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Developing Korea’s New Growth Industries
Since the beginning of Korea's heavy and chemical industry in 1970, Korea has pursued government-led development policies for new growth industries. Such policies led to the success and global competitiveness of major sectors such as memory semiconductors (1980s), automotive (1990s) as well as ultra-large ships, LCD panels and mobile phones (early 2000s).
However, with the country is experiencing limitations in developing new industries to replace existing major industries, the government started promoting policies to foster industries that can function as new growth engines from the 2000s. For instance, President Park Geun-hye's adminstration established a plan to discover and foster future growth engines in March 2014, and applied the plan across 19 sectors the following year. Since then, the government has come up with 19 comprehensive plans, one for each sector, and managed the plans' implementation and progress throughout the administration's tenure.
Recent Trends in Korea’s New Growth Industry Policies
Although many acknowledge that a government-led approach to developing new growth industries has reached its limit, the government-designated new growth industries are still playing a important role in markets. This is especially true for Korean industries as the government establishes concrete action plans for new growth industries that have been selected by policy, and actively lends its support in R&D, infrastructure construction, institutional improvement and more.
In recent years, government support has become an issue as it extends not only to the development of technology, but also to areas of indirect support, such as systemic improvements or the establishment of a business environment. Since Korea has a positive regulatory system, only government-approved products and services (or by law) can enter the market. Recognizing such restrictions, improvements are being made in government-level regulations and mitigation policies.
The current adminstration has selected industries similar to previous administrations in light of continuing trends. MSIT teamed up with relevant departments and experts to select 13 sectors as new growth industries in December 2017, shown in table 1.
The 13 sectors were deemed in need of government assistance in the onset of the Fourth Industrial Revolution and have the potential to create many jobs. The sectors were also classified as either "early commercialization sectors" or "original technology sectors" based on each sector's characteristics and period of industrialization. The early commercialization sectors are mostly products and services and will be commercialized in the next 5 years. The original technology sectors are focused on securing core technologies and require intensive R&D investment by the government. Next-generation telecommunications, advanced materials, intelligent semiconductors, innovative new drugs and artificial intelligence are the five original technology sectors, while the remaining eight are classified as early commercialization sectors.
<Table 1> Korea's New Growth Development Sectors
| Category | Sectors and Goals |
|---|---|
| Intelligent Infrastructure | - Big Data: Big Data open utilization - Next generation communications: 5G, IoT commercialization - Artificial Intelligence: Key AI technology development |
| Smart Vehicles | - Autonomous vehicles: level 3 autonomous driving - Drones: supply public and commercial drones |
| Convergence Services | - Customized healthcare: personal precision medical care - Smart city: reduce urban problems - Virtual augmented reality: VR/AR convergence with each industry - Smart robots: service robots for medical safety |
| Industry Base | - 지Intelligent semiconductors: development of semiconductors for AI - Advanced materials: aircraft parts, lightweight vehicles - Innovative new drugs: develop 100 candidate materials - New and renewable energy: increase share of renewable energy development (20% by 2030) |
Source: Ministry of Science and ICT
Comment: Source technology sectors are in bold. The rest are early commercialization sectors.
Detailed Policies for the Development of New Growth Industries
In 2018, MOTIE, the main government body for industrial development, suggested the development of future new industries. MOTIE supports the early performance of five new industries to create jobs and increase income levels. The five new industries selected by MOTIE are electric and autonomous vehicles, IoT home appliances, new energy industries, biopharmaceuticals and health and semiconductors and displays.
MOTIE plans to invest KRW 919.4 billion (30% of MOTIE's R&D expenditure) to support the five new industries and will link the substantiation and demonstration processes to the R&D stage of development to resolve any regulatory procedures in advance. MOTIE will also set up a task force to come up with an action plan and review the details of the transition.
<Table 2> shows the policies MOTIE proposed in the beginning of 2018 on the development of new growth industries. It includes the policies to foster the five new industries as well as measures to gain the core competencies necessary to foster innovation. The plan constitutes intensive R&D investments focused on the five new industries, along with all the elements necessary for commercialization such as standards, patents, certifications, regulation improvement and demonstration projects.
