What Types of Government Support on Food SMEs Improve Innovation Performance?

Round 1

Reviewer 1 Report

The subject of the article should be considered as important and up-to-date. It raises issues significant from the point of view of food economy. It can also be treated as a contribution to the discussion on the competitiveness of the food industry. Reading of the reviewed article allows to state that it is factual and substantial. The collected material was presented correctly.

The reviewer does not have any essential remarks to the article as a whole but:

- it is not necessary to mention the structure of the article in introduction,

- the discussion does not bring much new value, because it refers to the same arguments (they are repeated), which were used by the authors to formulate hypotheses - this should be improved.

Author Response

Thank you very much for all your comments. We are very glad that you give us the opportunity to revise our manuscript. We have worked hard to address your excellent and detailed comments. Based on them, we have substantially improved this manuscript. We hope you like the changes we made.

Point 1: The subject of the article should be considered as important and up-to-date. It raises issues significant from the point of view of food economy. It can also be treated as a contribution to the discussion on the competitiveness of the food industry. Reading of the reviewed article allows to state that it is factual and substantial. The collected material was presented correctly.

Response 1:

We sincerely thank you for these positive comments.

Point 2: The reviewer does not have any essential remarks to the article as a whole but:

- it is not necessary to mention the structure of the article in introduction,

Response 2:

Thank you for this kind comment. This study deleted the paragraph about the structure of the article.

Modification #1  (line 97 – line 102 in revised manuscript)

(deleted)

Point 3: - the discussion does not bring much new value, because it refers to the same arguments (they are repeated), which were used by the authors to formulate hypotheses - this should be improved.

Response 3:

We sincerely thank you for this comment. Authors discuss the results and conclusion further in the context of Korean food industry. This study reviewed the results in the view of scouting effect (Baum and Silverman, 2004). In addition, we considered the importance of obtaining certification for food firms in the view of signaling effect (Spence, 2002)

Modification #2  (line 605 – line 614 in revised manuscript)

The results of this study are different from the arguments of previous studies reviewed above: Guellec and Van Pottelsberghe De La Potterie [35], Martí and Quas [43], Almus and Czarnitzki [49] as well as González and Pazó [50].

Modification #3  (line 619 – line 624 in revised manuscript)

Also, contrary to the arguments of Patel and Pavitt [36], Alecke, Reinkowski, Mitze, and Untiedt [37], and Guan and Yam [38],

Modification # 4  (line 644 – line 675 in revised manuscript)

A characteristic of the Korean food industry is that, unlike developed countries, the proportion of SMEs is extremely large. In order to develop the food industry, it is important to support SMEs. Government and firms need to pay attention to the effect of government support on food SMEs’ certification is significant in the Korean context. Just as venture capital firms identify the potential of startups by acting as scouts and coaches for them [124], when governments support food SMEs according to the certification system, government could be expected to serve most effectively as scouts and coaches to SMEs. Therefore it is necessary to expand certification support that can maximize the scouting effect in order for SMEs to have competitiveness in the food industry.

According to Kakouris and Sfakianaki [125], certified firms in the food industry benefit from quality awareness, increased productivity, improved workforce engagement and efficiency, improved image, and entered new markets. These advantages are directly related to competitiveness in the market. Therefore, if the government supports the certification project of food SMEs, it can be expected to produce a significant behavioral additionality effect [126].

In addition, customer requirements are the main motivation for food SMEs to implement a certification system such as HACCP [127]. Certification on SMEs is one of the most important information for consumers in food choice. Certification can create a competitive advantage for certified firms by reducing information asymmetry in the supply chain [128]. When food SMEs send a signal of 'certification' [129] to their own organization, it can activate innovation activities. In addition, this will be a driving force to induce more choices from consumers.

Reviewer 2 Report

In SME definitions, we find numbers 50 and 250. Why did the authors take 100 and 300. Are we still talking about SME, maybe balance sheet criteria were taken into account.

If in the estimation process a given variable turns out to be statistically insignificant (especially in each approach), then it should be eliminated and the model should be estimated without it - the variable 'age' but also 'license_in' (Table 3). The next models verify the hypotheses - OK. But is it worth verifying hypotheses with models containing so many irrelevant variables? The question is, shouldn't the number of variables be limited?

It appears that license_in is extremely asymmetric, as are several other variables, due to their nature. I assume that the Authors wanted to include all companies, but probably distorted the sample in this way. Perhaps some of them are so specific that they should not be included in the database for the model or should be assigned additional zero-one variables.

