Korean Mining and Manufacturing
Introduction
For the past three decades, the Korean economy has maintained
a GNP growth rate of 9 percent. In 1997, Korea's exports recorded US$136.2
billion, a surge of 170 times more than the US$8 million export value in 1970.
The major factors contributing to this remarkable and sustained growth were
high-quality manpower, an outward-looking development strategy, and enlightened
government policies.
In the process of economic growth, Korea has carried out
effective industrialization. The share of primary industries in the total
industrial structure decreased steadily from 26.6 percent in 1970 to 14.7
percent in 1980 and to 5.7 percent in 1997. The share of manufacturing
industries increased from 21.5 percent in 1970 to 29.2 percent in 1990 but
dipped to 25.7 percent in 1997. Construction and SOC (Social Overhead Capital)
surpassed other sectoral growth with a share of 16.9 percent in 1997, compared
with 6.6 percent in 1970. The share of the service industries was 51.5 percent
in 1997, by far the greatest growth sector in the economy.
As a result of structural reforms in the economy, Korea was
able to build a strong industrial foundation, especially in the areas of
electronics, automobiles, shipbuilding, and petrochemicals. For example, Korea's
shipbuilding industry is second only to Japan's and holds 32 percent of the
world market share. In the semiconductor industry, three Korean firms supply
more than 40 percent of the global demand for DRAMs. Automobiles and
petrochemicals rank fifth in the world in terms of production.
Since November 1997, however, the currency crisis and
financial meltdown have threaten the remarkable economic growth Korea has
achieved over the past three decades. With the pervasive restructuring and
rebuilding phase, the economic situation has started to right itself, although
industries and firms are still facing great strains. Industries which are highly
dependent on domestic market sales have suffered the most due to the sluggish
demand. These industries include the construction, steel, petrochemical,
machinery, textiles, and most services industries. On the other hand, the
export-oriented industries will be able to escape the current recession
relatively unharmed.
High technology products, including semiconductors,
telecommunications equipment and computers, will fare quite well compared with
the lower value-added products.
On balance, the financial crisis has dealt a terrible blow to
industry, but the strong firms and their respective industries are weathering
the harsh conditions. Many industries are using the crisis as an opportunity to
restructure and to redefine their business strategies in preparation for the
intensified competition of the coming century.
This report provides a synopsis of selected sectors in the
mining, manufacturing, construction and service industries in Korea. These
summaries use the latest available data to offer an overall picture of Korea's
industry.
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Mining
The Korean mining industry had once contributed more than 70
percent of foreign exchange earnings in the 1950s. Its current contribution rate
to GNP, however, stands at a low 0.3 percent level although its production scale
has expanded at an average annual growth rate of 10 percent during 1985-1996.
Although Korea is poorly endowed with natural resources,
especially metallic minerals, it has relatively abundant industrial mineral
resources which are important raw materials in cement, glass and ceramic
industries. In 1996, cement industries used more than 72 million metric tons of
limestone, 1 million metric ton of silica stone and 1.3 million metric tons of
clays in order to produce 52.2 million metric tons of clinker.
Korea consumed about US$4 billion and locally produced about
US$1.2 billion worth of minerals in 1996 based on current prices. The average
import ratio of non-fuel minerals stands at about 70 percent; however, about 98
percent of metallic minerals must be supplied from abroad. Only 10 of the 45
Korean metallic minerals satisfy more than 90 percent of domestic demand.
To utilize endowed mineral resources more efficiently, the
priority of mining policy has been given to developing value-added and
environmentally friendly technologies to ensure workers' safety. Also, to secure
its supply sources, the government has established a master plan for the
long-term supply of strategic minerals through 2010.
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Manufacturing
Machinery Industries
Automobiles
The automotive industry caters to new, on-road, completed
vehicles such as cars, trucks, and buses. Parts and accessories are not included
in this chapter. The seven key automakers and their myriad of suppliers produce
passenger cars (comprising large, medium and small-size cars, and minicars),
commercial vehicles (i.e. buses and trucks) and special vehicles (i.e.
recreational vehicles).
