Trends in the ICT Industry and ICT R&D in Korea Prepared for “Asian Rise in ICT R&D: Looking for Evidences. Debating Collaboration strategies, threats and opportunities”
2011. 2. 17
Sangwon KO/ Executive Director Convergence and Future Research Division Korea Information Society Development Institute 1
I
Overall Picture of ICT in Korea
II
ICT R&D in Korea
III
ICT Policy in Korea
I
Overall Picture of ICT in Korea
ICT industry Korea ICT industry
Korea ICT industry competitiveness
ICT industry accounted for 8.5 % of GDP in ’10Q2.
Contribution
(%)
to Growth
The Korean ICT industry has entered the mature stage. [tr.won] 300
Embryonic (device supply)
Take-off (infrastructure)
Growth
Maturity [%] 50
ICT production
250
40
200
IT share
150
in GDP
100
30 ICT growth
20 10
50 ’90
Share of ICT export ICT export
’00
’03
’05
’08
Growth potential is on the wane for major devices.
ICT export amounts to KRW168.7 Bil. , 43% of all exports in 2009.
’95
Hard ware
Latecomers (e.g. China, Taiwan) are rapidly closing the gap. ※ IT gap with China: 3.3 years (2008)→ 2.5 years(2010)*
Remains weak despite continued government
Soft ware
support. ※ Average Level of CMMI Certificated Firms, Scale of 5 : India (4.30), US (3.06), China (2.97), Korea (2.94) ** ※ Korea’s SW market comprises a mere 1.8% of the world market.
- 4-
Contribution to Economic Growth Estimates of TFP Growth in Korea : TFP Growth in IT has been Relatively Fast (1995 = 100)
Source: EU KLEMS
ICT Statistics in Korea ITEMS
Mobile Handset
Broadband Internet
POSITION
ITEMS
World Market Share
World Market Share
Samsung : 21.0%
Samsung : 26.5%
LG Elec : 8.3% * Units (2010.3q)
LG Elec : 23.7%
LCD
**Sales (2010.April)
Broadband
World Market Share
Penetration Rate(fixed)
Samsung : 41.7%
#4 in the world (2010. June)
Hynix : 21.8%
DRAM
** Shipments (2010. 4q)
World Market Share
World Market Share
Samsung : 22.5% Digital TV
POSITION
LG Elec : 10.9% **Sales (2008. 3q)
Online Game
23.0% **Sales (2010)
Source : IDC, OECD, Displaysearch, iSupply, MCST .
- 6-
Issues with the Korean ICT Industry Hardware-focused business model, weak software/supplementary industry, and insufficient growth base drag on the country’s ICT advancement.
Dominance by conglomerates and major HW products
Underdeveloped supplementary business
Shares controlled by three key hardware products
Import dependency for equipment
- 71.3% of all ICT export
- Broadcasting equipment: 80%
- 61.6% of all hardware production
- Network equipment 70%
Average production from ICT SMEs is at the 0.96% level of large firms.
Import dependency for parts and material - SoC import (USD bil. 2008) : Cellphone 6.11 : DTV 1.13 : Auto 1.06
SW business depending on domestic demand
Related party transaction constitutes half of all domestic trades for IT service. Only 4-5% of software used for the ship building (world’s largest) and car making (world’s fifth largest) industries are Korean made.
Source: MKE (2010)
- 7-
The Role of ICT The ICT sector’s productivity is growing faster than that of others. Fusing ICT with other industries will raise overall productivity. 9 The service industry will particularly benefit from ICT utilization and convergence since it has much lower productivity than the ICT sector. Service & ICT sector’s share in value creation/employment 90
12
Service
85
V 80 a l u 75 e
US Britain Germany
70
y = 1.6419x
Finland
V 10 a l u 8 e
France
a d d e d
Japan
a d d 65 e d 60
ICT
y = 0.9546x
Finland
Korea
Germany
6
Japan France
US
4
2
Korea 55
0
55
60
65
자료 Employment
70
75
: OECD 80
85
90
0
1
2
3
4
Employment
5
6
7
Source: OECD STAN database
- 8-
Need of advancement in service ind. using ICT Low productivity in service ind.
