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Research and development

A turning-point in Korean S&T was the establishment in 1966 of the Korean Institute of Science and Technology (KIST). It was founded to provide technological assistance to the heavy, chemical, and other export industries. Since then, through the 1970s, about 10 specialized industrial research institutes were established, many being spin-offs from KIST. In 1971, the Korea Advanced Institute of Science (KAIS) was established as a postgraduate school in applied sciences and engineering to supply high-quality scientists.

The financial and technical support of the United States made the establishment of KIST possible. But it was in 1969 that KIST actually began to perform R&D. All the research institutes established since then have followed the pattern of KIST, and the Korean government has also made great efforts to repatriate Korean scientists from abroad and to utilize them in adapting and improving imported technologies. To repatriate these scientists, special incentives were provided and the autonomy of research activities, as well as their financial support by the government, was assured.

During the 1970s, the growth stage of Korean industrialization, an emphasis was placed on fostering industries with higher-level technologies. The government had selected six strategic industries: steel, machines, shipbuilding, electronics, petrochemicals, and non-ferrous metals. KIST had performed R&D in these fields until the mid-1970s but could not effectively meet their massive future technology demands. In 1974, therefore, the government enacted a law establishing specialized government-supported research institutes which would provide technology assistance to strategic industries. In the second half of the 1970s, a series of such specialized research institutes was established, each institute being financially supported through a relevant ministry.

Some of the specialized research institutes were spin-offs from KIST and some were reorganized from existing public research institutes to enhance the flexibility and efficiency of R&D activities. Until the 1980s, these specialized institutes would spend most of their efforts in establishing research systems, rather than in actually doing R&D. Serious efforts were made to improve imported as well as existing technologies, and to supply qualified scientists and engineers, educating and training them to meet the industrial needs of field-related problem-solving.

During the 1970s the creation of a favourable environment for scientific activities was another major objective. To achieve this, the general awareness of the importance of S&T was increased and "scientific thought patterns" promoted. Educational activities along these lines were also emphasized by the Korean government and educational institutions.

In the 1980s, the Republic of Korea had to compete with developed countries in some high-technology industries. To succeed in such competition, R&D systems in Korea had to be reorganized into a more efficient and harmonious whole. In 1980, therefore, the government merged 16 research institutes to create nine new ones. The Ministry of Science and Technology (MOST) took responsibility for coordinating the R&D of the reorganized institutes. To make such coordination effective, MOST supported the financing of all of these institutes except the Korea Ginseng and Tobacco Research Institute, which is financially supported by the Office of Monopoly.

Since 1982, national projects have been carried out to compete internationally in the development of high technology. The two main categories of national projects are Government Projects and Government-Industry Joint Projects. During the period from 1982 to 1984, 214 Government Projects were conducted and 38 billion won was spent on them. Three hundred and forty-five Government-Industry Joint Projects were carried out during the same period, financed by industry to the tune of 17 billion won. These projects have contributed significantly to the sharp increase in the R&D expenditures of government-sponsored research institutes. The government budget for national projects has been increasing, and reached 30 billion won in 1985 and 50 billion won in 1986.

Table 3 shows the financial support made to R&D institutes by the government during the 1982-1985 period. For each year during this period the total spent amounted to 35-40 per cent of the government's budget for the field of S&T - a proportion that is much higher than before the reorganization of R&D systems in 1980. If we include the budget of the government-financed research projects carried out by these research institutes, the proportion in each year of the 1982-1985 period amounted to 42-49 per cent.

Table 3. Financial support of research institutes by the government (millions of won)

Source: MOST, Statistical Year Book of Science and Technology, 1984.

Reassessment of the policy and strategy

To attain an equitable distribution of the benefits of growth, the government since the 1980s has made serious efforts to improve living conditions in rural areas and raise the income of rural households. The efforts to improve rural living conditions include setting up bus routes in small farming and fishing villages and constructing nurseries and schools.

Table 4 shows the ratio of paved to total local roads and of rural to urban incomes of households from 1981 to 1984. To raise farm incomes, efforts were made to use arable land fully, increase farm mechanization, and promote floriculture and stock-breeding. To increase non-farm rural incomes, small and medium-size factories were built in rural areas. As a result, the income of rural households now approaches that of urban households.

