A Comparison of the Performance of SMEs in Korea and Taiwan: Policy Implications for Turbulent Times

A comparison of the role and performance of SMEs in Korea and Taiwan during the 1990s and early 2000s shows that the reputation for SMEs to be flexible in the face of adversity is well deserved, but should not be take for granted. Both Taiwan and Korea have built much of their economic success on SMEs. Both economies are very open to external shocks; both were affected by the 1997 Asian Crisis, and to a lesser extent, the "tech wreck" of 2001. Both economies have faced the need to restructure their industrial competitiveness, and both have active policies to support entrepreneurship and SMEs. Within this broad context of similarities, there are also some differences in approach and structure. All of this can give a better understanding of how managers and policy makers can help to create jobs and build a more competitive economy. SMEs provide about 80 percent of private sector employment in both economies, so SME performance is an important economic and social issue. The paper shows, for example, that Korean SMEs were subject to rather bigger devaluation shocks and currency volatility than their Taiwanese counterparts. However SME exporters in both economies showed considerable resilience in the face of shocks and SMEs in both economies have significantly improved their liquidity and debt ratios since 1997, suggesting they are better prepared now than before. They have done so in the face of a sharp decline in bank lending to SMEs. Over the decade there has been a steady structural decline in the importance of manufacturing SMEs in both economies. The paper examines the relative performance of SMEs in Taiwan and Korea over a turbulent decade, and it examines the SME policies and initiatives adopted. It seeks to extract some lessons for other economies seeking to develop an entrepreneurial and resilient SME sector in the face of global turbulence.