Status of Convergence among SMEs, and Policy Implications

Korean small and medium sized enterprises (SMEs) in the manufacturing industry have formed the foundation for the industrialization of Korea by playing an important role for the country’s economic development. Some of the reasons for the drastic growth of SMEs since the early 1980s are stable subcontracting relationship with large enterprises, relatively low wage levels, and high dependency on the domestic market.However, the growth factors of SMEs, including the low wage levels, high subcontracting rate and dependency on the domestic market, have reached their limits. Because of these factors, the steady growth of SMEs is facing difficulties.Meanwhile, the global economy of the 21st century is going beyond the ‘era of information’ and entering the ‘era of convergence’. In this new industrial environment of accelerated convergence, individual small and medium-sized enterprises encounter limits on growth that is based on mere technological or managerial renovation. Thus, SMEs must think beyond technological renovation and find new management strategies through convergence with others.To create new growth through convergence, advanced countries have already been supporting SMEs since the late 1980s by preparing legal and systematic foundations. In the case of Japan, the Temporary Measures for the Promotion of the Development of New Fields by the Knowledge Convergence of SMEs in Different Fields (Known as SME Convergence Act) was enacted in 1988 to actively support SME convergence of knowledge & technologies. As a result, strong SMEs with leading technologies were nurtured, while the renovation capacity improved to overcome the ‘strong-yen’.The Korean government has also recognized convergence as the key to creating new growth and employment, and accordingly enacted the Industrial Convergence Promotion Act in April of 2011. However, support for convergence among SMEs following the enactment of this law is still insufficient.To develop SMEs as the future growth engine of the Korean economy, a systematic support system must be made for a new trend of ‘convergence of knowledge & technology’. To do this, the status of SMEs convergence must be studied.Under the premise that the systematic support of convergence is necessary to nurture SMEs as the growth engine of the Korean economy, this study aims to suggest measures for developing practical support systems for SME convergence