I think we are dealing with an editorial error under the tables - I assume it is 0.05 and not 0.5.

Author Response

Thank you very much for all your comments. We are very glad that you give us the opportunity to revise our manuscript. We have worked hard to address your excellent and detailed comments. Based on them, we have substantially improved this manuscript. We hope you like the changes we made.

Point 1: In SME definitions, we find numbers 50 and 250. Why did the authors take 100 and 300. Are we still talking about SME, maybe balance sheet criteria were taken into account.

Response 1:

Thank you for this comment. This study added the classification criteria for SMEs in Korea. Those vary by industry. For SMEs in the food sector, the standard for annual revenue is 100 billion Korean won (about USD 9,000 million) or less. This study added the information of SMEs in Korean food industry

Modification #1  (line 151 – line 166 in revised manuscript)

The Korean food market is dominated by few large firms, which also have the highest sales performance. The sales volume of the Korean food industry is 490 trillion Korean Won (USD 420 billion); the industry employs over 2.18 million people [38]. The OECD [35] reports that the Korean food industry's growth rate of production, employment, and exports exceeds that of most OECD countries. However, the absolute size of the food industry is small, and exports are limited. Although the global market share of Korean food has increased, its comparative advantages are still inferior. There is an imbalance between RandD investment and the size of the industry. In Korea, small firms are classified according to the amount of sales determined for each food product under the Framework act on small and medium enterprises. In the food manufacturing industry, firms with annual sales of 10 billion Korean won (USD 9,000 million) or less are classified as SME. SMEs account for 99.7% of all firms, but the sum of their annual sales was USD 293 billion which account for only 50.7% of the total food firms. Only a few large firms, which is 0.3% of the total, account for 49.3% of total sales. In order to promote the balanced development of the Korean food industry, the effective ways of supporting SMEs should be considered.

Point 2: If in the estimation process a given variable turns out to be statistically insignificant (especially in each approach), then it should be eliminated and the model should be estimated without it - the variable 'age' but also 'license_in' (Table 3). The next models verify the hypotheses - OK. But is it worth verifying hypotheses with models containing so many irrelevant variables? The question is, shouldn't the number of variables be limited?

Response 2:

Thank you for this comment. According to your comment, this study eliminated the variables ‘age’ and ‘license_in’ in the two stage regression. We have analyzed overall model newly without the two variables.

Modification # 2  (line 551 – line 561 in revised manuscript)

The variables age and license_in estimated to affect only a single endogenous variable were excluded from the analytic model according to the results of ordered logistic regression. The two-stage regression model using instrumental variables is as follows.

In equations (2) and (3), a₀ is a constant; a₁, a_2, a_3, a₄, a₅, and a₆ refer to the estimated coefficients; ω is an error term; Z represents the instrumental variable, and f(GS) refers to an explanatory variable based on the result of the first stage regression. X₁, X₂, X₃, X₄, and X₅ are metropl, ip_protect, large_reg, safe_reg, certi, or procure, respectively. One of them is used as instrumental variable. After adopting it as the instrumental variable, others are used as control variables in the second stage.

Modification #3  (line 595 – line 596 in revised manuscript)

Table 9. Innovation performance by government support

Point 3: It appears that license_in is extremely asymmetric, as are several other variables, due to their nature. I assume that the Authors wanted to include all companies, but probably distorted the sample in this way. Perhaps some of them are so specific that they should not be included in the database for the model or should be assigned additional zero-one variables.

Response 3:

Thank you for this comment. As responded in point 2, this study eliminated the variable “license_in” in two stage regression.

Point 4: I think we are dealing with an editorial error under the tables - I assume it is 0.05 and not 0.5.

Response 4:

Thank you for your kind comment. As you commented it, this study corrected the editorial error. This study changed 0.5 to 0.05 in table 3 and table5.

Modification # 4 (line 537 in revised manuscript)

Note: Standard deviation is in parentheses, *** p < 0.001, ** p < 0.01, * p <0.05

Modification # 5 (line 547 in revised manuscript)

Note: Standard deviation is in parentheses, *** p < 0.001, ** p < 0.01, * p <0.05

Reviewer 3 Report

1) The statement in the introduction "The literature analyzing the relationship between government support and SMEs innovation performance presents several significant gaps" needs more support in terms of source (authors) and focus (according to the type of innovation, industry or country). I recommend at least supplementing the sources with which the authors continue to work in setting hypotheses. In my opinion, extensive research has been carried out in this area, not only from the area of ​​developed countries but also from developing countries (the same applies to the "few studies" reference in this area).
2) From a background perspective, it is not clear whether there is currently an innovation plan/strategy/policy directly focused to support SMEs from the food industry in Korea. What is the potential (size) of SMEs from the food industry in Korea or the share on exports (turnover)?
3) It is also not clear from the context how "innovation" is conceived in the food industry (RandD, technologies, patents, etc. are often mentioned in the context of technological SMEs). 

