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Made in Korea

In the space of a generation, Korean industries have come from nowhere to become prominent globally through the price competitiveness and quality of their products

As the 1998 credit crunch shrank domestic demand and slowed exports, the Korean economy was plunged into recession. However, it achieved a successful comeback in 1999, growing by 10.8 percent as it regained its former international competitiveness. According to the Swiss-based International Institute for Management Development (IMD) which annually ranks countries in terms of national competitiveness, Korea surged to 28th place in 2000, up from 38th in 1999, nearing its pre-crisis position of 27th.

The Korean economy is continuing its upward trend this year . In particular, strategic industries such as semiconductors, automobiles, home appliances, telecommunications, and shipbuilding are contributing heavily to overall revival. The decline in output in most industries has been reversed, and the operational ratio of the manufacturing industry which once plunged to 60 percent stood at 80 percent at the end of the first half of 2000.

In 1999, Korean exports amounted to $143.6 billion, accounting for 2.6 percent of the global total and placing Korean as the world's 12th largest exporter. Meanwhile, Korean imports amounted to $119.7 billion, accounting for 2.1 percent of the global total, putting Korea at 13th spot internationally as a consumer of imports. In consideration of both its exports and imports, Korea ranks as the world's 13th largest trading nation.

Korea's memory DRAM semiconductor industry is the country's most competitive, internationally. As the sharp increase in Internet use and digitalization boosted semiconductor demand, Samsung Electronics and Hyundai Electronics Industries drastically expanded their memory DRAM production capacity. Their combined output accounts for almost 40 percent of the global total, making Korea the world's largest memory DRAM manufacturer. Korea also ranks as a top LCD producer.

Since LCD production began in 1995, Samsung Electronics and LG/Philips have emerged as world leaders with a combined international market share of 35 percent.

Other sectors where Korea ranks first include CDMA mobile phone systems, microwave ovens and videotape. In the production of CD-ROM drives, VCRs and CRTs (cathode ray tubes) Korea stands second. The Korean shipbuilding industry shares the bulk of the world market with that of Japan. The Korean industry currently receives over 40 percent of all orders issued globally, while its Japanese counterpart receives 30 percent.

Korea has become the world's sixth-largest automaker following a steep rise in output to meet both domestic and export demand.

In the field of light industry, model locomotives by Samhongsa Co., Ltd., tents by Jinwoong Co. Ltd., ski gloves by Sees Corp., motorcycle helmets by HJC (Hong Jin Crown) Co ., Ltd., and fishing rods by Silstar Co., Ltd. claim the largest share of their respective overseas markets.

The overall outlook for Korean industry for the year 2000 is likely to be one of continuously steady recovery in the absence of unexpected developments inside or outside the country.

1. Semiconductors: A Korean Flagship Industry

The domestic semiconductor industry ranks third in the world after that of the United States and Japan in terms of production. The DRAM sector developed as the country's most competitive business, its products claiming a 40 percent share of the world market.

Samsung Electronics accounts for 20.5 percent of the market, while Hyundai Electronics Industries, enlarged by its acquisition of LG Semicon, has a 19.3 percent share.

As an indication of its technological edge, the Korean semiconductor industry, especially the memory sector is the world's most competitive. Since Samsung Electronics successfully launched its 64K DRAM chip in 1983, the Korean Semicon industry has maintained a competitive edge over the entire chip range from 64M DRAM to 1G DRAM by being a leader in product development. The Korean memory industry is unsurpassed its R&D capability and production capacity, which together have been the twin dynamos that have driven it to its current world status.

In contrast, the system LSI (Large-scale Integration) sector still lags that of advanced countries. Meanwhile, Samsung Electronics is now developing cutting-edge technology and process capability in alpha CPUs and MDLs (DRAM merged with logic chips). Also, Hyundai Electronics Industries is developing satellite communications plus an MPEG2 (Motion Picture Expert Group ) chip.

The forecast for the domestic semiconductor industry is that it will maintain a relatively high rate of growth. Total industry production is predicted to surpass the $20 billion-mark for the first time since 1995.

