The recent sharp increase in wages has driven many Korean manufacturing firms to move into technology-intensive fields. The task of industrial restructuring is, however, rather difficult for small and medium-sized enterprises (hereafter, "SMEs") which suffer from limited R&D resources. If the R&D activities of SMEs are left unattended, industrial restructuring process may be retarded. Hence, the government-sponsored programs can be justified when used to promote the technological level of SMEs. Because of the limited internal R&D resources of SMEs, in particular human resources, the government-sponsored programs that depend on financial subsidies to stimulate the R&D activities of SMEs may not be recommended. Rather, a more desirable policy is programs to subsidize outside sourcing of SMEs. Basic principles of the program are; (i) that the government should establish R&D laboratories which are specialized in joint researches with SMEs in each industry; (ii) research projects of the laboratories should be funded by SMEs; the government's support covers only fixed costs such as construction costs in order to avoid moral hazard problem. (iii) technology adviser programs sponsored by the government should be improved; geographical distribution is to be expanded and the activities are to be monitored by local governments. Also foreign networks need be strengthened.