Red ocean crisis calls for bold transition

Eight in ten South Korean manufacturers say their core product markets have reached saturation, entering what is known as “red ocean” territory. These markets are defined by limited demand and intense competition, eroding profitability and stifling growth. Without bold investments and innovation to launch new products and explore untapped sectors, companies face the risk of collapse. This stagnation is reflected in the fact that eight of South Korea’s top ten export categories in 2023 were unchanged from 20 years ago, highlighting the country’s stalled industrial transformation.

A recent survey by the Korea Chamber of Commerce and Industry, which polled 2,186 manufacturers nationwide, found that 82.3 percent believe their main products are in the maturity or decline stage of the market cycle. Just 17.7 percent said their products are in the introduction or growth phase. The results point to a serious gap in South Korea’s capacity to develop new industries that can replace its aging manufacturing base.

Steel, petrochemicals, and oil refining, once the backbone of South Korea’s exports, have now entered red ocean territory. Global steel demand is projected to decline for the fourth straight year in 2024, dropping to 1.74 billion tons, while surplus production capacity exceeds 600 million tons. South Korean steelmakers are under intense strain from China’s dumping and a 50 percent tariff on exports to the United States. Petrochemical companies also face growing headwinds due to large-scale facility expansions in China and Middle Eastern oil-producing countries. Without restructuring, analysts warn that up to half of these firms could go bankrupt within three years.

To weather the current crisis, companies need to tap into blue ocean markets that offer limited competition and greater value through innovation. However, the KCCI survey found that only 42.4 percent of manufacturers had launched or were considering new business ventures to replace their main product lines. Most cited tight finances and uncertainty about future industries as key reasons for holding back.

The Trump administration launched a global tariff war to rebuild American manufacturing, raising protective barriers for domestic industries. South Korea must also act swiftly to support its industrial base and take the lead in managing the risks of economic transition. Government support for early-stage technologies and ventures should move away from corporate tax breaks and toward direct subsidies. During this sensitive shift, officials should refrain from pushing institutional reforms that could provoke labor unrest or spark disputes between executives and shareholders.