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Limitations of the Conglomerate-dependent Growth System and SMEs’ Role as New Growth Engines

Author Cho Young-sam, Ji Min-woong, Shin Jong-won, Kang Min-ji, Park Jin, Park Sang-in Date 2017.12.11 Page
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Rising volatility in the global economy has fueled fears that Korea’s stagnant economic growth will become chronic and structural. Because its growth structure is becoming polarized, the country faces a fundamental decline in its core industries and lack of new growth engines. With the rise of China, Korea can no longer reap the rewards of being a follower, which was previously integral to Korea’s growth paradigm. 

 

This phenomenological assessment of the Korean economy covers the shortcomings of the nation’s growth paradigm; that is, the structural limits of a growth system centered on large, export-reliant corporations. There are repeated calls for a new growth paradigm for the sluggish economy, raising the question of whether the Korean growth model ? where large companies are the focus of distribution, production and the overall market order ? can survive, given internal conditions and the external environment. 

 

Finding a new growth paradigm is an issue in and of itself. The answer could lie with propping up small and medium enterprises (SMEs) and looking for new growth engines. Implicit in this process is the need for a full-scale reexamination of SME roles; small companies have been considered supplementary to big businesses under the conglomerate-dominated paradigm. 

 

The Korean economy’s dependence on large corporations stems from the practical notion that the fate of the economy, for better or worse, hinges on the performance of a few massive conglomerates that play a crucial role in exports and industrial competitiveness, two major factors driving economic growth. A major fear is the vulnerability of the response structure to economic fluctuations, as crises at large corporations often infect the Korean economy as a whole.

 

This study opens with the assumption that the large corporation system, the established growth paradigm, places clear structural limitations on the sustainability of the Korean economy in its current stage of expanded economic scale and advanced development. Despite the advantages of the system during Korea’s late-starting industrialization, a new growth paradigm is sorely needed.

 

This study categorizes and examines both the utility of the large corporation system and its limitations as a growth system. It goes on to identify shortcomings and proposes a development strategy and policy tasks to overcome the system’s weaknesses and utilize SMEs as new growth engines.