THE EFFECT OF GOVERNMENT SUPPORT

ON E-BUSINESS PERFORMANCE IMPROVEMENT

WITH INDUSTRY TYPE IN KOREA

Hyun Sook Ahn

, Dong Man Lee

and Hyun Sun Park

Graduate School of Business Administration, Kyungpook National University, Korea

Department of Business Administration, Kyungpook National University, Korea

Keywords: e-Business, Government support, e-Business industry.

Abstract: This study investigates how government support influences the performance of e-business companies.

Drawing on previous studies, funding support for technology development and marketing support, currently

accounting for the biggest part of the support provided by the Korean government to the e-business sector,

were selected as independent variable. Meanwhile, performance indicators specific to e-business such as

human resources development, competitiveness enhancement, profitability, and growth in technology assets

were chosen as dependent variable. The data was collected through a survey of CEOs and executives of e-

business companies that had received or were receiving government for technology development had a

positive influence on competitiveness enhancement, profitability, and technology assets growth. Marketing

support, while it had a significant influence on competitiveness enhancement and technology assets growth,

proved to have no measurable effect on profitability.

1 INTRODUCTION

With the advent of the information era in the 21th

century, governments around the world are

supporting all the things in competent and highly

profitable field with systematic and overall plans. In

Korea, to assist the industry in gaining technological

independence needed to successfully compete in the

global information race, its government has been

expanding and diversifying its support toward

industry for the development of next-generation

technologies, their commercialization and creation

of new business models based on these technologies.

The goal is to foster new engines for future growth

of the Korean Industry. As is well-known, South

Korea is today among the world’s most advanced

nations in terms of information technology. The

country’s rise as a world IT powerhouse-that

Koreans like to call “IT Korea”-owes much to an

ideal combination of active government support for

technology development with an equally active

investment in technological innovation by its

industry. Up to this time, South Korea has succeeded

in building "IT Korea" in deed as well as in name

due to various complex factors such as supports of

government, constant efforts of enterprise for the

development of new technology and the national

character suitable for IT industry

The number of studies assessing the

achievements of governments of government

support programs in this field is, as a matter of fact,

surprisingly small. Assessments provided by a

handful of existing studies on this topic are hardly

satisfactory, as their focus is too narrow, dealing, for

instance, with a single project carried out by one

particular institution. These studies are at the same

time too general to be informative or useful, as they

measure the effect of a government support program

on the industry as a whole, and not a specific

industry sector. Also, whilst there have been a

sizeable number of studies investigating private-

sector factors influencing the growth of the e-

business industry, very few inquiries have been

made into similar influence factors coming from the

public sector. Most studies on public-sector

influence factors have been broadly concerned with

the industry as a whole, and not with e-business or

any other specific sectors. To address these

shortcomings in the existing literature, a research

model expanding on existing models has been

elaborated, comprising independent variables that

293

Sook Ahn H., Man Lee D. and Sun Park H.

THE EFFECT OF GOVERNMENT SUPPORT ON E-BUSINESS PERFORMANCE IMPROVEMENT WITH INDUSTRY TYPE IN KOREA.

DOI: 10.5220/0002771202930298

In Proceedings of the 6th International Conference on Web Information Systems and Technology (WEBIST 2010), page

ISBN: 978-989-674-025-2

are primarily macro-variables and dependent

variables that are primarily micro-constructs. The

independent variables, variables related to

government support in this study, have in their scope

all technology development funding programs and

marketing support programs by government

institutions, while the dependent variables relating to

the effect of government support are exclusively

concerned with e-business; in other words, they only

measure the effect of the support programs on e-

business.

