Korea Eyes a Global Hub
of Parts and Materials

MOCIE to Promote 10 Materials as Global Brands by 2015

Kim Young-hak, director general of Major Manufacturing Industries Office at the Ministry of Commerce, Industry and Energy, touched on the government's development strategies to develop the parts/materials and machinery industries in his recent interview with NewsWorld. He also spoke about plans to develop Korea's mainstay industries, including shipbuilding, steelmaking and petrochemical fields. The following are the excerpts of his interview - Ed.
Question: Will you tell our readers about the government's measures to promote the development of the domestic parts and materials industry?
Answer: The government has so far implemented diverse supporting steps, including technology development, funding for commercialization and marketing, designed to raise competitiveness of the domestic parts and material industry. These measures have yield tangible results - expanding exports and improving Korea's trade deficit against Japan. Specifically speaking, parts and materials exports shot up from $62 billion in 2001 to $107.9 billion in 2004 and $148.7 billion in 2006. Overseas shipment of parts and materials was worth $67.1 billion in the first five months of this year, an 18 percent surge from the same period of last year. On the other hand, the portion of Japanese-made imports out of the total parts and materials imports declined from 28.4 percent in 2003 to 27.1 percent in 2005 and 25.6 percent in 2006.
However, the reality is that a great share of core parts and materials for Korea's mainstay exports, including semiconductors and displays, still depend on imports. Take a look into the semiconductor field, 82 percent of wafers depend on imports,; liquid crystal for displays (100 percent imported),; high-pressure accumulator type fuel injection for diesel passenger cars (66 percent),; and fuel metering system for LNG carrier engines (95 percent).
In an effort to tackle with the chronic issue, the government is striving to localize technologies in parts and materials areas where Korea has a potential to substitute for imports. It is also adopting measures designed to attract foreign investments and promote technical ties-up with foreign countries in order to secure core technologies in categories where Korea is not capable of localizing its own technologies.
Beyond a strategy of catching up with advanced countries, the government is endeavoring to secure original technologies that can preoccupy the future market in the next five to 10 years. It is putting more energy into developing material technologies, characterized by high-risk and high-return, in a bid to promote 10 materials as global brands that can occupy the future market in advance by 2015.
As part of efforts to lessen the so-called China risks, the Korean government plans to diversify its parts and materials exporting markets to the emerging markets, BRICs, while strengthening global strategies, including Korea's entry into the U.S. market by capitalizing on the Korea-U.S. Free Trade Agreement as well as strategic alliances with foreign countries.
It will make strenuous efforts to develop Korea into a global hub of parts and materials through diverse and across-the-board supporting measures.
Q: Will you explain the current status of the domestic machinery industry and mid- and long-strategies to promote machinery exports?
A: The machinery industry serves as an industrial foundation to supply production equipment for supporting Korea's mainstay exporting industries, including semiconductors, automobiles and shipbuilding. The machinery industry not only plays a significant role in raising competitiveness of other industries, but also greatly contributes to the economic development by bringing about value added and job creation in itself. Such advanced countries as Germany and Japan have seen trade surplus in the machinery industry accounting for nearly half of combined trade surplus from all industries.
The domestic machinery industry has greatly contributed to the development of the domestic economy as it has grown an average of more than 10 percent. The industry posted 32 trillion won in production, $23.9 billion in export and $3.6 billion in trade surplus during 2006. The number of workers with the machinery industry has surpassed the 300,000 mark to take the lead in creating jobs. Furthermore, the year 2004 was a stellar year when the machinery industry has emerged as a new exporting industry as it changed from a chronic trade deficit into a trade surplus.
The recent brisk performance of the domestic industry is owed by a rise of the demand for Korean-made machinery products and an improvement in competitiveness of the industry. An expansion of facility investments and a booming construction industry, riding on the industrialization of such developing countries as China and India, take the lead in the global demand for machineries. In the meantime, the domestic industry has seen its competitive edge further improving through corporate restructuring and technology development in the wake of the Asian financial crisis. Domestically-produced machineries show off world-class quality in the mid0tech category.
However, the domestic machinery industry are facing with a slew of pending issues, including a lack of original technologies and challenges by such developing countries as China. Korea's original technology levels are equivalent to approximately 40 percent to 50 percent of those in advanced countries. A lack of original technologies stands in the way of making the industry a value-added one and raising profits, while the Korean industry has seen its competitive edge weakening as such emerging markets as China and India, which have been threatening with improved quality and cheaper prices.
The government plans to focus its capacity on three measures designed to help the domestic machinery industry tide over the pending issues and evolve into a global leader. First, it will put more energy into making R&D investments for securing original technologies as part of efforts to localize key imports. Second, the government strives to make the structure of the industry an advanced and upgraded one. Third, it plans to step up its support for exporting domestically-produced machineries.
If we can make up for our weak points and strategically boost overseas demand for our products, chances are high that the domestic industry can grow into a global leader in the not-distance future. The industry aims to chalk up $80 billion in exports and $20 billion in trade surplus in the year 2015.
Q: Will you elaborate on measures to strengthen technological competitiveness of the domestic automobile industry and development strategies?
A: Lately, Misgivings over the possible depletion of fossil fuels and reinforced environmental regulations have been shifting the industry's paradigm to high-efficient, environmentally-friendly and futuristic automobiles. The development and diffuse of these high-tech automobiles requires immense investments and profitability remain sluggish in a short- and mid-term perspective, so the government's institutional support for developing related parts technologies and fostering the parts industry is urgently needed.
