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Korea’s Innovation System: The Process of Evolution and New Challenges March 16, 2004 Santiago, Chile Joonghae Suh Korea Development Institu te
Korea’s Innovation System:The Process of Evolution and New Challenges
March 16, 2004
Santiago, Chile
Joonghae Suh
Korea Development Institute
Korea’s Industrial Policy
1960-1970s
- Direct Intervention Nurturing Specific Industries Export industries in 1960s, Heavy chemical industries in 1970s
- Support & Protection Measures Financial/Tax Incentives, Import Regulations, Entry Barriers
1980s
- Government intervention gradually reduced
- Emphasis on enhancing competition
1990s
- Further Liberalization & Market Opening
- Further emphasis on investment in tech. development
Korea’s S&T Policy 1960-1970s
- Building institutions KIST (1966); MOST(1967); KAIST(1973)
Technology Development Promotion Act (1967)
1980s
- National R&D Programs (NRDP, 1982)
- Private enterprises began to act
1990s
- Mission-oriented R&D by line ministries Targeted, and top-down approach
- Private/public partnership in technology development
The technological capability building process in Korea’s machinery industry
The process of development Technology imports Production and R&D
1960s– 1970s
Policy goal: establishmentof production base
Characteristics: heavy dependenceon imported technologies
Packaged technology:turn-key based plants
Assembling technology
Knock-down typeproduction system
OEM-dominated
Almost no in-houseR&D
Early1980s
Policy goal: promotion ofself-reliance
Characteristics: Import-substitution,localisation of parts/componentsproduction
Unpackaged technology:parts/components-relatedtechnology
Operation technology
OEM/own brand:high ratio
Product development
In-house R&D begons
Late1980s– 1990s
Policy goal: export-promotion bymeans of expansion ofdomestic market
Characteristics: beginning of plantexports, learning advanced andcore technologies
Materials-related technology
Control technology
Design technology
High-quality product tech.
OEM/own brand:low ratio
Product innovation
Process improvement
The changing relationship between TI and R&D
1997 Economic Crisis
Structural problems accumulated over the previous 30 years of high economic growth
* Full-fledged democracy and market economy had yet to take roots.
Korea had been slow to adapt to the rapidly changing global economic environment in the 1990s
* High-cost, Low-efficiency Less competitive products increase rate of unit labor cost (average in 1985-95) : Korea 6.0%, Japan -0.5%, Taiwan 3.5%
* Current account deficit soared. (1996: $23 billion deficit)
Structural Reform in Four PillarsStructural Reform in Four Pillars- Corporate, Finance, Public and Labor -- Corporate, Finance, Public and Labor -
Transparent Corporate
Management and
Restructuring
Injection ofPublic Funds
intoFinancial Market
Innovation &
Privatization of
State-run Enterprises
Flexibilityof
Labor Market
New Challenges for Korea’s Innovation System
Government - Policy Coordination - Devolution with Empowerment
GRI - Effective & Efficient Research
University - Education Reform
Private Enterprises - The Gap between LE & SME - Manufacturing vs. Services - Foreign Companies
NSTC
Private Enterprises
RAE of NRDP
Universities
MPB
2 Research Councilsin Hum. & Social Sc.
S&TGRIs
3 Research Councils in S&T
MOST
MOCIE
MIC
MOE
Etc.
