Megatrends Affecting Koreas Future Industrial Development

December 20th 2006

DoHoon KIM Senior Research Fellow Korea Institute for Industrial Economics and Trade

Contents

Introduction How to Identify Megatrends

15 Megatrends in 5 Major Fields

Megatrend Analysis by Survey

Megatrend and Industrial Development

Introduction

The key megatrend fields identified are:

(1) World Economic Order (2) Labor, Resources, and Management: Aging, Environment and Natural Resources, and New Management (3) Science and Technology (4) New Culture and Consumption Patterns (5) Korea-specific Situation: South-North Relations and Balanced National Development

Methodology

KIET 2020 Research Team selected more than 60 major trends, studying various methodologies and reviewing a vast number of recent future studies. 24 Leading outside experts from a wide variety of disciplines and backgrounds engaged in wideranging discussions with the KIET research team and jointly held seminars and workshops for indepth reviews of key megatrends.

Megatrend Analysis
Delphi Survey Check the features of Megatrends

15 Megatrends

More than 60 Megatrends

24 leading Outside experts

- Future studies by various disciplines and backgrounds - Seminars, workshops for in-depth reviews and selection

15 Megatrends
Fields of Megatrends Change in World Economic Order 15 Megatrends
1) Integration of the World Economy 2) Power Shift in World Economic Order and Change in Comparative Advantage 3) Aging : Change in Demographic Structure

Labor, Resources, and Management

4) Degradation of Environment and Natural Resources 5) Paradigm Shift in Financial Markets 6) New Wave in Management : Knowledge-based and CSR 7) Maturation of Digital and Network Technology 8) Advent of Bio-economy

Acceleration in Technology Innovation

9) Fusion Technology: ITBTNTNew Materials 10) Challenge to New Technology : Rise of National Strategic Technology 11) Hegemony of Technology : Standardization and Intellectual Property Rights

Evolution of New Culture and Consumption Patterns

Korea-specific Situation

12) New Consumption Patterns 13) Evolution of New Culture 14) Progress in South-North Korean Economic Cooperation 15) Regional Innovation and Balanced National Development
6

Change in World Economic Order

1) Integration of the World Economy
Trade: - Relative weakening of multilateralism - Continuous expansion of regionalism Financial Markets: - Globalization in international financial Markets - Continuous Deregulation Multinational Corporations:

- Acceleration in global network in production, processing, and services

7

Change in World Economic Order

2) Power Shift and Comparative Advantage
Energy and population growth : core driving forces for power shift in the world economic order China as Manufacturing Superpower and continuous competition against existing Superpowers:
- Emergence of China and the need to adapt - Superpowers of the previous age such as Japan and Germany still maintain competitive edge in manufacturing

Declining position for EU and Japan

Change in World Economic Order

10 Most Rapidly Growing countries upto 2020
Annual Growth Rate(%)

1. India 5.5 2. Malaysia 5.4 3. China 5.2 4. Thailand 4.5 5. Turkey 4.1 6. Ireland 3.8 7. Indonesia 3.5 8. Korea 3.3 9. Mecixo 3.2 10. Chile 3.1 0 1 2 3 4 5 6

GDP per capita

Deutsche Bank (2005)
9

Population

Labor, Resources, and Management

3) Aging : Change in Demographic Structure
Divergent aging patterns displayed, but mostly having negative influence on world economic growth
- Declining ratio of working people to retirees in developed countries and many of the more advanced developing countries

New consumption pattern and rise of elderly-care and elderly-friendly industries Need to prepare and support double-cropping of life by active labor policies

10

Labor, Resources, and Management

Forecast of Koreas Future Demographic Structure

11

Labor, Resources, and Management

Proportion of Immigrants by Major Countries

12

Labor, Resources, and Management

4) Degradation of Environment and Natural Resources
Climate Change and Urban Pollution as two key environmental challenges

Continuous strengthening of international environmental regulations by various multinational environmental agreements-acting as trade barriers?
Growing demands for energyespecially by the emerging powersthrough 2020

13

Labor, Resources, and Management

Contribution to the Consumption Growth of Primary Energy: 2005-2030
6000 5000
Mtoe
85%

4000 3000 2000 1000

10% 3% 59%

31%

12%

OECD Transition Economies Developing Countries

0
1971-2002 2002-2030

OECD, World Energy and Environmental Outlook to 2030, 2005.

