Light Industries Such As Textiles, Apparels

2020 Megatrends and Korea Industry Vision

KIET Korea Industry Vision 2020 TeamDongsoon Lim, Ph. D.

Research Fellow

Jan. 19, 2006 www.kiet.re.kr 2

Contents

Introduction

How to Identify Megatrends

Megatrend Analysis by KIET Team

Megatrend Analysis by Survey

Megatrend and Korea Industry Vision


Introduction

□ Megatrends that will shape the future for the Korean Industries of 2020.

□ KIET, in close collaboration with KIET specialists and a wide range of experts outside the institute, has worked to identify major factors and megatrends that will shape the world of 2020.

□ The key megatrend fields identified are:

(1) World Economic Order(2) Labor, Resources, and Management: Aging, Environment

and Natural Resources, and New Management(3) Science and Technology(4) New Culture and Consumption Patterns(5) Korea-specific Situation: South-North Relations and

Balanced National Development


Methodology

□ To Select the Megatrends for the KIET Korea Industry Vision Project, we reviewed a number of reports and books, and brought together some 24 leading outside experts from a wide variety of disciplines and backgrounds

- KIET Team selected more than 60 major trends, studying various methodologies and reviewing a vast number of recent future studies, (MOCIE, KISDI, STEPI; NIC, DBR)

- The experts engaged in wide-ranging discussions with the KIET project team and jointly held seminars and workshops for in-depth reviews of key megatrends.

- We solicited the first selection of trends into 15 major megatrends

- KIET, with R&B Research, Co., conducted a survey to identify core features and priority of the megatrends


Megatrend Analysis

More than 60Megatrends

- Future studies by various disciplines and backgrounds- Seminars, workshops for in-depth reviews and selection

Delphi SurveyCheck the features of

Megatrends

24 leading Outside experts

15 Megatrends


15 Megatrends

Fields of Megatrends 15 Megatrends

Change in World Economic Order

1) Integration of the World Economy

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

Labor, Resources, and Management

3) Aging : Change in Demographic Structure

4) Degradation of Environment and Natural Resources

5) Paradigm Shift in Financial Markets

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

Acceleration in Technology Innovation

7) Maturation of Digital and Network Technology

8) Advent of Bio-economy

9) Fusion Technology: IT ㆍ BT ㆍ NT ㆍ New Materials

10) Challenge to New Technology : Rise of National Strategic Technology

11) Hegemony of Technology : Standardization and Intellectual Property Rights

Evolution of New Culture and Consumption Patterns

12) New Consumption Patterns

13) Evolution of New Culture

Korea-specific Situation

14) Progress in South-North Korean Economic Cooperation

15) Regional Innovation and Balanced National Development



1) Integration of the World Economy

□ Trade:

- Contradictions of globalization

- Relative weakening of multilateralism and continuous expansion of regionalism and cooperation in economic blocs

□ Financial Markets:

- Globalization in international financial Markets

- Improvement and cooperation in financial and macroeconomic policies and management will set the stage for future dynamism, e.g. deregulation

□ Multinational Corporations:

- Acceleration in global network in production, processing, and services



2) Power Shift and Comparative Advantage

□ U.S. and Asian Heavyweights : role of growth engine (Growth prospects during 2005-2020: U.S., 3.1-3.2%, China, 7.5%-5.8%)

□ EU and Japan : Still need to manage their demographic challenges (Growth prospects during 2005-2020:Japan, 1.3-1.8%, EU, around 2.0%)

□ Energy and population growth : core driving forces for power shift in the world economic order

□ China as Manufacturing Superpower and continuous competition against existing Superpowers:

- Emergence of China and the need to adapt

- Superpowers of the previous age such as Japan and Germany still maintain competitive edge in manufacturing



3) Aging : Change in Demographic Structure

□ Divergent aging patterns displayed, but mostly having negative influence on world economic growth

- In developed countries and many of the more advanced developing countries, the declining ratio of working people to retirees are straining supply as well as social services, pensions, and health systems

- Measures being taken to counterbalance aging include delaying retirement, encouraging greater participation in the workforce by women, and relying on migrant workers

□ New consumption pattern and rise of elderly-care and –elderly-friendly industries

□ Need to prepare and support ‘double-cropping’ of life by active labor policies



Forecast of Korea’s Future Demographic Structure



Proportion of Immigrants by Major Countries



4) Degradation of Environment and Natural Resources

□ Climate Change and Urban Pollution as two key environmental challenges

□ Continuous strengthening of international environmental regulations by various multinational environmental agreements-acting as trade barriers?

