Small and Medium Enterprises in Korea : Achievements, Constraints and Policy Issues

An overview of the evolution of small and mediumenterprises in Korea since 1975 is presented, emphasizing the dramatic changesin the country's industrial structure as well as greater shares in employmentand value contributed by small and medium-sized enterprises(SMEs). Thepurpose of the study is to present achievements, problems, and policy issuesconcerning Korea's SMEs. Areas of inquiry include: productivity change and itsanalysis, firm dynamics, external sources of support (for private firms throughsubcontracting), external sources of support (from government andnongovernmental institutions), and SMEs as business cycle shock absorbers. Findings suggest that, although South Korea's experience with SMEs inmanufacturing has been similar to that of other countries, some distinctivefeatures of the Korean experience emerge: (1) several trend reversals in therelative importance of SMEs over time; (2) the growth of the manufacturingsector and the high rates of accumulation of both physical and human capital;(3) the importance of "chaebol" (conglomerate firms), with their manysubsidiaries; and (4) the increasingly large network of government and othernonprofit sources of external support to SMEs in marketing, technology, andfinance. Finally, the link between variations in the economic importance of SMEs andaspects of growth and inequality is considered, in order to assess whether SMEsfunction as business cycle shock absorbers and inequality-reducing mechanisms.Korean SMEs in manufacturing are found to befacing increasing problems.(CBS)