chapter  5
17 Pages

South Korean SMEs and the quest for an innovation economy

ByMichelle F. Hsieh

This chapter investigates how the Korean government adopted cluster-oriented development to support SMEs, and how these efforts have replicated the pattern of creating national champions. Cluster-oriented economic development is the idea that geographically co-located SMEs can generate new capabilities and competitive advantages by partnering with each other. As practiced in Taiwan and elsewhere, the government plays a key role in this process, facilitating horizontal connections among peer SMEs. While the government also plays a key role in Korea, it has encouraged vertical ties linking SMEs with the state instead of horizontal ties among SMEs, replicating the production of national champions at a smaller scale by creating an infrastructure for selecting and nurturing specific SMEs but not others. Overall, this chapter attributes the failure of cluster-oriented development in Korea to this tendency.