South Korea Manufacturing Trends 2020
Can Korea re-invent itself from once a manufacturing powerhouse to the true leader of the new industrial shift? What does the manufacturing sector look like in Korea today and where it is heading? Explore some interesting opportunities in this field with us – share your thoughts and let’s start talking today!
Interview made with Hannes Humala, our South-Korea market expert.
“What are the main industries in your country ?”
Electronics and home appliances being the biggest manufacturing products in Korea from companies like Samsung and LG are dominating exports and retail in Korea as well as globally. Manufacturing locations for these behemoths are the size of small cities. The companies have their suppliers located close by or in the same complex as part of the manufacturing chain. The main products include televisions, smartphones, displays, and computers.
In Korea, heavy industries are often divided into heavy equipment, heavy machinery, and vessels (shipbuilding and offshore). In Korea Shipbuilding is huge – Korea produces high-value vessels, traditionally it has been strong in LNG tankers, Drillships, Oil rigs, etc. Now the trend is tilting to include multi-fuel type ships and low emission vessels. Korea is home for Hyundai Heavy Industries, Samsung Heavy Industries, DSME and STX Group – all are global top 10 players in the industry. Third-quarter or 2019, Korea as whole, climbed back to the driver’s seat in shipbuilding new orders beating the biggest rival China overwhelmingly. Other major products in this area are excavators, generators, cranes and engines to name a few. Several years ago, many Korean heavy industry conglomerates also introduced renewable energy units (mainly wind power) which are now either discontinued or divested.
Korea is the birthplace and home for automobile giants Hyundai and Kia (now in the same group company). Korea also is a host for foreign carmakers Renault (Samsung Renault in Busan), GM (former GM Daewoo in Incheon) and Sangyoung (originally fully Korean, now owned by Mahindra & Mahindra since 2011 in Pyeongtaek)
Massive petrochemical complexes, semi-assembled goods, materials, and industrial consumables are another backbone of the Korean economy. Most of the major facilities are owned by Korean conglomerates or global big players, while there is a huge number of strong and profitable SMEs producing quality export products for B2B markets. One good example is industrial consumables such as welding, construction, and garments.
Together with strong economic growth from decades back, the construction industry has developed into a world-class operation. Korean EPC (engineering, procurement, commissioning) companies are engaged in major residential, infrastructure, plant and commercial projects not only domestically but heavily overseas as well. Typically, a major Korean EPC is only interested in multi-billion-dollar projects, while smaller but skilled SMEs in the field take a major part in the smaller projects. The industry is going through the contraction phase currently. It’s important to note that procurement and decision making for overseas projects are usually done in Korea.
“What is the outlook for the main industries in 2020?“
- ICT – Strong sales, has been able to diversify manufacturing base outside Korea
- HEAVY INDUSTRIES – Strong, order books are filling extremely fast. There is extra capacity available to capitalize on this.
- AUTOMOTIVE – Stable sales, however, issues in the manufacturing base domestically. Labor unions are very powerful. Mahindra is urged to inject funds into Sangyoung.
- MATERIALS – Stable
- CONSTRUCTION – Going through the contraction phase currently. Possibly see recovering later in 2020.
“What are the main trends in manufacturing in Korea for 2020?“
HANNES HUMALA: Overseas investments for the manufacturing base; the best example is Samsung Electronics who has two (2) major plants in Vietnam which pump out a third of the whole company’s global production. Cumulative investments from Samsung to Vietnam are well over $17bn (perhaps over $20bn as of today). Some of recent industry news details following trends and plan: AI R&D expected to get governmental support, VR gaining speed in automotive and industrial design. 5G digital transformation in shipbuilding. Hyundai Motors has plans to invest $51bn until 2025 in electrification, autonomous driving, artificial intelligence, robotics, air taxis, and new energy.
What are the main innovations in manufacturing in your country?
HANNES HUMALA: Korea has been actively embracing the fourth industrial revolution as the country needs to re-invent its manufacturing power. Competition from other Asian countries is increasing and the old way of manufacturing is losing its competitiveness.
“What are the main challenges in manufacturing in Korea for 2020?“
HANNES HUMALA: Increasing labor costs and reduced investments into the manufacturing base cause the major challenges in Korean manufacturing. Traditionally Korean manufacturing has been laboring intensive, high-volume products (in past decades products with a number of options and not as bulk products as at the beginning of industrialization). To keep up with the competition Korea and Korean industries are looking actively on ways to reduce labor costs on non-core areas and improve productivity on core areas. Only major companies will have resources to even evaluate alternatives, not to mention actual investments. Looking abroad Korea for sources of investment is not as easy as it used to be – many neighboring countries, especially in S.E. Asia, are rising as more interesting investment locations for many kinds of manufacturing.
“What are the main opportunities in manufacturing in Korea for 2020?”
HANNES HUMALA: Korea offers still interesting opportunities in manufacturing even though the landscape has changed a lot in the past decades. Companies that open and operate manufacturing facilities in Korea usually do this to support their global supply chain. Korea is conveniently located between Asian’s two main markets, China and Japan, as well as close to other major markets. Logistics chains work well, and the supply of raw materials, components, and other semi-assembled goods are easy to secure. Locations close to major ports such as Busan are highly valued by companies that focus 100% on exports to third countries.
For companies that do not have resources to operate own manufacturing facilities, Korea offers a huge range of mid to high-end manufacturing services, products, and industrial consumables. These quite often are at par with Japanese and European qualities, while offering price advantage over both. Finding, communicating and evaluating the right local suppliers can be slow and time-consuming.
“What are the DOs and DON’Ts for those who want to manufacture in your country?“
HANNES HUMALA: Do invest in Korea for Korean domestic markets if the addressable market size is big enough. Do invest in Korea for international markets after confirming your supply chain, factory and port are in the same area. Do consider buying controlling or full stake in a Korean SME manufacturer to complement your existing manufacturing assets. Do bring the latest production technologies for own production or JVs.
Do not allow Korean management full authority, at least in the beginning and without safeguards and financial issues.
“What to keep in mind when looking for the right Korean manufacturing partner?“
HANNES HUMALA: For any activities in Korea first step must be evaluating the field. This foreign company should definitely use local resources who have the ability to evaluate the industry they are interested in. Relying on own, non-Korean speaking, assets will not give you the full picture of the industry in question. Once the evaluation is completed and preferred manufacturing partners are selected, companies should always do field visits and engage in quality checks. Like in many nations, Korean companies also work heavily on a long-term relationship basis. This is not as important in outsourcing, but in-case you are considering longer-term activities in Korea, it is good to take into consideration from the beginning.
Korea can be considered in many cases between Japanese and Chinese companies in quality and price. This combined with the width of Korean industries creates an interesting offering for any company in need of outsourcing part of manufacturing. For example, Korea is one of the only countries besides the USA that has companies certified to service US Airforce aerial assets.
“Does the US-China trade war have an impact on your country’s manufacturing industry in 2020?“
HANNES HUMALA: This is not clear now and probably will take some time to see from indicators. Some believe Korea will dodge possible damages while others say Korea might be benefiting from the trade war. What is clear that any disruption to global trade, for an export relying nation like Korea, causes issues and would probably cause damages to industries in general. One of the scariest scenarios for Korea is that Trump expands trade negotiations to Korea as well.