Korea Struggles to Shift
Paradigm in Manufacturing

Looks to secure and foster high-tech and value-added manufacturing industries

Korea has successfully built up a global production infrastructure in such key Industries as shipbuilding, steel and automobile manufacturing. However, the nation is grappling with how to secure a competitive edge and foster manufacturing industries as future growth engines that will drive the Korean economy. The following are excerpts from NewsWorld's interview with Kim Dong-soo, director general of the Core Industries Office at the Ministry of Knowledge Economy, who touched on a wide range of government policies designed to shore up the nation's key industries.
Question: Will you tell our readers about knowledge-based strategies to foster global brands in the Korean fashion industry?
Answer: A globally-recognized brand will not just create a hefty brand value, but it will also has a spill-over effect on fashion-related industries ranging from textile materials to converters and promotion industries for finished products and sourcing as well as numerous related companies. A 2007 estimate on the value of global brands showed that Louis Vuitton ranked 20th with $22.7 billion and Samsung Electronics placed 44th with $12.7 billion.
Recognizing the strategic importance of the fashion industry and an improvement of the national image, advanced countries, including Italy, have been employing policies designed to provide systematic support to the industry. In this regard, the Korean government established knowledge-based strategies designed to accelerate the globalization of the Korean fashion industry and fostering it as a new growth engine in September 2007.
The knowledge-based strategies for the fashion industry are to facilitate the creation of global fashion brands by securing technological competitiveness, cultivating manpower and building up infrastructure. They call for the expansion of the existing projects, including the collaboration in the development of technology among textile fashion streams, the cultivation of next-generation talented designers and cloth-making infrastructure buildup and the inclusion of new projects for building a fashion-knowledge database and the support for fashion companies'strategies to explore foreign markets.
In particular, business activities inside and outside each stream will be invigorated and new jobs will be created by comprehensively managing fashion information via a fashion-knowledge database. The government plans to work out plans to explore major foreign markets and, under the plans, it will launch a pilot project to provide such support as consulting services tailored to meet the demands of promising fashion companies and their holding of fashion shows in 2009.
Q: Will you explain policies designed to nourish the parts and materials industries?
A: The parts and materials industries serve as core parts of the manufacturing field, accounting for more than 40 percent of production, employment and export in the whole of the manufacturing sector. The Korean parts and materials industries show signs of improvement in terms of technological competitiveness, but they still lag behind such advanced countries as the United States and Japan with the Korean competitive edge remaining at about 86 percent of that of advanced countries.
The government is seeking to make a more offensive drive toward Korea's own development of new materials, departing from the past practice of "catching up to advanced countries."It poured 2.9 trillion won into its R&D budget to provide support for the development of application technologies in the parts and materials field during the period between 2000 and 2006. About 79 percent, or 213 out of 271 parts and materials technology development projects that were completed by 2006 turned out to be successful, while 69 percent, or 146 out of 213 technology commercialization projects were found to be successful. The successful projects raked in 8.8 times as much in sales as the amount of the government's financial support. Manpower with doctorate and bachelor's degrees working for public research institutes have been dispatched to solve technological problems facing the work sites of SMEs to build up an omnidirectional support system.
The government will initially focus on securing technological capabilities in order to foster the advanced parts and materials industries as key industrial fields. It plans to expand the percentage of financial support to the parts and materials industries out of its R&D budget from the current 49 percent range by 2012 in order to develop the top 120 strategic technologies to jumpstart future markets, which were named under the parts and materials roadmap established in 2007. It strives to create 10 brand materials capable of dominating global markets by 2015 through the development of original technologies. The ministry plans to work out a joint reliability certification system in which consumer corporations ensure purchases from parts-making SMEs under a co-prosperity scheme.
Q: Will you touch on the current status of the Korean machinery industry and mid- and long-term strategies designed to promote machinery exports?
A: The general machinery industry, which accounts for 9 percent of Korea's manufacturing production, is emerging as a new exporting industry thanks to continued efforts to secure its competitive edge. The industry posted $19.3 billion worth of exports in the first half of 2008, up 34.4 percent from $14.4 billion in the same period of 2007 to take over the title of biggest exporting industry from the semiconductor sector. The industry turned in a trade surplus in 2004 for the first time after suffering from a chronic trade deficit. It saw exports surging from $16.8 billion in 2004 to $23.9 billion in 2006 and $30.8 billion in 2007 to register an annual growth rate of more than 20 percent. Mid-level tech machinery products are now exported primarily to the markets of developing countries, but the Korean machinery industry needs to enter the global high-tech markets, which are dominated by such traditional manufacturing powerhouses as Germany and Japan, in the years to come.
Under the mid- and long-term plans, the government plans to focus on securing core technologies in order to make sure its competitive edge is differentiated from such latecomer countries as China amid an expected labor division in Northeast Asia. Korea is trying to shift its industrial structure from low- and medium-priced general products to high-tech, value-added products. It encourages a shift to a technology-intensive industrial structure focusing on the strategic development of precision control, energy-preservation and environmentally-friendly areas.