<Table 2> New Growth Industry Development Policies
| Category | Sector | Development Policy |
|---|---|---|
| 5 New Industry Projects | Electric and autonomous vehicles | Autonomous vehicle demonstration project, obtain technological competitiveness for EVs, commercialize service models |
| IoT Home Appliances | Develop key technologies, substantiate smart home systems, build collaborative ecosystem | |
| New Energy Industry | ncrease ICT-based businesses, enter markets through systematic improvements, substantiate future systems | |
| Biopharmaceutical and Health | Smart healthcare 4.0, foster global bio stars, develop AI-converged medical equipment | |
| Semiconductors and Displays | Develop next generation semiconductors compatible with 5G, develop innovative process OLED, launch win-win development committee | |
| Gain Core Competencies for Innovative growth | Innovative Industrial R&D | R&D centered on the 5 new industries, substantiations for obtaining new technology track records, commercialization through funding from corporate partnerships |
| Standards, Patents and Certifications | Introduce rapid standardization and increase priority reviews for patents, global leader in new industry standards such as 5G, innovate maintenance system for certification system | |
| Technology Protection | Provide relief for technology leaks, come up with plan for industrial technology protection | |
| Regulation | Improve regulations related to the 1 new industries, speed up verification for regulations regarding new products and services, provide regulatory exemptions and apply temporary permissions | |
| Data Platform Construction | Establish a platform for energy big data, proliferate data platforms for each industry (traffic information, medical information, energy information, etc.) | |
| Foster Key Talent | Foster experts in the Fourth Industrial Revolution, strengthen employee support | |
| Expand Digital Manufacturing Innovation | Construct differentiated smart factories for each sector, build a digital manufacturing network for each company and industry |
Source: Ministry of Trade, Industry and Energy
Current Status of Korea’s New Growth Industries by Industry
The Korea Institute for Industrial Economics & Trade (KIET) selected 12 promising industries commonly found in various references, including the government's new growth industries, and analyzed the status of the companies in each industry. The institute used the Korean Standard Industrial Classification (KSIC) taxonomy to classify industries and analyze the financial and non - financial information of companies by industry. In addition, researchers conducted a situational survey on a handful of companies from each industry and added qualitative indicators (indices).
<Table 3> Current Status of Korea’s New Growth Industries by Industry
| Industry | Technological Innovation | Industrial Structure | Market Characteristics | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Degree of intensity |
IPR intensity |
Technology source |
Manufacturing convergence |
Productivity | Sales | Market concentration |
Profitability | Growth | |
| Smart Robots | 2.3 | 0.9 | 3.2 | 45.4 | 57 | 8,116 | 42.5 | 4.2 | 39.2 |
| Smart Factories | 2.1 | 1.0 | 3.3 | 42.2 | 62 | 7,581 | 40.4 | 5.1 | 42.2 |
| 3D Printing | 1.7 | 0.9 | 3.4 | 40.6 | 69 | 7,648 | 46.4 | 6.3 | 43.3 |
| Drones (드론) |
2.0 | 0.7 | 3.1 | 24.5 | 58 | 13,363 | 36.8 | 4.3 | 32.5 |
| Smart Vehicles (autonomous) |
2.1 | 0.8 | 3.0 | 27.3 | 59 | 13,414 | 36.1 | 4.2 | 31.3 |
| Big Data and Cloud |
1.3 | 0.5 | 2.9 | 12.3 | 67 | 11,096 | 40.2 | 5.6 | 36.7 |
| Smart Healthcare | 1.3 | 0.7 | 2.9 | 43.0 | 63 | 10,898 | 37.6 | 5.1 | 33.4 |
| Pharmaceuticals | 3.3 | 1.3 | 3.5 | 4.3 | 69 | 11,847 | 32.7 | 5.9 | 29.2 |
| Next Generation Plant Cultivation (factory) |
1.1 | 0.9 | 3.2 | 4.5 | 72 | 11,064 | 40.1 | 4.9 | 32.1 |
| Future Contents (VR, etc.) |
2.2 | 0.9 | 3.2 | 49.9 | 61 | 8,005 | 48.8 | 4.8 | 39.2 |
| New Energy Industry | 1.9 | 0.6 | 3.0 | 32.4 | 49 | 6,268 | 37.4 | 5.5 | 43.3 |
| Advanced Materials | 0.7 | 1.2 | 3.4 | 0.0 | 93 | 15,055 | 44.2 | 5.1 | 28.7 |
Source: The Korea Institute for Industrial Economics & Trade
Comment: The boxes with relatively higher indicators are shaded. Refer to footnote1) for further explanation of indicators.
Characteristics of Korea’s New Growth Industries and Outlook
The characteristics of the new growth industries in Korea lies in strategic, government-led development and active commercialization led by large, private corporations. Since the year 2000, the Korean government has vigorously established policies to foster new growth industries to find new sources of economic growth. The current administration, which came into office in 2017, has also been implementing new growth industry policies under the theme of "innovative growth." In recent years, the government has focused not only on the development of technology, but also on developing the business environment by improving the procedures for certification, regulations, standards in light of the recent uncertainties and regulatory issues surrounding technology.
By Woo-jung Shim
Researcher
Korea Institute for Industrial Economics and Trade (KIET)
swjkorea@kiet.re.kr
The opinions expressed in this article are the author’s own and do not reflect the views of KOTRA
1)(Technological innovation) R&D Intensity: share (%) of R&D investments compared to total sales, IPR Intensity: number of patent applications per 100 employees, Technology Source: survey results on the use of original technology (5 point system) (Industrial Structure) Manufacturing convergence: share (%) (maximum 50) of manufacturing companies’ sales compared to total sales, Productivity: value-added amount (KRW 1 million) for every employee, Sales: average sales (KRW 1 million) (Market Characteristics) Market Concentration: sales proportion of companies in the top 1% in sales, Profitability: Share (%) of operating income compared to total sales, Growth: sales growth rate (%) from 2010 to 2014