MOD
OPM
R&D Funds
H&SSGRIs
Mission-relatedGov’t Institutes
Korea’s Public R&D System
Distribution of government’s R&D budget in 2002
MOST
21%
MOCIE
19%
MOD
15%
MOE
13%
OPM
13%
Others
19%
MIC
10%
5.16 Trillion KRW
4.3 Billion USD
Characteristics (1) - Decentralized
Characteristics (2) - GRI System
Chief organ of government’s R&D policy 40% of Government R&D funds flow to GRI - University = 25%; Business = 23% 86% of GRI R&D funds are from government - 37% are institutional funding, the rest are contract-based
Integration of GRI with university and business Being criticized Necessity of re-defining GRI’s role
The process of GRI development and its changing role
Period of Inception-beginning(1960-1970)
Period of Structural Adjustment(1980s)
Period of Take-off(1990s)
Domesticcondition
Weak research capability ofprivate enterprises anduniversities
Partial improvement in researchcapability of private enterprises anduniversities
Industry-led innovation systemIncreased research capability ofuniversities
Mission &Role
- Goal-oriented research in linewith technological demands fromthe government and industry
- GRI’s leading role in industrialtechnology development
- Adjusting the role and character as anagency for implementing thegovernment’s R&D programmes
- Big R&D projects which require nation-wide drive; central role in cooperativeresearch among industry-university-research institutes
- More emphasis on future-orientedlarge complex advanced technologydevelopment
-Rising necessity of redefining GRIrole and preparing new take-off basis
Researcharea
Imitation of simple technology ingrowing industry
Improvement of mature technologyImitation of future advanced technology
Development of future advancedtechnology through creative research
Source: MOST, Thirty Year History of Science and Technology, 1997
New Role for Private Enterprises
Chaebols, Korea’s large conglomerates, had been: - Vertically integrated - Diversified - Leader in new businesses - Leader in investment in capital and R&D
They have changed since the financial crisis - Vertical integration starts to dissolve - Try to concentrate on more competitive business - Not necessarily leading in new businesses - Their leading role in investment is not diminished
01000
20003000
400050006000
70008000
900010000
1994 1995 1996 1997 1998 1999 2000 2001
Corporate R&D Centers
0
2000
4000
6000
8000
10000
12000
1998 1999 2000 2001
Venture Companies
Number of Researchers
R&D Expenditures/Sales (%)
0
0.5
1
1.5
2
2.5
3
3.5
SME LE
19972000
0
20000
40000
60000
SME LE
19972000
Comparison between 1997 and 2000
0
5
10
15
20
25
30
35
40
1990 1993 1997 1999
% SME’s Cooperative R&D is increasing
Any changes in the nature of SME’s R&D?
Emerging Patterns ofInnovation Networks and Clusters in Korea
Assets from the past - Industrial Complexes - Public Research Institutes - Private Enterprises - Higher Education Institutions - Financiers - Supporting Organizations
Bottlenecks & weaknesses - Dirigiste approach - Regional disparities - Research at HEI - Intermediary institutions - SME’s technological capabilities
New Opportunity? - Corporate restructuring after the financial crisis - Increases in FDI - Development of local democracy/regional economy
Industrial Complexes in Korea
Government initiation : “Big Push” Great regional disparities : Capital and SE Regions - 3/4 Assets or bottlenecks ?Q: Under what conditions clusters possible?
National IndustrialComplex
Provincial IndustrialComplex
Agro-IndustrialComplex
Total
Number ofcomplexes
32 156 295 483
Number of residentfirms
9,407 6,392 2,974 18,773
Number ofemployees (1,000)
521.7 289.7 98.9 910.4
Pohang
steelnew materials
Seoul
clothing
Yeosoo • Kwangyang
petro-chemicals
steel
Kwangjoo
home electronics
Kyonggi South-west
machinery automobile electronicsIT hardwaremechatronicsfine chemicalsbio-techprecision instruments environment
Inchonmachineryautomobilemechatronicsnew materialsenvironment
Woolsan
automobileshipbuilding fine chemicals
Daegu
textile
Kumi
textilehome electronicsIT Hardware
Changwon • Masan
machinery home electronicsmechatronics precision instruments aerospace
Keoje
shipbuilding
Cheonan
fine chemicals
Daejeon
fine chemicals
Cheongjoo
semiconductor
Boosan • Kimhae
foot wareclothingnew materials aerospace
Icheon • Yongin
semiconductor
Industrial Agglomerations in Korea
New Directions in Industrial & Innovation Policy
Regional Innovation System Cluster-based, bottom-up approach Devolution with Empowerment - Strengthening research capability of universities
Private Enterprises Narrowing the Gap between LE & SME Promoting knowledge-intensive services Internationalization of R&D: both inward & outward
Government’s investment in R&D Basic research: 19% (2002) 25% (2007) Goal-oriented, top-down approach - IT, BT, NT are areas of high priority - Performance evaluation
