Performance and strategic changes of SMEs in the Korean electronic parts industry: a dynamic strategic group approach

Abstract

This study empirically examines the patterns and performance consequences of strategic changes of small- and medium-sized enterprises (SMEs) in response to environmental changes based on longitudinal data from 102 Korean electronic parts SMEs from 1990 to 2001. The dynamic analysis of strategic groups in the Korean electronic parts SMEs shows that four to five different strategic patterns (subcontractor, production-focus, market-focus, innovator, and market-diversified groups) with significant performance differences emerged depending on the period. For instance, the innovator group outperformed the subcontractor group in terms of return on sales. The production-focus group (which exhibited a relatively higher performance level in the early 1990s) gradually deteriorated in profitability in the late 1990s. Subsequently, a substantial number of SMEs (25% of sample firms on average) have attempted to shift their strategic configurations with different performance consequences. These results imply that given the rapid technological development in the industry and changes in the global production network with the emergence of Chinese competitors, Korean SMEs should focus on technological innovations to maintain their competitive position by relentlessly enhancing their technological development capabilities rather than production capabilities