20080701-060-Korea Industry Vision 2020

8/14/2019 20080701-060-Korea Industry Vision 2020

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Korea Industry Vision 2020

Byoung Jun Song, Ph.D

Senior Reaserch Fellow

August 3, 2006

KoreaInstitute for Industrial Economics & Trade (KIET)


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Aug. 3, 2006www.kiet.re.kr

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Contents

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



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Introduction and Outline

What will lead the Korean Economy and Industry in 2020?

Changes in the world industry environment in 2020?

What will be the most promising sector in 2020?

Where should we invest now?

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

Competitiveness of Korean industries

Past and present of Korean industries

Forecast of the Korean industries and promising sectors in 2020

Korea industry vision for 2020


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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?

Through which mechanism will the Mega-Trends work?

Positive Mega-Trends

Negative Mega-Trends

Labor Input

Capital Input

Total Factor Productivity

- 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


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2020 Mega-Trends and Industry Environment in Korea

15) Regional Innovation and Balanced NationalDevelopment

14) Progress in South-North Korean Economic Cooperation

13) Evolution of New Culture

12) New Consumption Pattern

11) Hegemony of Technology : Standardization and

Intellectual Property Rights

10) Challenge to New Technology : Rise of NationalStrategic Technology

9) Fusion Technology: ITBTNTNew Materials

8) Advent of Bio-economy

7) Maturation of Digital and Network Technology

6) New Wave in Management : Knowledge-based and CSR

5) Paradigm Shift in Financial Markets

4) Degradation of Environment and Natural Resources

3) Aging : Change in Demographic Structure

2) Power Shift in World Economic Order and Change inComparative Advantage

1) Integration of the World Economy

15 Mega-Trends

Korea-specific Situation

Evolution of New Cultureand Consumption Pattern

Acceleration inTechnology Innovation

Labor, Resources, andManagement

Change in WorldEconomic Order

Fields of Mega-Trends


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The industry vision of major developed countries: highly dependenton population growth rates

U.S. will remain the global superpower in 2020 due to the high populationgrowth 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 developedcountries will continue in the future


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24.5

27.3

29.4

27.1

25.2

27.125.9

21.2

18.6

15

26.1

22.4

17.3

13.2

11

0

5

10

15

20

25

30

35

1980 1990 2000 2010 2020

KoreaJapan

UK

US

Source: KIETGlobal Insight (2005)

Note: The shares are on the basis of norminal value added

Forecasts for the proportion of manufacturing in major countries

in percent


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Despite of the declining proportion of manufacturing, developed countries

will always value the manufacturing industry.

Leading innovation and productivity improvement

Creating high paying jobs

Strengthening intellectual property rights and standardization of technologyand educating/training related experts

Government policies of developed countries focused on improvingfree market environment and providing enlarged infrastructure forindustries.

Increasing R&D investment


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As a manufacturing hub, the proportion of the manufacturing

industry in China will increase.

In China, increased income will lead to boosted demands for serviceindustries, 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 technologicalinnovation


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Forecasts for the portion of manufacturing in China

10.3

15.2

12.2

10

17.5

15.6

8.9

19.2

15

0

5

10

15

20

25

3035

40

45

2000 2010 2020

capital goods

intermediate goods

consumer goods

37.7

43.1 43.2

in percent

Source: (2005)



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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 ofKorea for the past 4 decades.

The proportion of the service industry is continuously increasing.


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55.4954.3951.8049.4947.2844.73Services

11.7410.9213.6313.4710.166.47SOC

(15.8)(20.7)(23.4)(29.0)(41.9)(59.4)(light industry)

(84.2)(79.3)(76.6)(71.0)(58.1)(40.6)(heavy industry)

28.7429.4227.6327.2624.4517.79Manufacturing

4.035.276.949.7818.1131.01Agriculture & Fishery

200420001995199019801970

Structural Change of the Korean Industry

Notes: 1) Nominal value added2) ( ) indicates percentage of total manufacturing.

(unit: percent)



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Cross country comparison of manufacture shares(unit: percent)

2004

28.729.11978

21.820.82002

Germany

23.928.81980

21.520.32002Japan

22.724.31970

17.813.92002

U.S.