□ Growing demands for energy—especially by the emerging powers—through 2020

- Substantial impacts on the world economy as well as geopolitical relations (most importantly, China and India)

- Fossil fuels, still dominant; more than 90 % of additional energy supply through 2020

- Nuclear power, very moderate increase



- However, 96 percent of the total projected increase in nuclear power capacity accounted for by emerging economies; Of the 55 GW of additional nuclear power installed for emerging Asia, 24 GW went to China, 12 GW to India, 12 GW to South Korea (EIA, 2005)

- High uncertainty and moderate increase in energy prices

- Possible oil price volatility in the future principally because of unforeseen political and economic circumstances-tensions in the Middle East

- On the other hand, market forces to restore balance in long-term



5) Paradigm Shift in Financial Markets

□ Global Financial Market Paradigm: Deregulation, Liberalization, Integration

□ Financing innovation and networking alignment between financing and (IT) technology & infrastructure

□ Multi-polarization in Global Financial Market

□ Increase in long-term financial assets such as mutual funds

□ Securitization: expansion of private equity market as a non-standard form of securitization

- Diversification of investment and risk hedging

- Converging financial functions

□ Horizontal integration of financial and non-financial ind.

□ International integration of financial regulation for risk-sharing



6) New Wave in Management

□ Knowledge-based economy: continuous creation, expansion, and utilization of knowledge in new management

- Important role of CKO (Chief Knowledge Officer)

□ Corporate Social Responsibility-Ethics and Transparency

- Rising consumer sovereignty

- SRI (socially responsible investment); UN, TI (Transparency International-Ethic Round; EU, Promoting a European Framework for Corporate Social Responsibility-Green Paper

Speed management

Global sourcing of Human Resources

Investment on Human

Resources

Strategic Alliance

Quality Control

R&D

3.4 14.4 35.9 6.9 2.0 37.4

Importance of New Management Features: Survey results



7) Maturation of Digital and Network Technology

□ Complication of Technologies vs. Simplification of Interface

□ Digital and network technology: - Acceleration-Huang's Law instead of Moor's Law,

- Fusion-TSP (Total Service Provider),

- Ambient and Business Intelligence,

- Servitization-SoC (System-on-Chip), Embedded Software

□ Consumer Demands: Multimedia, Customization, Mobility, Security

□ Entering Ubiquitous society-Computing, Networking, Censoring

□ Softening, increasing transparency and efficiency for (manufacturing) industries-weightless economy


ComplicationComplication

Multimedia

Customization

Security

Mobility

SimplificationSimplification

Demand-sideSupply-side

Acceleration

Fusion

Servitization

Intelligence


Key words for 2020 Digital·Network Technology Trends



8) Advent of Bio-economy

□ The biotechnological revolution is at a relatively early stage, and major advances in the bio-sciences and bio-industries continue to punctuate the 21st century

- Major achievements made in combating disease, increasing food production, reducing pollution, and enhancing the quality of life

□ Most significant developments are:

- Genomic profiling, Biomedical engineering, Therapy and drug developments, Genetic modification, DNA identification

□ Intensifying competition in biotechnology among leading and following countries

□ Some biotechnologies will continue to be controversial for ethical and religious reasons: strengthening global bio-standards, e.g., biosafety protocol


Areasbelow

6061∼70 71∼80 81∼90 91∼100 Average

Major Fields

Economics & Biz.

