Small and medium-sized businesses--generally those with less than 400 employees--accounted for US$11 billion, or 32 percent, of South Korea's exports in 1986. By 1987 these businesses generated an estimated US$14 billion, but the export percentage dropped to 30 percent as large automobile and electronics groups led export growth. Small and medium-sized businesses contributed 38.9 percent to the GNP in 1986 when calculated on a value-added basis.

Many of South Korea's smaller firms manufacture specialized parts or equipment for the larger chaebol. As is the case with keiretsu in Japan, many of the chaebol in South Korea assemble and market goods under their own brandnames, but rely on smaller support firms to manufacture most of the individual parts. Wages are often lower in the smaller firms than at the chaebol, and working conditions often are worse.

Starting in 1983, Seoul selected a number of the more promising smaller firms to receive special government assistance. These businesses were eligible for a number of tax breaks, help in securing financing, and consultations and technical education from the Ministry of Trade and Industry. Small businesses were central to the government's policy of producing more sophisticated technology locally additionally, they were critical to the government's strategy of encouraging regional development away from the overcrowded area around Seoul. In 1989 the government announced a plan to spend billions of won to help small and medium-sized industries seek structural improvements so that they could move away from labor-intensive production in favor of technology-intensive production.

Data as of June 1990