Building Competitive Edge Based on Manufacturing and Design Technology: Success Lessons from Korean High-Tech Businesses and Their Challenges

There are many factors that have contributed to Korea’s rise as a high-tech powerhouse. Among them, manufacturing has been an integral part of Korea’s rapid economic development and its brisk manufacturing sector has kept its economy going during this economic downturn.

Korean high-tech firms acquired mature technology, or assembly-type production technology from advanced countries in the early stage of industrialization. The Korean government started to launch the technology development initiatives and build a technology infrastructure. Korean high-tech firms were able to move on to the next level of technology value chain like more advanced production process technology and product design. Since the early 1980s Korean firms have increased their R&D endeavor. The direction of technology policy was centered on strengthening indigenous base for R&D. Korean firms have focused their R&D efforts on applied technology, improving upon imported basic technology. They have been able to fuse process improvement and product innovation, which has become the base for their product competitiveness in their global leading products such as LCD TVs and mobile phones.

When Korean high tech firms got into the semiconductor business, many at home and abroad were skeptical about their success for many reasons. They have beaten the odds. It is doubtful that without manufacturing excellence in semiconductors, they could accomplish such a success in mobile phones and LCD TVs and panels.

Korean display makers have made technological progress including a larger size substrate to reduce cost and improved resolution. This effort has enabled them to produce a variety of panels for new applications including large-screen laptops and desktop monitors for the first time. They have been nimble to invest on the next substrate generations to fabricate large LCD panels and thus took advantage of the upcoming market opportunities. In doing so, they have utilized process technology capacity accumulated and marketing prowess to foresee next applications being formed. The two Korean display makers, Samsung and LG Display have competed against each other in terms of setting up new fab lines to stay ahead and occupying a top contender position.

While Korea has successfully climbed the technology ladder and reached the technology frontier in some areas, they face many challenges. Korean high-tech firms have felt squeezed between technologically competitive forerunners from advanced economies and cost-competitive followers like China. They have accumulated a solid manufacturing foundation and high-tech design capacity through applied research. And yet, they know they need to crack cutting-edge technologies on their own. For example, although it is true that some Korean high-tech firms became top leaders in DRAMs, Korea has imported more chips than they have exported since they can’t design many specialty logic chips to be run on the gadgets they make. Furthermore, they lag behind in software, materials and capital goods, as I have pointed out on several occasions. They are catching up in some fields, but they have a long way to go.

Another challenge might be that technology being transferred to Korea has mostly been absorbed by Korean chaebols, which may cause serious side-effects if one takes the long view.

As I’ve mentioned, public policies like industrial and monetary policy and other industrial and social infrastructure including high-quality higher education have played a part in accumulating and sustaining technological excellence.

Moreover, as I have argued, technological competence should be coupled with market sensing capability. Hence, strengthening the overall indigenous innovation capacity is critical.

Perhaps one of the greatest lessons one can take away from Korea’s high-tech experience – often overlooked -- is that although technological competence has been the backbone of national economic development, technological progress alone won’t determine the overall health of the economy. Sustaining competitiveness through technological advancement is interwoven with the financial wellbeing of a country. Such is the case in advanced economies like Japan and the U.S.