In the global semiconductor market, Intel is undoubtedly in top spot because of its monopolistic position in the MPU (micro processing unit) market. Of the top 10 firms worldwide in 1999, three are American, Japanese and European, respectively. Samsung Electronics was at fourth place having jumped from sixth in 1998. At the same time, Hyundai Electronics Industries rose to 11th place at a dazzling pace after its merger with LG Semicon. U.S., Japanese, European, and Korean producers are presently locked in intense competition for hegemony in the world semiconductor market.

The international semiconductor market is expected to be worth $181.5 billion in 2000, a 13-fold increase over 1980. Such striking growth is likely to continue with the rising demand for digital multimedia and network applications this year.

Semiconductors Revenue by Company

Source: Datequest

2. Shipbuilding: A Leader of the Global Industry

In the 1970s, the Korean shipbuilding industry began seeking international orders, supported by a government policy that promoted heavy industrial exports. Overcoming two rounds of "oil price shock" and subsequent worldwide recessions, the industry grew to be the world's second largest in 1979. Since then, it has maintained its status while steadily augmenting its market share.

As domestic demand is small, Korean shipbuilders had no other way to expand but to become export-oriented. They became the world's number-two industry within ten years of entering the international arena and continue to gain market share by enhancing their competitive standing. The Korean industry shares world market leadership with its Japanese counterpart, which claims a one-third market share .

The world shipbuilding industry has maintained an upward trend in the 1990s. In 1999, orders received amounted to 28.9 million G/T, a small increase over the 26.7 million G/T in 1998. Meanwhile, Korean shipyards attracted orders of 11.84 million G/T, a 40.9 percent share of the total and Japanese yards, 30 percent, for a combined total of 71 percent.

Matching its reputation in scale, the Korean industry has also made remarkable advances in technology. LNG vessels, which have the highest value-added and require comprehensive and systemic state-of-the-art technologies, deep-sea oil-well drilling rigs built with a combination of shipbuilding and marine technologies, and a range of combat ships and submarines are all built and launched by Korean shipyards.

In the field of general commercial vessels, domestic shipbuilding technologies and capabilities are world-class. Thanks to 30 years of experience and intense application of R&D in the field, Korean expertise now stands abreast that of Japan.

While Japan is slowly losing its competitiveness, late starters such as China still lag behind Korea. Thus, it is predicted that Korea will keep up the current pace of growth in shipbuilding. Since the 1990s, Korea has maintained a 16 percent price competitive advantage over Japan owing to changes in the exchange rate and jumps in domestic productivity of 10 to 15 percent per annum.

The global shipbuilding market is defined by competition from three-quarters: Korea, Japan and Europe. With Korea and Japan holding a 70 percent market share, they are forecast to continue to be industry leaders throughout 2000 in production capacity, price competitiveness, quality, and meeting due dates.  

3. Automobiles: Gaining International Acceptance on Quality

The Korean auto industry began in the early 1960s by the simple assembly of imported knockdown (KD) parts. Initially , the fledgling industry struggled with problems of under-capitalization and low technology. Yet, as domestic demand surged, the industry emerged as a leader of national economic development. In addition, Korea became just one of ten countries with the ability to develop new car models and certainly the only among developing nations .

Responsible for a 10.2 percent contribution to total manufacturing output in 1997, the auto sector ranks fifth in Korea following electronics, chemicals, textiles, and general machinery. Furthermore, the pace of its growth has been unparalleled by most other businesses. Domestic sales have risen by leaps and bounds since the late 1980s while exports have soared because of the quality-oriented policy of individual automakers. As a result of the financial crisis and the subsequent strictures of the International Monetary Fund (IMF) restructuring program, Korean production declined to 1,954,000 units in 1998, representing a fall in world ranking to eighth from fourth in 1997. Since production recorded huge gains in 1999 and Korean auto exports soared to 1,509,000 units during the same year, ranking seventh in the world, domestic car production is soon expected to recover to pre-crisis levels.

However, major obstacles stand in the way. Sales have shrunk recently, capacity exceeds demand and competition is getting more intense. In order to overcome these difficulties Korean automakers are forging strategic alliances, downsizing, and pursuing other restructuring initiatives.

