Digitalization and Global Value Chains in the Korean Manufacturing
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Research Report 2018-877 Digitalization and Global Value Chains in the Korean Manufacturing Jaehan Cho & Stacey Frederick et al. December 2018 0321연구보고서_조재한(GVCC-KIET)-최종.indd 1 2019. 3. 21. 오후 6:22 Research Team Korea Institute for Industrial Economics & Trade ·Jaehan Cho ·Inchul Kim ·Sunin Jung ·Hanhin Kim Duke University Global Value Chains Center ·Stacey Frederick ·Penny Bamber ·Gary Gereffi Note to all interested parties The following report was originally published as part of a multipart collaborative research effort between the Duke Global Value Chains Center (hereafter referred to as GVCC) and the Korea Institute for Industrial Economics and Trade (hereafter referred to as KIET) under the working title The Digital Economy, Global Value Chains and Asia. The content of the following work, including references, is identical to the afore- mentioned work jointly published by GVCC and KIET; as only the title has been changed. Please be advised of possible redundancies in scholarly indices. Access to the original publication is available at: <https://gvcc.duke.edu/cggclisting/the- digital-economy-global-value-chains-implications-for-korea/> Korea Institute for Industrial Economics and Trade (KIET) Sejong National Research Complex, 370, Sicheong-daero, Sejong-si, 30147, Korea Tel : 82-44-287-3114 Fax : 82-44-287-3333 URL : http://www.kiet.re.kr Research Report 2018-877 Digitalization and Global Value Chains in the Korean Manufacturing Published on December 7, 2018 in Korea by KIET ISBN 979-11-965922-8-8 93320 0321연구보고서_조재한(GVCC-KIET)-최종.indd 2 2019. 3. 21. 오후 6:01 Preface The fourth industrial revolution is expected to bring about sig- nificant changes to the global economy. With the advent of new technologies and the creation of new businesses, digital compa- nies have emerged as key players in global value chains (GVCs) and are poised to lead the digital economy. In 2017, the annual World Investment Report of the United Nations Conference on Trade and Development described the rise of technology-cen- tered digital companies, some of which now rank among the world’s foremost multinational enterprises. Digitalization led by these multinationals will break down boundaries across conven- tional industries globally. This report examines the GVCs of the digital economy and how they influence the adoption of new technologies in tradi- tional manufacturing sectors. With its advanced new technolo- gies, the Fourth Industrial Revolution creates opportunities for a wide range of businesses in both traditional and new sectors, including new services in various end markets. These changes 0321연구보고서_조재한(GVCC-KIET)-최종.indd 3 2019. 3. 21. 오후 6:01 carry implications for most countries involved in GVCs, and es- pecially for Korea. This report is a collaboration between the Korea Institute for Industrial Economics and Trade (KIET) and the Global Value Chains Center (GVCC) at Duke University, headed by Dr. Jae- han Cho at KIET and Dr. Stacey Frederick at GVCC. And this report would not have been possible without the valuable con- tributions of a large group of talented researchers, including Dr. Inchul Kim, Sunin Jung and Hanhin Kim at KIET and Dr. Gary Gereffi and Ms. Penny Bamber. This report is to provide a framework and definition for evalu- ating the digital economy and how it influences industrial struc- ture. Furthermore, it seeks to describe the implications for Korea, and how the country might best position itself to both face up- coming challenges and take advantage of future opportunities. I would also like to thank Dr. Sungwook Hong at KIET, Dr. Kwanho Shin at Korea University, Dr. Joonkoo Lee at Hanyang University, Dr. Heylin Choi at the Korea Institute for International Economic Policy and other researchers both outside and inside of KIET who reviewed the draft report and gave helpful comments. Finally, the content and the arguments in this report constitute the views of their authors alone and do not reflect the official position of KIET. 2018 December Dr. Ji-sang Chang President of KIET 0321연구보고서_조재한(GVCC-KIET)-최종.indd 4 2019. 3. 21. 오후 6:01 Table of Contents Executive Summary ........................................................................ 11 Chapter 1. Introduction ...................................................................... 17 Chapter 2. Definitions and Methodology ......................................... 22 2.1. Definitions ........................................................................ 22 2.2. Methodology .................................................................... 24 Chapter 3. The Digital Economy and Global Value Chains ............. 27 3.1. Mapping the Digital Economy Global Value Chain ............ 