0.0 3.2 25.4 49.2 22.2 84.0

Science & Technology

2.3 8.2 31.0 46.2 12.3 80.8

Human and Social Sciences

2.9 1.4 21.4 51.4 22.9 84.0

Total (Average) 1.4 4.9 27.0 48.4 18.4 82.7

Korean Biotechnology Competitiveness Index: Survey results

Note: The index at the last column is the forecast of future Korean Biotechnology Competitiveness compared to world top technology in 2020; based on responses from 438 experts from three major fields




9) Fusion Technology: IT ㆍ BT ㆍ NT ㆍ New MaterialsDevelopment stages

Development stages

Source: Ahlqvist, T. (2005). "From Information Society to Biosociety? On Societal Waves, Developing Key Technologies, and New Professions", Technological Forecasting and Social Change, 72(5), June, pp. 501-519


□ The synergic combination of IT, NT, BT, and new material technologies

□ Rapid change induced in value-chain, manufacturing process, industrial structure and paradigm

□ Creation of new fusion technology markets and increased employment


FusionTech.

INT(IT+NT) IBT(IT+BT) NBT(NT+BT) INBT(IT+NT+BT)

Detailed products and tech.

- Nano-computer

- Nano-motor- Nano-sensor

- Bioinformatics- Bioelectronics- Human Interface

- Bio-computer- Biosensor- Biochips- Telemedicine

- Nano-biosensor

- Nano-biology- Nano-medicine

- Healthcare censor- DDS (Drug Delivery Sys.)- Bio-photodiode - Bio-EL Device - Visual Prosthesis- Molecular imaging - Micro environment censor- Ubiquitous Healthcare System



10) Challenge to New Technology : Rise of National Strategic Technology

□ Strategic Technology: beyond economic profitability - Requires longer-term investment and high quality human

resources

- Up to the sky; Into space; deep down to the sea

□ Dual-use technology (military-commercial technology): Lightweight helicopter; mid- and low-orbit satellite; new energy sources such as fuel cell, hydrogen cell

□ Aircraft technology: lightweight, smart technology, unmanned airplane; geostationary orbit projectile

□ Marine technology: sustainable marine development - Food, natural resources, and environment

- “Blue Revolution”

- Development of wing-in-ground-effect ship (WIG)



11) Hegemony of Controlling over Technology : Standardization and Intellectual Property Rights

□ Standards war and reinforcing intellectual property rights

- In 2020, intense global competition and rapid innovation will lead to a shortening of product lifecycles.

- To remain competitive, successful countries as well as businesses and industries need to maximize the potential of their products using standards and IPR

□ The WTO TBT (Technical Barriers to Trade): “one standard, one test, accepted everywhere"

□ In the long-run, Standards and IPR present opportunities as well as challenges

- The potential for high technology companies to profit in the world market is quite optimistic.

- Korea as a technology- and culture-exporting country



12) New Consumption Patterns

□ Major driving forces of new pattern: Increasing trend of aging and single families

□ Greater Polarization and Fragmentation - Wealthier groups leading consumption change

- The live-for-today ‘now’ attitude of the young and single family will thrive

- Polarization is not only income based: too much choice can be equally polarizing and a source of great pressure on individuals

□ Desire for greater security, health, and customization in consumption as major factors of purchase.

□ Greater Emphasis on Sustainability and Environmental Concerns

- Behavior will change by price increase as well as attitude



13) Evolution of New Culture

□ Globalization of ethnic cultures will lead to harmonization with dominant cultures

- Glocalization (Globalization + Localization) continues

□ However, changes within cultures from “institution-centric" to "citizen-centric“ or "customer-centric“ by networked, distributed culture; Homing increases

- More LOHAS (Life of Health, Amenity, and Security) and downshift

□ From he Big Politics and "grassroots“ activity to the emergence of Big Grassroots

- NGO and Role of Women: Arising political activity that is bottom-up, empowered by electronic networks, and large and sophisticated enough to challenge Big Politics without generating substantial costs



14) Progress in South-North Korean Economic Cooperation

□ The inter-Korean relationship will shape the future of South-North economic cooperation around 2020

- Stability of North Korean regime; Reforming and Opening of North Korea

- Easing political and military tensions between South and North Korea

□ Two scenarios: ①fast vs. ②moderate Inter-Korean economic cooperation progress

- In ②, South Korean firms will increase investment mainly in economic zones like Gaeseong Industrial Complex; light industries such as textiles, apparels, and labor-intensive electronics will garner gain of intra-industrial division

□ Economic cooperation will contribute to the improvement of North Korea’s industrial structure


Scales ① ② ③ ④ ⑤

Major Fields

Economics & Biz.