14

Labor, Resources, and Management

5) Paradigm Shift in Financial Markets
Global Financial Market Paradigm: Deregulation, Liberalization, Integration Financing innovation and networking alignment between financing and (IT) technology & infrastructure Multi-polarization in Global Financial Market International integration of financial regulation for risk-sharing

15

Labor, Resources, and Management

6) New Wave in Management
Knowledge-based economy: continuous creation, expansion,
and utilization of knowledge in new management
- Important role of CKO (Chief Knowledge Officer)

- Key factor for the new management: Human Capital

Corporate Social Responsibility-Ethics and Transparency

- Rising consumer sovereignty - SRI (socially responsible investment); UN, TI (Transparency International-Ethic Round; EU, Promoting a European Framework for Corporate Social Responsibility-Green Paper
16

Acceleration in Technology Innovation

7) Maturation of Digital and Network Technology
Complication of Technologies vs. Simplification of Interface Digital and network technology:
- Acceleration-Huang's Law instead of Moor's Law,
- Fusion-TSP (Total Service Provider), - Ambient and Business Intelligence, - Servitization-SoC (System-on-Chip), Embedded Software

Entering Ubiquitous society-Computing, Networking, Censoring

17

Acceleration in Technology Innovation

Key words for 2020 DigitalNetwork Technology Trends
Complication Simplification

Acceleration Fusion Intelligence Servitization

Multimedia Customization Mobility Security

Supply-side

Demand-side

18

Acceleration in Technology Innovation

8) Advent of Bio-economy
Major advances in the bio-sciences and bioindustries will be achieved in the 21st century Most significant developments are:
- Genomic profiling, Biomedical engineering, Therapy and drug developments, Genetic modification, DNA identification

Some biotechnologies will continue to be controversial for ethical and religious reasons:
strengthening global bio-standards, e.g., biosafety protocol

19

Acceleration in Technology Innovation

Korean Biotechnology Competitiveness Index: Survey results
Areas Economics & Biz. Science & Technology Human and Social Sciences Total (Average) below 60 0.0 6170 3.2 7180 25.4 8190 49.2 91100 22.2 Average 84.0

Major Fields

2.3

8.2

31.0

46.2

12.3

80.8

2.9

1.4

21.4

51.4

22.9

84.0

1.4

4.9

27.0

48.4

18.4

82.7

Note: The index at the last column is the forecast of future Korean Biotechnology Competitiveness compared to world top technology in 2020; based on responses from 438 experts from three major fields
20

Acceleration in Technology Innovation

9) Fusion Technology: ITBTNTNew Materials
Development stages

Source: Ahlqvist, T. (2005). "From Information Society to Biosociety? On Societal Waves, Developing Key Technologies, and New Professions", Technological Forecasting and Social Change, 72(5), June, pp. 501-519

Development stages

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Acceleration in Technology Innovation

The synergic combination of IT, NT, BT, and new material technologies

Fusion Tech.

INT(IT+NT)

IBT(IT+BT)

NBT(NT+BT)

INBT(IT+NT+BT)

Detailed products and tech.

- Nanocomputer - Nano-motor - Nano-sensor

- Bioinformatics - Bioelectronics - Human Interface - Bio-computer - Biosensor - Biochips - Telemedicine

- Nanobiosensor - Nano-biology - Nanomedicine

Healthcare censor DDS (Drug Delivery Sys.) Bio-photodiode Bio-EL Device Visual Prosthesis Molecular imaging Micro environment censor Ubiquitous Healthcare System

22

Acceleration in Technology Innovation

10) Challenge to New Technology :

Rise of National Strategic Technology

Strategic Technology: Up to the sky; Into space; deep down to the sea Dual-use technology (military-commercial technology): Lightweight helicopter; mid- and loworbit satellite; new energy sources such as fuel cell, hydrogen cell Aircraft technology: lightweight, smart technology, unmanned airplane; geostationary orbit projectile Marine technology: Food, natural resources, and environment
23

Acceleration in Technology Innovation

11) Hegemony of Controlling over Technology : Standardization and Intellectual Property Rights
Standards war and reinforcing intellectual property rights The WTO TBT (Technical Barriers to Trade): one standard, one test, accepted everywhere" In the long-run, Standards and IPR present opportunities as well as challenges

24

Evolution of New Culture and Consumption Patterns

12) New Consumption Patterns
Major driving forces of new pattern: Increasing trend of aging and single families Greater Polarization and Fragmentation
- Wealthier groups leading consumption change - The live-for-today now attitude of the young and single family will thrive

Desire for greater security, health, and customization in consumption as major factors of purchase. Greater Emphasis on Sustainability and Environmental Concerns
25

Evolution of New Culture and Consumption Patterns

13) Evolution of New Culture
Globalization of ethnic cultures will lead to harmonization with dominant cultures

However, changes within cultures from institutioncentric" to "citizen-centric or "customer-centric by networked, distributed culture; Homing increases
From the Big Politics and "grassroots activity to the emergence of Big Grassroots: NGO and Role of Women

26

Korea-specific Situation
14) Progress in South-North Korean Economic Cooperation
The inter-Korean relationship will shape the future of South-North economic cooperation around 2020

Two scenarios: fast vs. moderate Inter-Korean economic cooperation progress

- In , South Korean firms will increase investment mainly in economic zones like Gaeseong Industrial Complex

Economic cooperation will contribute to the improvement of North Koreas industrial structure

27

Korea-specific Situation
Prospect for Inter-Korean Econ. Cooperation: Survey results
Scales Economics & Biz. Science & Technology

-1.1

25.9

O
27.5

+
33.3

++
12.2

Major Fields

4.6

24.6

32.0

28.0

10.9

Human and Social Sciences Total (Average)