The government is offering its support to foster environmentally-friendly and futuristic automobiles as one of the nation's top 10 next-generation growth engines. The government has already enacted the act on the development and spread of environmentally-friendly cars, and it is now implementing a five-year master plan.
The automobile industry has ushered in an era of such futuristic vehicles as hybrid cars and environmentally-friendly diesel automobiles. The technological levels of the domestic automobile industry stand about 60 percent to 70 percent of those of advance countries, so whether the industry faces a decline or makes an another take-off hinges on how quickly it is capable of producing parts at cheaper prices. Whether Korean can join the ranks of automobile powerhouses will be determined by whether the nation can secure core technologies for producing such futuristic automobiles as excellent hybrid cars with the scale of economy and a competitive edge or not.
Now is the time for the nation to pay a keen attention to the development of the parts industry that can guarantee a sustainable development of the domestic automobile industry through high-tech development and cost competitiveness.
Q: Will you explain the current status of the domestic shipbuilding industry and measures to step the industry's competitive edge?
A: Korean shipbuilders ranked first through sixth in the world in terms of compensated cross tonnage (CGT) as of the end of 2006. In the first seven months of this year, the Korean shipbuilding industry landed orders for a combined 18.4 million CGT, accounting for 42 percent of the world's ordered shipbuilding to retain the No. 1 position by overpowering China's 16.3 million CGT.
In particular, Korean shipbuilders won orders for such value-added vessels, including large-scale containerships and LNG carriers, whereas Chinese and Japanese counterparts primarily landed orders for bulk ships. The situation indicates that Korean shipbuilders make a strong showing in quantitative and qualitative competition with foreign counterparts. Korean experts share the view that Korean shipbuilders are on a par with Japanese counterparts technologically, but they enjoy a 10-year gap with Chinese.
The Korean government is striving to focus on technology-intensive sector to repulse Chinese's chase.
It is adopting a strategy to localize such original technologies as storage tank technology for LNG carriers and further upgrade the existing value-added vessels to the likes of more than 10,000 TEU-class supersize containerships and large-scale LNG carriers. Korea sets its sights on the development of such new tech-intensive shipbuilding areas as cruise ships and off-shore platforms to preoccupy the future markets.
If Korea succeeds in upgrading the structure of the domestic shipbuilding industry, the domestic industry can retain the No. 1 position in the world in another 10 years or 20 years to come as Japanese dominated the global shipbuilding industry for nearly 50 years from the mid-1950s.
Q: Will you give the details of measures to globalize the domestic steel industry and measures to step up the industry's competitive edge?
A: The domestic steel industry is a key industrial foundation for supplying steel products to such mainstay industries as automobiles, shipbuilding, electrical/electronics and machinery industries. The industry takes up a 2.0 percent share in terms of value added and accounts for 5.7 percent of total exports. The Korean steel industry has been making strides in quantitative and qualitative growth since 1973 when Korea inaugurated its first integrated steelworks. Korea ranked fifth with crude steel production of 48.46 million tons in 2006. Korean steelmakers are on a par with world-class steel powerhouses in terms of scale and competitive edge.
Korea needs to adopt measures to cope with such pending issues as M&As among steelmakers and a glut in the supply of global steel products in a bid to retain its competitive edge in the global steel market.
Korean steelmakers are aggressively strengthening overseas presence as part of its globalization and development strategies. For example, POSCO is working on the construction of an integrated steel works in India, a hot-rolled, cold-rolled sheet steelworks in Vietnam and an investment into an iron ore mine in Australia as part of efforts to secure raw materials and explore new markets.
Besides securing a stable supply of raw materials at cheaper prices, it is more significant to build up competitiveness of steel products. Steelmakers around the world are competing to adopt strategies of producing differentiating products by capitalizing on their own technology. In this regard, the government is striving to focus on providing support to such projects as the development of innovative process technology and value-added materials.
Q: Will you say the current status of the domestic petrochemical industry and measures to step up the industry's competitive edge?
A: The petrochemical industry is a key industry for supplying basic materials to such related industrial fields as automobiles, household electronics and textiles industries as well as promoting the development of such high-tech industries as IT and BT. The industry has evolved into a mainstay exporting industry as it ranked fourth in terms of domestic manufacturing production and exports, placed fifth place in terms of global ethylene production. The industry posed $24.1 billion worth of export and $13.7 billion in trade surplus during 2006.
The domestic petrochemical industry is basking in a brisker boom than any time due to a rising demand from China. Korean petrochemical companies no longer rest on their laurels due to such uncertainties as majors'globalization strategies to expand their technological and marketing dominance and challenges by such later-comers as China and countries from the Middle East.
The domestic industry has weak points; Korea's petrochemical exports to China taking up a more than 50 percent share plus its production systems centering around the production of general items. Experts stress the need for precisely analyzing the so-called 2010 crisis theory and suggesting solutions.
Korean petrochemical firms now need to step up global presence to tide over internal and external management uncertainties and bring global synergetic effects by building up global production networks through expanded overseas investment into securing raw materials and global demand markets. They also need to restructure the industry to secure the scale of economy through specialization according to items and sizes.
The domestic petrochemical industry is required to make the most use of the Korea-U.S. Free Trade Agreement, signed in the early April, as a good opportunity to remodel the industry and diversify its exporting markets to the North and Latin American markets, departing from its excessive dependence to the Chinese market. nw

Kim Young-hak, director general of Major Manufacturing Industries Office at the Ministry of Commerce, Industry and Energy