Opening Era of $100 Billion Trade Surplus in Materials, Components

“Korea Materials & Components Week 2014” will be held in KINTEX 10 Hall from Oct. 22 to 24. The event has been held since 2005 to promote the industry of local materials and components, contributing to the enhancement of the international competitiveness of the industry. On the occasion of this year’s event, BusinessKorea interviewed Choi Tae-hyun, Director General for the Materials & Components Industries at the Ministry of Industry, Commerce and Energy to hear about the current status of the industry and future plans to further promote it. What follows are excerpts from the interview with him.

Please introduce the efforts and performances that the government has made to promote national components and materials industries?

After the enactment of the Act on Special Measure for the Promotion of Specialized Enterprises, etc. for Components and Materials in 2001, Korea has become the fifth largest country in the market of materials and components worldwide in 2010, following China, the U.S., Germany, and Japan, through active nourishment of relevant industries with the government budget of 3.6 trillion won (US$3.4 billion). Trade surplus of US$100 billion is expected in materials and components for the first time in 14 years since the policy officially started.

Exports of materials and components, which were US$62 billion in 2001, grew 36 times greater to reach US$261.3 billion last year. In particular, 28.3 percent of imports of materials and components depended on Japan in 2003, but this has been improved to 18.0 percent in the first half of 2014. A trade deficit with Japan lasting four consecutive years since 2010 also declined.

The number of Specialized Companies in materials and components and globally competitive, which sales of materials and components account for over 51 percent of all sales, increased radically from 483 in 2002 to 3,239 in 2013, showing 6.7 times growth. The number of Core Materials and Components Enterprises that achieved more than US$200 billion in sales and US$100 million in exports with key technologies, and are capable of strategic investment jumped from 155 in 2004 to 333 in 2012.

However, advanced materials which are the source of industrial competitiveness are the fundamental reasons for adverse balance of trade with Japan, and Korea needs to make persistent efforts to achieve global competitiveness. Among the trade deficit of materials and components with Japan, the percentage of advanced materials even rose in 2013 compared to 43 percent in 2003.

On the other hand, export dependency on China for materials and components greatly increased from 16 percent in 2001 to 35 percent in 2012 due to the radical growth of the Chinese economy. So efforts to diversify export countries are needed.

Accordingly, the government has been promoting Materials and Components Vision 2020 since 2011 and established The Third Fundamental Plans for Improvement of Materials and Components in 2013 for another quantum leap of materials and components.

Through these plans, Korea aims to achieve US$650 billion in exports and US$250 billion in trade surplus by 2020 and ultimately become the fourth largest country in materials and components, beating Japan.

Please evaluate the global competitiveness of Korean technologies on materials and components.

Although the materials and components industry in Korea overall achieved remarkable growth, Korea is still depending on advanced countries, including Japan and Germany, for essential materials and components, which require substantial investment and time to develop. The levels of Korean technologies relative to these advanced countries are 60 percent in OLED lighting materials and 50 percent in carbon fibers.

The government plans to commercialize World Premier Materials (WPM): US$1 billion global market size and over 30 percent of market share preemptively in order to become the world’s fourth largest country in materials and components by 2020. The government is also actively promoting strategies to develop first-mover technologies through developing 200 Promising Materials and Components in the Future in order to pioneer the future market of materials and components by 2025.

Please kindly explain the main contents of The Third Fundamental Plan for Improvement of Materials and Components.

The government established The Third Fundamental Plans for Improvement of Materials and Components for the period of 2013 to 2016 in November last year in order to prepare specific action plans to perfectly fulfill the existing task of Materials and Components Vision 2020, create outcomes, upgrade the major facilities, and realize the creative economy.

Materials and Components Vision 2020 is composed of four main strategies – developing advanced materials to predominate the future market, upgrading the components through convergence, creating components and materials to lead growth, and leading the global supply networks. There are three implementation tasks for each strategy, meaning a total of 12 tasks.

The Third Fundamental Plans for Improvement of Materials and Components evaluates the performances of policies based on existing tasks and guides the following plans. New tasks such as enhancing cooperation between private and public organizations to expand private investment in the materials and components industry and draw outcomes out of the policies in advance were newly added.

Accordingly, the government plans to form and operate a strategic investment committee and R&D support organizations with private professionals, promote constant investor relations (IR), and form the materials funds exclusively for small and venture companies.

What is the government stance for nourishing emotional materials and components?

In the past, production and supply of products were determined by producers. On the contrary, emotions of final consumers influence the designs of products these days. In short, after the eras to focus on price (‘80s) and functions (‘90s), emotional factors such as consumer satisfaction, brands, and designs are the purchasing competitiveness now.

Major global companies are concentrating on not only developing advanced technologies but also building emotional power, which cannot be imitated as their essential competitiveness. Emotional factors such as distinguished designs and images are strong barriers for entry. Even products which have similar alternatives are traded at expensive price if such products enhance consumer satisfaction. Bladeless fans of Dyson, premium watches of Switzerland, laptops of Apple with the aluminum body instead of plastics, the iPhone and iPod are good examples.

Korea is also making progress in the emotion-oriented industry starting from big corporations such as Samsung, LG, and Hyundai Motor. However, small and medium-sized Industry & Company companies do not have enough capital to invest in emotional research, and they lack the emotional convergence mindset to figure out what they want and how they start to enhance competitiveness.

Therefore, Korea needs to secure emotional competitiveness, the third factor in addition to the existing criteria of price and technology, in order to compete against rapidly-growing China and surpass Japan. Accordingly, the Ministry of Trade, Industry and Energy will establish operating plans including organizations, human resources, and specific expenditures to support business of emotional materials and components together with the efforts to secure a budget.

Could you introduce major performances of the event last year and the “Materials and Components Week 2014?”

At the event last year, 780 materials and components companies, research labs, and institutions inside and outside of Korea participated, and about 35,000 people attended the event for three days. When it comes to major outcomes, consultations for 608 investment cooperation cases (US$336 million) were completed, with the participation of associates from 68 foreign companies and research labs and 304 Korean companies, and about 240 corporate technology consulting sessions were held for three days with the participation of four materials centers.

This year, the key theme of the event is to start the Era of US$100 Billion Trade Surplus in Materials and Components, an essential milestone to become the fourth largest country in materials and components by 2020.

The event this year will be held in KINTEX 10 Hall between October 22 to 24 2014 with three sub themes of Efforts for Success, Passion for the World, and Investment for the Future.

Efforts for Success will consist of previous performances so far to reach the trade surplus of US$100 billion, advertisement of policies and encouragement for men of merit materials and components awards.

Passion for the World will exhibit major materials and components that are greatly contributing to export and localization through government support. By the application sector, five companies will participate for each sector of R&D, credibility, global R&D, and GP.

Investment for the Future will focus on introducing technological, financial, and human resources support provided by research labs and private investment organizations in order to achieve the semifinal in materials and components in 2020.