Korea Industry Vision 2020 August 3, 2006 Byoung Jun Song, Ph.D Senior Reaserch Fellow KoreaInstitute for Industrial Economics & Trade (KIET)
Introduction and Outline 2020 Mega-Trends and Industry Environment of Korea Industry Vision 2020s of Major Countries and Its Implications Structural Changes and Competitiveness of Korean Industries Korea Industry Vision 2020 Contents
Introduction and Outline □What will lead the Korean Economy and Industry in 2020? ○ What will be the most promising sector in 2020? ○ Where should we invest now? □Changes in the world industry environment in 2020? ○ Impact of 15 Mega-Trends on Korean industries ○ Various Industry Vision 2020s of major countries and its implications ○ Prospects of the world economy and industries for 2020 □Past and present of Korean industries ○ Competitiveness of Korean industries □Forecast of the Korean industries and promising sectors in 2020 □Korea industry vision for 2020
- Maturation of Digital and Network Technology - Fusion Technology: IT, BT, NT, new Materials - Progress in South-North Korean Economic Cooperation - Aging: Change in Demographic Structure - Degradation of Environment and Natural Resources - Hegemony of Technology: Standardization and Intellectual Property Rights ○ Labor Input ○ Capital Input ○ Total Factor Productivity 2020 Mega-Trends and Industry Environment of Korea □15 Mega-Trends: the key factors for developing business environment □ How will Mega-Trends influence the future of Korean industries? ○ Positive Mega-Trends ○ Negative Mega-Trends □ Through which mechanism will the Mega-Trends work?
Industry Vision 2020s of Major Countries and Its Implications □ The industry vision of major developed countries: highly dependent on population growth rates ○ U.S. will remain the global superpower in 2020 due to the high population growth rates. ○ Aging will weaken the potential for growth in Japan and EU. ○ Forecast of Potential GDP growth rates for the next 20 years (estimated by Shell): U.S. 3.1%, EU 2.1%, Japan 1.1% □ The declining portion of manufacturing sectors for developed countries will continue in the future
Industry Vision 2020s of Major Countries and Its Implications Forecasts for the proportion of manufacturing in major countries in percent Source: KIET∙Global Insight (2005) Note: The shares are on the basis of norminal value added
Industry Vision 2020s of Major Countries and Its Implications □ Despite of the declining proportion of manufacturing, developed countries will always value the manufacturing industry. ○ Leading innovation and productivity improvement ○ Creating high paying jobs □ Government policies of developed countries focused on improving free market environment and providing enlarged infrastructure for industries. ○ Strengthening intellectual property rights and standardization of technology and educating/training related experts ○ Increasing R&D investment
Industry Vision 2020s of Major Countries and Its Implications □ As a manufacturing hub, the proportion of the manufacturing industry in China will increase. ○ In China, increased income will lead to boosted demands for service industries, such as entertainment, tourism, and recreation. ○ Especially, high demands are expected for business services, such as design, consulting, logistic, and financial services. □ Ambitious Industry Vision 2020 of India to become a developed country ○ The 4th largest GDP country in the world in 2020 ○ Strategically targeted industries: materials, chemicals, pharmaceutical, biotechnology, and ICT ○ Dual-use technology: driving force for upgrading industries and technological innovation
in percent 43.1 43.2 37.7 Source: 王夢奎 編 (2005) Industry Vision 2020s of Major Countries and Its Implications Forecasts for the portion of manufacturing in China
Structural Changes and Competitiveness of Korean Industries □ Current status of the Korean economy and industries ○ Per capita income: $14,100 in 2004 (24th among OECD member countries) ○ Labor productivity in manufacturing: 42.7% of the U.S. ○ Total trade volume: 480 billion dollars in 2004 (12th in the world) ○ Proportion of manufacturing exports in the world market: 3.5% and 8th largest country ○ Technology competitiveness (2003): 5th largest country in terms of patents registered in the U.S. □ Evolution and structural change of the Korean industries ○ Rapid development of manufacturing industry has driven the economic growth of Korea for the past 4 decades. ○ The proportion of the service industry is continuously increasing.
Structural Changes and Competitiveness of Korean Industries Structural Change of the Korean Industry (unit: percent) Notes: 1) Nominal value added 2) ( ) indicates percentage of total manufacturing.
