Lessons for India’s SMEs from South Korea’s Industrial Playbook
India’s ambition to build globally competitive manufacturing and export ecosystems increasingly rests on the performance of its small and medium enterprises. While scale and demand are not in short supply, institutional depth remains uneven. South Korea offers a valuable reference point, not because it is an identical economy, but because it demonstrates how SMEs can be systematically embedded into national industrial strategy rather than treated as peripheral actors.
South Korea’s experience underscores a critical lesson. Global competitiveness is not driven solely by large conglomerates or cost advantages. It is sustained by an ecosystem where SMEs are technologically capable, financially supported and structurally integrated into domestic and global value chains.
How Korea Made SMEs Central to Industrial Policy
South Korea’s SME success did not emerge organically. It was shaped by deliberate institutional design. The Ministry of SMEs and Startups operate independently from heavy industry ministries, ensuring that SME priorities are not diluted by the interests of large corporations. Agencies such as Korea SMEs & Startups Agency (KOSME) and Korean Credit (KODIT) provide long-term credit, export support and risk guarantees, allowing SMEs to invest in technology and capacity without excessive balance sheet stress.
Unlike generic subsidy-driven models, Korea’s SME policies are sector-specific and outcome-linked. Support is tied to productivity upgrades, export readiness, certification milestones and R&D outcomes. This discipline ensures that public capital translates into measurable industrial capability rather than short-term relief.
Semiconductors and Electronics: SMEs Inside the Value Chain
South Korea’s dominance in semiconductors is often attributed to firms such as Samsung Electronics and SK Hynix. Less visible is the dense network of SMEs supplying materials, components, testing equipment, packaging solutions and process software. These firms operate within tightly coordinated clusters that provide access to shared R&D facilities, subsidised certification and long-term procurement contracts.
This arrangement ensures that SMEs move up the value chain instead of remaining low-margin subcontractors. For India, particularly in Tamil Nadu, Karnataka and Telangana, the lesson is clear. Semiconductor ambition cannot rest on fabs alone. It requires structured integration of domestic SMEs into design, testing, packaging and materials ecosystems.
Automotive, EVs and Battery Manufacturing
South Korea’s automotive strength is anchored in supplier depth. SMEs producing power electronics, lightweight materials, battery components and control systems work in close coordination with global OEMs. Public policy reinforces this relationship through supplier development mandates, co-funded R&D programmes and shared testing infrastructure.
Export insurance and foreign exchange risk mitigation further enable SMEs to engage global markets. Indian auto clusters in Tamil Nadu, Maharashtra and Haryana face a similar inflection point as EV adoption accelerates. Without supplier upgrading and certification support, domestic firms risk being locked out of future value chains.
Industrial Machinery and Heavy Engineering
Korean SMEs dominate niche segments in shipbuilding, offshore energy and industrial machinery. Their competitiveness is driven less by scale and more by reliability, compliance and engineering precision. Cluster-based industrial zones provide logistics connectivity, access to ports, skilled labour and global buyers.
This model holds relevance for Indian engineering SMEs in Gujarat, Andhra Pradesh and Odisha, particularly those linked to ports and energy infrastructure. Export competitiveness in heavy engineering depends as much on institutional support as on manufacturing capability.
Finance as a Competitiveness Tool
A defining feature of South Korea’s SME ecosystem is risk-sharing finance. Credit guarantees, counter-cyclical lending and export credit insurance reduce the cost of failure and encourage long-term investment. SMEs are able to invest in advanced machinery, R&D and certifications without being penalised for operating in capital-intensive or export-exposed sectors.
In India, expanding the depth and coverage of credit guarantee mechanisms and aligning finance with productivity enhancement could materially alter SME outcomes.
Why the Korean Model Works
South Korea’s SMEs benefit from policy stability, predictable regulation and coordinated execution. Infrastructure is plug-and-play. Clusters are self-reinforcing. Large firms are incentivised to develop domestic suppliers rather than rely solely on imports. SMEs are treated as strategic industrial assets, not as welfare recipients.
This coherence allows even small firms to access international buyers, advanced technology and skilled talent.
Constraints and Realities
South Korea’s model is not without stress. Demographic decline, rising labour costs and export concentration pose structural risks. These challenges underline the importance of continuous upgrading and diversification. For India, the message is not to replicate Korea’s path mechanically, but to adapt its institutional discipline.
Implications for India’s SME Strategy
India’s SME policy must evolve from horizontal support to sector-specific capability building. Cluster development should focus on export readiness rather than geographic dispersion. Large domestic and multinational firms operating in India should be encouraged to deepen supplier development. Standards, certifications and compliance must be treated as market-entry tools, not regulatory burdens.
Korean companies such as Samsung, Hyundai and LG Energy Solution are already expanding supply chains in India. This creates an opportunity for Indian SMEs to participate in high-value manufacturing if supported by coherent policy frameworks.
From Scale to Systems
South Korea’s experience reinforces a central economic truth. Competitiveness is not a function of size alone. It is the outcome of systems that align policy, finance, infrastructure, talent and corporate incentives.
India has scale, entrepreneurial energy and domestic demand. What it needs is execution discipline and institutional coordination. If SMEs are embedded at the core of industrial strategy, they can become engines of export growth, technological upgrading and economic resilience.
For India, the choice is clear. The next phase of manufacturing competitiveness will be built not merely by attracting large investments, but by enabling thousands of SMEs to operate as globally trusted partners within integrated industrial ecosystems.