Table 4. Ratio of paved to total local roads and the ratio of rural to urban household incomes (%)

Source: EPB.

To enhance the competitive power of industries, the government reduced its leadership in economic activities and its protection of the domestic market. To promote competition in the market, a fair trade system was established and trade liberalization expanded. To strengthen the competitive power of industries, the government supported small and medium-size firms.

As a result of these efforts to promote competition, R&D investment in industries increased sharply. Table 5 shows the ratio of S&T investment to total GNP from 1980 to 1986. The government has also made efforts to improve the financial structure of the industries. Loans to big enterprises have been restrained. As a consequence, the capital -asset ratio has increased since 1980.

Since 1980, then, the Korean government has implemented some new policies and complemented ongoing policies for the further development of science and technology. Securing enough investment and adequate manpower was now the most important task for S&T development. The government made serious efforts to encourage private investment, first by offering tax incentives. Though tax incentives for R&D activities had been offered in the 1970s, they were not sufficient to induce enough private R&D investment. In the 1980s some new incentives were added and existing ones were strengthened.

The remarkable increase in S&T investment and R&D expenditures is mainly due to the sharp increase in the contributions of the private sector. The share of the private sector in total R&D expenditure increased from 48 per cent in 1980 to 70 per cent in 1984, although the actual performance by industry is somewhat lower than these figures. The difference arises from the fact that industry gives R&D to government-sponsored research institutes and universities.

The Republic of Korea's gradual mastery of technology resulted eventually in technology exports. Such exports in fact began in 1976 with Korean companies participating in construction works in the Middle East. But performance is still poor and technology exports (excluding technical labour and service exports) declined between 1981 and 1984.

Table 5. Investment in science and technology (billions of won)

Source: MOST, Statistical Year Book of Science and Technology. 1984.

Achievements in industrial development

To assess mastery of technology, Korean industrial performance can be taken as an indirect indicator.

Thus, in steel, the Republic of Korea developed from small-scale production with electric furnaces in 1960 to being one of the largest steel-producing countries in the world by the late 1970s, with a capacity of 13.54 million M/T of ingot in 1985. Beginning in 1973, the petrochemical industry achieved self-sufficiency - about 80 per cent of imports had been substituted - and had an export potential of downstream industries.

The electronics industry recorded phenomenal growth in a little over two decades, with the following landmarks: black-and-white television in the late 1960s, colour television in the early 1970s, and other consumer and industrial electronics in the mid- and late 1970s. In 1985, the export of electronics reached US$4.4 billion, representing 15 per cent of the total.

Up to the mid-1970s the shipbuilding industry in the Republic of Korea was small, but by the end of 1985 a maximum capacity of 1 million DWT was reached, placing the country in the world's top rank.

Automobile assembly began in the mid-1960s with completely knocked-down components. Real mass production began only in the mid-1970s, with 200,000 passenger vehicles manufactured in 1979 and 30,000 exported. Production capacity gradually increased to 685,000 per annum in 1985, with a local content ratio of 90 per cent. The automobile industry has now grown to be one of the important export industries, North America being a principal market.

The electronics industry as a case-study

As part of the research, two case-studies, of the electronics industry and the farm sector, were undertaken. As the electronics industry in the Republic of Korea is very significant, the main highlights of the case-study will be given here.

The Korean electronics industry has gone through five different phases: (1) random exploration; (2) technology introduction; (3) equity joint venture and Original Equipment Manufacturing (OEM); (4) copying and transforming; and (5) the development of its own technologies and products.

In the first stage of random exploration between 1958 and 1962, vacuum radio tube radios, electric fans, and telephone manufacture were begun. The production of these items was carried out with inadequate technology resources. For design, heavy reliance was placed on operation and maintenance manuals, circuit drawings, components lists, and schematic layouts that came with imported electric equipment. It was virtually impossible to obtain materials or information for manufacturing technologies. The manpower for manufacturing during this stage was drawn from those who ran minor repair shops. testers of telephones, and "dabblers" in electrical equipment.

During the second phase from 1963 to 1968, foreign technologies were brought in to fill the perceived inadequacy of the earlier efforts. The packaged deals that were entered into at the time brought in mass production. But such deals often meant that a foreign party was entirely responsible for selecting and supplying the manufacturing equipment and the technical assistance.