Structural Changes and Competitiveness of Korean Industries □ High proportion of manufacturing in Korea Cross country comparison of manufacture shares (unit: percent) Notes: 1) value added 2) ‘real’ for Korea is at 2000 prices, and for other countries, at 1990 prices. 3) 1970 for U.S., 1980 for Japan and 1978 for Germany are the years when their per capita incomes were at the same level as Korea in 2004
Structural Changes and Competitiveness of Korean Industries □ Korean economy is highly dependent on trade. Cross countries comparison of trade dependence degree(2000) in percent Notes: 1) Trade dependence degree = (total exports + total imports) / total value added 2) Export ratio = total exports / total value added
Structural Changes and Competitiveness of Korean Industries □ Transition of top export items ICT and related components automobile Semiconductor and electronic parts textile 1970 1980 1990 2000 □ Manufacturing industry has driven labor productivity improvements in Korea. ○ High productivity improvement in leading industries: automobile, shipbuilding, machinery, textiles, iron & steel, petrochemical, electronics, etc.
in percent Structural Changes and Competitiveness of Korean Industries Transition of labor productivity growth rates in Korea’s major industries Source: The Bank of Korea(2005), National Income Account; The National Statistical Office, Annual Report on the Economically Active Population Survey Notes: Labor productivity = Value added at 2000 prices / employed person
Structural Changes and Competitiveness of Korean Industries □ Competitiveness improvement in trade is sustaining in Korea. ○ Export-specialized industries in Korea: automobile, petrochemical, shipbuilding, textiles, and ICT, etc. ○ Import specialized industries: pharmaceutical, aircraft, parts and components, and materials, etc. ○ Improving terms of trade: export unit price changed from 43% of the German's export unit price in 1990 to 60% of that in 2004. ○ The share of mid-tech or high-tech products in exports is continuously increasing. □ Large benefits from trading with China ○ Contributed to the Korean economic growth by 0.66% annually from 2000 to 2004. ○ The Korean heavy industries benefited the most. ○ Light industries and agricultural products were negatively affected. ○ This trend will continue until 2010s and aggravate the bi-polarization of the Korean industries between light industries and heavy industries.
Structural Changes and Competitiveness of Korean Industries □ 'Hollowing-out' may not be critical in Korea, yet. ○ The current state of 'hollowing-out' in Korea is at the same level as in Japan in the early 1990s. ○ Policy measure may be needed for the specific sector where 'hollowing-out' is abnormally accelerated. □ Bi-polarization between manufacturing and service may gradually be alleviated, but bi-polarization between heavy industries and light industries are not likely to be.
Korea Industry Vision 2020 1. Forecast of the Korean Economy for 2020 □ Potential GDP will grow at 4.3% annually by 2020 ○ Because of sluggish growth of inputs, potential GDP growth rate will decline for the next 15 years Growth factors and potential GDP growth rates forecast (unit: percent) note: Data in parenthesis implies degree contributed to growth.
Korea Industry Vision 2020 □ According to baseline forecasts, Korea’s GDP growth rate for 2005-2020 will be 4.6% and per capita income will be $45,000 in 2020. Forecast for GDP growth rates and per capita incomes by scenario (unit: percent) Source: KIET∙Global Insight (2005) note: Assume fixed 1,000 won/1 dollar exchange rate □ Based on the upper-bound forecast, annual GDP growth rate will be 5.1% and Korea will become the global top 10 country in terms of GDP.
Korea Industry Vision 2020 World GDP and ranking forecast (upper-bound scenario) (unit: billiondollars) Source: KIET∙Global Insight (2005) note: 1) nominal GDP 2) 'Fixed exchange rate' implies that current exchange rate will be maintained until 2020, while 'won appreciation' means that won will appreciate to 770 won per 1 dollar,which is the PPP exchange rate.
Korea Industry Vision 2020 □ Trade volume will increase to over 1,400 billion dollars, ranking Korea as the 7th largest trading country in the world Global trade volume ranking in 2020 (unit: 1 billion dollars) Source: KIET∙Global Insight (2005) note: 1) Trade volume is only for goods.