1.1 25.9 27.5 33.3 12.2


4.6 24.6 32.0 28.0 10.9

Human and Social Sciences

1.4 21.4 15.7 50.0 11.4

Total (Average) 2.5 24.7 27.4 33.9 11.5

Prospect for Inter-Korean Econ. Cooperation: Survey results

Note: Scales ① , ③, ⑤ represent negative, neutral and positive areas of inter-Korean economic cooperation and integration prospect, respectively; based on responses by 438 experts from three major fields




15) Regional Innovation and Balanced National Development (BND)

□ “Regional competitive advantages” is the essential element in BND strategy that attempts to generate long-term competitiveness and ensure the growth of the national economy as well as regional rejuvenation and sustainability

□ Innovation, in terms of creative technological knowledge, is a key driver of economic growth and community development in 2020

□ Continuous efforts needed to adjust spatial discrepancy between industrial location and regional innovation system (RIS)

□ In 2020, BND will be progressing, coupled with RIS, by economic zones


Korea-specific SituationProspect for Regional Innovation and Balanced Growth

Source: Kim, Sunbae (2005), “Major Issues and Directions of Building of a RIS,” KIET IER, KIET.

Globalization-Regionalization (knowledge-based economy)Global EconomicEnvironment

Input & investment-driven economyGoal of the Korean Economy

Per capital income 50,000 dollars Soundness of the domestic economy

Policy Directions & Strategies

Uni-core spatial structure centered On Seoul metropolitan area

Efficiency (NIS focus) Equity (cluster focus)

Independent economic bloc(multi-core spatial structure)

Sustainable development of the Korean national economy

Establishment of Innovation Systems(NIS, RIS, Clusters)

Innovation-driven economy

Regionalization of NationalEconomic Development

Agglomeration efficiency(cluster-centered RIS)

Strengthening of regional competitiveness

Advocacy of Balanced develop-ment in 16 cities & provinces


Megatrends Selected by Expert Groups

Megatrends All

By experts

Economics and Biz


Human /Social Sci.

1) Integration of the World Economy 6.5 6.7 7.0 4.7

2) Power Shift and Comparative Advantage 11.5 12.9 10.0 11.4

3) Aging : Change in Demographic Structure 12.4 14.5 10.6 11.1

4) Degradation of Environment and Natural Resources 10.4 9.0 12.1 10.0

5) Paradigm Shift in Financial Markets 1.4 1.2 1.3 2.2

6) New Wave in Management : Knowledge-based and CSR 3.9 3.3 3.7 5.8

7) Maturation of Digital and Network Technology 8.6 8.4 9.0 8.3

8) Advent of Bio-economy 5.9 6.5 5.1 6.4

9) Fusion Technology: IT ㆍ BT ㆍ NT ㆍ New Materials 10.3 10.1 10.5 10.3

10) Challenge to New Technology : Nat’l Strategic Tech. 1.7 1.6 2.2 0.8

11) Standardization and Intellectual Property Rights 4.2 3.7 5.7 1.9

12) New Consumption Patterns 3.6 3.5 3.8 3.3

13) Evolution of New Culture 7.0 5.5 7.8 8.9

14) South-North Korean Economic Cooperation 10.5 11.8 9.1 10.8

15) Regional Innovation and BND 2.2 1.5 2.3 3.9


Which is Most Influential?

12.4

11.5

10.5

10.4

10.3

8.6

7.0

6.5

5.9

4.2

3.9

3.6

2.2

1.7

1.4

Aging: Change in Demographic Structure

Change in Comparative Advantage

South-North Korean Economic Cooperation

Environment and Natural Resources

Fusion Technology: IT ㆍ BT ㆍ NT ㆍ New Materials

Maturation of Digital and Network Technology

Evolution of New Culture

Integration of the World Economy

Advent of Bio-economy

Standardization and Intellectual Property Rights

New Wave in Management : Knowledge-base, CSR

New Consumption Patterns

Regional Innovation and Balanced Nat’l Dev.

