Report: Too much spent on IT facilities

Korean companies have spent too much money on information technology facilities and are therefore overly dependent on the ups and downs of that industry, according to a recent report released yesterday by a private think tank.
“Spending in the IT sector makes up 60 to 80 percent of the facility investment costs in all industries, which has created imbalances,” the Hyundai Economic Research Institute said in the report.
At the same time, the traditional Korean steel, chemical product and automotive industries have reached their maturation points and the companies are spending more to develop new technology, the report said.
The situation is vastly different in neighboring Japan, where facility investment costs are spread much more evenly: 20 percent on information technology, 40 percent on automobiles, 20 percent on chemical products and the remaining 20 percent on machinery, according to the report.
Before the Asian currency crisis in the late 1990s, Korea spent 14 percent of its gross domestic product on facility investments of all kinds, but the figure has tumbled to 9 percent recently, the report said. Japan’s ratio has stayed the same, at between 9 and 11 percent.
The report also noted that while Japanese companies have set aside a consistent portion of their budgets for new product development and research and development, their Korean counterparts tend to place a bigger emphasis on product development.
When business conditions worsen, the report said, Korean firms tend to make huge cuts in the research and development areas before cutting other expenses.
“In order for Korea to be equipped with a long-term growth engine, the government will have to enlarge the scale of state-run research activities in the non-IT industries or service sectors,” the institute said. “Giving tax breaks to companies making R&D efforts could be another way.”

By Seo Ji-eun Staff Writer [spring@joongang.co.kr]