Korea’s Innovation System: The Process of Evolution and New Challenges

1. Korea’s Innovation System: The Process of Evolution and New Challenges March 16, 2004 Santiago, Chile Joonghae Suh Korea Development Institute

2. 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

3. 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

6. 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 changingglobal 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)

7. Structural Reform in Four Pillars - Corporate, Finance, Public and Labor - Transparent Corporate Management and Restructuring Injection of Public Funds into Financial Market Innovation & Privatization of State-run Enterprises Flexibility of Labor Market

8. 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

9. NSTC RAE of NRDP MPB OPM MOE MOD MIC MOST Etc. MOCIE R&D Funds 3 Research Councils in S&T 2 Research Councils in Hum. & Social Sc. S&T GRIs Universities H&SS GRIs Mission-related Gov’t Institutes Private Enterprises Korea’s Public R&D System

10.  Distribution of government’s R&D budget in 2002 Others MOST 19% 21% 5.16 Trillion KRW  4.3 Billion USD MIC OPM 10% 13% MOCIE 19% MOE MOD 13% 15% Characteristics (1) - Decentralized

11. 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

13. 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

14.  Venture Companies  Corporate R&D Centers

15.  Comparison between 1997 and 2000  R&D Expenditures/Sales (%)  Number of Researchers

16. Any changes in the nature of SME’s R&D?  SME’s Cooperative R&D is increasing

17. Emerging Patterns of Innovation 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

18.  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?

19. Seoul clothing Inchon machinery automobile mechatronics new materials environment Icheon • Yongin semiconductor Cheongjoo semiconductor Kyonggi South-west machinery automobile electronics IT hardware mechatronics fine chemicals bio-tech precision instruments environment Kumi textile home electronics IT Hardware Daegu textile Pohang steel new materials Cheonan fine chemicals Woolsan automobile shipbuilding fine chemicals Daejeon fine chemicals Boosan • Kimhae foot ware clothing new materials aerospace Kwangjoo home electronics Keoje shipbuilding Changwon • Masan machinery home electronics mechatronics precision instruments aerospace Yeosoo • Kwangyang petro-chemicals steel Industrial Agglomerations in Korea

20. New Directions in Industrial & Innovation Policy  Regional Innovation System Cluster-based, bottom-up approach Devolution with Empowerment - Strengthening research capability of universities  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 Private Enterprises  Narrowing the Gap between LE & SME  Promoting knowledge-intensive services  Internationalization of R&D: both inward & outward

21. More Information? Please visit www.kdi.re.kr or email suh@kdi.re.kr 감사합니다 !!!