This paper aims to analyze the changes in the industrial environment of Korea, and to use the implications to help establish comprehensive measures for developing into an advanced economy.
Korean companies are stuck in a dual plight: on the one hand, they are being chased after by less developed countries in low and medium technology product markets, where Korean firms used to have a comparative advantage; on the other hand, they are having a hard time with their restructuring into advanced technology product markets due to advanced economies’ reluctance to transfer technology and Korea’s weak R&D base.
In order to overcome these difficult situations, Korea must set out on a restructuring process focusing on high value-added products which combines traditional and new state-of-the-art technologies and on capital/intermediary goods and some high-end technology commodities which can have dynamic comparative advantages. Korea must also must gradually expand outward foreign direct investments in the industries which are domestically experiencing structural recessions or decline.
However, there exists a variety of obstacles to the necessary industrial re-orientation, such as imbalances between manufacturing/assembly and component/material industries, between industries for exports and domestic demands, and between major corporations and small-medium sized enterprises. Weak R&D base, unstable labor markets and Korea’s high dependence on overseas markets are also acting as additional limitations.
From now on, Korea must direct its industrial policy-making towards indirect or neutral supporting such as setting long-term visions for desirable industrial structures, refraining from direct interventions. It must promote the free market discipline through liberalization or information disclosure, and build a new international cooperation system through opening up domestic markets and globalization. Korea also needs to heighten its economic independence by correcting the existing imbalances among different industries or regions, and by resolving its excessive reliance on imports for capital/intermediary goods, eventually promoting new and growing industries with comparative advantages. In addition, Korea should introduce technologies with growth potentials and competitiveness from advanced economies with their advantages in cutting edge technologies or developing countries which have useful traditional technologies. Active response to qualitative shifts such as increased importance of information and services, or globalization is also required. Korean government must set up a comprehensive plan to train, re-train, and re-position workforce that can meet the task of overcoming the worsening economic concentration and market inefficiencies, and transitioning into a high wage-high technology economy. In this process, it also needs to organize industrial location plans, and actively implement counter-measures against industrial damages.