Underutilization of IT
The manufacturing sector is losing its value creation potential. The service sector posts low productivity despite greater production and employment.
IT utilization in Korea lags behind other countries. < IT utilization trend in Korea>
< IT utilization >
IT intermediate inputs
Shipbuilding Health care
- Manufacturers’ GDP contribution: 3.2%p (late 80s) → 1.9%p (late 90s)→1.1%p (late 00s) Korea
- Productivity growth (1990~2007): service sector 1.3% Vs. economy-wide 3.8%
U.S.
UK
France Germany
Source: BOK, IO Tables( left), OECD, IO tables (2009, right)
Need of productivity advancement in service industries IT industry
Convergence with IT will likely drive up the productivity.
Service industry
- IT convergence will considerably improve the service sector productivity, which falls far short of that of the IT sector.
Korea
U.S.
Japan
Source: OECD STAN database
Germany
France
Finland
- 9-
II
ICT R&D in Korea
R&D trends in Korea Overall R&D trends Domestic R&D investment increased from KRW1.6tril on average in the 80s, to KRW8.2tril in the 90s, and KRW22.9tril in the 2000s.
9
R&D investment in 2009 reached KRW37.9tril, raising the ratio of R&D to GDP to 3.57%.
R&D investment by sector of performance: GRIs KRW5.6tril (14.7%), universities KRW4.2tril (11.1%), and the business KRW 28.1tril (74.3%), as of 2009
R&D trends in Korea
R&D composition by sector of Performance
institution
Source: MEST, NTIS
Source: MEST, NTIS
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ICT R&D expenditure trend (1) Private ICT R&D
Public ICT R&D (unit: billion KRW)
Source: ITSTAT.go.kr
(unit: billion KRW)
Source: ITSTAT.go.kr
Composition of R&D expenditure in ICT, 2002-2007 2002
2003
2004
2005
2006
2007
Business R&D
85.2
87.2
87.1
87.2
87.8
86.4
Public R&D
14.8
12.8
12.9
12.8
12.2
13.6
Note: All values appear as a percentage of total R&D expenditure in ICT. Source: ITSTAT.go.kr
- 12 -
ICT R&D expenditure trend (2) Government R&D investment trend by technology
R&D expenditure in 6T IT R&D represented 33% (12.4tril. KRW) of all R&D expenditure (37.9tril. KRW) in 2009.
Government investment R&D is the greatest for IT, followed by BT, energy and machinery.
- NT, ET, BT comprised 12%, 9%, 8% of all R&D expenditure IT BT Energy ST machinery Constructi on, Traffic
NT ET Basic science 2004
Source: MEST, NTIS
2005
2006
2007
2008
2009
2010
Source: NSTC and MEST (2010)
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R&D trends in Korea R&D expenditure by type of research The business sector investment is focused on development while universities invests more on basic research. The business community is also stepping up basic research investment.
