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Co-op R&D to beat the recession

Korean parents place much value on their children’s education, which costs a large part of an average household’s earnings. Even when they have economic difficulties during the recession, few families are willing to cut their budget for education.

It is because Korean parents recognize education as an essential investment for a better life. Koreans learn from their parents this basic lesson of investment: you do not cut budgets for the future. It should come as no surprise, therefore, that research and development investment remains a priority for both the Korean government and companies in these difficult times.

A firm believer and investor in innovation, Korea has increased its national R&D budget every year, from $19 billion in 2003 to $47.4 billion in 2012. The proportion of R&D investment value in gross domestic product has also been continuously rising during the same period. The R&D investment-to-GDP ratio stood at 3.74 percent in 2010, marking the fourth-highest level among OECD member countries. The OECD average came in at 2.4 percent.

Studies show that investing in R&D helps companies stay afloat during a recession, and thrive once the recession ends. There are also enough reports from various media that deliver a similar message: how important it is to sustain this investment during the recession. It can be said that steady research investment allowed Korea to have kept it’s momentum of innovation since the financial crisis of 2008.

While we understand the importance of maintaining investment in R&D during a recession, it is equally important to realize a smart way to invest in it: establishing research networks with external partners and reducing costs and risks in R&D. It means that it is the right time to actively take part in the open innovation ecosystem.

Korean companies learned a valuable lesson from the IMF crisis in the late 1990s, and have been upgrading their innovation systems and channeling more resources into research and development since 2008. One of the most important recent changes is that innovative Korean companies finally started to adapt to the open innovation strategy. According to a survey on the R&D collaboration status of Korean companies by the Korea Industrial Technology Association in 2011, 61.3 percent of Korean companies collaborated with external partners in 2011 and this figure has increased 15.4 percent since 2008. International R&D partners take up to 11 percent of the external partners. Internal and external collaborations have been continuously increased and they expect to have more open innovation networks in the near future.

In addition to this innovative investment from the private sector, the Korean government encourages more R&D players to collaborate with overseas partners. For instance, government funding for the Korea-EU R&D cooperation has been tripled since the signing of the Korea-EUREKA Partnership Agreement in 2009. There are also bilateral R&D matching funds with Israel and China. The number and quality of international research and development projects funded by the Korean government is rising.

At the same time, Korea is attracting more foreign investment and collaboration interest in research.

If we examine FDI trends since 2008, it is clear that foreign businesses have gained confidence in Korea’s manufacturing sector. Whereas investment in the manufacturing sector accounted for only 29.5 percent of all foreign direct investment in Korea in 2008, by 2011 that figure had shot up to 45.5 percent.

Korea, indisputably, is gaining recognition as a promising R&D partner. For instance, Japanese companies recently increased their direct investments in Korean companies specialized in parts and materials. The Fraunhofer Institute, a German research organization, actively collaborates with Korean partners in several R&D projects funded by the government. There are also continuing feasibility studies on the inter-cluster cooperation on medical devices between Germany and Korea.

In a recent article in the Wall Street Journal, Thomas Donohue and Dean Garfield pointed to a trend in BRICS countries toward greater protectionism. While it is understandable that some countries might turn toward protectionism during a recession, Korea knows it is no solution. Instead of closing our doors to the rest of the world, we must open them.

A recession makes the world market less competitive because we are all struggling together. It is an ideal time to advance global cooperation - if we join forces and pursue open innovation, we can solve serious problems that affect the whole world. Climate change is one example.

It is often said that in times of trouble, we learn who our real friends are. This recession is showing our international partners what a good friend they have in Korea - a friend whose door is always open.

* The author is director general for technology policy with the Ministry of Knowledge Economy.

by Woo Tae-hee