Model Of Development Of "Smart Industry" In The Republic Of
Korea In The Conditions Of Innovative Economy
Tairova Zarnigor
1
Tashkent University of Applied Sciences, Gavhar Str. 1, Tashkent 100149, Uzbekistan
https://doi.org/10.5281/zenodo.10467722
Keywords:
Model of development, "smart industry", innovative economy,
export-oriented economic development,
creative economy, social networking services, software development
Abstract:
The article examines the South Korean model of smart industry in a country with an innovative economy
within the context of the integration of advanced technologies such as automation, artificial intelligence,
and data analytics into manufacturing and production processes. The study's relevance lies in the Republic
of Korea's exemplary success in the economy, attaining a leading position in international trade through
robust and practical policies. This success is attributed to four factors: 1) creating a favourable business
environment by maintaining the lowest tax burden among OECD countries; 2) implementing targeted
policies since the 1960s to promote exports; 3) actively participating in negotiations to conclude free trade
agreements (FTAs) with developed and developing countries, recognising exports as a key growth factor;
and 4) diversifying its presence in global markets. Furthermore, the shift of the world economic centre
from the traditional West to the East, specifically the Asia-Pacific region, underscores the Republic of
Korea's sustained economic development through pragmatic relations with countries in the region.
Overall, the smart industry model in an innovative economy aims to drive continuous improvement and
growth through the strategic adoption of cutting-edge technologies and practices.
1 INTRODUCTION
In recent years, the Republic of Korea has emerged
as a global leader in the development of "Smart
Industry" within the framework of an innovative
economy. With its strong emphasis on technological
advancements and a robust industrial ecosystem, Korea
has successfully positioned itself at the forefront of the
fourth
industrial
revolution.
This
revolution,
characterized by the integration of digital technologies
into traditional industries, has paved the way for the
emergence of smart factories, smart cities, and smart
infrastructure.
Driven by a vision to enhance productivity,
efficiency, and sustainability, the Korean government
has been actively promoting the development and
adoption of cutting-edge technologies such as artificial
intelligence (AI), Internet of Things (IoT), big data
analytics, and robotics. These technologies have been
integrated into various sectors including manufacturing,
energy, transportation, healthcare, and agriculture,
transforming them into intelligent and interconnected
systems.
The development of smart industry in Korea has not
only revolutionized traditional manufacturing processes
but has also catalyzed innovation across multiple
sectors. By leveraging advanced automation, data
analytics, and real-time monitoring, Korean industries
have achieved higher levels of precision, agility, and
customization. This has
resulted in
increased
competitiveness in the global market, as Korean
companies are able to deliver high-quality products and
services at a faster pace.
Furthermore, the Republic of Korea's commitment to
fostering an innovative economy has created a
conducive environment for research and development
(R&D) activities. The government has established
numerous innovation centers, research institutes, and
technology parks to facilitate collaboration between
industry, academia, and research institutions. This
collaborative ecosystem has fueled the creation of
groundbreaking technologies and has nurtured a culture
of entrepreneurship and innovation.
2 MATERIALS AND METHODS
After the Second World War, South Korea had
favorable conditions for the development of its
economy. Despite having a large number of low-skilled
workers, the country was able to open up to the world,
primarily to the American market. Natural resources
were scarce, there was no capital, and the domestic
market was relatively small and technologically
underdeveloped.
In order to accumulate all resources, a large number
of multi-profile corporations, or chaebols, were
established with state support. This became the first
premise of the Korean "economic miracle". Another
premise was the high level of diligence of the
population.[1]
Starting from the 1960s, economic programs were
developed based on five-year plans. The first five-year
plan (1962-1966) focused on the initial steps towards
successful industrialization. The main emphasis was
placed on the production of electricity, mineral
extraction, oil refining, and cement production. The
second five-year plan (1967-1971) aimed to modernize
industry and develop sectors capable of producing
products that were previously imported, such as steel
production, machine building, and chemical production.
The third five-year plan (1972-1976) focused on the
rapid development of export-oriented industries,
particularly heavy and chemical industries, including
machine building, electronics, petrochemicals, and oil
refining. The fourth five-year plan (1977-1981) aimed to
increase competitiveness in international markets by
producing high-quality goods. The strategic focus was
on developing high-tech industries such as machine
building, electronics, and petrochemicals. As a result,
heavy and chemical industries grew by 51.8% in 1981,
and the share of exports in total production increased to
45.3%.
The fifth and sixth five-year plans focused on
developing high-tech industries such as electronics,
semi-conductors, and information technology. The
seventh (1992-1996) and subsequent five-year plans
continued this trend.
Research demonstrates that the South Korean
Republic, among other countries in South-East Asia, has
successfully
established
sustainable
connections
between favorable macroeconomic conditions and
competitiveness in product and economic rivalry. This
aligns well with modern economic theory and empirical
research.
