South Korea Plans Major Push Into High-Tech Fields : Technology: The country plans to spend $39.5 billion to lay groundwork for an attempt to catch up with the leaders.

In the 1970s, textiles dominated South Korea’s industry. In the 1980s, consumer electronics emerged. And if the government is correct in its predictions, high technology will dominate the 1990s, with South Korea making an international impact in at least five new fields.

After a year of study, a commission set up by the Ministry of Trade and Industry completed a report that called for spending about $39.5 billion on high tech between 1990 and 1994. More than 40%, or $16.6 billion, of the total would be spent on research and development, with the rest planned for investment in production facilities.

President Roh Tae Woo’s administration has not yet decided how much government money to put into the program, nor has it completed the details of tax incentives and preferential loans that would be provided. But the Ministry of Trade and Industry wants there to be “strong government support,” said Lee Kyung Tae of the Korea Institute of Economics and Technology. Lee served as head of the secretariat of the commission that prepared the report.

South Korea’s Ministry of Finance and Economic Planning Board wants to emphasize private-level initiatives.

Whatever the outcome, the ambitious goals of the Ministry of Trade and Industry report will not be altered, Lee said. It singled out new materials, mechatronics (mechanical-electronics--such items as computer-controlled machine tools), bioengineering, microelectronics, fine chemistry, optics and aircraft as fields in which it predicted that South Korea could catch up with advanced countries “economically and technologically.”

Of the seven, only in microelectronics (with production valued at $7 billion in 1987) and fine chemicals ($5.2 billion) does South Korea already engage in significant manufacturing. And only in microelectronics, with $4.9 billion in overseas sales in 1987, are there significant exports.

Production in all seven fields amounted to $14.1 billion in 1987, but the report envisions a 3.6-fold increase to $50.2 billion in 1994 and virtually a 10-fold rise to $139.5 billion in 2000--the equivalent of about 70% of this year’s entire gross national product.

South Korea now runs a trade deficit in all seven fields, but by 1994, according to this projection, exports would surpass imports and would expand 11-fold to reach $62 billion by 2000. More than 40% of all South Korea’s exports would come from the seven targeted industries, and the nation’s share in global high-tech trade would rise to 3.2% in 2000, the report predicted.

Doubling R&D;

In 1987 only 11% of exports were high-tech products, and South Korea’s share of global trade in high tech was only 1.4%.

The panel envisioned creating a $3.3-billion (2.2 trillion won ) government fund by 1994 from which soft loans would be given to small enterprises to develop technology, manufacturing processes and pilot products, Lee said.

The government would also nearly double--to 38%--its share of the nation’s total spending on research and development.

The Trade and Industry Ministry recommendations represent only a portion of South Korea’s plans for high tech. The Ministry of Science and Technology, for its part, is supporting development of supercomputers--with the hope of having the first in operation in five years--and is overseeing work to launch a Korean-developed scientific satellite by 1992 and a communications satellite by 1996. It is also pushing R&D; in such fields as energy, medicine and the environment.

“In production techniques, we have an advanced level of assembly skills and an intermediate level of fabricating ability,” Lee said. “But we are far behind in design.” Overall, South Korea lags behind fully developed industrial nations “by 10 to 15 years,” he said.

Although 31% of the nation’s 1 million students are studying engineering, skilled technicians are in short supply.

“Universities don’t have even the minimum level of lab facilities and are not involved in basic research because of a lack of funds,” Lee complained. Moreover, public and private spending on research and development amounts to 2% of the GNP, a level the government hopes to raise to 3% by 1994, he said. As recently as 1984, it was only 1%.

“Funds and manpower are the two most important tasks we have to handle,” Lee said.

Innovation also promises to be a problem, said one foreign expert, who requested anonymity.

“Koreans know science and technology. They can put things together and take them apart. But they are not free thinkers. . . . You don’t really see new products coming out here. Instead of aiming at just more of the same things (that others are already making) at cheaper prices, they’ve got to start developing really new products,” he said.

Park Sung Kyu, president of Daewoo Telecom, said: “We are not a technological leader. We can’t come up with a technology-driven product and create a new market. We look at a market and develop a product for it, watching and working quickly.”

For example, he added, South Korea is biding its time, doing only basic research on high-definition television, because HDTV “products are not well defined.”

In both memory and custom-made semiconductors as well as in aircraft, however, “the products are well defined. We know where we are going. That’s why we are putting our money” into those fields, Park said.

Nonetheless, unlike the United States, which is still debating even whether to enter the high-definition TV field, three of South Korea’s electronics giants--Samsung, Gold Star and Daewoo--have already secured technical services from NHK, developer of the Japanese HDTV system, and are reported ready to sign technical licensing agreements.

Speedy Entry

In the future, however, South Korea can start leading the market by developing new products “in certain areas,” Park said.

By 2000, he said, Daewoo Telecom “will be more recognizable in the world market.” South Korea, as a whole, he predicted, will make itself felt globally in personal computers, semiconductors and telecommunications equipment.

The Ministry of Trade and Industry report predicted that South Korea would be a world leader in optics and laser products by the turn of the century and would be producing both light aircraft and top-of-the-line automobiles by then. In addition, it said South Korea would develop 64-megabit DRAM semiconductors by 1994 and 1-gigabit (1-billion-bit) DRAMs by 2000.

