Small and medium-sized enterprises (SMEs) represent an essential part of South Korea’s economy. They account for about
and provide more than 80 percent of all national jobs. However, large business groups such as family-owned conglomerates (also known as
) and other large companies, which comprise less than one percent of all companies in South Korea, generate more than half of the country’s total corporate profits. Furthermore, the productivity gap between large companies and SMEs is one of the largest among countries in the Organization for Economic Co-operation and Development (OECD). The South Korean government is working to enhance the competitiveness of SMEs and attract young job seekers, but the long-term effectiveness of these efforts remains to be seen.
SME landscape in South Korea
Unlike in many other countries, South Korean SMEs are not defined by the number of employees, but primarily by the revenue generated by the company. According to this definition, SMEs are for-profit enterprises whose total assets do not exceed 500 billion South Korean won and which meet the criterion of independence – meaning that they are not subsidiaries of a large corporation. Social enterprises and cooperatives can also fall under this category in some cases. Companies are classified as SMEs depending on their average three-year revenue, with different thresholds depending on the industry. For real estate companies, the threshold is 40 billion won or less, whereas, for some sectors of the manufacturing industry, 150 billion won or less would be the standard to be categorized as an SME.
In 2022, South Korea had approximately
8.1 million SMEs compared to about 10,000 large enterprises. More than 90 percent of SMEs were
micro-enterprises with a comparatively lower revenue level and fewer employees. Many
SMEs were engaged in wholesale and retail trade, followed by real estate and accommodation and food services. Wholesale and retail SMEs in particular saw a sharp increase in number during the COVID-19 pandemic, driven by the growth of non-store retailing in the e-commerce sector.
Competitiveness of South Korean SMEs
Small and medium-sized enterprises (SMEs) play a crucial role in South Korea's economy, yet their competitiveness against large companies has been questioned in recent years. For example, family-owned conglomerates (
chaebols) make up less than one percent of all companies in the country, but they account for
more than half of South Korea's total corporate profits. Furthermore, the labor productivity of manufacturing and
service sector SMEs has been far below the level of large enterprises. The wide productivity gap has correspondingly led to weak export performance and lower wages in SMEs in the past few years. Accordingly, such enterprises are becoming increasingly unpopular with jobseekers. Many young people
want to work in large chaebol companies, where they enjoy better remuneration and greater social recognition. Against this backdrop, promoting competitiveness and financial support for SMEs have always been and still are an important focus of the South Korean government's industrial policy.
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