KDI Conference on Industrial Dynamism and Competitiveness in East Asia

Joonghae Suh

Korea Development Institute

Industrial Dynamism and Competitiveness - The Case of Korea’s IT Industry -

Model A-501 (1959)

The First B/W TV-set (1966)

Korea’s IT Industry

• Highest growth rates - Leading economic growth and exports

• Successful Transformation from imitation to innovation

• Leading role by Chaebols

• Bifurcation - Between industries in Manuf. - Between sub-sectors in an industry- Between leading, large firms and smaller firms⇒ A natural consequence of structural change? Or,⇒ Any structural weakness which might hinder further

growth?

IT Products : Chips + Screen + Software

IT Industry’s Supply Chain - A Simple Scheme

Electronic components

Materials Machinery

S/W

Electronicequipment

Consumer electronics

Otherindustries

The Scope and Classification of IT Industry

9 Sectors E xam ples

Sem iconductor IC, D R A M , M P U, A SIC

D isplay C RT, LC D, PD PE lectroniccom ponents

IT parts P C B, m agnetic card, other electron iccom ponents, secondary battery

C om m unicationsequipm ent

Telephone, m obile phone, broadcastingequipm ent, fax m achine

C om puter C om puter, com puter d isk, com puterperipherals including printer

O ffice equipm ent C opy m achine

E lectronicfinalproducts

IT hom e appliances T V, V TR , A udio-set

E lectrical parts G enerator, m otor, transform er, contro ller,cable, battery, lam p, resister, batteryE lectrical

products E lectrical hom e appliances Refrigerator, laundry m achine, cookingm achine, air-conditioner

The Share of IT Industry in Manufacturing

7

12 1113

17

10

16 16 16

27

10

1619 19

38

11

1922

17

35

0

10

20

30

40

Number ofEstablishment

Number ofEmployee

Output Value added Exports

(%)

1985 1990 1995 2001

Source of Growth - Growth Accounting

-5

0

5

10

15

20

25

30

35

40

Semi-conductor

IT parts Display Electronic parts

Comm. Equip.

Computer Office equip.

Electronic home appl.

IT home appl.

Manufac.total

Labor Capital TFP

TFPG - Multilateral Index

-5

0

5

10

15

20

1985~1989 1989~1997 1998~2001

Semi-conducto r

IT parts Display Electronicparts

Comm.Equip.

Computer Officeequip.

Electronichomeappl.

IT homeappl.

Manufac.total

TFPG by Size

-1 0 1 2 3 4 5 6 7

1~9 10~19 20~99 100~299 300~

Manuf.

ITH.A.

ElectricalH.A.

Officeequipment

Computer

Comm.equipment

electricalparts

Display

IT parts

Semi-conductor

The Share of Large Firms in IT Industry (1997 ~ 2001 average)

0

20

40

60

80

100

120Semicond.

Display

Computer

IT H.A.

Comm.Eq.

OfficeEq.

Electrical

H.A.

IT Parts

Electrical

Parts

(%)

Employee Output Capital Stock

Average Number of Employee in IT Industry

0

100

200

300

400

500

Semi

Conductor

Display IT Parts Comm.

Equip.

Computer Office

Equip.

IT Home

Appl.

Electri.

Parts

Electri.

Home Appl.

total

1985 1990 1995 2001

Table 6: Capital Stock per Employee

(1997 ~ 2001 average, million won per employee)All 1~9 10~19 20~99 100~299 300~

SemiconductorIT partsDisplayElectr ical partsCommunication equipmentComputerOffice equipmentElectr ical home applianceIT home applianceManufacturing total

246.4858.62

152.7748.9942.0555.6945.7748.1432.3383.96

25.4621.8827.6620.7321.0923.2823.2422.4323.3328.57

27.8520.8325.8922.9119.1219.0123.1522.3316.1131.63

33.0134.7325.1829.7423.4923.9329.4028.6420.0043.62

65.2062.6830.1552.7037.6439.2865.3148.1929.6882.19

272.7794.77

186.9494.9467.9577.0761.8879.9846.19

181.31

Capital Stock per Employee

Table 7: Labor Productivity by Size-cohort(1997 ~ 2001 average, million won per employee)

All 1~9 10~19 20~99 100~299 300~SemiconductorIT partsDisplayElectr ical partsCommunication equipmentComputerOffice equipmentElectr ical home applianceIT home applianceManufacturing total

151.8957.53

186.6554.51

155.41139.87

75.7243.3459.5852.95

6.6631.9635.2631.2440.4241.5437.0820.0434.9518.71

6.9132.2632.4732.7544.8248.8946.0620.1833.1822.42

5.7139.5734.9236.4658.3354.2561.0624.2639.7729.78

21.2157.2037.6150.8970.8258.4384.7648.2849.4051.94

170.7086.26

227.54101.00325.07213.68

95.5671.6587.20

110.72

Labor Productivity by Size

Supply Chain - Semiconductor

M aterialM aterial

• LG Siltron• Poongsan M icrotec

Sem iconductor M anufacturerSem iconductor M anufacturer

• Integrated D esign M anufacturer: Sam sung E lectronics, H ynix

• Fabless C om pany: (A ltera), (Q ualcom m ), C & S Tech

• Foundry: (TSM C ), (U M C ), A nam Sem iconductor

• Packaging: C hipPA C K orea

C om puterC om puter

• (IB M )• TriG em

C om m . Equipm entC om m . Equipm ent

• Sam sung E .• LG Electronics

H om e A pplianceH om e A ppliance

• Sam sung E .• LG Electronics

O ther IndustryO ther Industry

A utom obile, M achinery, etc

Equipm entEquipm ent

• Jusung Engineering• M irae Corporation

Supply Chain - Display

D isplay M anufactu rerD isp lay M anufacturer

• C R T : O rion E lectric , L G Philips D isp lay , S am sung S D I

• L C D Panel: S am sung E lectron ics, L G Philips L C D , H ydis

• PD P , O L E D , F E D , V FD , L E D , etc .

