Small and medium-sized enterprises (SMEs) in Korea and Taiwan share very similar problems; both suffer from relatively small domestic markets and limited positions in the respective markets.
Therefore, the survival of SMEs in both Korea and Taiwan-which take up the largest portion in both economies-depends on their capacity for increased overseas expansion. In today’s world where the production cycle of companies is becoming increasingly internationalized, the SMEs’ overseas expansion through participation in the global value chains (GVCs) becomes all the more important.
 Due to the economic recession, the direct exports of SMEs in proportion to the total direct exports are decreasing in both economies. But the complex production cycle of companies indicates that this does not necessarily point to a decrease in SMEs’ overseas competitiveness. This research focused on the fact that actually, many SMEs engage in indirect exporting by participating in value chains of major companies, and compared the total exports(including both the direct and indirect exports) of SMEs in Korea and Taiwan. The results showed that while the proportion of indirect exports to total exports in Taiwan SMEs has greatly increased over time, that of Korean SMEs has shown little difference.
This has led the total exports of Taiwanese companies to increase while the total exports of Korean SMEs decreased. This phenomenon can be explained by two factors: the changes in the industry structures in the two countries and the changes in the participation rate of SMEs and major companies in GVCs. In the 2000s, the proportion of major companies in the Taiwanese economies grew rapidly, intensifying the relationship between major companies and SMEs, under which SMEs provided for the intermediate goods for exports to major companies. This practice increased indirect exports of Taiwanese SMEs. On the other hand, in Korea, major company-oriented export structure and vertical integration structure persisted, with no progress in the GVC relations between major companies and SMEs.
This meant that the increase in Korea’s total exports in the 2000s did not lead to an increase in the total exports of Korean SMEs.
 These characteristics are clearly visible in the two countries’ cellular phone industry. The GVC structure in Korea and Taiwan differs very much in that for Taiwan, SMEs are more directly involved in the GVC than Korea. For SMEs in Korea, where major companies mostly internalized the value chains and are involved directly in the final brand production process, it is not easy for SMEs to engage in GVCs, or participate in the global market or a high value-added industry.
 Looking into the cases of SMEs that have successfully integrated into GVC in both Taiwan and Korea, we can derive several implications.
First, although there exist multiple ways to enter GVCs such as supplying parts and components to a multinational company or procuring overseas contracts as OEM or ODM, in order for such trials to succeed, the SME in question must have a solid technological base. Long-term investment in R&D and research personnel are essential. Second, an active response to the demand is also integral for the company’s success. The SMEs who did succeed in entering overseas markets, actively respond to the foreign buyers’ needs.
Third, active overseas investment strategy is also essential. Another common trait that these SMEs shared was that they all actively sought to build production factories or sales networks in China or Southeast Asia, where they can enjoy multiple benefits including obtaining a new market and low-cost factors of production.
 Taiwanese cases of SMEs who have successfully integrated into GVCs show that the government’s role in the beginning stage of industrialization is to attract multinational companies by utilizing measures like FDI. Many Taiwanese SME personnel learned technology and garnered experience working at multinational companies, and by utilizing the international network formed during this initial stage, was able to continue the OEM, ODM relations with multinational companies. Also, Taiwan’s government organizations such as Department of Industrial Technology and Ministry of Economic Affairs, actively supported SMEs to develop and construct hightechnology production management systems, and supported companies to enhance R&D capacity and application technology by sharing the results of government-led research projects on basic science. For Korean SMEs, the factors for success also included continued R&D investment, an adequate prediction of the market demand and quick response to the changes, global networking, etc.
 The policy supports for SMEs’ overseas expansion in both Korea and Taiwan overlap in many areas: both include SME capacity development, operating SME export support center, support for building and utilizing overseas sales network, operating export incubation centers, overseas marketing, etc. But within this broad context of similarities, there are also some differences as well; we evaluated Taiwan’s policy supports as focusing more on nurturing SMEs’ self-sufficiency, when compared to that of Korea.
 First is regarding the operation of SME incubation centers. In Korea’s case, the government builds export incubators in major trading bases and provides financial support for their operation. On the other hand, the Taiwanese government operates domestic incubation centers, nurturing SMEs while at the same time designates a key industry each year to provide intensive consulting and mentoring service, financial support and even a chance to participate in a major company’s supply network. They especially focus on strengthening international cooperation with overseas counterparts by focusing on the connection with the overseas incubation network.
Second, the Taiwanese government is actively supporting the companies for entry into overseas markets. The MVP (the Project to Promote Most-Valued Products in Emerging Markets) program, a type of SME exports supports program, has been in operation for 17 years, much longer than Korea’s. Third, Taiwan provides a matching service with overseas companies to selected venture companies in order to derive more specific results. In Korea’s case, the country provides a matching service between major companies and SMEs, encouraging overseas expansion by supporting their collaboration.
But Taiwan has adopted a more direct approach that directly matches domestic SMEs with overseas companies. Fourth, in terms of creating SME industry clusters, Korea has constructed regional Center for Creative Economy and Innovation, encouraging collaboration between major companies and regional SMEs; while Taiwan has built industry clusters around regional SMEs, supporting collaboration among SMEs and creating synergy by encouraging common technology development, branding and global marketing.
 This research analyzed the Taiwanese government’s policy supports for Taiwanese SMEs, its successful cases of integration into GVCs, and challenges for the overseas expansion of Korean SMEs, proposing several measures to support their overseas expansion and integration into GVCs.
 The measures to support SMEs’ overseas expansion include: integrating departments related to supporting SMEs and increasing their accessibility, selective supports, providing information on the emerging markets and the importance of expanding supporting services, and providing suggestions on benchmarking Taiwan’s exports support programs that target the emerging market.
The measures to increase SMEs’ GVC participation include: creating SME clusters, encouraging SMEs’ participation in overseas production network through the FDI, utilizing business matching and global marketing.