31.728.7Korea

realnominal

Notes: 1) value added2) 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


High proportion of manufacturing in Korea


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41.2

20.5 20.8

8.3

65.2

32.6

17.1

10.1

73

39.6

0

10

20

30

40

50

60

70

80

World U.S. EMU Japan Korea

Trade dependence

Export ratio

Cross countries comparison of trade dependence degree(2000)

in percent

Notes: 1) Trade dependence degree = (total exports + total imports) / total value added


Korean economy is highly dependent on trade.

2) Export ratio = total exports / total value added


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Transition of top export items


1970 1980 1990 2000

textile

automobileSemiconductor and electronic parts

ICT and

related components

Manufacturing industry has driven labor productivity improvementsin Korea.

High productivity improvement in leading industries: automobile,shipbuilding, machinery, textiles, iron & steel, petrochemical, electronics, etc.


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Transition of labor productivity growth rates in Koreas major industries

4.7

8.7

11.4

1.7

3.6

10.4

12.7

0.9

2.9

6.6

10.4

0.9

0 2 4 6 8 10 12 14

1991~1995

1996~2000

2001~2004

service industries

leading industries

manufacture

total industry

in percent

Notes: Labor productivity = Value added at 2000 prices / employed person

Source: The Bank of Korea(2005), National Income Account;The National Statistical Office,Annual Report on the Economically ActivePopulation Survey



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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 theKorean industries between light industries and heavy industries.


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'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 inthe early 1990s.

Policy measure may be needed for the specific sector where 'hollowing-out' isabnormally 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.


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1.6(21.6)

4.8(64.5)

1.0(13.9)

7.5(100.0)

1981~1990

2.8(44.8)

2.9(45.9)

0.6(9.2)

6.2(100.0)

1991~2004

2.5(51.7)

1.8(37.7)

0.5(10.7)

4.9(100.0)

2005~2010

2.4(60.3)

1.3(33.0)

0.3(6.7)

4.0(100.0)

2011~2020

2.4(56.6)

1.5(35.0)

0.4(8.4)

4.3(100.0)

2005~2020

Total Factor Productivity

Capital

Labor

Potential growth rate

Potential GDP will grow at 4.3% annually by 2020

Because of sluggish growth of inputs, potential GDP growth rate will decline forthe next 15 years

note: Data in parenthesis implies degree contributed to growth.

Growth factors and potential GDP growth rates forecast

(unit: percent)


1. Forecast of the Korean Economy for 2020


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48.8

5.1

Upper-bound(Active policies)

45.2

4.6

Baseline(BAU policies)

42.0

4.1

Lower-bound(Passive policies)

Per capita income(1,000 dollars)

Annual GDP growth rates(2005~2020)

According to baseline forecasts, Koreas GDP growth rate for 2005-2020

will be 4.6% and per capita income will be $45,000 in 2020.


note: Assume fixed 1,000 won/1 dollar exchange rate

Forecast for GDP growth rates and per capita incomes by scenario

(unit: percent)


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.


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World GDP and ranking forecast (upper-bound scenario)

CanadaSpain

India

Korea

Italy

France

Germany

U.K.

Japan

China

U.S.

nation

2020 (won appreciation)

22,77526,082

29,331

32,375

35,258

45,060

51,591

51,632

95,494

102,858

276,858

GDP

1110

9

8

7

6

5

4

3

2

1

rank

CanadaKorea

Spain

India

Italy

France

Germany

U.K.

Japan

China

U.S.

nation

2020 (fixed exchange rate)

22,77524,377

26,082

29,331

35,258

45,060

51,591

51,632

95,494

102,858

276,858

GDP

1110

9

8

7

6

5

4

3

2

1

rank

116,797Korea106,919India

99,788Canada

89,914Spain

716,493China

616,723Italy

520,026France

421,409U.K.

327,144Germany

246,234Japan

1116,675U.S.

rankGDPnation

2004

(unit: billion dollars)


note: 1) nominal GDP


2) 'Fixed exchange rate' implies that current exchange rate will be maintained until2020, while 'won appreciation' means that won will appreciate to 770 won per1 dollar, which is the PPP exchange rate.


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Global trade volume ranking in 2020

Trade volume will increase to over 1,400 billion dollars, ranking Korea as

the 7th largest trading country in the world

(unit: 1 billion dollars)

BaselineUpper-bound

81,220Italy

71,39671,583Korea

61,725France

51,753Japan

41,826United Kingdom

32,959Germany

25,281China

16,380United States of America

RankTrade volume1)

note: 1) Trade volume is only for goods.