Laws to induce foreign capital were now set up, but encountered many difficulties in their implementation, including official inexperience and inefficiency. Yet import substitution was carried out and at the end of this stage about half the electronic and electrical manufactures were being exported. The major products manufactured included refrigerators, watt hour meters, telephone switching equipment, transistor radios, cables, and elevators. Other manufacturing attempts included communications, electronic home appliances, and consumer electronics.

The technologies during this second stage came from drawings and specifications supplied by foreign agencies, instructions given by foreign experts, and know-how brought back by Koreans trained abroad. An important manpower consideration at the time was the training of a large amount of subgrade technical manpower for the electronics industry.

The major technological concerns during this period were the manufacture of the moulds, jigs, and tools for mass production, prefabrication of mechanical parts and the production of simple passive circuit elements, and their final assembly and testing. However, foreign collaboration at this time precluded mastery of design, as well as the import of design equipment.

During the third stage of equity joint ventures and OEM (19691975), certain problems associated with mass production had to be faced. As the local market was limited, overseas markets were sought. But overseas marketing by Korean industry alone was found to be impossible. Because design capacities were not transferred. every time a new model was introduced fresh contracts had to be signed with the foreign partner. Large-scale manufacture also required advanced business skills beyond mere production and testing.

In spite of these difficulties, the number of technical collaborations increased for some time. Overseas markets were cultivated and management know-how was acquired. To attain these objectives, joint ventures, in which production management is partially carried out by the foreign partner, were increased in the fields that required more complicated manufacturing and management techniques, namely industrial and communications equipment. On the other hand, OEM was resorted to in the area of electronic home appliances for export.

With regard to joint ventures, the technologies acquired included manufacturing technologies that were slightly more sophisticated than those acquired in the earlier period and manufacturing techniques learnt through daily contact with foreign experts. No design technologies were transferred.

In the case of Original Equipment Manufacturing (OEM), quality control and testing techniques improved remarkably, partly through the process of learning from the foreign experts sent to do the final stages of testing. The comparative study of many different foreign companies proposing OEM also led to improvements in design capabilities. Unlike mere technology agreements, OEM involved the foreign party directly in the production fortunes of the company, so that technologies beyond the contractual ones were often transferred.

The new products manufactured during this stage included colour TVs and cassette radios. Progress was also made in other areas proving models and increasing indigenization. The mass production of several circuit elements in joint ventures was also initiated. Several foreign firms began independent projects, assembling and manufacturing other electronic parts utilizing the cheap labour available.

As the positive effects of the electronics industry began to be perceived and its export potential realized, additional measures were made to foster it. These included the waiving of import duties on imported inputs for export electronics. The package of government supports helped strengthen the structure of the industry, rendering it partially immune to unfavourable external changes.

The fourth stage in the industry was that of copying and transforming (1976-1980), and this became necessary because of several changes. The oil shocks of the 1970s created a demand for electronically run control devices that would save energy. It also favoured less energy-consuming industries such as electronics. On the other hand, electronics-based automation also eroded the advantages of cheap labour on which some of the OEM prefabrication and assembly industries were based.

Furthermore, the shortening product cycles of new products were making the introduction of a particular technology for each model unattractive; and as the Republic of Korea's exports continued to increase, foreign collaborators were increasingly reluctant to transfer new technology. Many direct foreign investment and OEM ventures now virtually closed down overnight. And joint ventures aimed at the local market also came more or less to a standstill as local market limits were reached.

Because of these factors, Korean industry felt acutely the limits of the prevailing strategy of technology acquisition. It now began to venture out on its own by copying foreign products and transforming them to avoid legal and ethical complications. However, it was soon realized that, to copy foreign products successfully, custom-designed key components were required.

Major technological developments were reported during the period as industry responded to the changed circumstances. These included: increases in design capacity to produce models different from the ones being copied; the ability to design sequential control circuits using a microprocessor; the design of printing mechanisms for the Korean-alphabet office equipment; and the design of parts for electronic PABX. In manufacturing, mechanical products capability, for example in audio deck mechanisms and Korean-alphabet mechanisms, was achieved.

These advances were aided by an increase in the stock of relevant technical skills. The latter included repatriated Korean scientists and engineers, graduates of KAIST, those trained in industry and private technology centres, and graduates of local engineering colleges.