Korea Industry Vision 2020 □ Balanced growth of domestic demand and exports ○ Increase in income will substantially boost demands and the imbalance between exports and domestic demand will be moderated. Growth rate forecasts by expenditure item (baseline scenario) Source: KIET
Korea Industry Vision 2020 □ Over 3.6 million jobs will be created by 2020, and employment rate will increase to 67%, reaching the level of developed countries. Forecast of job creation and employment rate (unit: thousand jobs, percent) Source: KIET
Korea Industry Vision 2020 2. Fourteen Most Promising Sectors □ Why do we need to select the most promising sectors? ○ For a continuously growing and upgrading industry, new technology and new products are needed. ○ Solid information for the future industry will induce rational investments and lessen risks and uncertainty for investors. □ Rationale for selecting promising sectors ○ Potential for growth (A): high growth rates in 2020 ○ Profitability (B): large market size, and high technological competitiveness of Korea in 2020 ○ Externality and public interest (C): large technological side effects and strategically important items
Listsof Promising Items 41 Items Selected Add Your Title Technology Road Map List of Promising items Selected by public institute 2nd Selection Potential for Growth Profitability Externality and Public Interest Promising items of Foreign Countries 1st Selection Strategic Importance Possibility of Commercialization by 2020 Competitiveness in Technology <Delphi Survey+ Industry Forecast+ Mega-Trends Analysis> 85 Items Selected <Screened by Experts> Korea Industry Vision 2020 □ Dynamic and analytical screening process Process of selecting promising sectors in 2020
Korea Industry Vision 2020 2020 promising sectors(14 sectors, 41 items)
Korea Industry Vision 2020 □ Assessment of 41 promising products and technologies by selecting rationales Assessment of Promising Items by Selecting Rationales (A) Potential for growth (B) Profitability (C) Externality & Public Interests ○ A+B+C: Advanced Biomedicine, DMB, Ubiquitous Computing, the next generation of Mobile Phone, Secondary Battery, Eco-Vehicle, Fuel Cell Vehicle, Culture Contents ○ A+C: Service Robot, Bio-organ, Senile Disease Treatment Service, Obstinate Disease Prevention and Curing Service, Hydrogen Energy, Green Chemical Material ○ C: Industrial Robot, Bio-Chip, High-Efficiency Power Generation Plants
Korea Industry Vision 2020 3. Future of the Korean Industry □ The manufacturing sector will grow at 4.9% annually by 2020 and rank as the 7th largest trading country in the world. 2005~2020 Growth rates of Manufacturing and ranking note: real value added at 2000 prices
Korea Industry Vision 2020 □ Balanced growth of manufacturing sector and service sector Growth rates by sectors (baseline scenario) (unit: percent)
Korea Industry Vision 2020 □ Manufacturing sector will lead the productivity growth until 2020. ○ Productivity growth rate for high-tech industries: 7.9% ○ Productivity growth rate for ICT industries: 6.0% Labor productivity growth rates by sectors
Korea Industry Vision 2020 □ Leading manufacturing industries and knowledge-based service industries will lead overall industry growth. Growth rates and contribution degree in service sector (baseline) (unit: percent)
Korea Industry Vision 2020 □ Trade dependence will decreaseto 68% in 2020 ○ According to the baseline forecast in 2020: - Approximately $63 billion surplus in goods and $56 billion deficits in services Trade dependence forecast for major countries in percent Source: KIET∙Global Insight (2005) note: 1) Trade dependence = (exports+imports)/total value added 2) nominal
Korea Industry Vision 2020 □ The share of leading industry exports among total Korean exports will continuously increase from 70% in 2004 to 75% in 2020. Forecast of share in total export by industry (baseline scenario) (unit: percent) note: 1) shares of industry in total export 2) real
Korea Industry Vision 2020 □ Korea will advance to become the 7th largest manufacturing country in the world (baseline scenario) ○ Based on upper-bound forecasts, proportion of manufacturing will be 4.6%, placing Korea in 6th place Status of the Korean manufacturing industry in 2020(baseline) (unit: percent) Source: KIET∙Global Insight (2005) note: 1) nominal 2) ( ) indicate rankings in the world market
Korea Industry Vision 2020 □ Global market shares of the Korean leading industries will increase in 2020 Forecast of world market share and ranking by industry (unit: percent) (unit: percent) Source: KIET∙Global Insight (2005) note: 1) shares in terms of dollar
Korea Industry Vision 2020 4. Vision of the Korean Economy and Industry □ Three sectors to fuel the Korean Economy as engines of growth Growth rates and contribution degrees of three major sectors (unit: percent) note: real value added at 2000 prices
Korea Industry Vision 2020 □ Korean economy to rank 10th in the world Vision of the Korean industry (upper-bound) note: ( ) indicate market shares.
Korea Industry Vision 2020 □ Per capita income approx. $50,000 (upper-bound) ○ Achieving welfare state status Forecast of Major welfare indices Note: ( ) implies upper-bound scenario.
Korea Industry Vision 2020 Active Korea $49,000 Welfare State Korea's Industry Vision 2020 5.1% growth (upper-bound) ◊ Leading industry, Knowledge services, Promising new industry: Three sectors as the engine of growth ◊ Innovation in manufacture led productivity growth in Korea Economy ◊ Balanced growth of domestic demands & exports induces balanced growth of service & manufacture 41 Promising Sectors Korean Economy Per capita income: $49,000 GDP: 10th largest Total trade volume: 7th Export of leading industry: 4th 15 Mega-Trends Reflecting Industry Vision 2020s of Major Countries World Economy