Globally, ten major players are fighting to gain market share and avoid being the next takeover target. Combined, they have an annual production capacity of several million units and independent capability for model development. Other players follow them by a wide margin. Since 1989 the global market has undergone a fall in sales, which has made competition even tougher. Reduced profitability is forcing the industry to exert every effort to survive. To save costs, car producers are cutting back on employment, shutting down inefficient factories, and promoting the economies of scale by merger and acquisition.

Currently, the Korean auto industry has high labor productivity and price competitiveness. By putting a priority on recovering quality competitiveness and gaining a higher reputation for quality in the U.S. and European markets, Korea aims to grow to become the fifth-largest car maker, producing over 3 million units in 2000.

4. Home Appliances Industry: Pacemaker of the Digital Revolution

The electronics industry leads the digital revolution. In addition to contributing $1 trillion annually to world GDP, the industry also spurs the development of whole industries and impacts on the nature of society itself.

The Korean electronics industry was launched with the production of vacuum-tube radios in 1959. Currently, the industry accounts for 16.1 percent of total national production and 35 percent ($51.5 billion) of total exports. Today, Korea is the sixth largest electronics producer, accounting for 6.6 percent of the output of the international electronics industry. The Korean home appliances industry ranks second in the world, and the parts sector, third, attesting to their status of as major players in overseas markets.

In particular, Korean firms hold key technologies in such areas as digital TV and PDPs (Plasma Display Panels), believed to be crucial areas for the development of next-generation electronics products. Korea thus appears vested with a strong competitive edge in what will be the second-stage digital era.

Digital TV is forecast to be one of the hottest electronics products in the near future. This totally new-concept TV will enable two-way communication. Viewers will be able not only to access a diversity of channels, but also surf the Internet, do home shopping, and even enjoy video communication through the screen. The digital TV market in Korea is projected to be worth 30 trillion won by 2010. With its competitive advantage in key chip sets plus transmission and display technology, the Korean electronics industry is well positioned to become an even stronger player in the world markets.

As the demand for TFT-LCD (thin film transistor/ liquid crystal displays) expands and the introduction of PDP technology furthers the new markets of wall TVs and large-sized electronic boards, the display segment is set for further advances. Korea currently leads the world in CRT and TFT-LCD production.

Although the Korean electronics industry was a late starter and for a long time remained peripheral to major market developments, today it can proudly claim to stand center stage in the international arena.  
 

5. The IT Industry: the Cornerstone of the Knowledge Society of the 21st Century

As economic development has progressed in Korea, domestic demand for IT services has skyrocketed. To meet the explosive nature of the demand, huge investments were made in the expansion and modernization of the communications network in the 1980s and the 1990s. As a result, Korea now ranks among the world's top 10 countries in terms of the distribution and availability of communications facilities. For, example, the number of phones per 100 capita is 43.3 units as of 1998, close to the level of advanced countries.

The phenomenal growth of CDMA (Code Division Multiple Access) based PCS (Personal Communication Services) mobile phone services is a case in point. Launched in September 1997, PCS subscriptions exceeded 10 million by June 1998 . Eight months later, the number jumped to 15 million and after further six months in August 1999, passed the 20- million mark. The launch represented the world's first example of CDMA commercialization. Having developed world-class competitiveness in this sector, the Korean wireless industry's exports are expected to record strong growth over the next few years.

At present, the mobile phone subscriber ratio stands at one out of every two people in Korea. At first a novelty, then a convenience, the mobile phone has become a necessity in this country. Meanwhile, demand keeps climbing especially among the under-twenty-fives. The mobile phone subscriber penetration rate in Korea is the sixth highest in the world.

Since the late 1990s, the Internet has increasingly become the preferred channel for domestic data communication. In response, several mainstay communications companies, including Korea Telecom, have invested in the necessary network infrastructure such as ISDN, ADSL high-speed access services and cable modems to support the increasing volume of Internet communication. Projections are that the number of Internet users in Korea will grow by more than 50 percent annually to 25 million by 2002.