2 THEORETICAL

BACKGROUND

2.1 Government Support Programs

Technology Development funds are programs

through which the government provides funding

toward technology development projects in the form

of interest-free and unsecured loans with no

collateral requirements. The details of support

available under these programs are tax relief,

funding support for technology development, joint

R&D projects, technology business incubation funds

and technical support and training. The Marketing

Support System is the Small and Medium Business

Administration Sponsors exhibition activities by

SMEs and SME associations in an effort to afford

them marketing opportunities and help expand their

sales channels. Funding is provided toward the cost

2.2 Previous Literature

Seoh, S.H.(1998) investigated, in a study in the

context of a research project sponsored by the

institute for industrial policy studies, the evolution

of industrial infrastructure technology and Seoh,

S.H(2000) assessed the effectiveness of the

technology innovation and development program by

the Small and Medium Business Administration,

identifying also key factors influencing the project's

outcome. Kim, H.U.(2004), in his study on the effect

of government funding support on the performance

of SMEs, criticized the existing literature, saying the

most of the previous studies on this subject focused

more on strategies on how to improve funding

programs than measuring the actual effectiveness of

existing programs, and that their evaluations of the

effectiveness of a funding support program based on

more specific evidence, in other words, using

concrete data of individual companies receiving

funding assistance. His analysis, using

Ashenfelter’s(1978) model, found that there was no

real difference in terms of operating profit between

companies that were beneficiaries of government

funding and those that were not, although in some

rare cases, government funding produced adverse

effects on the operating profit of beneficiary firms.

This study also reported that government fund

support proved particularly ineffective, when

provided to recent start-ups and young companies.

Kim, W.G.(2007) estimated the relationship between

labour productivity and R&D intensity, using a fixed

effects model with data results from 18 industrial

and yearly panel data between 1993 and

2005. Song, H.J. et al.(2006) compared SMEs

receiving funding support from government with

compared marketing support programs in place at

that time to determine which of them are most

effective. Marketing support programs by the

government which proved the most effective were

marketing training programs, programs sponsoring

participation in exhibitions, and programs providing

support for designing websites and publishing

catalogues, product certification programs and

overseas market development support

programs. Ashenfelter(1978) investigated the effect

of a job training program by the U.S governments.

This study evaluated the effectiveness of a job

training program conducted by the U.S government,

sometime around 1964 by looking at whether there

was any significant difference in wages between

workers who attended the program and workers who

had not.

3 RESEARCH MODEL AND

HYPOTHESES

3.1 Research Model

Drawing on previous studies, the following research

model was developed to determine how government

support programs for SMEs and venture firms

influence the growth and development of the e-

business industry. For the government support

program, the most dominant technology

development fund support and marketing support

were determined as variables. And for the

development of the e-business industry, its unique

elements vis-à-vis those of other industries-namely,

the fostering of human resources, competitiveness

enhancement, profitability, and increase in

technological – were determined as variables.

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Based on the existing researches examined

above, a research model, as shown in <figure 1>.

All question items were measured on the basis of

a 5-point-Likert scale.

3.2 Research Hypotheses

H1: The government support program will have a

positive (+) impact on enhancing

competitiveness.

H1.1: The technology development fund support

will have a positive (+) impact on enhancing

competitiveness.

H1.2: Marketing support will have a positive (+)

impact on enhancing competitiveness.

H2: The government support program will have a

positive (+) impact on profitability.

H2.1: The technology development fund support

will have a positive (+) impact on profitability

H2.2: Marketing support will have positive (+)

impact on profitability.

H3: The government support program will have a

positive (+) impact on increasing

technological assets

H3.1: The technology development fund support

will have a positive (+) impact on

increasing technological assets.

H3.2: Marketing support will have a positive (+)

impact on increasing technological assets.

H4: The effects of the government's support

program on the development of the e-business

industry will differ according to industry type

H 4.1: The effects of the technology

development fund support on the

development of the e-business industry will

differ according to industry type

H 4.2: The effects of the marketing support on

the development of the e-business industry

will differ according to industry type

4 RESULTS OF EMPIRICAL

ANALYSIS AND DISCUSSION

4.1 Characteristic of Research

Sampling

Questionnaires were used when surveying the SMEs

and venture firms which received the governmental

support. Members of KITIA were surveyed online,

while members of the IT SoC Association and of the

Daegu and Gyeongbuk Development Council via e-

mail and clients of various banks were surveyed

Figure 1: Research Model.

offline. 250 answered copies of the questionnaire

were collected from which any copies were removed

from corporations not related to e-business along

with other disqualified copies, leaving a final total of

131 effective copies. Specifically, the CEOs and

other high-ranking officials of corporations were

surveyed who could provide responsible answers

and better know their organizations in an effort to

effectively examine the effects of the government

support program on the development of the e-

business industry. The characteristics of the

respondents and the sampled corporations are

outlined in Table 1, Table 2.

