Economic Catch-up and Technological Leapfrogging
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Economic Catch-up and Technological Leapfrogging

The Path to Development and Macroeconomic Stability in Korea

Keun Lee

This book elaborates upon the dynamic changes to Korean firms and the economy from the perspective of catch-up theory. The central premise of the book is that a latecomer’s sustained catch-up is not possible by simply following the path of the forerunners but by creating a new path or ‘leapfrogging’. In this sense, the idea of catch-up distinguishes itself from traditional views that focus on the role of the market or the state in development.
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Chapter 14: Sequential internationalization of Korean SMEs in China

Keun Lee

Abstract

Chapter 14 develops a new sequential internationalization theoretical framework to explain the processes of internationalization by SMEs from a dynamic emerging economy. It is applied to 18 FDI cases of Korean SMEs in China to analyze the changing map of the division of labor between parent firms in Korea and subsidiaries in China. We have found that the internationalization process has been sequential, reflecting the cautious behavior of SMEs with more resource constraints compared to the case of large firms. They proceeded from a product-based division of labor to a value-chain-based one, and finally to a market-based division of labor between the parent firm and its local subsidiaries. In the first stage, Korean SMEs establish production subsidiaries in China to manufacture low-end goods for re-exportation. In the second stage, the subsidiaries expand production scope to high-end goods, while the parent firm administers R & D, marketing, and production of some high-end goods. In the third stage, as the Chinese market grows in importance with local consumers’ increasing purchasing power, the subsidiaries integrate marketing and local-market-specific R & D with the existing value chains.

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