In 1995, the Korean automotive industry ranked as the fifth
largest automotive producer in the world, with over million units of export. The
industry also received a stronger and more noticeable presence in the Korean
national economy, occupying a share of 8 percent of total exports and 9.6
percent of the total employment in the manufacturing industries. However, the
Korean auto industry has plunged into a severe slump since the second largest
assembler, Kia Motor Corp., went bankrupt and the Korean exchange market
collapsed in late 1997. In fact, Kia Motors' bankruptcy was rooted in Kia
Group's excessive investment in its steel and construction industries rather
than in the automotive industry.
The domestic sales of vehicles have been sluggish since the
mid-1990s. The growth rate of domestic sales, which had no growth in 1995,
recovered to an increase of 5.7 percent in 1996 by virtue of the minicar boom.
These rates show a sharp contrast to the two-digit growth rate the Korean
assemblers enjoyed in the domestic market since Korea's rapid motorization of
the late 1980s. The recent crisis of the Korean economy, however, has caused a
painful decrease in domestic sales.
In the next several years car exports will increase
considerably. This is because the Korean car assemblers will gain advantage with
price competitiveness as a result of the Korean won devaluation and the
reduction of real wages. In addition, the recent rapid motorization of
developing economies will contribute greatly to Korean car exports. According to
Ward's projection, new car registration in developing economies will increase
from 13.6 million units in 1995 to 42.8 million in 2015. As of 1996, the ratio
of exports to less-developed countries in Korea's total exports reached over 50
percent. This figure shows that less-developed countries have become the new
main export markets for Korea.
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Shipbuilding
The shipbuilding industry involves the construction,
repair, conversion and demolition of all sorts of ships. This synopsis focuses
on shipbuilders that build ships of medium size or larger, about 5,000 GT (gross
tonnage) or more.
In 1997, the Korean shipbuilding industry's production was
valued at US$6.94 billion (7.4 million GT), a 5.3 percent increase over 1996.
All production was destined for export markets. About 20 percent of exports
belong to domestic ship owners, that is, exports that are conditional on the
purchase of BBC (Bare Boat Charter). Orders have increased, from the end of 1996
onward, largely due to low prices for ships and ship substitution demand. Orders
for 1997 amounted to US$10.4 billion (12.7 million GT), marking a 47.6 percent
growth over 1996.
In 1998, the Korean shipbuilding industry will experience many
difficulties. Orders on the world market are expected to decline on account of a
decrease in ship demand. The main reason behind this decrease is the
bankruptcies of Halla Engineering and Heavy Industries and Daedong Shipbuilding
which lowered Korean shipbuilders' financial credibility. Furthermore, monetary
stringency, resulting from the foreign currency crisis, has exacerbated the
slowdown among shipbuilding firms. In order to improve international confidence,
the industry is expected to implement the adjustment policies set out to
overcome the current economic situation. On the other hand, the industry can
enjoy superior price competitiveness to Japan as a result of the Korean Won's
depreciation.
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General Machinery
The general machinery industry is a typical capital goods
industry, which supplies production equipment and parts to every sector of the
economy. This industry consists of engines & turbines, machine tools &
metal processing machinery, agricultural machinery, construction & mining
machinery, transportation & stevedoring machinery, air-conditioning &
refrigeration machinery, chemical equipment, printing machinery, textile &
leather processing machinery, rubber & plastic processing machinery, among
many others.
Korea's general machinery industry recorded continuous
increases in production and exports during the 1990-1996 period as a result of
increases in domestic and overseas demand. Demand for general machinery is
characterized by sharp cyclical fluctuations since it is tied to investment
decisions which are highly sensitive to overall economic conditions.