4) The literature review does not define the concept of innovation performance (financial / non-financial in the form of outputs), for example according to the OECD?, etc.
5) Why did the authors choose seven tools to support the government in relation to SMEs in the food industry? Which of these tools can be used regionally/locally and which at national level? I recommend adding only a brief justification at the beginning.
6) Table 2 - I only recommend not using the code "1" for individual variables when adding the score protecting innovation performance, but a), b), c) etc. and putting it in parentheses at the end (min sum and max sum score). The same within certification.
7) I very much appreciate the use of two-stage regression model to eliminate reverse causality, endogenous problem and further analyzes to overcome multicollinearity.
8) The authors found negative effects of government support on innovation outputs (tax, HR, finance). Why is that so? What is the authors' assumption in the context of the selected industry and / or location, Korea? This reflection would have the greatest added value of the whole article. Is not obtaining certification the "least evil" that SMEs have to go through in order to do business in the (global) market and / or gain a bigger customer rather than a catalyst for innovation? There is a lack of a deeper discussion on the results from the authors or in a conclusion.
9) I recommend correcting grammar: page 1, line 45 development(R&D), page 9, line 417/418 (In the first stage regression, The following).

Author Response

Thank you very much for all your comments. We are very glad that you give us the opportunity to revise our manuscript. We have worked hard to address your excellent and detailed comments. Based on them, we have substantially improved this manuscript. We hope you like the changes we made.

Point 1: 1) The statement in the introduction "The literature analyzing the relationship between government support and SMEs innovation performance presents several significant gaps" needs more support in terms of source (authors) and focus (according to the type of innovation, industry or country). I recommend at least supplementing the sources with which the authors continue to work in setting hypotheses. In my opinion, extensive research has been carried out in this area, not only from the area of ​​developed countries but also from developing countries (the same applies to the "few studies" reference in this area).

Response 1:

As you commented in point 1, we found the statement in the introduction “The literature … significant gaps” is not supported appropriately by the entire paragraph or overall paper. So this study change the way of the contribution and add more sources

Modification #1  (line 14 – line 19 in revised manuscript)

Accordingly, SMEs try to secure a competitive advantage through innovation. Government support is necessary for innovation of SMEs, and it is essential for food SMEs as well. Whether government support for firms can affect firm’s innovation is still a matter of debate. In particular, it is necessary to empirically investigate the relationship between government support and innovation for SMEs in latecomers of food industry such as Korea.

Modification #2  (line 68 – line 79 in revised manuscript)

This study adds to a small body of literature on government support for SMEs’ innovation in late-coming countries. It is not clear what the overall impact of direct government support has been for the firms involved [10]. It is debatable whether government supports at firm levels can promote firm innovation capabilities [11]. Hence the implications of government support for the performance of individual firms remain to be explored [10].

Modification #3  (line 80 – line 81 in revised manuscript)

This study addresses empirically analyzing what types of government support improved the performance of SMEs.

 Point 2: 2) From a background perspective, it is not clear whether there is currently an innovation plan/strategy/policy directly focused to support SMEs from the food industry in Korea. What is the potential (size) of SMEs from the food industry in Korea or the share on exports (turnover)?

Response 2:

Thank you for this comment. Following your recommendation, we presented the innovation plan/strategy/policy directly focused to support SMEs from the food industry in Korea clearly. In addition we share the information for the food SMEs in Korea.

Modification #4  (line 207 – line 216 in revised manuscript)

Korea established the Ministry of SMEs and Startups in 2017 to shift the center of the economy from large firms to SMEs, ventures, and startups [53]. ‘Framework act on small and medium enterprises’ was amended to systematically support SMEs and ventures, and startups. In accordance with the comprehensive plan for fostering SMEs and startups [54], Korean government supports their innovation with the goal of digital transformation, creation of a venture boom, and creation of a self-sustaining ecosystem. In particular, the food industry has been designated as a strategic field for the growth of SMEs and is expanding support for activation of local currency, creation of a new business model based on the online economy, conversion to a smart factory, and establishment of export vouchers.

Point 3: 3) It is also not clear from the context how "innovation" is conceived in the food industry (RandD, technologies, patents, etc. are often mentioned in the context of technological SMEs).