Table 1: Characteristics of the sampled corporations.

Category Count (%)

Industry type

Internet 3(2.3%)

Mobile 9(6.9%)

Structuring Infrastructure 3(2.3%)

IT SoC 27(20.6%)

IT manufacturing 63(48.1%)

Others 26(19.8%)

Location

Seoul metropolitan areas 63(48.1%)

Provincial areas 68(51.9%)

4.2 Analysis of the Reliability and

Validity of the Measurement Tool

The results of the reliability test indicated that the

Cronbach's Alpha value of all the research variables

ranged from 0.6 to above 0.8, showing a good

degree of reliability (Table 3). A factor analysis was

conducted to test the validity of the measurement

tool, the major factor analysis was selected, and for

the factor rotation, the Varimax rotation was

selected from among the orthogonal rotation

methods. Finally factor numbers with an Eigenvalue

over 1 were selected, as shown in Table 4, Table 5.

4.3 Analysis of Correlation between

Variables

The correlation between all variables was found to

be low except in the case of the correlation between

THE EFFECT OF GOVERNMENT SUPPORT ON E-BUSINESS PERFORMANCE IMPROVEMENT WITH

INDUSTRY TYPE IN KOREA

295

profitability and competitiveness enhancement

which at 0.631 represented a positive correlation, as

in the existing researches Table 6.

Table 2: Characteristics of respondents.

Category Count (%)

Gender Males 124(94.7%)

Females 7(5.3%)

Age <20 years old 2(1.5%)

21-30 years old 34(26%)

31-40 years old 65(49.6%)

>50 years old 30(22.9%)

Education High School or under 2(1.5%)

Junior college(attending) 7(5.3%)

University(attending) 58(44.3%)

Graduate

School(attending)

64(48.9%)

Job R&D 44(33.6%)

Administration 76(58%)

Sales 1(0.8%)

Production 1(0.8%)

Others 9(6.9%)

Position Employees 2(1.8%)

Assistant Managers 12(10.6%)

Managers 11(9.7%)

Deputy General Managers 10(8.8%)

General Managers 9(8%)

Executives 32(28.3%)

CEOs 37(32.7%)

Table 3: Results of the Reliability Test.

Research variables

No. of

items

Alpha’s

coefficient

Government

support

Technology development

fund

4 .608

Marketing support 3 803

e-business

Industrial

development

Enhance competitiveness 5 .627

Profitability 3 .621

Increase technological

assets

3 .624

Table 4: Factor analysis of the independent factors.

Factor

Factor 1 Factor 2

Technology development2

.829

.123

Technology development4

.803

.091

Technology development1

.660

.336

Technology development5

.507

.442

Marketing2 .170

.934

Marketing3 .191

.901

Marketing1 .218

.807

Table 5: Factor analysis of the dependent variables.

Factor

Factor1 Factor2 Factor3

Competitiveness3

.832

.148 .093

Competitiveness2

.811

.168 .117

Competitiveness5

.720

.393 .015

Competitiveness4

.563

.081 .307

Competitiveness1

.517

.414 .137

Profitability4 .170

.854

.115

Profitability1 .259

.812

.149

Profitability3 .292

.761

.091

Technological3 .139 .017

.861

Technological2 .367 .153

.635

Technological1 -.074 .481

.599

Table 6: Correlation between the research variables.

Variable

Technolog

Support

(1)

Marketin

support(2

)

Competiti

veness(3)

Profitabilit

y(4)

Tech.

assets(5

)

(1) 1

(2) .529

(3) .461

.221

(4) .277

.079 .587

(5) .303

.073 .540

.908

4.4 Verification of the Hypotheses

A multiple regression analysis was conducted to

verify the hypotheses on the relationship between

the government support program and the

development of the e-business industry, the results

of which are shown in Table 8. A moderated

regression analysis was conducted to test the

mediating effects of industry type on the relationship

between the government support program and the

development of the e-business industry. After

industry type was set as a dummy variable(IT

Manufacturing =0, non-IT Manufacturing = 1), it

was established as an interaction term with the

independent variable, i.e. government-supported

industry, and was included in the regression analysis

to test hypothesis 4. As a result, the moderating

effects of industry type were found to be statistically

insignificant at the significance level of 5 of all

interaction terms; therefore, hypothesis 4 was

rejected.