Challenge to New Tech. : Nat’l Strategic Tech.

Paradigm Shift in Financial Markets


Positive Megatrends

Development of Digital∙Network

IT∙BT ∙NT New Materal – Fusion Technology

South-North Korean Economic Cooperation

Economics & Biz Sciences Human & Social Sciences Economics & Biz Sciences Human & Social Sciences

25.2%

23.5%

23.3%

14.0%

14.4%

14.7%

13.0%

14.7%

14.0%

Source: KIET-R&B Delphi Survey (2005)


Negative Megatrends

Aging: Change in Demographic Structure


Standardization and Intellectual Property Rights

Economics & Biz Sciences Human & Social Sciences Economics & Biz Sciences Human & Social Sciences

26.2%

25.6%

26.4%

21.4%

20.2%

22.0%

15.3%

15.7%

16.2%

Source: KIET-R&B Delphi Survey (2005)


Megatrend Groups15 Megatrends Impacts

Demographic ChangeAging : Change in Demographic Structure

Technology Innovation

Integration and Comparative Advantage

Environment and Resources

Korea-specific

Labor

TFP

Capital,TFP

Capital,TFP

Labor,TFP

Management and Demand TFP

Maturation of Digital and Network Tech.

Advent of Bio-economy

Fusion Technology: ITㆍ BTㆍ NT

Challenge to New Tech. : Nat’l Str. Tech.

Standardization and Property Rights

Integration of the World Economy

Change in Comparative Advantage


South-North Korean Econ. Cooperation

Reg. Innovation and Balanced Nat’l Dev.

Other Megatrends

An Overview on Megatrends and Their Impacts


Upper-bound+ 0.5%p

Baseline

Economy-wideIndividual industries

Lower-bound- 0.5%p

15 Megatrends

Megatrends and Economic Impacts


The Growth Effects of Major Megatrends

Upper-bound(Active policies)

Baseline(BAU policies)

Lower-bound(Passive policies)

Change in Demographic

Structure+0.10 0

(1.8) -0.10

Technology Trends1)

+0.20 0(3.9) -0.20

Environment/Natural Resources

+0.07 0(1.9) -0.07

South-North Cooperation

+0.06 0(3.4) -0.06

Globalization/ Comparative Advantage

+0.07 0(3.2) -0.07

Total +0.50 0 -0.50

Note: 1) Maturation of Digital &Network Technology, Advent of Bio-economy, IT∙BT ∙NT, New Material Tech-Fusion Technology, New Tech Challenge: Rise of National Strategic Technology

2) () in Baseline results from the expert survey results; 1(most negative), 3(neutral), 5(most positive); Number 0 means no effect on the baseline growth path


Major Megatrends and Impacts on the Industries

Trends Positively affected Negatively affected

Globalization/ Comparative Advantage

Aircraft, Business service, Logistics, Automobiles, Shipbuilding, General

machinery, Iron & Steel, Electric equipment

Textiles, Chemicals, Electronic parts,

Construction, Consumer electronics, Office &

Computing Machinery

Change in Demographic

Structure

Elderly care (medical equipment and service), Food and Beverage, Finance

and Insurance, Real estate

Automobiles, Shipbuilding, General machinery, Iron & Steel, Textiles, (Precision)

Chemicals, Office & Computing Machinery

Environment/Natural Resources

Machinery (Environmental equipment), Medical service

Iron & Steel, Textiles, Chemicals, Non-Metallic

Mineral Products

South-North Cooperation

Textiles, Consumer electronics, Electronic parts, Electric machinery,

Construction, Logistics-

Technology Trends1)

Automobiles, General machinery, Textiles, Consumer electronics,

Communications equipment, Electronic parts, Electric machinery, medical

equipment , Aircraft, Communication service, Precision machinery

-

Note: 1) Especially, fusion technology.

Thank you