the substantial contribution medium-sized businesses can make to the growth of exports and to job creation. In short, Hidden Champions represent the way forward for the Korean economy.

Korea Eximbank therefore developed the Hidden Champions Initiative as a program to incubate Korean-type Hidden Champions, with the broader aim of promoting an environment of sustainable and balanced growth in which upwardly mobile SMEs can play a robust supporting role in the Korean economy.

Vision

The Hidden Champion Initiative is a core program of Korea Eximbank to promote the growth of Korean Hidden Champions (KHC) by supporting the globalization efforts of SMEs and medium-large companies with advanced technology and high growth potential through customized financial & non-financial services.

Implementation Process

Korean Hidden Champion & Candidates

ision

Companies selected as KHC candidates typically possess proprietary technology and are based on markets and industries with high growth potential, making them well-positioned to expand their market shares through globalization. A few statistics illustrate their characteristics well.

KHC candidates have an average ratio of R&D investment to sales of 3.8% as of the end of 2012, which is more than three times the average for all Korean companies. Their average number of patents is close to 53. Their average share of exports to total sales is 60.3% as the end of 2012, again more than three times the Korean average - indicating their strong commitment and capacity for globalization.

The sales growth rate of KHC candidates, at 5.9% as of the end of 2012, also topped the Korean average of 5.1%, as did their average employee growth rate.

Services

Financial Services

Korea Eximbank provides a variety of financial services throughout the journeys of Korean Hidden Champion candidates as they climb up the globalization value chain.

Non-Financial Services

Korea Eximbank provides a variety of non-financial services in collaboration with external organizations to empower KHC candidates.