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Table 7: Results of the Regression Analysis.

Independent variable

Competitiveness enhancement Profitability

Increase in technological

assets

β t p β t p β t p

Technology Development support .486 5.239 .000

***

.327 3.260 .001

***

.367 3.721 .000

***

Marketing Support .135 2.669 .009

***

-.095 -.944 .347 -.121 -1.226 .222

F value 17.315 5.745 7.305

.214 .083 .102

Table 8: Results of the Hypotheses.

Hypothesis Independent variables Dependent variables Moderating variables Finding

H1.1 Technology development fund support Competitiveness enhancement Supported

H1.2 Marketing support Competitiveness enhancement Supported

H2.1 Technology development fund support Profitability Supported

H2.2 Marketing support Profitability Rejected

H3.1 Technology development fund support An increase in technological assets Supported

H3.2 Marketing support An increase in technological assets Rejected

H4.1. Technology development fund support e-business industry development Industry type Rejected

H4.2 Marketing support e-business industry development Industry type Rejected

5 CONCLUSIONS

5.1 Summary of the Research

This study, targeting Korea's e-business-related

SMEs and venture firms, examined the effects of the

government support program on the development of

the e-business industry, and verified whether the

effects of the government support program on the

development of the e-business industry differed

according to industry type, i.e., IT manufacturing

and non-IT manufacturing.

The findings of the research indicated the

following: First, as regards the government support

program, the technology development fund support

was found to have significant positive effects on all

areas including the enhancement of corporate

competitiveness, profitability, and increase in

technological assets. The technology development

fund support – whether direct or indirect motivated

corporations to make R&D efforts, thereby

influencing their competitiveness enhancement,

increase in technological assets, and profitability.

Second, as regards the government support program,

market support was found to have significant

positive effects on corporations' competitiveness

enhancement and increase in technological assets,

but not on their profitability. From the short-term

perspective, the marketing support-although small-

scale and indirect-enhance corporations’ marketing

awareness and ability, and thus enhanced their

competitiveness and technological assets, but did not

have any direct effects on their profitability. This can

be interpreted to mean that it may take more time to

improve profitability on the basis of enhanced

competitiveness and an increase in their

technological assets. Lastly, there was no difference

in the relationship between the government support

program and the development of the e-business

industry according to industry type.

5.2 Implications and Limitations of the

Research

This study further developed the existing research

model, and thus re-established independent variables

from holistic and macro perspectives, and dependent

variables from micro perspectives. The study

included all the relevant institutes’ diverse

technology development fund programs and

marketing support programs in the independent

variables, namely the government support program,

and limited the dependent variable to the e-business

industry. In fact, it is the foregoing features which

give this study its particularity.

Also, given the characteristics of the IT industry and

the e-business industry, such as their rapidly

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INDUSTRY TYPE IN KOREA

297

changing speed and their core technologies’

importance, the protection, reliability and

development speed of the technologies of such

industries receive greater emphasis than in other

industries. Thus, these points were conceptualized

into “technological assets”, which was then

established as a dependent variable, giving the study

a profound meaning.

Despite these theoretical and working implications,

the study has several limitations, outlined below,

which it is hoped will be tackled in future research:

First, this study targeted only the beneficiaries of

the government support program, and thus the

possibility that the respondents were led into giving

affirmative answers cannot be excluded. Such, any

future research will be able to produce more accurate

results if it includes non-beneficiaries as well.

Second, apart from questionnaire-based surveys,

if both the government's and the private sector's

databases on the government support program had

been utilized along with their databases on industrial

trends, more objective and precise results may have

been produced.

Third, it would be worthwhile to utilize as a

mediating variable the frontline industries relating to

the e-business industry- such as the IT SoC and IT

industry – in an effort to observe via which paths the

government support program has direct and indirect

effects on the development of the e-business industry.

Lastly, if new variables such as IT support and

education support were added to the independent

variables-technology development fund support and

marketing support of the government support

program and examined, and if dependent variable-

such as technological property- that reflect the major

characteristics of the e-business industry, along with

their measurement items, were developed and

examined.

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