Despite South Korea’s limitations, the speed of its entry into high technology has attracted foreign attention.

“When we were developed 256-K DRAMs, the Koreans were four years behind us,” Tadahiro Sekimoto, president of NEC, said in an interview in Tokyo. “When we started producing 1-megabit DRAMs, it was a year and a half. And now, with the 4-megabit DRAMs, it is only one year.”

Indeed, South Korea did not even start major production of semiconductors until 1985. Now, the country ranks as the world’s third-largest producer of chips, and Samsung has emerged as the world’s fourth-largest semiconductor maker, according to Dataquest, a semiconductor information firm.

Last year, chips exports amounted to more than $3 billion and by 1995 the Electronics Industries Assn. of Korea expects exports to reach $9 billion.

Daewoo Electronics, which got its start only in 1983, recorded $1.5 billion (1 trillion won ) in sales last year, a 10-fold increase over its first year. The firm won the government’s Gold Tower award for registering $1 billion in annual exports, a 34% increase, during a year when South Korea’s overall exports were stagnating.

Park’s Daewoo Telecom is another company that started from scratch in the early 1980s, and has already exported more than 500,000 IBM-compatible personal computers to the United States.

By 1995, the industries association expects South Korea’s exports of computers and peripheral equipment to reach $9.8 billion.

Daewoo Telecom also developed a central office telephone switching system as part of a government-organized R&D; consortium and is supplying 400,000 lines. “Next year, we’ll supply over 500,000,” Park said.

Already, the Korean electronics industry, which last year ranked sixth in the world in production, is moving away from low-tech consumer products to higher-value parts and components. In 1988, for the first time, the value of South Korean-produced electronic parts and components, including semiconductors, surpassed that of consumer goods--$9.7 billion to $9.2 billion.

Quick Progress

Industrial electronics is expected to account for 35% of the industry’s exports in 2001, compared to 18% in 1986.

Even as Korea has closed the time gap in coming out with its front line products, however, “the gap has grown bigger in other areas,” Park said. Semiconductor design is one, he said.

While the United States and Japan continue to move up on ever-larger integrated circuits, Daewoo Telecom, which started its own custom-made semiconductor business only three years ago, is just beginning to do basic design work on custom-made chips, he said.

“Once you reach a certain threshold, progress comes quickly,” Park said. But Korea is not there yet, he added.

In addition, South Korean manufacturers are finding Americans--from whom they obtain much of their high-tech knowledge--more demanding.

“They always claim they apply the same rates to everybody,” Daewoo’s Park complained. “But often, they are very unreasonable, adopting the attitude that ‘You either take it, or we go to court.’ They can block your use, or make it so expensive it hurts your competitiveness.”

Over the years, South Korea itself has used coercion--offering foreign firms large contracts only if the technology were provided.

Contracts for nuclear power plants, for example, have gone from a turn-key basis, under which the foreign firm builds and installs all the equipment, to the point that South Korean firms are now providing a majority of the equipment for new plants. Telecommunications, an arena of major dispute between the United States and South Korea, has followed the same pattern. Aircraft is next in line.

A huge boost to the industry is expected from a pending deal--dubbed the FX project--to build either General Dynamics’ F-16 or McDonnell Douglas’ F-18.

Plans call for the purchase of 12 aircraft, assembly of knock-down kits of 36 planes and then production in South Korea of another 72. A decision is expected soon on which aircraft South Korea will buy and build.

Three designated Korean manufacturers--Daewoo Heavy Industries, Samsung Aerospace and Korean Air--expect to reap a fallout of technologies in hard metal alloys, composite materials and electronic instruments with broad applications in other industries. In addition, the American firm that wins the contract will be required to guarantee purchases from South Korea of aircraft parts worth 30% of the project.

The FX project, industry sources said here, is expected to bring about 30 new companies into the aircraft industry, in addition to 30 that already exist. And aircraft production that amounted to a negligible $14 million in revenue in 1987 is expected to expand to more than $5 billion in 2000, partly as a result of the program.

At present, South Korean firms produce helicopters, manufacture parts and components, and do assembly work on military aircraft.

In competition for the contract, both General Dynamics and McDonnell Douglas have offered technological assistance not only to build the new fighter but for other sectors of its aircraft industry, as well.

The project has already been approved by the Bush Administration despite objections from Congress to its agreement with Japan earlier this year to co-produce a new fighter based upon the F-16 under Japan’s FSX program.

U.S. officials here argue that the United States has no choice.

“If we don’t provide the technology, the Koreans will get it somewhere else,” one diplomat said.

HIGH-TECH KOREA

Projections by the Ministry of Trade and Industry for development of seven areas of high tech in South Korea (in billions of dollars in 1987 value at an exchange rate of 670 won to $1).

Year Industry 1987 1994 2000 Microelectronics $7.0 $23.6 $56.4 Mechatronics 0.04 2.9 6.8 New materials 0.7 3.5 17.4 Fine chemicals 5.2 11.4 19.8 Biotechnology 0.5 2.1 8.4 Optics 0.6 4.8 25.4 Aircraft 0.01 1.9 5.3 Total 14.05 50.2 139.5 Exports 5.6 23.6 62.0 Imports 7.6 22.1 39.9