Policy Analyses on the Materials, Components and Equipment Industry
Published on 24 September 2020
Published by Economic Industrial Program Evaluation Division of the Budget Analysis Department
Since 2001, the Korean government has been pursuing policies related to the materials, components and equipment industry, having achieved external growth through increased production value and converting such growth into a trade surplus. Additional achievements were made such as by pursing localization and diversification of supply chains as part of efforts to address Japan’s export restrictions and the removal of Korea from its register of “whitelist” countries beginning in July 2019, through which Korea was able to minimize the impact of such measures on relevant industries. The National Assembly has also responded to the Japanese restrictions by boosting the supplementary budget by 273.2 billion Korean won in 2019 and introducing the “Special Accounting for Strengthening the Competitiveness of Materials, Components and Equipment” with a budget totaling 2 trillion 72.5 billion won within the main budget for 2020.
Despite the positive outcomes achieved over the past 20 years through policies focused on establishing a foundation as well as developing technology and human resources; challenges in various areas remain regarding the materials, components and equipment industry, including its small size and bipolarization, difficulties in securing competitiveness owing to a monopolistic or oligopolistic market structure, continued trade reliance on Japan, a stagnant rate of self-procurement and technology levels lagging behind other advanced economies.
Against this backdrop, this report provides an analysis on the issues and areas of concern that have been repeatedly brought up despite key policy measures on materials, components and equipment since 2001 as well as a review of the achievements made over the past year since Japan’s export restrictions took effect; thereby focusing on setting the direction towards an effective improvement of related policies.
First, in terms of establishing an infrastructure, the development outcomes achieved by the materials, components and equipment suppliers were not appropriately applied to the companies that required them. Therefore, efficient linkage between the supply and demand sides needs to be established, including by securing sales channels for the suppliers, setting structured development objectives to fulfill the technology needs of those in demand, and by strengthening the role of test-beds by inducing participation from companies in demand and studying foreign test-bed case studies. In addition, fair transaction practices should be promoted between the supply and demand sides through mutual cooperation channels between large conglomerates and SMEs.
Second, in terms of improving technology, since Korea has low levels of technological competitiveness and localization, there is a need to make technological advancements by pursuing innovative and taking a challenging approach to R&D; expanding cooperation between industry, academia and research institutes; as well as white space analysis and analysis of prospective technologies by utilizing big data on patents. In addition, qualitative achievements must be gleaned from projects on relevant technology development, while pursuing higher efficiency regarding SMEs’ performance.
Third, in terms of developing human resources, the supply of highly educated researchers with doctoral degrees has been stagnant in the materials, components and equipment industry, which consists mostly of SMEs. Therefore, improvement measures need to be explored such as by creating a linkage between the demand for research capacity in SMEs and university degree programs, strengthening incentives such as tax benefits, and running a specialized training system with reinforced on-site applications.