Response 3:

Thank you for this comment. According to your comment, this study has clarified the concept of innovation in the food industry. Innovation concepts from previous studies were taken into account. Food firms seek innovation by collaboration with external players to gain competitiveness.

Modification #5  (line 112 – line 126 in revised manuscript)

In recent innovation research, a new innovation policy frame, different from the extant innovation policy, has begun to emerge in response to major social and environmental issues [19]. Diercks, Larsen, and Steward [20] recognize the limitations of the extant approach to growth-centered technological innovation; they consider strategies to respond to social issues such as sustainability, aging, and polarization as new policy areas. In the food industry, potential knowledge found outside the firm is increasingly being used to address these issues [21]. Food firms cooperate with external players to keep the competiveness. The need for open innovation in the food industry is justified by this industry's unique characteristics. Innovation in the food sector is incremental than radical [22-23]; hence, partnerships with external organizations are essential. Empirical studies show that knowledge useful for food firms comes from several scientific and technological sectors such as pharmaceuticals, chemicals, and agriculture [22, 24], machinery and tools, and electricity. Emerging sciences such as the production sector [25], nanotechnology [26-27], and biotechnology [28-29] are also a great source of external knowledge.

Point 4: 4) The literature review does not define the concept of innovation performance (financial / non-financial in the form of outputs), for example according to the OECD?, etc.

Response 4:

Thank you for this comment. According to your comment, this study defined the concept of innovation performance. It is based the classification from Oslo manual. The OECD classified innovation into four categories: production innovation, process innovation, marketing innovation, and organizational innovation. This classification recognizes innovation activities and intangible assets as major achievements of innovation policies. These achievements include developmental, financial and commercial activities (OECD, 2018).

Modification #6  (line 127 – line 139 in revised manuscript)

The Organization for Economic Co-operation and Development (OECD) [30] classified innovation defined from various perspectives into four categories: product innovation, process innovation, marketing innovation, and organizational innovation. This classification recognizes innovation activities and intangible assets as major performances of innovation policies. These performances include developmental, financial and commercial activities [30]. Product innovation refers to the firm product type, quality and performance aspects of targeted improvement or creation and at the right time to put it into the market [31]. Process innovation refers to the firms’ development of new products through new technology or new production systems [30]. Firm marketing innovation refers to firms’ new means of introduction of new products or to promote existing products in the market. Usually, it is determined from the use of new advertising, promotion and marketing channels [32-33]. As organizational innovation refers to new organization methods at the workplace [34], and it is not directly related to consumers.

Point 5: 5) Why did the authors choose seven tools to support the government in relation to SMEs in the food industry? Which of these tools can be used regionally/locally and which at national level? I recommend adding only a brief justification at the beginning.

Response 5:

Thank you for your kind comment. As you commented, this study presented the reason for wheter the government chose those seven tools as a way of supporting food SMEs. That is based on the Oslo Manual (OECD, 2018) and the support policy of the Ministry of SMEs and Startups (Korean ministry of SMEs and startups, 2021).

Modification #7  (line 217 – line 222 in revised manuscript)

Seven types of government support have been classified according to the “Oslo Manual” [30] and the support policy of the Ministry of SMEs and Startups [55]. It is supported at the national level or locally, but some may be concentrated in a specific part depending on the capacity of the local government and regional characteristics [56]. In this study, seven policy tools including Tax, subsidy, financial support, human resource, technology, certification, procurement are considered for analysis.

Point 6: 6) Table 2 - I only recommend not using the code "1" for individual variables when adding the score protecting innovation performance, but a), b), c) etc. and putting it in parentheses at the end (min sum and max sum score). The same within certification.

Response 6:

Thank you for this comment. According to your comment, this study use the characters a),b),c) etc. and putting it in parentheses at the end (min sum and max sum score) when adding the score protecting innovation performance and counting the number of certification.

Modification # 8 (line 503  in revised manuscript)

ip_protect

Counting the record of protecting innovation performance: Sum of intellectual property protection method: a) patent application, b) utility model right, c) design right, d) trademark right, e) trade secret, f) copyright, g) complex design method, h) market preoccupation (min sum and max sum score)

Modification # 9 (line 503  in revised manuscript)

certi

Total number of certifications held : a) Venture business, b) RandD dedicated department, c) Inno-biz, d) Main-biz, e) Green-biz, f) Company specialized in parts and materials (min sum and max sum score)

Point 7: 7) I very much appreciate the use of two-stage regression model to eliminate reverse causality, endogenous problem and further analyzes to overcome multicollinearity.

