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

This study empirically examines the patterns and performance consequences of strategicchanges of small- and medium-sized enterprises (SMEs) in response to environmentalchanges based on longitudinal data from 102 Korean electronic parts SMEs from 1990 to2001. The dynamic analysis of strategic groups in the Korean electronic parts SMEs showsthat four to five different strategic patterns (subcontractor, production-focus, market-focus,innovator, and market-diversified groups) with significant performance differences emergeddepending on the period. For instance, the innovator group outperformed the subcontractorgroup in terms of return on sales. The production-focus group (which exhibited a relativelyhigher performance level in the early 1990s) gradually deteriorated in profitability in the late1990s. Subsequently, a substantial number of SMEs (25% of sample firms on average) haveattempted to shift their strategic configurations with different performance consequences. These results imply that given the rapid technological development in the industry andchanges in the global production network with the emergence of Chinese competitors,Korean SMEs should focus on technological innovations to maintain their competitiveposition by relentlessly enhancing their technological development capabilities rather thanproduction capabilities.