The purpose of this study is to draw a policy direction as a countermeasure towards market liberalization and strategies of Korea’s small-medium parts companies by examining the subcontracting system.
Korea adopted a basic strategy on export industry and prioritized the growth of finished product businesses, which also in charge of manufacturing; therefore, parts businesses also developed gradually. In late 1980s, while wages increased and the currency appreciated, price competition of export products deteriorated and the implementation of new strategies was urgent, however, it was difficult to catch up with developed countries. It is suggested that the policy should prioritize restoring price competition, but at the same time improve the quality of products. Currently, another issue that Korea’s economy faces is liberalization of the market. Small to Medium-sized enterprises, especially the parts industry can be exposed to competition and government support could be decreased due to the perception that it was to increase export when it actually is helping domestic market.
Korea has chosen subcontracting as manufacturing system that fits to its economic and cultural characteristics. This subcontracting system has its own risk; however, to enhance competition, it is the most effective production system. The system can create close relationships between businesses, so even if liberalization is accomplished, it is difficult for finished-goods companies to move its part-production line to overseas. Also, parent companies provide technologies and financial support for parts companies, which can lead to decrease in government financial support. Therefore, in case of liberalization, stabilizing the subcontracting system for small-medium parts companies is necessary.
Through fostering technical talents and an effective technology support system, the government should make sure that manufacturing companies are adequately supported and decrease technical development costs within businesses. In order to stabilize the subcontracting system, the focus should be on developing technical expertise for the long-term, while strengthening Monopoly and Fair Trade regulation to demonstrate the effectiveness of the system.