The government also laid down new guidelines for the industry. Measures to help the industry included tax privileges and exemption from military service for electronics specialists, the latter permitting the release of adequate manpower for R&D efforts.

New products during this period included colour TVs, audio components equipment, and car radios in consumer electronics; typewriters and cash registers in electronic office equipment; and key telephone systems, electronic PABX, PCM carriers, and optical fibre cables in telecommunications equipment.

The last stage in the electronics industry involved the development of its own technologies and products (1981-). The continuing export of Korean electronic products had alarmed overseas markets and the licensing of foreign technology was becoming more difficult. The life cycle of products was getting shorter and shorter and a new model would appear in the market before significant progress could be achieved, thus blocking genuine local integration of the product. Creating new models by copying was also difficult because of the problem of custom-designed key components, which were impossible or very expensive to obtain from the respective foreign country.

When the local production costs of OEM or direct investment projects exceeded the level that foreign parties were willing to pay, they would suspend production. This immediately damaged the image of Korean products in the foreign market, and also tied up already invested facilities and technologies. Consequently, the crucial importance of self-reliance was realized.

This realization was reflected in the integrated circuits (ICs) that were developed during this period. An independent process of full-scale market cultivation was also launched to promote the overseas sales of VCRs. To reinforce existing know-how, the electronics industries established their own development centres to cover those technology areas for which no direct support was possible from other sources. They also established development centres in selected overseas countries, employing locals and available Korean engineers.

The Korean government also subsidized the incorporation of a number of research institutes apart from KIST, including the Korea Institute of Electronic Technology (KIET) and the Korea Electronic Telecommunications Research Institute (KETRI). In partnership with private industry, they developed computers and their peripheral equipment, the Very Large Scale Integration of electronic circuits (VLSI), and new materials.

In the case of the VCR, a successful though imperfect solution in basic design and mass production was achieved without external assistance. Considerable progress was also reported in mass production technologies, in quality stabilization using the most advanced automated equipment, and in the design of a process flow to make the best possible use of the relatively low wages in the Republic of Korea. The result of all these measures was that the Korean electronics industry had become a leader in consumer electronics and electric home appliances, and was now also establishing its own manufacturing bases overseas.

Self-reliance targets at each stage

The electronics industry has contributed much to the attainment of self-reliance in the economy and in science and technology, since it has achieved the fastest growth rate of all manufacturing industries.

This search for self-reliance occurred in four stages. In the first technology introduction phase, several foreign-oriented approaches were taken: the introduction of foreign loans for manufacturing facilities, the conclusion of licence agreements for production technologies, and, through the latter, the obtaining of licence drawings for product design.

At the second stage of equity joint venture and OEM, economies of scale were pursued. The OEM set-up was used to expand the market and the acquisition of managerial skills was achieved by equity joint ventures. During this stage, self-reliance was sought in relation to the foreign exchange burden. The industry had to service foreign exchange from the previous stage, while finding new sources of foreign finance to procure new parts and equipment. To achieve these ends, foreigners' own investments were encouraged, and were preferred to commercial loans. Thus, in order to be self-reliant in foreign exchange, the Korean electronics industry became reliant on foreigners for managerial skills in equipment production and in overseas marketing.

The next stage of copying and transforming was one of self-reliance with regard to the contractual assistance arrangements with foreign companies. Unless this was reached, the industry would be unable to free itself from foreign restraints on decisions about the import of basic supplies and the independent cultivation of overseas markets.

This awareness prompted the industry to engage in product design and manufacture on its own without relying on manufacturing licences or on foreign capital. However, all the industry could do at this stage was to copy foreign products, transforming them as much as possible. This gave rise to two sets of difficulties. One was increasing regulation and restriction in intellectual property and the second was the importance of key parts designed by industrially advanced countries.

Overcoming these problems brought the Republic of Korea to the fifth stage, that of developing its own technologies in design and manufacturing. The industry would also continue seeking financial self-reliance by enhancing the value added on domestic products and promoting self-reliance through a build-up of its own overseas sales network.

Looking to the future, the industry's main necessity today is to free itself from reliance on foreign sources, principally Japan, for parts and raw materials. These and other similar problems have to be seen in the context of the need for a properly scheduled and systematic technology transfer. The need to identify and strengthen, for mutual advantage, the International Divisions of Industry is therefore pressing.