In 1997, however, the production of general machinery recorded
US$37.7 billion, a decrease of 12.2 percent compared to last year. This negative
growth rate was due to the sharp shrinkage of domestic equipment investment and
the overall slowdown of the Korean economy.
The exports of general machinery in 1997 decreased a slight
0.5 percent compared to the previous year. Korean exports to Latin America and
Central and Eastern Europe were active but exports to the United States were
sluggish because imports from Japan proved more price competitive that from
Korea's as a result of the weakened yen. Also, the rapid currency depreciation
of Southeast Asian countries such as Thailand, Indonesia and Malaysia had a
negative effect on Korean export demand for general machinery. The imports of
general machinery decreased by 27.2 percent due to the sharp shrinkage of
domestic equipment investment. Consequently, the trade deficit of the general
machinery industry recorded US$7.2 billion in 1997, significantly down from the
1996 deficit of US$13.2 billion.
The general machinery industry is in a growing period from the
viewpoint of technology development, largely by virtue of the government's
Five-Year Parts Localization Plans which began from the mid-1980s and the
government's Capital Goods Industry Development Plan launched 1995.
Under the current financial crisis, most small and medium
general machinery firms will face hard times due to the difficulty of financing.
As a result, many small and medium general machinery firms may go bankrupt.
Also, the export of general machinery in 1998 will slightly
increase compared to last year. Owing to the Won depreciation against the U.S.
dollar, the price competitiveness of general machinery will improve, but the
downward direction of the Japanese yen value against the U.S. dollar will create
tough competition for Korean exporters. In addition, the import environment of
major machinery industry exporting countries such as those of ASEAN and China
will deteriorate due to the currency crisis of Southeast Asia.
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Precision Machinery
The precision machinery industry produces measurement
equipment, medical devices, watches, camera, and similar equipment and
instruments.
The precision machinery industry
(PMI) is an advanced industry
in which the market grows rapidly with the increasing income level and
industrial development. Korea, with its limited natural resources, is deemed to
have significant potential in this sector since it is a technology-intensive
industry with little energy consumption. Many other developed and developing
countries share a similar view that the precision machinery is a high
value-added industry with great potential, and thus seek to promote it.
Korea's PMI, however, is still in its infancy and accounts for
less than 2 percent of total manufacturing output. Compared to its more advanced
competitors, moreover, Korea's PMI tends to be more export-oriented,
labor-intensive and has less value added. Since the 1980s, Korea constantly
sought to develop its precision machinery industry, mainly for the purpose of
import-substitution. In the 1990s, the nation succeeded in establishing its own
brands for selective items. However, as the demand for precision machinery
shifted from simple, analog-based products to digital ones that are compatible
with various computer systems, Korea had to rely on more imports for its needs.
The recent necessary overhaul of the Korean economy has had
positive as well as negative influences on the further development of PMI. The
imperative for the government and industry is to carefully evaluate various
factors in devising policies. Favorable external economic changes such as the
depreciation of the Korean Won against the U.S. dollar and the decrease in
import demand for precision machinery as a consequence of the reduction in
domestic investments, are unlikely to dramatically improve Korea's balance of
trade in precision machinery due to intensifying competition from other Asian
countries. The devalued Won could hurt the profitability of PMI which relies
heavily on the import of key components. However, a lower Won will have a
positive overall impact on the establishment of Korean brands that have been
ignored due to low brand image.
The average annual growth rate for global PMI has decreased in
the 1990s due to the global recession, but is expected to maintain a steady
growth rate in the future due to increasing demand for more sophisticated
products. Medical instruments have maintained a 7-8 percent annual growth rate,
but measurement devices and watches, which are Korea's main precision machinery
exports, showed a 5 percent decline in annual growth rate. In 1997, both the
domestic demand and exports decreased and, as a result, production was reduced
by 7.6 percent. Despite its short history, however, Korea's PMI has reached an
initial stage of export industrialization due to the continuous technological
development, diversification of import sources and fostering of local
industries.
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Information
provided by the Korean Embassy
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