In response to the explosive worldwide growth in demand for mobile communications and Internet service, Korean exports of telecommunications equipment leaped 96.1 percent over the previous year, totaling $16.48 billion in 1999. Domestic demand also jumped, soaring by 41.5 percent over the same period. Notably, the surge in wireless communications device and PC production for domestic and overseas markets played a vital role in the recovery of the national economy.

In fact, IT exports are projected to grow by almost 80 percent annually as result of resurgent overseas demand for Korean wireless communications equipment and PCs. Overall , exports of mobile phones and CDMA-based handsets among other IT products, continue to trend upwards. In particular , PC exports have made rapid gains in Japan, China and Southeast Asia. The success of Korean IT exports is not only because of the surge in worldwide demand for these products, but is also due to the recognition of Korean quality and technology in international markets.

Governments around the world are taking steps to lay the foundations of knowledge and information societies within their own countries. In particular the advanced countries are undertaking "Information superhighway" projects as a crucial elements of their national IT strategies. In early 1999, the Korean government also announced its "Cyber Korea 21" project intended to facilitate high-speed communications and information exchange in the Korea of the 21st century. The aim of the project is the establishment of a world-class communications infrastructure to enable business and society in general to become knowledge-based. If "Cyber Korea 21" is successfully realized, the contribution of the knowledge-based industry to GDP will reach the level of OECD states by the year 2002.

6. The Steel Industry: a New Power in the Making

The steel industry has played and continues to plays an important role in the development of the national economy . Steel constitutes a critical element in the manufacture of automobiles, machinery, vessels, and electronics, as well as in civil engineering and construction.

Despite a comparatively short history of about 30 years , the domestic steel industry ranks sixth globally in terms of production. The reasons behind the rapid growth are threefold. First, it became mass production-based early on, using world-class plant and high-quality labor to generate a stable supply of low-cost, top-quality steel.

Second, the steady growth of the domestic economy underpinned demand for steel; and third, the steel industry expanded via facility investment in response to external and internal demand, creating a "virtuous circle of growth.

The price competitiveness of Korean steel is the world's best. World Steel Dynamics (WSD), a U.S.-based steel information service, reported that as of March 1999, the total cost of Korean cold-drawn steel is 5 to 8 percent lower than that of developing countries like Brazil and China where raw materials and labor costs are cheaper. Furthermore, WSD cost Korean steel at least 10 percent below that of developed countries such as the U.S ., Japan, and Germany. Korea also stands first in terms of processing cost that excludes financial cost.

The Korean steel industry is regarded as well positioned to reap further benefits. Since the industry went through an intense period of growth in the 1980s, its facilities are newer compared with those of advanced nations. Its educated and versatile labor force is able to quickly adapt to new techniques and the demands of informatization.

Also, the high potential Southeast Asian and Chinese markets are in close proximity, putting the Korean industry at an international competitive advantage in view of the high level of steel transportation costs. The fact that Japanese steel price is the most expensive in the world, will also work favorably to the Korean industry in this regard.

Since the 1970s, domestic steel demand and production have grown by leaps and bounds in tandem with the pace of national economic growth. Crude steel production grew by 16.9 percent on average annually from 1970 to 1998. In 1970, domestic industry contribution to global production was just 0.1 percent, ranking 35th in the world. By 1988, Korean production had grown to 5.2 percent of the world total, making the domestic industry the world's sixth largest. Despite the financial crisis of 1998, domestic demand for crude steel increased by 12.3 percent on a yearly comparison, accounting for 3.3 percent of the global total. Korean domestic demand for steel now ranks seventh globally.

Steel exports stood at only 100,000 tons in 1970, but surged to 4.5 million tons in 1980, 7.2 million tons in 1990 and 16.8 million tons in 1998 and their share in the international market continues to grow.

7. The Petrochemical Industry: A Latecomer Becomes World-beater

The petrochemical sector is one of the pillars of Korea's industrial base, providing raw materials for such critical industries as electronics, automobiles, textiles, aerospace and precision chemicals. By doing so, it contributes to the development of the national economy as a whole.