100% 80%
27.2 44.6
45.1
60% 40%
30.5 33.1
28.8
22.4
26
42.4
20%
34.1 72.2 29.6
36.2
21.7 6.1
0% '00
'09
'00
Research institute
'09
Application
16.8 13.8
'00
University Basic
69.4
'09 Business
Development
Source: MEST, NTIS
- 14 -
R&D in ICT sector (1): By type of research IT R&D expenditure by type of research(Business) ICT manufacturing is responsible for 45.5% of R&D budget in the corporate sector(2009). ICT manufacturing R&D increased 12.4% per annum from 2000-2009
(bil. KRW)
# of Year institute
R&D expenditure by type of research(2009)
2000
4,194
R&D expenditure in each stage Total
Basic
Applied
Develop ment
10,255
630
2,222
7,402
3,879
4,726
19,560
Total 2009 14,626 28,166 2000
2,926
8,585
505
1,893
6,186
2009
9,722
24,335
3,500
3,914
16,920
2000
802
4,493
281
797
3,415
2009
1,757
12,828
2,132
1,974
8,722
2000
1,067
1,073
74
191
807
2009
3,479
2,654
203
608
1,843
2000
35
364
16
57
291
2009
36
281
1
95
185
Manufacturing
Composition of ICT R&D (2007)
ICT manufacturing
Service
Telecommunication Service
Source: MEST, NTIS, ITSTAT.go.kr
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R&D in ICT sector (2): Researcher Number of ICT researchers and per capita expenditure (Business) Researchers in the ICT manufacturing industry represent 36% of all researchers. The ICT sector provides greater per capita R&D budget than non –IT manufacturing and service industries. (bil. KRW, mil. KRW) Year
Composition of researchers (2009)
Total R&D Number of expenditure researchers
Per capita R&D expenditure
2000
10,255
94,333
109
2009
28,166
210,303
134
2000
8,585
76,210
113
2009
24,335
165,185
147
2000
4,493
38,777
116
2009
12,828
75,304
170
2000
1,073
15,423
70
2009
2,654
37,430
71
2000
364
1,532
238
2009
281
1,147
245
Total
Manufacturing
ICT manufacturing
R&D expenditure per researcher (2009) Service
Telecommunication Service
Source: MEST, NTIS
- 16 -
Government ICT R&D expenditure (1) Government investment in R&D–Future technology 6T (2009) The government allocates 25.2% of future technology investment to basic research, 19.3% to applied research, and 55.5% to development.
9
While BT and NT have greater investment portions for basic research, IT, ST, ET, and CT direct more investment to development research. Investment in 6T by type of research (2009) / Average Investment share and CAGR of 6T (2005~2009) (Unit: KRW 100Mil , %)
BT
NT
Basic research
2,643 (14.6)
6,851 (41.8)
2,608 (48.2)
Applied research
4,315 (23.8)
4,018 (24.5)
Experimental Development
11,203 (61.7)
ST
ET
CT
Total
665 (8.0)
3,451 (21.6)
150 16,369 (22.4) (25.2)
1,157 (21.4)
204 (2.4)
2,661 (16.6)
202 12,557 (30.2) (19.3)
5,534 (33.7)
1,644 (30.4)
7,474 (89.6)
9,881 (61.8)
318 36,055 (47.5) (55.5)
Sub total
18,161 16,403 (100) (100)
5,410 (100)
8,343 15,994 (100) (100)
669 64,980 (100) (100)
Others Total
2,643 3,709 20,804 20,112
325 5,735
463 2,059 8,806 18,052
156 9,355 825 74,335
CAGR
IT
Investment share
Source: NSTC and MEST (2010)
- 17 -
Government ICT R&D expenditure (2) Government R&D expenditure by type of research Expenditure for basic research is growing the fastest under the government’s plan to expand basic research investment. R&D expenditure by type of research (2005~2009) (Unit: KRW 100Mil , %) 2005
Basic research
2006
2007
2008
2009
Expenditure (05~09)
Change
Amount
%
Amount
%
Amount
%
Amount (A)
%
Amount (B)
%
Average
Share
CAGR
B-A
%
13,575
23
16,081
23.4
18,623
24.3
19,398
24
22,652
25.3
18,066
24.1
13.7
3,254
16.8
24.8
16,815
24.4
19,256
25.1
19,895
24.6
19,487
21.7
18,021
24
7.4
-409
-2.1
Applied research 14,651 Experimental Development
30,884
52.2
35,918
52.2
38,765
50.6
41,436
51.3
47,555
53
38,912
51.9
11.4
6,119
14.8
Sub total
59,110
100
68,814
100
76,644
100
80,730
100
89,693
100
74,998
100
11
8,964
11.1
Others
18,795
18,825
19,101
29,206
34,451
24,076
16.4
5,245
18
Total
77,904
87,639
95,745
109,936
124,145
99,074
12.4
14,209
12.9
Source: NSTC and MEST (2010)
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Government ICT R&D expenditure (3) R&D investment by Government Investment share and R&D expenditure CAGR at different institutions(2005~2009) IT
BT
Large firm
CAGR
CAGR SME Gov. Public Institute
Universities
Others
Gov. supported research institute
Share of investment
SME Large firm
Gov. Public Institute
Others
Universities Gov. supported research institute
Share of investment
ET
Source: NSTC and MEST (2010)
Large firm
CAGR
SME
Gov. supported research institute
Universities Others Gov. Public Institute
Share of investment
- 19 -
ICT R&D Outcome (1) Patent application by industry
Patent application by industry Patent applications from the ICT industry comprised 44.8% (73,000) of all applications (163,000) in 2009.