C om puterC om puter

• T riG em• L G , S am sung,,

C om m unicationC om m unicationE quipm entE quipm ent

• S am sung, L G• T elson ,,,,,

H om e A pplianceH om e A ppliance

• S am sung E lectr.• L G E lectron ics

O ther IndustryO ther Industry

A utom obile , T oy ,M ach inery , etc .

P artsP arts

• L G M icron• Sam sung C orn ing• H ankuk E lectric G lass

M aterialM ateria l

• L G C hem ical• M erck K orea• K O L O N

E quipm entE quipm ent

• Jusung E ngineering• K orea D N S• A K T

The Interplay of Technology & Market

- Display Industry -

’60 ’70 ’80 ’90 ’00 ’05

400

300

200

100

Digital Broadcasting

MobileTelephony

PersonalComputer

MobileMobile

MonitorMonitor

TVTV

CPT

PRT

CDT

LCOS

STN

TFT

PDP

DVT

PDP

FED

FED

STN

small TFT

OELD

LCOS

Mono CRT

Color TV

Market size (m

. USD

)

Number of Researchers in Display HAN Project

0

200

400

600

800

1000

1200

1995 1996 1997 1998 1999 2000

Industry University GRI

LCD Industry in East Asia

Samsung E

S-LCD Sony

Philips LGE

LG PhilpsLCD

(Netherlands)

Quanta Sharp STLCD

Toyota

Hynix Chi Mei

Fujitsu

NEC

New J.V. IBM Japan

Toshiba

Hydis Cando

Hannstar

Unipac

AU Opt.

ADT

Matsushita

Chirin E

Casio

(Singapore)Tech. Licensing

OEMShare-holding

BOE

(China)

(China)

AFPD

KOREA TAIWAN JAPANOTHERS

T.A.

R&D Expenditure

Table 8: R&D Expenditure of Korea

1985 1990 1995 2001GERD as of GDP (%) 1.42 1.87 2.50 2.96GERD (million won) 1,155,156 3,349,864 9,440,606 16,110,522

BERD (million won) 751,025 2,374,502 6,902,981 12,273,579R&D in IT Sector (million won) 291,729 992,726 2,324,920 5,622,302

(IT Share as of BERD, %) (38.84) (41.81) (33.68) (45.81)Concentration ratio of top 10 companies (%) N/A 42.69 45.24 43.41

Technology Level of Korea’s Components/Materials Producers

67.766.4

68.4

77.8

50

55

60

65

70

75

80

85

90

95

100

(%)

Design

technology

Capability to

develop new

products

Capability to

apply new

technologies

Processing

technology

The Race for Secondary Battery

• Japan- R.C of Ten companies in Jan. 1993- New Sunshine Project: 14 B. Yen by Government

• US- USABC (US Adv. Battery Consortium) Mar. ‘91 - 12 years with 1 B. USD : 1/2 gov’t 1/2 private

• EU- Joule Program - DE, FR, DN consortium

• Taiwan- 1994, government initiated with 1 B. Yen - Four company consortium

Korea’s Li-Ion Secondary Battery Industry

IT Products(Mobile Phone, PDA,NPC, etc.)

Domestic : SamsungE, LGE, etc.Foreign : Nokia, Motorola, HP, etc.

Battery Pack

LG ChemSamsung SDI Pack OEM

Elentec, SMC,Saft Korea, etcBare Cell

LG ChemSamsung SDI

Cathode(Li Co O2)

ImportsUmicore Korea

Saft & Solvent

ImportsCheil Ind.

Anode(Graphite)

Imports

Separator

Imports

Binder

Imports

Can, Cap & PTC

Imports(Raychem)

Competitiveness Factors - Firm Survey

Semiconductor Display Parts Communication equipment

Computer &Office equipment Home appliance

engineer engineer engineer &technician engineer technician Technician, but

engineer in digital

State-of-art tech,prod. know-how

State-of-art tech,prod. Know-how Specialized tech S/W &

architecture standardized Matured, butnew digital tech

critical critical critical critical moderate moderate

moderate moderate moderate moderate moderate moderate

moderate moderate minor major very important very important

stable stable variable stable variable variable

Stable(Quality Price)

Stable(Quality Price) variable Stable(Price) variable(Price) variable(Price)

not critical not critical not critical not critical not critical not critical

Core humanresource

Tech, R&D,& Design

Qualitycontrol

Logistics

Marketing &Brand

Relation withsupplier

Relation withcustomer

Business service

Pro-duction

/Sales

Supplychain

Policy Areas

• Firm growth - Competition policy : e.g., more active M&A

• Deregulation- Induce Conglomerates into new business with capital

investment (Job-creation issue)

• SME’s Technological capability- The role of public research institutes

• New Industrial Policy? - Cluster: Are market forces enough?

Policy Areas (continued)

• Human Resources - The shortage of both skilled labor and top-notch

engineers is prevalent- Reforming education system?

• FDI- IT sector: the largest share of inbound FDI - Next stage: e.g., R&D centers