[Professor Altman's Lab] Empirical Analysis of the Effect of an Evidence-Based Policy for a Wicked Problem—Lessons Learned from the South Korean Industry Policy History for the Structural Reform of Subcontracting Practice in the Software Industry.
< Executive Summary>
Good evidence improves and clarifies stakeholder awareness of the problem 1. Even for Wicked Problems, Evidence-Based Policy is an Effective Approach (1) The multilayered subcontracting structure of South Korea was Successful in manufacturing but Not in the software sector (2) Examination conducted for finding solutions and deep discussion held in association with firms 2. Subcontracting collaboration should be rather simplified than stratified in the Software Industry (1) Government Initiative (2016) - Reform software industry subcontracting structure (2) Simplify Subcontracting hierarchies, Encourage horizontal collaboration |
1. Model
Measure Software Industry Subcontracting Structure Reform Policy Net Effect
H1: The policy have a positive impact on subcontractors' sales growth.
H2: The policy have a positive impact on subcontractors' labor productivity.
- Use the age of the company and the number of employees as control variables
2. Data and Methods
10M DYADIC TRANSACTION BIG DATA, ENGINEERING AND ANALYSIS APPLIED
- 10M Transaction Data based on Tax Invoices from 2,665 Firms for 6 years (2013-2018) and General Corporate Information and Financial Data Integrated
- Quantitative Identification between prime contractors (control group) and subcontractors (treated group) based on legal company classification information, firm size (sales, number of employees), and network hierarchy information by network analysis of transaction relationships.
- Advanced quasi-experimental design setting through propensity score matching (PSM) and estimation of net policy effects through the application of panel difference in differences (DID)
- Observation for three years before and after policy implementation
3. Findings
H1 is supported as log sales of the treatment group increase significantly compared to the control group after policy implementation
- PSM results: 1,546 treatment groups, 1,546 control groups Matching of observed values
- After the policy was implemented, the log sales of the treatment group increased significantly compared to the control group, supporting H1.
- Labor productivity did not satisfy the assumption of parallel trends between the two groups before the policy was implemented, so hypothesis 2 could not be verified.
- Panel DID analysis uses the advantages of panel data to more strictly control the heterogeneity of entities and time trends (time and entity fixed effect control), It is possible to capture the dynamic changes in policy effects, which is more sophisticated than general DID analysis
4. Conclusion and Implication
1) Theoretical implications
- The study argues that a horizontal and flexible subcontracting structure is efficient in the software industry.
- Simple subcontracting structures are more effective for corporate sales growth in project-based software industries.
- Unlike previous studies, this study focuses on subcontractors and suggests subcontracting efficiency varies by industry.
- The software industry’s simpler subcontracting structure links more closely to asymmetrical corporate growth than other industries.
- Evidence-based policies are crucial to help stakeholders clarify and address problems effectively.
2) Practical implications
- The subcontracting ratio has decreased, while first-tier subcontracting and joint contracting have increased since 2016, proving policy effectiveness.
- Cluster-based specialization and horizontal cooperation improve participation and productivity in software companies.
- Joint contracting, like consortiums, suits the software industry better than hierarchical subcontracting.
- Companies and governments should align restructuring with industry traits and value creation
5. Paper Information
Kang, S., Altmann, J. & Park, G. Empirical Analysis of the Effect of an Evidence-Based Policy for a Wicked Problem—Lessons Learned from the South Korean Industry Policy History for the Structural Reform of Subcontracting Practice in the Software Industry. J Knowl Econ (2024). https://doi.org/10.1007/s13132- 023-01562-9
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