Source: * Vickery, Graham and Sacha Wunsch-Vincent (2009), **IR
Source: ITSTAT.go.kr
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ICT R&D Outcome (2) Technology Balance of Payment (unit: mil. USD)
Source: ITSTAT.go.kr
- 21 -
III
ICT Policy in Korea
Informatization Promotion Fund Large scale investment over long run is difficult to carry out with the government’s general budget IPF to overcome budgetary constraints and create information society Government-business partnership and co-funding to implement priority projects and strengthen the overall industry Sources
Others 14%
Usages ICT industry 7%
Gov't budget 40%
Private firms 46%
9 Total: USD 7.78 billion (’93-’02)
Standardization 2.6% ICT R&D 37.5%
Broadband infrastructure 15.1% ICT HRD 17.8%
Provision and diffusion 20%
- 23 -
R&D - Korea’s Public R&D Programs (1) The Leading Technology Development Program 9 Support strategic R&D activities which require long-term R&D efforts Performed mainly by public research institutes 9 Focused research areas: next generation mobile communications, digital TV/
broad casting, optical subscriber networking, embedded software, etc. The Industrial Competitiveness Development Program 9 Support technology development with a higher potential for commercialization
in the short-term 9 Performed by private ICT companies 9 Provides funds up to 50 percent of the total R&D cost
- 24 -
R&D - Korea’s Public R&D Programs (2)
The New Technology Development Program 9 Support R&D in small and medium-sized enterprises that are three years old or younger 9 Provide management assistance and encourage investment for commercialization of developed products 9 Support up to 150 million KRW for hardware development and up to 100 million KRW for software development 9 Monitor the use of funds through web-based billing management
- 25 -
R&D - Korea’s Public R&D Programs (3) Promoting Standardization Activities
9 Provide financial assistance for developing ICT standards, particularly in the field of information technology infrastructure
9 Plan to establish international cooperation system for international standardization
Investment in Research Personnel
9 Provide a long-term economic support to ICT research centers at private and public universities 9 Offer fellowship programs for studying abroad in distinguished academic institutions - 26 -
Creative R&D to meet future demand Objective
Increase R&D investment to support the rise of the IT industry, and upgrade the overall R&D system by developing original technology and enhancing demand-oriented R&D
Expand investment for basic/original technology Investment for original technology: 41% (KRW233.1bil., 2009), 43% (KRW248.1bil., 2010), 50% (2013)
Select and focus strategy Implement mega projects (for world best software or world premier material) to better respond to demand
Key tasks
hikes in the future
Service R&D to create a new business model Introduce service R&D system in developing original technology
Advance R&D management system Construct a forward-looking policy planning system based on a long-term vision and upgrade R&D planning, evaluation, management, and policy monitoring system
Source: MKE (2010)
- 27 -
Crowding Out of Private ICT R&D in Korea Crowding out of private R&D in IT industry: before and after Asian financial crisis (fixed effects model) 1995~1997