In the short-term, Korea will participate as a partner country for the 2009 Hannover Messe, one of the world's largest industrial fairs, in order to tap the European machinery market. As a partner of the industrial fair, to be held in Hannover from April 20 to 24, 2009, the nation will hold a special exhibition designed to promote diverse economic and industrial cooperation through advanced marketing, technology seminars and investment attraction activities with the goal of establishing a bridgehead in advancing into the European market and strengthening a global network for making the machinery industry a valued-added one.
Q: Will you elaborate on plans to make the Korean automobile industry global as well as the current status of developing futuristic automobiles and future plans?
A: The automobile industry, which has a wide range of spillover effects to front and rear industries, posted $49.7 billion worth of exports during 2007, including automotive parts, making up 13.4 percent of total overseas shipments and registering a $42.5 billion trade surplus to become one of Korea's largest exporting industries, contributing to improving the trade surplus. But the global automobile industry is facing a paradigm shift in supply and demand as well as stringent environmental restrictions including pacts on climate change.
The government promulgated the act on environmentally-friendly vehicles in 2004 under which it provides support for the vehicles'development and supply. The government poured 50.8 billion won from 2004 through 2007 and earmarked 22.2 billion won for 2008 to subsidize R&D outlays for the production of hybrid cars. The subsidies for R&D support for the production of fuel cell cars amounted to 43 billion won during the same period, with 17.7 billion won set aside for 2008. Korean automakers supplied 1,386 hybrid cars to the public sector during the period and are expected to produce 1,930 hybrid cars during 2008.
The government plans to expand its R&D outlays for securing technological capabilities for the production of environmentally-friendly cars. It is seeking to hold inter-ministerial consultations on the provision of incentives designed to accelerate the development of environmentally-friendly cars.
It has a plan to build up as a differentiated brand the so-called "Super IT Car,"a combination of the IT and automobile industries. It focuses on providing support to such promising areas as automobile-specific semiconductor chips, imbedded software and human-machine interface (HMI).
Q: Will you expound on the strategies to globalize Korea's steel industry and steps to improve its competitive edge?
A: The Korean steel industry, with a 3.8 percent share in the global steel market, ranks sixth in terms of crude steel production following five countries including China, Japan and the United States. The industry supplies a core material for the automobile and shipbuilding industries and serves as a key factor behind their competitiveness. The survival of the steel industry will likely hinge on whether or not new steel materials can be secured to meet the diverse demands of the steel-consuming industries.
The Korean steel industry strives to expand its production base and proactively look to promote overseas market exploration in order to take control of emerging markets. Korean steelmakers are expanding their production capacity to make up for a shortage of raw materials facing Korea: Hyundai Steel and Dongbu Steel are building integrated steelworks capable of producing 8 million tons and 2.5 million tons per annum, respectively. POSCO, Dongkuk Steel Mill Company and Hyundai Steel are expanding steel plate production capacity by 2 million ton, 1.5 million tons and 1.5 million tons, respectively. Korean steelmakers are stepping up their overseas presence: POSCO is investing in the construction of a steelworks with an annual capacity of 12 million tons plus the acquisition of an iron ore mine with 600 million tons of reserves in India as well as a project to construct a steelworks with an annual capacity of 4 million tons in Vietnam. Dongkuk Steel Mill is working on a 3 million-ton-class steelworks in Brazil.
Korean steelmakers look to concentrate on the commercialization of their own technology and the development of future needs-specific materials in order to maintain its world-class competitiveness. Korea succeeded in commercializing FINEX, the next-generation steel-making process technology. The government provides support for the development of strip casting technology and new super-strength/super-duplex steel products.
It is putting more energy into the development of environmentally-friendly technology and products as well as the spread of energy-efficient technologies in order to make the steel industry a green one.
Q: Will you tell us the current status of the Korean petrochemical industry and steps to strengthen its international competitiveness?
A: The petrochemical industry is a key industry for supplying materials to the automobile, semiconductor and textile industries. Its production capacity has expanded dramatically thanks to intensive investments in the late 1990s and thereafter. The industry had an annual total capacity of 6.92 million tons as of 2007 to rank fifth in the world. The industry's production was tallied at 47 trillion won during 2007. It accounted for 4.9 percent of the nation's total production by all manufacturing sectors and placed fourth in terms of the value of production after the automobile, steel and semiconductor industries. The industry exported $28.8 billion worth of petrochemical products, making up 7.8 percent of the value of total exports registered during 2007. The industry posted an $18 billion trade surplus.
But the Korean petrochemical industry is exposed to free-for-all competition as it is sandwiched by the charging of latecomer countries including China and Middle Eastern nations and majors in advanced countries expanding their control over technologies and markets.
The industry has a vulnerable structure in which commonly-used items make up about 85 percent of production with 54 percent of the total exported overseas and shipments to China accounting for 53 percent of that amount. It is more significant for the industry to step up its global competitive edge in order to maintain growth despite these unfavorable internal and external business conditions.
The industry needs to undergo restructuring on a voluntary basis to secure an economy of scale through item-specific specifications and mass-production to compete with global majors. It is stepping up a package of investments in foreign countries, a combination of natural resources exploration and petrochemical plant construction, in order to build up overseas production centers.
Korean companies are concentrating on their capability to develop core materials tailored to meet future demands as part of their efforts to shift their strategies into making their products value-added ones. nw

Kim Dong-soo, director general of the Core Industries Office at the Ministry of Knowledge and Economy

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