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Development Overview

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Overview of Korea’s development experience

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Development Overview
Industry and Technology Science/Technology

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New growth engines

The biggest challenge for Korean industry in the 2000s is how to deal with restructuring between industries that are able to handle the changes resulting from market opening and technological advancement and those industries that have trouble dealing with these challenges. In addition, there is the need to effectively select and develop future growth engines.

In light of the country’s resources and industrial structure, it is generally agreed that the Korean government and business should focus on advanced technology industries, parts and materials sector, and knowledge-based service industries as the sources of future growth. These new growth industries are not only expected to play the leading role in forging the future of the Korean economy, but also influence the development of existing industries. In addition, the “green growth” economic strategy for the next 60 years as outlined by the Lee Myung-bak administration is expected to influence the future growth of some industries.

From the early 2000s, Korea started to foster the development of new advanced industries under such programs as “next-generation growth engine businesses”, “basic development plan for bio-technology”, “comprehensive development project for nano-related technology” and “development plan for convergence technology.” These efforts will require large financial investments and long lead times since Korea now lacks the core technologies in these areas.

The 21st century will be the era of “system competition”, where individual industries will work closely with their parts and materials suppliers and related sectors to enhance their competitiveness. But the parts and materials industry is one of the weakest points of Korea’s industrial structure. To promote this industry, Korea initially focused on import substitution and localization in this area, and then encouraged building up global distribution bases under the Special Act for Assisting Specialized Firms in Parts and Materials (2001). The Act also set up an institutional framework by which the Korean government can concentrate policy efforts on developing parts and materials.

Of course, the manufacturing sector alone cannot lead the Korean economy in the future. The country already entered the period of de-industrialization in the 1990s. With the “tertiarization” of the economy gaining pace, it is necessary to cultivate service industries as new growth engines. The government has prepared comprehensive measures since the mid-2000s to improve the competitiveness of service industries. It has focused on developing knowledge-based service industries, which include most categories of high value-added services.

In addition, the green growth industries that have been highlighted by the Lee Myung-bak administration represent another future growth engine and are expected to perform well due to concerns about global climate change. The efforts will be focused on investing in green technology and developing new renewable energy sources, upgrading production facilities to meet higher environmental standards, and reducing harmful emissions by promoting the more efficient use of energy.

However, the focus on developing new growth engines should not distract from the task of also nurturing the future development of existing industries.

First, in the case of primary industries, the challenge is difficult since the agriculture and fishing sectors are burdened with an aging workforce. Competitive pressures are likely to increase on these sectors with the signing of more free trade agreements that will entail further market-opening measures. It will be necessary to identify agricultural segments that can remain competitive as well as find future growth engines among the primary sector industries.

Manufacturing has played the leading role in the development of the Korean economy and is likely to continue to do so. However, it is affected by the “bi-polarization phenomenon”, characterized by the gap between exporting and domestic-oriented industries, and between large corporations and SMEs. Manufacturing faces other structural issues, such as a heavy dependence on parts and materials from Japan and the increased competition from China and other newly industrializing countries.

In the energy sector, the need to improve energy efficiency and secure new energy sources represents the biggest challenge. The push for international agreements on climate change has made green growth a high priority for the government. This underscores the importance of energy efficiency, nuclear energy development, and renewable energy as major issues in Korea’s industrial development. This is also putting pressure on the restructuring of energy industries, including that of the electricity power sector.

The slowdown in the growth of industries in the ICT sector has been matched by acceleration in the convergence of ICT businesses with those of other industries. Future economic productivity will depend more on technology convergence, including that between broadcasting and telecommunications, rather than the growth of the ICT sector alone.

As for science and technology, Korea has reached the level where it can be at the forefront of global efforts in making scientific and technological breakthroughs. But for this to happen, it must create leading-edge research groups and create an institutional framework that encourages the development and retention of top talents. There is also the need to reform the current university system, while encouraging leading foreign universities to cooperate with domestic educational institutions. This must be complemented by fostering the development of technology-focused SMEs, the creation of a high-tech parts and components sector, and the formation of regional technology innovation centers. There is also the need to promote efficient cooperation among industries, universities and research institutes in terms of developing advanced technology.

Finally, and perhaps most importantly, there is aneed to create the proper conditions for entrepreneurs. It is entrepreneurs that should take charge in the future in solving many of the problems when it comes to industrial and technological developments. Entrepreneurship is also important in fostering the growth of SMEs and start-up firms.

Source : SaKong, Il and Koh, Youngsun, 2010. The Korean Economy Six Decades of Growth and Development. Seoul: Korea Development Institute.

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