33 3.1.1. Software (Traditional; Transition Firms) ......................... 39 3.1.2. IT Services (Traditional to Digital) ................................. 42 3.1.3. Platforms; Internet Software & Services (New) ................ 47 3.2. Digital Transformation in the Industrial Equipment Market ........ 52 3.2.1. Key Players .......................................................... 53 3.2.2. Emergence of New Digital Services for Industrial Equipment .. 60 Chapter 4. Lead Firms and Company Case Studies ......................... 70 4.1. Internal Workforce Development and R&D Spending .............. 72 4.2. Mergers and Acquisitions ..................................................... 82 4.3. Start-ups, Venture Capital and Investments ........................... 84 ............................................................... 4.4. Collaborations 93 ........ 4.5. Collaboration for Interoperability and Conflicts of Interest 99 ...................... 4.6. Entry and Upgrading in the Digital Economy 103 0321연구보고서_조재한(GVCC-KIET)-최종.indd 5 2019. 3. 21. 오후 6:01 Chapter 5. Human Capital and Workforce Development ............. 107 5.1. Workforce Gap ............................................................... 114 5.2. Certifications ................................................................... 118 Chapter 6. Geographic Analysis: Country Findings ........................ 120 6.1. National Policies ............................................................. 120 6.2. Singapore ....................................................................... 134 6.3. India ............................................................................... 136 6.4. China .............................................................................. 138 6.5. Korea: Key Takeaways ................................................... 141 6.5.1. Limited Participation in the Global Digital Economy 141 6.5.2. Korean Firms are often captive or closely tied to Korean MNEs, with few Independent Companies .. 147 6.5.3. Korean Firm Strategy is focused on Internal Development ........................................................ 148 6.5.4. Acquisitions and VC Investments are Uncommon in Korea ................................................................ 150 6.5.5. Korean Firms have few Partnerships and Collaborations (with other digital economy firms or with firms in other markets) ................................................... 152 Chapter 7. Recommendations .......................................................... 153 References ................................................................................... 163 Appendix ..................................................................................... 180 0321연구보고서_조재한(GVCC-KIET)-최종.indd 6 2019. 3. 21. 오후 6:01 List of Tables Table 3-1. Digital Economy Market Segments/Final Products, Values, 2017-18 .................................................................................... 34 Table 3-2. Digital Economy Infrastructure (Telecommunications, ISPs) ......... 36 Table 3-3. Software Segment Definitions and Market Estimates ..................... 40 Table 3-4. IT Services Segments, Companies and Market Values ................... 44 Table 3-5. Internet Software & Services (Platform, Search Engines, Cloud, e-Commerce) ............................................................................ 48 Table 3-6. Select Analytics Start-Ups ........................................................... 58 Table 3-7. Technology Layers in the Industrial Internet of Things ................. 64 Table 3-8. Capital Equipment GVCs Enhanced by Digital Business Models .... 67 Table 4-1. Characteristics of Lead Firms in the Digital Economy .................... 71 Table 4-2. Digital Firms and Industrials, R&D Expenses and Locations, 2017 . 73 Table 4-3. Total, Digital Economy and Industrial Revenue and R&D, 2012 and 2017 .......................................................................... 81 Table 4-4. Digital Firm & Industrials Acquisitions, Count and Value .............. 83 Table 4-5. Digital and Industrial Firm Investments, Count and Value ............. 88 Table 4-6. IIoT Start-Up Investment Activity, by Country, 2009-2018 ............. 93 Table 4-7. Digital Firm and Industrials Collaborations and Events ................. 95 Table 4-8. Digital Economy Strategies, Company Case Studies .................... 105 Table 5-1. Skills/Technical Focus Areas ..................................................... 109 Table 5-2. Employee Profile, Digital Economy GVC, 2017 ........................... 111 Table 5-3. Non-Computer Occupations in the Digital Economy Industries, 2017 ........................................................................................ 114 Table 6-1. Select Policies in Countries Leading Industry 4.0 ......................... 126 Table 6-2.