Promoting the parts and materials industry

Weak competiveness of Korea’s parts and materials industry is the main culprit of the country`s chronic trade deficit versus Japan. Assembled products that Korea exports, including cars, electronics and machinery, contain lots of core parts and materials imported from Japan. Korea ranks first or second in the world IT sector. In reality, however, it heavily depends on Japan for parts and materials. The more Korea exports, the more it imports from Japan in tandem. Korea’s trade deficit versus Japan increased from 11.3 billion U.S. dollars in 2000 to 36.1 billion dollars last year.

LG Chem finished Wednesday the construction of a plant for rechargeable batteries for vehicles at Ochang Techno Park in Cheongwon County, North Chungcheong Province. This great achievement illustrates the growth potential of the domestic parts and materials industry. The factory can supply batteries for a combined 100,000 vehicles per year. When investment in the plant is completed in 2013, it will secure the capacity to roll out batteries for 350,000 electric vehicles per year. Since advanced economies such as the U.S., Japan and Germany are scrambling to develop electric vehicles, demand for rechargeable batteries to power such vehicles is projected to see astronomical growth. Samsung SDI, which advanced into the small-size rechargeable battery business 11 years ago, also overtook Sanyo last year. As a result, Korea is poised to overtake Japan in the secondary battery field to become the world`s top producer this year.

Korea has made great strides in the parts and materials industry. Parts and materials export jumped from 62 billion dollars in 2001 to 229.3 billion dollars last year, ranking sixth in the world. The nation’s trade surplus in the sector also skyrocketed from 2.7 billion dollars to 77.9 billion dollars over the same period. Korean dependence on Japanese parts and components, which reached as high as 30 percent in 2001, also fell to 25 percent thanks to continued investment in technological development in the sector by conglomerates and smaller companies.

Korea’s parts and materials industry is being spearheaded by smaller conglomerates and small and medium-size enterprises. These companies have weak financing capacity and can hardly afford to make massive investment over the long term like major conglomerates such as Samsung or LG. Hence, the government should provide support to them until they reach a certain level. The government is considering renewing the efficacy of a law on the cultivation of specialized parts and materials companies set to expire at year`s end. Experts say around 2.5 trillion won (2.2 billion U.S. dollars) extended by the government under the law has been highly effective in advancing the industry. Only when smaller conglomerates and companies secure competitiveness in the parts and materials field can Korea achieve joint growth between conglomerate and small and mid-size companies.