A study on the current status and improvement plan of the direct production verification system
Authors:   Asia-Europe Perspective Association, Chung Namki 
Published: December 2024

The purpose of this study is to examine the current status and problems of the direct production verification system, and to present improvement plans if improvement is needed. In order to deliver competitive products between SMEs in the public procurement market, a direct production verification certificate must be attached. This direct production verification system was introduced to solve the problem that real added value is not created by supplying the products of partner companies as they are. Therefore, it prevents the delivery of products from large corporations, imported products, and simple bidding arrangements, and provides opportunities for participation in the competition system among SMEs only for products that are directly produced. This is because the fundamental purpose of the direct production verification system is to strengthen the competitiveness of SMEs participating in the public procurement market and maximize the creation of added value of domestic companies.
With regard to the direct production verification system, both positive and negative opinions coexist. First of all, on the positive side, first, the competition system among SMEs through direct production verification promotes technology-oriented competition and alleviates the impact of economic fluctuations in the event of a recession by expanding opportunities for start-ups. The competition system between SMEs promotes technology-oriented competition among SMEs in contrast to general competitive procurement, which decreases sales by keeping SMEs’ sales constant even in times of severe economic crisis, and guarantees more opportunities for start-ups. It is argued that it plays a role in mitigating the impact of economic fluctuations. Second, it is argued that the competition system between SMEs is being used as a means to achieve the policy objectives of maintaining quality through various quality certification systems in the public purchasing market, providing equal opportunities through a fair bidding process, and protecting SMEs. In addition, it is known that SMEs own production facilities above a certain level and produce them directly to participate in the public procurement market, resulting in a great import substitution effect.
And some of the problems of the current direct production verification standards are summarized below. First, as high fixed costs form a barrier to entry into the market, some top companies take the lion’s share the public purchasing market. Second, the price competitiveness weakened in the private and overseas markets due to high fixed costs. Third, it is difficult to specialize in the production process and maintain price competitiveness because the effects of division of labor based on the global value chain cannot be utilized. Fourth, there may be a legal dispute due to the issue of equality between items due to the absence of the basic principle of the direct production verification standard.
In order to improve the above problems, this study suggested several alternatives. First, it is to strengthen global competitiveness and create a sound corporate ecosystem through cooperation between companies and revitalization of division of labor. To this end, cooperation between companies should be encouraged by expanding the collaboration regulations applied to the supplementary rules to all items. And in case of emergency, even if production capacity is insufficient, a system should be established so that production capacity can be expanded through cooperation. Second, parts and outsourcing production supplied by domestic SMEs should be recognized as direct production, enhancing the expertise of the production process, and strengthening the linkage of the value chain to reinforce global price competitiveness.