Why Korea Is Betting Its Next Growth Cycle on Small and Midsize Firms

SEOUL, South Korea, Dec. 18, 2025 /PRNewswire/ -- With 2025 nearing its end, a new economic direction is emerging in Korea's policy landscape. After a year marked by weak demand, rising costs and heightened global uncertainty, the focus is shifting from short-term stabilization toward a broader reassessment of how the economy supports innovation, regional competitiveness and fair-market rules. A year-end policy review, together with the government's 2026 blueprint, points to a deliberate effort to position small and midsize firms at the center of the country's next phase of growth.

2025: When Policy Moved Out of the Office and Into the Economy

The policy environment in 2025 was shaped by sluggish domestic consumption, tighter global financial conditions, and mounting external pressures, including trade uncertainty and rising costs for small businesses. Against this backdrop, the Ministry of SMEs and Startups (MSS) pursued a dual strategy: stabilizing the economy in the short term while laying the groundwork for a renewed cycle of innovation-driven growth.

Reviving domestic demand was an immediate priority. Large-scale, cross-government consumption initiatives – most notably the nationwide Korea Grand Festival – were rolled out to boost spending in local markets and traditional commercial districts. Expanded digital gift-certificate programs and targeted rebate schemes reinforced these efforts, generating more than KRW 14.1 trillion (USD 9.5 billion) in consumer activity. The impact was tangible, contributing to the strongest quarterly increase in private consumption in three years.

At the same time, MSS moved to restart innovation engines that had stalled in earlier years. Funding for SME research and development, which had previously been sharply reduced, was restored and expanded, paving the way for a record KRW 2.2 trillion (USD 1.5 billion) allocation in 2026. The launch of a new Startup One-Stop Support Center further addressed regulatory, legal, and operational bottlenecks, resolving the vast majority of cases within days of submission and improving policy responsiveness on the ground.

Market indicators reflected this renewed momentum. By the third quarter of 2025, quarterly venture investment had reached KRW 4 trillion (USD 2.7 billion), the highest level in four years. SME exports also set a new quarterly record, totaling USD 30.4 billion over the same period – an outcome that underscored the sector's resilience despite continued global headwinds.

Equally important, MSS strengthened the institutional foundations for fair competition and inclusive growth. Legislative reforms reinforced protections against technology theft, expanded profit-sharing frameworks, and improved payment practices between large corporations and their SME partners. These measures contributed to record levels of SME-linked transactions and signaled a deeper embedding of fair-trade and shared-growth principles across the industrial ecosystem.

A Strategic Pivot in 2026: Growth, Scale, and Market Leadership

Building on the stabilization achieved in 2025, the Ministry of SMEs and Startups' 2026 policy blueprint marks a structural shift in Korea's approach to SME and startup development. The central objective is to restore a clear pathway for growth – enabling firms to move from startup to scale-up, and from small and medium-sized enterprises to globally competitive companies.

At the heart of this shift is a recalibration of policy design. Rather than applying uniform support across the board, companies will be assessed based on growth potential and performance trajectory, with policy tools tailored accordingly. High-growth firms will receive more concentrated support in areas such as investment and research and development, while companies facing structural constraints will be guided toward business transformation, restructuring, or, where appropriate, an orderly exit.

This differentiated approach is intended to operate across the full SME ecosystem. Startups and venture firms will be supported not only at the point of entry, but through successive stages of scale, with targeted financing and accelerated growth programs designed to produce competitive global firms. Manufacturing SMEs will be positioned at the forefront of industrial AI adoption, with a focus on productivity gains and international competitiveness. Small merchants, meanwhile, will receive performance-based support that encourages innovation while maintaining essential safeguards for business continuity and resilience.

Expanding the Growth Base: From Capital Concentration to Nationwide Opportunity

A defining feature of the 2026 strategy is a decisive move away from capital-area concentration toward a more geographically balanced growth model. Policy support for regional ecosystems is set to more than double, underpinned by revised budget allocations, higher support ratios, and expanded region-specific funding designed to activate local innovation and investment.

By 2030, the government aims to develop ten regionally anchored startup hubs across the country. Rather than standalone facilities, these hubs are intended to function as integrated growth platforms – linking business infrastructure, skilled talent pipelines, commercialization support, and livability factors that make regions viable places to build and scale companies. Complementing this effort, regional venture funds – targeting a cumulative KRW 3.5 trillion (USD 2.3 billion) by the end of the decade – will provide a stable investment base, while cross-regional regulatory sandboxes are expected to ease structural constraints on expansion.

The objective is explicit: by 2030, half of Korea's innovative SMEs are expected to be headquartered outside the capital area, up from less than 40 percent today.

A Data-Driven, Demand-Centric Support System

Policy delivery is also being overhauled to reflect how firms actually seek and use government support. A new Integrated SME Support Platform will serve as a single digital gateway, allowing businesses to identify relevant programs, receive AI-based recommendations, and apply through a simplified, one-stop process.

As processes are digitized, administrative requirements are expected to fall by more than half. At the same time, data-driven assessments of firm performance and growth potential will play a larger role in shaping public financing, bank lending, and venture investment decisions – helping align policy support more closely with actual market demand.

These changes point to a broader shift in policy philosophy. Rather than substituting for the market, government is repositioning itself as an enabler – reducing friction, improving information flows, and allowing private-sector decision-making to operate more effectively.

Toward a Private-Capital Led Venture Investment Ecosystem

One of the most ambitious elements of the 2026 agenda is the move toward a venture investment ecosystem led primarily by private capital. Government commitments to Korea's Fund of Funds will increase significantly, but the role of the public sector is explicitly defined as catalytic – designed to draw in private investors rather than steer capital directly.

New institutional arrangements will enable pension funds and retirement savings to participate more actively in venture through dedicated structures that incorporate built-in risk-sharing. In parallel, regulatory adjustments are expected to lower barriers for banks engaging with venture assets, while long-underdeveloped secondary markets will be strengthened to improve exit options and capital circulation.

These reforms are intended to support the emergence of an annual venture investment market approaching KRW 40 trillion (USD 27 billion) – one driven largely by market participants, with public policy focused on expanding participation and removing structural constraints.

What is unfolding in Korea is not simply a recalibration of SME policy, but a broader attempt to reshape how growth is generated and sustained. By shifting attention toward smaller firms and regional ecosystems, the government is signaling a belief that competitiveness in the next decade will be built through adaptability, innovation, and market depth rather than scale alone. Whether this approach succeeds will ultimately be determined in the marketplace – but the strategic direction is now clear.

SOURCE The Ministry of SMEs and Startups