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Growth rate forecasts by expenditure item (baseline scenario)

Balanced growth of domestic demand and exports

Increase in income will substantially boost demands and the imbalance betweenexports

and domestic demand will be moderated.


8.16.88.19.18.5Imports

4.6

11.1

3.1

2.7

2001~2004

5.3

7.8

6.0

5.7

2005~2010

4.7

6.9

5.2

5.5

2010~2015

3.6

5.7

3.5

4.7

2016~2020

4.6

6.9

5.0

5.3

2005~2020

GDP

Exports

Investment

Consumption

Real growth rate (%)

Source: KIET


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Forecast of job creation and employment rate

Over 3.6 million jobs will be created by 2020, and employment rate will

increase to 67%, reaching the level of developed countries.


66.663.961.959.83,530Lower-bound

3,780

3.620

Job creation(2005~2020)

59.8

59.8

2004

Employment rate

62.3

62.1

2010

64.4

64.0

2015

67.2

66.8

2020

Upper-bound

Baseline

Source: KIET

(unit: thousand jobs, percent)


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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 newproducts are needed.

Solid information for the future industry will induce rational investments andlessen 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 ofKorea in 2020

Externality and public interest (C): large technological side effects andstrategically important items


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Dynamic and analytical screening process

Process of selecting promising sectors in 2020

Lists of Promising Items

Technology Road Map

List of Promising items

Selected by public institute

Promising items of

Foreign Countries

Potential for Growth

Profitability

Externality and

Public Interest

2nd Selection

85 Items Selected

Strategic Importance

Possibility of

Commercialization

by 2020

Competitiveness in

Technology

1st Selection

Add Your Title41 Items Selected


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2020 promising sectors(14 sectors, 41 items)


Intelligent Flexible Manufacturing Systems , High Functional Environmental

Equipment, High-Efficiency Power Generation PlantsHigh-Tech Machinery and System

Ultra-Micro Process Machinery, MEMS, High-Tech Sensor, Heat Sensor, Elder Caring

Medical Machinery, Bio-ChipHyper-Precision Equipment components

High-Value Added Shipping, the next generation of Air and SpaceAdvanced Air/Marine Transportation

Artificial Intelligence Polymer, Fine Chemicals for Electronic Information, Green

Chemical Material, Nano-TextileHigh-tech Chemical Material

Industrial Robot, Service RobotRobot

Secondary Battery, Solar Battery, Hydrogen EnergyThe next generation of Energy

Obstinate Disease Prevention and Curing Service, Senile Disease Treatment ServiceMedical Service

Culture Content, GameContents Industry

Intelligent Vehicle, Fuel Cell Vehicle, Eco-VehicleThe next generation of Vehicle

Wearable Computer, High Performance Distributed Intelligence ComputerNew concept Computer

Digital TV ,Hologram Navigator, LCD, OLEDThe new generation of Display

DMB, Telematics, the next generation of Mobile Phone, Home Network, Ubiquitous

ComputingUbiquitous Network

Advanced Biomedicine, Bio-organBio-organ, New Medicine

The next generation of Memory, Non-memory SemiconductorNext generation of Semiconductor41 promis in g p rodu cts / techn ology4 s ector s


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Assessment of 41 promising products and technologies by selectingrationales

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 nextgeneration of Mobile Phone, Secondary Battery, Eco-Vehicle, Fuel Cell Vehicle,

Culture Contents

A+C: Service Robot, Bio-organ, Senile Disease Treatment Service, ObstinateDisease Prevention and Curing Service, Hydrogen Energy, Green ChemicalMaterial

C: Industrial Robot, Bio-Chip, High-Efficiency Power Generation Plants


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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

7th8th4.0 %Lower-bound

5.6 %

4.9 %

Annual growth rate(2005~2020)

7th

7th

Exchangerate fixed

2020 ranking in the world

5th

6th

Wonappreciation

Upper-bound

Baseline

note: real value added at 2000 prices


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Balanced growth of manufacturing sector and service sector

Growth rates by sectors (baseline scenario)

4.64.6GDP

3.8

6.6

2001~2004

4.9

4.9

2005~2020

Service

Manufacturing

(unit: percent)


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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

6.6

5.1

0.9

3.1

2.9

3.7

0 2 4 6 8

manufacture

services

entire

industries

2005~2020

2001~2004


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Leading manufacturing industries and knowledge-based service

industries will lead overall industry growth.

