Hardware vs. Software: Korea's Growing Dependence on Manufacturing

The Joongang Daily and other media are reporting today on a new Bank of Korea report that shows Korea's increasing dependence on its manufacturing sector over the past nine years.  (Click on the accompanying graphic to see a full size version)  Last year the manufacturing industry created total value worth $257.4 billion, or 30.6 percent of the country's total.  This represented the first time that the percentage from manufacturing exceeded 30 percent and it was also a significant increase over earlier years.

In terms of the focus of this blog, it is significant that Korea's manufacturing industries are led by electronics.  In other words, these figures reflect a heavy reliance on the manufacture of semiconductors, mobile handsets, flat screen television sets and computer monitors and other electronic components.  This compares with relatively small production of software and content, which comprises by far the bulk of the global ICT industry.  The Bank of Korea also reported that last year's exports tied to the manufacturing sector were 5.6 times greater than exports by the service sector.

According to an official from the Knowledge Economy Ministry, “There is a need to develop high-value service sectors such as medical, information technology, finance and insurance in addition to low-value service sectors such as retail and lodging.”

Hardware versus Software

The Chosun Ilbo carried an opinion piece today that focused on the relative lack of development of South Korea's software industries.  Among other things, it pointed out that

• Last year Korea exported IT products worth U.S.$121 billion, which accounted for a third of the nation's total exports of U.S. $363.5 billion.


• The leading exports were all manufactured products: memory chips, displays and mobile handsets.


• On the other hand, exports of Korean-made software totaled just U.S. $300 million, less than 1 percent of all IT exports.


• Foreign products take up 78 percent of the local software market.

The editorial concluded with reference to the rapidly growing smartphone market, which shows that manufacturing good handsets is no longer enough.

Korea's IT Service Sector vs. IT Manufacturing

In recent decades, South Korea has become an IT Powerhouse, based largely on the impressive strides it has made in ICT-related manufacturing.   We all know the main products --semiconductors, mobile handsets, LCD flat panel displays and digital televisions, along with parts and components for many of these products as well as fiber optic and wireless digital networks.

A new report by the Hyundai Research Institute warns that the sluggish development of South Korea's IT Service industry could hurt the country's overall IT competitiveness since it widens the gap between the service and manufacturing sectors.  Korea's IT Service industry expanded by an annual average of 7.1% from 2001 through 2008, while its IT manufacturing industry grew 9.5 percent in the same period.

An article published by Yonhap News also notes that the the IT service industry encompasses consulting, systems integration and management, and IT education.