1.4

21.4

15.7

50.0

11.4

2.5

24.7

27.4

33.9

11.5

28

Korea-specific Situation
15) Regional Innovation and Balanced National Development (BND)
Regional competitive advantages is the essential element in BND strategy that attempts to ensure the growth of the national economy as well as regional rejuvenation and sustainability

Innovation, in terms of creative technological knowledge, is a key driver of economic growth and community development in 2020

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Megatrends Selected by Expert Groups

By experts

Megatrends
1) Integration of the World Economy 2) Power Shift and Comparative Advantage 3) Aging : Change in Demographic Structure 4) Degradation of Environment and Natural Resources 5) Paradigm Shift in Financial Markets 6) New Wave in Management : Knowledge-based and CSR 7) Maturation of Digital and Network Technology 8) Advent of Bio-economy 9) Fusion Technology: ITBTNTNew Materials 10) Challenge to New Technology : Natl Strategic Tech. 11) Standardization and Intellectual Property Rights 12) New Consumption Patterns 13) Evolution of New Culture 14) South-North Korean Economic Cooperation 15) Regional Innovation and BND
30

All

Economics and Biz

Science & Technology

Human /Social Sci.

6.5 11.5 12.4 10.4 1.4 3.9 8.6 5.9 10.3 1.7 4.2 3.6 7.0 10.5 2.2

6.7 12.9 14.5 9.0 1.2 3.3 8.4 6.5 10.1 1.6 3.7 3.5 5.5 11.8 1.5

7.0 10.0 10.6 12.1 1.3 3.7 9.0 5.1 10.5 2.2 5.7 3.8 7.8 9.1 2.3

4.7 11.4 11.1 10.0 2.2 5.8 8.3 6.4 10.3 0.8 1.9 3.3 8.9 10.8 3.9

Which is Most Influential?

Aging: Change in Demographic Structure Change in Comparative Advantage South-North Korean Economic Cooperation Environment and Natural Resources Fusion Technology: ITBTNTNew Materials Maturation of Digital and Network Technology 12.4 11.5 10.5 10.4 10.3 8.6

Evolution of New Culture

Integration of the World Economy Advent of Bio-economy Standardization and Intellectual Property Rights New Wave in Management : Knowledge-base, CSR New Consumption Patterns Regional Innovation and Balanced Natl Dev. Challenge to New Tech. : Natl Strategic Tech. 1.7 2.2 3.6 3.9 4.2 5.9 6.5

7.0

Paradigm Shift in Financial Markets

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1.4

Positive Megatrends
Economics & Biz Sciences Human & Social Sciences

23.3% 14.7% 14.0% 14.4%

25.2%

14.7%
23.5% 14.0%

13.0%

Development of DigitalNetwork Source: KIET-R&B Delphi Survey (2005)

ITBT NT New Materal Fusion Technology

32

South-North Korean Economic Cooperation

Negative Megatrends
Economics & Biz Sciences Human & Social Sciences

25.6%

21.4%

15.3%

15.7% 20.2%

26.2%

16.2% 22.0%

26.4%

Aging: Change in Demographic Structure

Source: KIET-R&B Delphi Survey (2005)

Environment and Natural Resources

Standardization and Intellectual Property Rights

33

An Overview on Megatrends and Their Impacts

15 Megatrends Megatrend Groups
Demographic Change

Impacts
Labor

Aging : Change in Demographic Structure Maturation of Digital and Network Tech. Advent of Bio-economy Fusion Technology: ITBTNT Challenge to New Tech. : Natl Str. Tech. Standardization and Property Rights Integration of the World Economy Change in Comparative Advantage

Technology Innovation

TFP

Integration and Comparative Advantage

Capital, TFP Capital, TFP Labor, TFP

Environment and Natural Resources

South-North Korean Econ. Cooperation

Environment and Resources

Reg. Innovation and Balanced Natl Dev. Other Megatrends

Korea-specific

Management and Demand

34

TFP

Megatrends and Impacts on the Industries

Trends
Globalization/ Comparative Advantage Change in Demographic Structure Environment/ Natural Resources South-North Cooperation
Positively affected
Aircraft, Business service, Logistics, Automobiles, Shipbuilding, General machinery, Iron & Steel, Electric equipment Elderly care (medical equipment and service), Food and Beverage, Finance and Insurance, Real estate

Negatively affected
Textiles, Chemicals, Electronic parts, Construction, Consumer electronics, Office & Computing Machinery Automobiles, Shipbuilding, General machinery, Iron & Steel, Textiles, (Precision) Chemicals, Office & Computing Machinery Iron & Steel, Textiles, Chemicals, Non-Metallic Mineral Products -

Machinery (Environmental equipment), Medical service Textiles, Consumer electronics, Electronic parts, Electric machinery, Construction, Logistics Automobiles, General machinery, Textiles, Consumer electronics, Communications equipment, Electronic parts, Electric machinery, medical equipment , Aircraft, Communication service, Precision machinery
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Technology Trends1)

Note: 1) Especially, fusion technology.

Thank you