constant D
(1) 3.161*** (0.508) －0.155*** (0.039)
1999~2002 (2) 3.031*** (0.510)
(3) 4.909*** (0.174) －0.205*** (0.029)
(4) 4.762*** (0.017)
0.125*** (0.038) 0.386*** (0.070) 0.00007 (0.00017)
－0.008*** (0.002) 0.126*** (0.038) 0.388*** (0.070) 0.00008 (0.00017)
0.0064 (0.010) 0.329*** (0.031) -0.00006 (0.00011)
－0.0107*** (0.0015) 0.0063 (0.001) 0.329*** (0.031) -0.00007 (0.00011)
R2
0.49
0.49
0.32
0.31
# of firms observed # of observation
1,604 3,610
1,604 3,610
3,536 7,489
3,536 7,489
log(GOS) log(Sales) log(number of employees) EBITDA
Note: ***: P＜0.01, **:P＜0.05, *:P＜0.1 Source: Ko Sangwon and Namhoon Kwon(2005), The Effect of public R&D subsidy to private R&D, Korea Information Society Development Institute (in Korean)
- 28 -
Concluding Remarks
Who is steering ICT R&D in Korea? - Government Vs Conglomerates
R&D for ICT Convergence & ICT Services - SOC + SW Strategy
The future of GRIs in ICT sector - Declining Role of GRIs
Funding of Government ICT R&D - IPF
Crowding Out or Spillover? - Need holistic approach rather than a firm level analysis - Measuring output, outcome and impact of government R&D
- 29 -
Reference Kim, Jeong-Eon et al. (2010), A Study on building a Industry-specific IT-Convergence Statistics System, Korea Information Society Development Institute (in Korean). Ko, Sangwon and Namhoon Kwon(2005), The Effect of public R&D subsidy to private R&D, Korea Information Society Development Institute (in Korean). Bank of Korea, Input-Output tables. Bank of Korea, National Account. http://ecos.bok.or.kr/ EU KLEMS Database, March 2008, see Marcel Timmer, Mary O'Mahony & Bart van Ark, The EU KLEMS Growth and Productivity Accounts: An Overview, University of Groningen & University of Birmingham; downloadable at www.euklems.net ITSTAT, IT Statistics of Korea. http://www.itstat.go.kr/ MEST, National Science & Technology Information Service database http://www.ntis.go.kr MKE (2010), “IT industry Vision 2020”, 2010.10.12. NSTC and MEST (2010), Report of 2010 Government R&D (in Korean). NSTC (2011), Assessment on Relative Technological Capabilities (in Korean). OECD STAN database. OECD (2009), Input-Output tables. Vickery, Graham and Sacha Wunsch-Vincent (2009), ”CHAPTER 1.8 R&D and Innovation in the ICT Sector: Toward Globalization and Collaboration”, in The Global Information Technology Report 2008-2009, WEF 2009. * MKE : Ministry of Knowledge Economy * MEST : Ministry of Education, Science Technology * NSTC : National Science and Technology Council
- 30 -
Appendix 1. Samsung Products sales proportion
R&D Trend (Unit: bil.KRW)
Total Sales (2010) : 166.2 tril.KRW
< mobile Handset >
< Flat TV >
< Home Appliance sales> (Unit: mil.)
(left)
(Unit: tril.KRW)
Market (right)
- 31 -
Appendix 2. LG Electronics Products sales proportion
R&D Trend (Unit: bil.KRW)
Total Sales (2010) : 69.0 tril.KRW
Home Entertainment
Business Solution
Mobile Communication
Home Appliance
< Flat TV >
< Sales >
< Handset >
< Sales >
(Unit: mil.)
M.Asia M.America Korea
(Unit: mil.)
(Unit: tril.KRW)
Asia
M.America N.America
N.America
Asia
Korea
Europe/CIS
Europe/CIS
(Unit: tril.KRW)
Korea Africa Asia/China M.America Europe/CIS N.America
Others M.America Asia Europe/CIS N.America Korea
- 32 -
Thank you