Response 7:

We sincerely thank you for this positive comment.

Point 8: 8) The authors found negative effects of government support on innovation outputs (tax, HR, finance). Why is that so? What is the authors' assumption in the context of the selected industry and / or location, Korea? This reflection would have the greatest added value of the whole article. Is not obtaining certification the "least evil" that SMEs have to go through in order to do business in the (global) market and / or gain a bigger customer rather than a catalyst for innovation? There is a lack of a deeper discussion on the results from the authors or in a conclusion.

Response 8:

We sincerely thank you for pushing us to rethink the context of Korean food industry. We, authors, discuss the results and conclusion further. Although not a significant result, the negative impact of government support on food SME by taxes, personnel and finances is thought to be on account of the fact that most food SMEs has low RandD capabilities and already have limitations in innovative growth. In the context of Korean food industry, unlike developed countries, the proportion of SMEs is extremely large. That is the assumption that we study the Korean food industry.

As the result of this study, obtaining certification can be regarded as a catalyst for innovation for latecomers with a focus on the domestic market. Basically, certified firms in the food industry benefit from quality awareness, increased productivity, improved workforce engagement and efficiency, improved image, and entered new markets (Kakouris and Sfakianaki, 2018). In addition, certification can create a competitive advantage for certified companies by reducing information asymmetry in the supply chain (Terlaak & King, 2006)

Modification #10  (line 151 – line 166 in revised manuscript)

The Korean food market is dominated by few large firms, which also have the highest sales performance. The sales volume of the Korean food industry is 490 trillion Korean Won (USD 420 billion); the industry employs over 2.18 million people [38]. The OECD [35] reports that the Korean food industry's growth rate of production, employment, and exports exceeds that of most OECD countries. However, the absolute size of the food industry is small, and exports are limited. Although the global market share of Korean food has increased, its comparative advantages are still inferior. There is an imbalance between RandD investment and the size of the industry. In Korea, small firms are classified according to the amount of sales determined for each food product under the Framework act on small and medium enterprises. In the food manufacturing industry, firms with annual sales of 10 billion Korean won (USD 9,000 million) or less are classified as SME. SMEs account for 99.7% of all firms, but the sum of their annual sales was USD 293 billion which account for only 50.7% of the total food firms. Only a few large firms, which is 0.3% of the total, account for 49.3% of total sales. In order to promote the balanced development of the Korean food industry, the effective ways of supporting SMEs should be considered.

Modification #11  (line 644 – line 675 in revised manuscript)

A characteristic of the Korean food industry is that, unlike developed countries, the proportion of SMEs is extremely large. In order to develop the food industry, it is important to support SMEs. Government and firms need to pay attention to the effect of government support on food SMEs’ certification is significant in the Korean context. Just as venture capital firms identify the potential of startups by acting as scouts and coaches for them [124], when governments support food SMEs according to the certification system, government could be expected to serve most effectively as scouts and coaches to SMEs. Therefore it is necessary to expand certification support that can maximize the scouting effect in order for SMEs to have competitiveness in the food industry.

According to Kakouris and Sfakianaki [125], certified firms in the food industry benefit from quality awareness, increased productivity, improved workforce engagement and efficiency, improved image, and entered new markets. These advantages are directly related to competitiveness in the market. Therefore, if the government supports the certification project of food SMEs, it can be expected to produce a significant behavioral additionality effect [126].

In addition, customer requirements are the main motivation for food SMEs to implement a certification system such as HACCP [127]. Certification on SMEs is one of the most important information for consumers in food choice. Certification can create a competitive advantage for certified firms by reducing information asymmetry in the supply chain [128]. When food SMEs send a signal of 'certification' [129] to their own organization, it can activate innovation activities. In addition, this will be a driving force to induce more choices from consumers.

Point 9: 9) I recommend correcting grammar: page 1, line 45 development(R&D), page 9, line 417/418 (In the first stage regression, The following).

Response 9:

Thank you so much for your comment. Your detailed recommendation improves this manuscript. This study corrected them.

Thank you once more for all your valuable contributions to our paper.

Modification #12  (line 50, 55, 144, 167, 172, 192, 203, 234, 244, 255, 257, 300, 302, 325, 396, 442, 486, 487, 507, 680, 699  in revised manuscript)

research and development(RandD)

Modification #13  (line 493 – line 494 in revised manuscript)

This study used two-stage regression estimation model. In the first stage regression, the following eight variables were used as the instrumental variable or control variable