IMAC 2009, Starting Line For Touch and Go Components And Materials Industry?

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Saturday, May 9th, 2009
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The materials and components industry plays a pivotal role in the whole manufacturing sector. The manufacturing industry could not do without them. It is not an exaggeration to say that the quality and the price are subject to how competitive materials and components are. If a country had a strong materials and components industry, it would not fall behind in stiff world trade.

Materials and components create new products and new markets for their own sake. Take a touch phone for example. Materials and components used in the magic phone that functions at your finger's touch are a detriment to creating a new market that pushes back existing non-touch phones. It is amazing to know that materials and components take 40% of the whole manufacturing process in terms of employment and production. We can say that the growth and competitiveness of end products largely depend on how strong materials and components are. If there is no advancement in those fields, there is no self-reliant economy. Now is the time we should review the whole spectrum related with the materials and components. Displays, cell phone devices, semiconductors, the auto and green industries, and a new growth engine are in the spectrum.

Here again we must recount what Gomuro Naoka, a prominent economic analyst, said when he derided the Korean economy in his book titled The Collapse of Korea. He criticized in this way: the structure of Korean economy is like a Kamauji repeating up and down in rivers to catch fish with its neck lashed by the owner. What he meant was this: the more Korea manufactures products, the more gain Japan gets simply because Korea has no strong materials and components industry.

In the late 1980s, Korea raked in a mountain of dollars thanks to the golden period of the Three Low Costs representing low interest, low oil prices, and a low or weak dollar. But since Korea was so dependent on importing components and materials from Japan, large portions of the revenue Korea made were destined to go into the hands of Japanese exporters. It was like Korean workers sweated under the baking sun and the fruit went to the Japanese who stayed in the shade of the trees. What a cynical epithet.

Ten years later, Omae Genichi, a world famous economist, once again harshly hit the head of the Korean materials and components industry. He said that the most important backbone propping up trade revenue is the components industry. But Korea fell far behind in it. She did not boost the industry. As a result, the whole economy still stays in mud, only watching the fluctuation of the exchange rate. When the exchange rate with dollars is high, it sighs. That is the status quo of the Korean economy.

Have we seen any change since the two cynics hit Korea? We cannot say we have changed. It is true that the dependence on Japan to some degree has grown less deep. According to statistics released by the Ministry of Knowledge Economy, the import ratio from Japan lowered from 27.4 percent in 1999 to 23.3 percent in 2008. For 20 years, the dependence ratio has dropped less than four percentage points. This means, as the two economists pointed out, that the more exports Korea produces, the more dependence it has on Japan in such fields as cell phones, displays and semiconductors.

But entering this year, a delegation of Japanese businessmen flew to Korea to buy components and materials as the yen rose in value. They signed various contracts worth US$300 million in an exhibition held in KINTEX, Koyang City. A Japanese participant said that the quality is getting close to Japan's. He added that Korea is strong in digital and IT industries, so they can use Korean products.

Recently, as Korean IT industries led the world market, Japanese money came to Korea to look for joint ventures in components. Five hundred fifty million dollars from Japan poured into components industrial complexes in Gumi, Pohang, Busan, Jinhae, and Iksan.

Experts point out that Korea should shift its interest from hardware to components and materials to change its economic structure. Korea suffers a US$20 billion to US$30 billion trade deficit with Japan. In order to reverse it, we have to have a long-term strategy to develop new science and technologies in materials and components so that we can get new property rights. If we do not find it, we will repeatedly hear Kamauji theories. And nobody wants that.

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