The Korean petrochemical industry came into being in the late 1960s, 30 years later than the U.S. and Europe and 10 years later than Japan. Successfully overcoming the first and second oil shocks, the industry has been able to keep expanding and developing. In particular, since new investment in petrochemical facilities was liberalized in 1986, the industry has achieved rapid growth in capacity.

As of the end of 1999, the petrochemical sector accounted for 4 percent of all domestic manufacturing output, and 5 percent of total exports.

By the mid-1980s, Korean annual ethylene production capacity stood at only 805,000 M/T, ranking 18th internationally. However, the dramatic expansion of facilities in the 1990s pushed capacity to 5 million tons by the end of 1999, as a result of which Korea emerged as the third largest ethylene producer after the U.S. and Japan. Domestic industry production accounts for 15.1 percent of world petrochemical trade, ranking fifth globally.

Based its huge production capacity and outstanding price competitiveness, the industry has launched an aggressive export drive to promote such items as synthetic resins, Asian demand for which is currently undergoing a steep increase. By this strategy the industry hopes to maintain its leading position in the regional market.

The outlook for the Korean petrochemical industry is positive, vested as it is with top-of-the-line operating technology, low investment costs, and geographical adjacency to China and other outstanding Asian markets, the largest of their kind in the world.

by Dong-UK Park(shanepak@kotra.co.kr)

Competition Cavalcade

A flashback to those products of the 1960s through to the 1990s which became world leaders and fueled Korea economic development  
 1960s Fledgling Korean industry finds its competitive niche in world markets with low-end, low-tech products

Labor-intensive Korean industries gain export success with products such as wigs, veneer boards, and footwear, areas from which advanced countries have withdrawn. The government spares no effort to expand the manufacturing base for these products and promote their export as part of its five-year export-driven development plan. As a result , the above three Korean-made items dominate their respective markets internationally.
 

1970s Korea ranks first in labor-intensive assembled/ processed products

Textiles as well as assembled and processed products like black-and-white TVs and radios emerge as strategic export items. A highly skilled technical labor force is carefully nurtured into being while technologies are locally developed and accumulated with the result that Korean exports gain stature abroad.

At the same time, the focus of government-directed investment shifts from light industry to the assembling/ processing and heavy industries. Facility investment and R& D activity in shipbuilding and communications make progress at lightening speed during this period. Meanwhile, the nascent chaebol structure, what will become the powerhouse of Korean economic development begins to take shape: electronics makers launch into the communications business and construction firms into shipbuilding.
 

1980s Color TVs and monitors are top performers.

Thanks to what are called the "three-lows" i.e., the exchange rate, oil prices and interest rates plus one "high" the strong yen, exports of color TVs, VCRs, and monitors post sharp increases. However, all these stellar Korean products are made on an OEM basis. The Pony, the first model to be developed by Hyundai Motor, enjoys explosive popularity in Canada and United States. Soaring exports boost the development of the Korean auto industry.

The hosting of the 1986 Asian Games and the 1988 Olympic Games enhance Korea's international profile and brings Koreans, many for the first time, into contact with foreigners and foreign influences. The seeds of globalization in Korean business and society are planted. Investment in shipbuilding, memory chip and automobile production expands rapidly.

1990s Korea achieves world leadership in semiconductors and LCD/CDMA-based products

The technologically leading edge domestic industries come into their own, producing an array of high-tech products that quickly earn a high reputation in international markets. Steady yet tremendous investment in chip production puts the country in the sector's top spot in the early 1990s. Later in the decade Korean LCDs and CDMA-based devices are number-one sellers worldwide.

While Japan loses its competitiveness as the world-largest shipbuilder owing to the strong yen and restructuring, Korean shipyards take the lead in global markets.

SMEs (small- and medium-sized enterprises) success-fully exploit niche markets to emerge top in their field on the basis of thorough quality control. Exports by domestic makers of nail-clippers, hats, tents, and fishing rods surge, despite the restrictions of the IMF restructuring program, to claim the lion's share of overseas markets in their respective fields. Other products borne out of creative ideas such as model locomotives, an eyelash shaper, and the Saojong phone, produce stunning export performances.