Innovation and services are key

Half of Korea’s industrial manufacturers believe they won’t be able to profit from their mainstream businesses in five years’ time. The Korea Chamber of Commerce and Industry polled 300 companies on the direction of the new government’s industrial policy and 28.5 percent said they would be able to sustain current businesses for only a decade. The survey also suggests that 78 percent - or nearly eight out of 10 major companies - envision that they will no longer have the same competitiveness in primary businesses.

Their biggest competition comes from China. Local companies said they will be outpaced by Chinese rivals in shipbuilding (41.1 percent), telecommunications (38.1 percent), textiles (31.1 percent), steel (29.1 percent) and automobile manufacturing (28.5 percent) within five years. Chinese companies that had been winning in labor-intensive sectors are moving up fast and threatening our biggest exports like shipbuilding, information technology, steel and automobiles.

The companies have reason to worry. The Samsung Economic Research Institute estimates that China is already a formidable rival to South Korea in the parts, material, equipment and mobile industries.

Korea’s manufacturing sector is now sandwiched between Japan and China, losing ground in both quality and price competitiveness. Low-cost China is quickly advancing in technology, and advanced Japanese products are growing cheaper thanks to the weak yen. Most Korean companies - 79.8 percent - believe the manufacturing sector will be squeezed by Chinese and Japanese competitors perhaps to the point of losing the game.

To overcome the challenges, Korean companies must hone competitiveness in the mainstream sectors through innovative products and increased productivity. At the same time, the services sector should be fostered to make up for the losing competitiveness of the manufacturing sector.

Korean companies must turn their eyes to high-value areas like software content, medical services, tourism, logistics and distribution. Following through with investment is the only way to prevent possible disaster down the road.