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Growth potential fuels industry

Shifting focus, major Korean companies pivot to the future

Oct 17,2016
Hit by the global wave of sluggish trade volume and shrinking raw material prices, Korea has fallen one place to rank as the world’s seventh-largest exporter in the first quarter, according to statistics from the World Trade Organization published earlier this year.

Korea relies heavily on 10 major products led by automobiles, smartphones, ships, petrochemicals, displays and semiconductors, which made up 73.6 percent of export volume as of 2014, similar ratio to the rest of the past decade.

Given that the shipbuilding and metal industries face restructuring and the global competitiveness of made-in-Korea automobiles and smartphones is decreasing compared to Chinese players, it is more urgent than ever for Korea to come up with more future-oriented industries to take over from old ones and fuel the nation in the next several decades.

“Samsung Electronics made a bold and preemptive investment in semiconductors in the 1980s and LG Electronics in batteries in the 1990s,” said Eom Chi-sung, head of international affairs division at the Korea Federation of Industries, a lobbying group that represents Korean conglomerates. “[These] efforts spurred those products to become Korea’s key industrial pillars. Enterprises should make daring investments to take the advantageous position in new industries and the government should proactively ease unnecessary regulations.”

Most of the top 10 conglomerates have recently pinned down which industries they will focus on for the future and have been ratcheting up investments. Samsung and LG have set their eyes on electric cars, in-car entertainment systems and batteries as well as pharmaceuticals; Hyundai Motor Group on connected cars, components and electric vehicles; and SK, Hanwha and Doosan on renewable energy.

Samsung, the nation’s most valuable chaebol, has recently made public its decision to seek future business opportunities in the electronics, bio and finance sectors.

The group has been increasing strategic investments in electronics with an emphasis on automobiles. The auto industry, specifically auto parts, in-car entertainment systems and autopilot functions, will make up a key pillar of Samsung’s electronics division. In a plan laid out last December after forming its automotive electronics business division, Samsung said it hopes to create synergy between existing technologies.

Samsung Electronics acquired a 2 percent stake in BYD, a Chinese electric vehicle and battery maker, for $455 million in July. The company said its investment in the Warren Buffett-backed company would strengthen its chip manufacturing business for electric cars.

More recently, the tech giant has been in “advanced” negotiations with Italian carmaker Fiat Chrysler Automobiles to acquire all or part of its auto components unit, Magneti Marelli, for as much as over $3 billion, Bloomberg reported on Aug. 3.

Samsung Electronics’ battery division SDI has been ramping up innovation in battery cell technology that would prop up its affiliate’s electric car vision - by setting aside 3 trillion won ($2.64 billion) over the next five years solely on battery development under the goal to become a global leader by 2020.

At the Detroit Auto Show in January, Samsung SDI unveiled a prototype high-density cell for electric vehicles that increases the driving range of electric vehicles to 600 kilometers (373 miles) on a single charge.

The cell is notable for improving energy density and driving distance by 20 to 30 percent compared to cells that enable electric vehicles to drive for 500 kilometers, which are currently being provided in samples. Commercial production of the high-density cell is expected to begin by the year 2020, according to Samsung SDI.

LG was quicker than Samsung when it comes to the car business. The nation’s fourth-largest conglomerate acquired an entire stake in V-ENS, a former affiliate of LG CNS and a specialist in designing and manufacturing car components, for 17 billion won in May 2013. The move was part of the conglomerate’s grand plan to launch a vehicle component division two months later, which combined a car component business that had formerly belonged to the home entertainment division, and an energy component division that had been directly overseen by the CEO. The reshuffle marks a strategy to shift its focus toward less-volatile component-related businesses and shrink its heavy reliance on less-profitable consumer electronics.

Most recently, LG Electronics won a deal with Toyota Motor to supply telematics components for Toyota’s upcoming connected vehicles, to be available in the United States and Europe. Telematics refers to any integrated use of telecommunications with information and communications technology.

Its battery affiliate LG Chem has recently inked an impressive deal. Earlier this month it forged a partnership to supply lithium-ion battery cells to Faraday Future (FF), a would-be competitor to Tesla. LG and FF are set to jointly develop the highest-density batteries in the world, raising speculation the teaming up may beat the technology developments of Tesla and its main battery supplier Panasonic.

According to the market researcher Strategy Analytics, LG was the biggest telematics components supplier in the world three straight years, from 2013 to 2015. Its global share in the sector stood at 29.9 percent as of 2015 from 30.3 percent a year earlier.

Korea’s second-largest chaebol Hyundai Motor Group has been keen on developing an autopilot system on the back of the components subsidiary Hyundai Mobis. Mobis boasted driving assistance system-assisted vehicles - a step towards a completely automatism car, and early-stage autonomous vehicles at the Consumer Electronics Show in January in Las Vegas. The components producer set aside in 2013 a budget of 60 billion won wholly devoted to autonomous driving system.

“Automotive electronic parts, which are a convergence between automotive and IT technologies, are our core technologies that will secure the future sustainability of our company,” said Jeong Seung-gyun, R&D director at Hyundai Mobis.

The pharmaceutical sector is a fresh field that Samsung, LG as well as the nation’s third-largest largest conglomerate SK have opted as future growth engines.

The size of the bio market, including agriculture, food and pharmaceuticals, is currently around $1.1 trillion and is expected to grow into a $1.35 trillion market by 2020, according to market research companies.

Samsung BioLogics, founded in 2011, which accepts contracts from other pharmaceutical companies to manufacture drugs, is preparing for a public listing on the Korean market this year.

SK picked biotechnology as its one of five future cash cows last year along with energy, semiconductors, information communications technology and IT. In February, it acquired shares of SK Biotek to make it a 100 percent subsidiary and is expanding the manufacturing facility of its drug making arm in Sejong City. SK Biopharmaceutical, SK Biotek and SK Chemical are affiliates in the bio sector.

LG has gone so far as to announce last month a merger between LG Chem and pharmaceutical subsidiary LG Life Sciences. LG Chem, which is focusing on three sectors - energy, water and bio - will be able to concentrate on the bio business, while LG Life Sciences will earn a stable source of funding for research and development on new drugs with a focus on vaccines and increasing the number of products in the pipeline.

BY SEO JI-EUN [seo.jieun@joongang.co.kr]


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