Globalization and SMEs: A Comment on Three Asian Experiences

This paper briefly discusses three case studies (Choi and Tcha 2005; Lin 2005; Motohashi 2005) of responses by small and medium-size manufacturing enterprises (SMEs) in Korea, Taiwan, and Japan to the rising tide of imports from China in their product markets. They find vastly different responses in each country, with some firms relocating plants to mainland China; others exiting affected product markets; and some maintaining home country production by moving up the product ladder and using new production technologies. This paper conjectures that outmoded production technologies may underpin the exit of Japanese SMEs from these product markets; considers the impact that potential impact of Chinese imports on Korea’s attachment to a market economy; and finds that Taiwan’s SME investments in mainland China have substantial political as well as economic roots. The long-run response by Northeast Asian SMEs to Chinese competition will, in all three countries, be closely tied to SME development (via in-house or cooperative R&D) or acquisition of rights to new products and technologies. I conclude that a better understanding of the public and private institutions structuring SME contracting vis-a-vis R&D projects and technology acquisition is vital to each country’s development of effective policy responses to the meteoric rise of China.