The Growth Trajectory of Korean SMEs

Although chaebols dominated the Korean business landscape in the past four decades, Korean SMEs have played a vital role as adaptable actors in the Korean economy. Even if the number of SMEs increased rapidly in the aftermath of the Asian financial crisis, they were not born overnight in the middle of the crisis. The first generation SMEs began after Korea experienced Japanese colonization. Most chaebol founders started their businesses as entrepreneurs at the time of liberation. They were tough and resilient, although on a small scale. They have survived by creating value-added in the course of growth.

Korean financial policy was biased in the favor of chaebols during the 1960s and 1970s and did not support SMEs. Financial policy bias started to change in the early 1980s under the president Chun Doo Hwan. The government pursued policies favorable to SMEs including better access to bank credits and started to pay attention to well-being of SMEs. The government even mandated all banking institutions to reserve a certain amount of credit for SMEs. The second generation SMEs began to spring up in the wake of the 1997 financial crisis, largely due to the government support. What differentiate the second generation of SMEs from the first one is their easy access to capital market and the educational background of start-up owners.

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