Problems and issues

In the 1980s S&T capacity in the Republic of Korea increased significantly. Yet the country is still far behind advanced nations. Its overall technology capability index (table 6) is only 5.7, while that of the US is normalized at 100. Thus, it is far behind the 86.9 of Japan or the 45.0 of the Federal Republic of Germany.

Yet S&T investment in Korea has increased faster than the GNP; the ratio of the former to the latter has steadily increased from 0.26 per cent in 1965 to 1.46 per cent in 1984. Investment has grown faster in the private than in the public sector. The share of the private sector in total R&D expenditure has increased from about 10 per cent in the mid-1960s to 79 per cent in 1984. Despite this remarkable increase in the past 20 years, S&T investment is still much less than that of advanced countries, and more investment is required.

The increase in manpower has been significant during this period. The number of researchers per 10,000 has increased from 0.7 in 1965 to 9.1 in 1984. Yet this figure is still much smaller than that of advanced countries. In addition, Korea still lacks high-quality, experienced engineers in the field.

Table 6. International comparison of technology indices (1982) (billions of dollars)

Source: Korea Development Bank.
a. Korean data are from 1983.

The insufficiency of basic research is another serious problem. A recent survey indicates that the proportion of basic research expenditure to total R&D expenditure has been around 17 per cent since 1982. Serious support of universities by the government is required to increase this figure.

The main type of technology in the Republic of Korea still consists of simple processing and assembling technologies. One of the most serious problems in the field of S&T is the inferiority and insufficiency of the basic technology necessary for system design and the production of parts and materials. Improvement of these lagging basic technologies is critical for the upgrading of the industrial structure to a technology-intensive one. Because such upgrading is important for further economic development, greater efforts should be devoted to improving basic technology.

Future plan for self-reliance of science and technology

New technologies such as information technology and biotechnology are transforming the structure of industrial countries, and information technology is replacing mental labour by humans. Rapid progress and wide application of genetic engineering is expected to open a new era of prosperity for the world in the twenty-first century. Another breakthrough is the development of new materials such as fine ceramics.

These technologies are being developed at a very fast rate. The innovation rate for previous technologies did not generally exceed that of a business cycle, but the speed of major modern technological innovations, particularly semiconductors and computers, is often faster than this, causing an observable disturbance in market equilibrium. The implication is that technology can no longer be treated as a residual variable in understanding the economic behaviour of relevant industries. It is now to be understood as a major factor in economics.

There are also important differences in the development of such technologies. First, the life cycle of technological innovation, from basic research to product development, has been considerably shortened. Second, major innovations are now often the work of teams of many researchers. Third, the technology requires a multidisciplinary approach integrating many related "unit technologies."

The new technology is also changing the mass production system to one where many kinds of goods are produced in small quantities to meet the changing demands of consumers. Owing to the high risk and large investment involved in the new technologies, it is not likely that one country will become the leader in a wide spectrum of important technologies.

Through the application of high technology to existing industries, such as the automation of the textile and garment industries, developed countries will probably regain their comparative advantages in labour-intensive industries. Consequently the international division of production will no longer be based upon labour and capital alone, but on a new foundation centred around technology.

In this rapidly changing technological environment, developing countries such as the Republic of Korea are left with the very narrow option of developing a few selected technological areas to the level of advanced countries. For this reason, Korea has prepared the report "Long-term Perspectives for Science and Technology Development to the Year 2000."

The long-term goals and strategy of national development

In the next 15 years, the Republic of Korea's major goal is to make a smooth transition from a newly industrializing country to an advanced society. The advanced society visualized in the report has the following interrelated characteristics: freedom and stability; affluence and vitality; and justice and balance.

In order to meet the challenge of becoming an advanced society, its characteristics and traits, such as a strong motivation to learn. hard work, and determination to overcome difficulties, need to be continuously sustained and encouraged. The country must learn from the experiences of advanced countries and must exploit the advantages of a latecomer to development. We should carefully examine and analyse the experiences of advanced countries, in order to avoid the trials and errors that arose in the course of their development and to transplant successfully their policies and institutions into the Korean socioeconomic climate.

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