Growth rates and contribution degree in service sector (baseline)

100.04.94.9100.0100.0services total

63.83.27.045.232.9knowledgeservices total

5.80.37.83.22.0culture services

14.70.76.39.37.6telecommunition &broadcasting

21.51.17.212.99.0business services

31.61.67.119.814.2financial &insurance

contribution

percent

contribution

degree

growth rates20202004

2005~2020shares

(unit: percent)


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78.8

68

20.622.4

40.937.8

57.860.5

2016.2

71.1

85.5

0

10

20

30

40

50

60

70

80

90

Korea U.S. U.K. Germany Japan China

2004

2020


Trade dependence will decrease to 68% in 2020

Trade dependence forecast for major countries

According to the baseline forecast in 2020:- Approximately $63 billion surplus in goods and $56 billion deficits in services

note: 1) Trade dependence = (exports + imports)/total value added


2) nominal

in percent


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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)

note: 1) shares of industry in total export

2) real

74.774.072.470.3Leading industry total

20.718.815.510.2Telecommunication Equipments

2.92.92.92.7TV & Communication Equipments

20.820.720.420.0Semiconductor & Electronic Parts

5.95.85.67.4Computer & Office Machinery

4.44.75.15.3Petrochemical

1.61.92.32.8Iron & Steel

1.82.33.24.9Textile6.36.15.74.4General Machinery

2.02.53.55.0Shipbuilding

8.38.38.37.6Automobile

2020201520102004(unit: percent)


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Korea will advance to become the 7th largest manufacturing country in

the world (baseline scenario)

Status of the Korean manufacturing industry in 2020(baseline)

note: 1) nominal

2) ( ) indicate rankings in the world market

(unit: percent)

Based on upper-bound forecasts, proportion of manufacturing will be 4.6%,placing Korea in 6th place

3.3(8)

4.2(6)

4.7(5)

8.5(3)

5.6(4)

12.7(2)

1.6(9)

14.5(1)

4.0(7)

2020

4.2(7)

4.4(6)

5.2(5)

10.5(2)

7.5(4)

11.7(1)

1.0(9)

7.8(3)

3.5(8)

2004

ItalyU.K.FranceGermanyJapanU.S.IndiaChinaKorea



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Global market shares of the Korean leading industries will increase

in 2020

Forecast of world market share and ranking by industry

note: 1) shares in terms of dollar

(unit: percent)


7.2(3rd)8.7(3rd)10.1(3rd)8.3(4th)Electronics &

Semiconductor

3.1(8th

)3.8(7th

)4.4(5th

)3.6(7th

)Petrochemical

6.4(4th)7.8(3rd)8.3(3rd)4.4(6th)Iron & Steel

1.7(8th)2.0(8th)2.3(7th)3.5(6th)Textile

3.1(8th)3.7(8th)4.3(8th)2.0(8th)General Machinery

21.4(1st)26.0(1st)30.0(1st)30.5(1st)Shipbuilding

2.9(7th)3.5(7th)4.0(6th)2.8(7th)Automobile

lower-boundbaselineupper-bound

20202004

(unit: percent)


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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

approximately 10--New promising sector

1004.64.6GDP

7.0

5.2

2005~2020growth rates

1.8

1.4

contributiondegree

40.0

30.7

contributiondegree rate

Knowledge services

Leading industry

note: real value added at 2000 prices

(unit: percent)


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Korean economy to rank 10th in the world

Vision of the Korean industry (upper-bound)

note: ( ) indicate market shares.

4th (6.7%)5th (5.0%)leading industry exports

6th (4.6%)8th (3.5%)Manufacturing exports

7th12thTotal trade volume

8~10th11thGDP

2020

2004

status indicators


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Per capita income approx. $50,000 (upper-bound)

Forecast of Major welfare indices

1,9502,0642,1852,339Working hours/year

66.8(67.2)

64(64.4)

62.1(62.3)

59.8Employment rates(%)

45,202(48,796)

34,398(36,077)

24,583(25,171)

14,144per capita GDP($)

2020201520102004

Note: ( ) implies upper-bound scenario.

Achieving welfare state status

d i i 2020


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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 balancedgrowth of service & manufacture

Korean Economy

World E conomy

Total trade volume: 7th

GDP: 10th largest

Per capita income: $49,000

15 Mega-TrendsReflecting Industry

Vision 2020sof Major Countries

Active Korea$49,000 Welfare State

Export of leading industry: 4th

41 Promisin g Sectors


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Thank you

Documents

20080701-060-Korea Industry Vision 2020