While the South-East Asian countries, including the
Republic of Korea, have benefited from various models
of modernization in their economic development, the
distinctive feature of the state's leadership in all areas is
considered essential for the transformation of the
national economy.
Over the past 40 years, the replicability of strategies
employed by traditionally developed countries and the
application of export-oriented economic development
models have played a significant role in the dynamic
growth of the South Korean economy. However, such
external economic policies lost their significance after
the global financial crisis in 2008. Different sectors in
the global economy shifted from labor and capital
(industrial economy) and knowledge and information
(knowledge-based economy) to innovative technologies
and creative ideas (creative economy). The creation of
new types of goods has become a driving force for
economic growth, with creative and innovative ideas
being manifested in internet-based technologies,
smartphones, social networking services (SNS), and
other
modern
technologies.
Creative
economy
encompasses various fields such as advertising,
architecture,
design,
film
industry,
interactive
entertainment, music, software development, computer
hardware, television, radio, mobile content, and gaming.
These activities involve the utilization and creation of
intellectual property. If we were to represent the formula
of creative economy, it would be as follows:
Creative Economy = Intellectual Property +
Innovation + Cultural Industries + ICT (Information
and Communication Technology)
This formula captures the essence of the creative
economy and its contribution to economic growth.
The main directions of the policy pursued by the
government of the Republic of Korea in the field of
creative economy are aimed at integrating science and
technology with industry and culture through
information and communication technologies (ICT),
creating new jobs and additional value. The
development of the creative economy potential is based
on the expansion of activities and business types in the
field of information technology applications, as well as
increasing the level of knowledge in the field of
information and communication technologies.
The Republic of Korea has identified five main
strategic objectives in the creative economy:
The first objective is to create a favorable economic
environment for establishing specialized businesses and
ensuring the protection of creative activities. In order to
develop the Korean economy in line with this objective,
the government provides financial support to specialized
businesses established based on creative ideas. In
addition, a guarantee and security system has been
established to reduce financial risks for venture
businesses. If a venture business faces bankruptcy
naturally, the government will completely renew the
business. As an example, the Korean government
allocated $8.868 billion for supporting venture
businesses in 2017-2020[2]. The adoption of this policy
has resulted in the support of startup companies, creation
of new jobs, and development of sustainable sectors in
the economy. The financial support concept of the
Korean government has reached the level of an active
investment policy in developing the national creative
economy.
The second strategic objective of the creative
economy is to support the entry of content and cultural
industries into the global market. The content industry is
one of the main components of the Korean economy. In
2012, the export volume of this sector amounted to $4.6
billion[3]. Cultural content activities and their export
have several advantages in the development of the
national economy:
a) It is possible to create high-value-added products
with low investment costs;
b) This field has high potential for creating new jobs
and markets;
c) It contributes to the promotion of national brands
and the development of tourism business;
d) The increase in exports is observed as a result of
the increase in Korean goods aimed at exports
(cosmetics, mobile phones, household appliances,
clothing) due to their improved image.
The third strategic objective is to support innovation
technology projects. A plan has been developed to
support advanced technology startups (in areas such as
Internet and software, medical and biotechnology, gene
analysis and treatment, production of graphene-based
materials,
nanotechnology,
renewable
energy
technologies).
The fourth strategic objective is to attract highly
skilled professionals and workers from abroad. Within
the framework of this objective, a "Visa System for
Entrepreneurs" has been developed, which aims not only
to attract foreign experts in innovative technologies but
also to liberalize the activities of entrepreneurs working
in innovative technologies within Korea.
The fifth and final objective is to strengthen
international cooperation through scientific and
technical projects and information communication
technologies. Developing countries have established
innovation, scientific, and technological centers,
designating them as drivers for cooperation and
technology transfer to domestic and international
markets. In addition, a policy of international
cooperation and support in areas such as combating
climate change, medical treatment for epidemics, testing
new drugs, hormone production, agriculture, and
fisheries technology is being implemented. As part of the
government program, at the end of 2013, 13 cooperation
centers were established in MDH and CIS countries in
the field of science and technology [4].
Thus, the government of the Republic of Korea is
paying great attention to the development of technology.
By developing information and communication
technology applications, it aims to implement concepts
of creative economy, create new jobs, and improve
living conditions for citizens.
In 2011, the World Bank published a report [5]
analyzing in detail the economic development strategy
that gave the Republic of Korea the opportunity to
achieve unprecedented success. Firstly, the role and
place of both the state and private business were clearly
defined. Thanks to the government's attention to two
main tasks, the country achieved rapid socio-economic
development: firstly, ensuring macroeconomic stability
through a conservative monetary and financial policy;
secondly, investing in education and healthcare
programs. The main focus was on market reforms and
creating a highly competitive environment in the fields
of industry, trade, and finance. All barriers to trade and
foreign investment were removed. The success of the
Republic of Korea is undoubtedly due to its ability to
quickly accumulate capital, effectively distribute
resources, and reach a high level of technological
development by implementing a strategic development
model chosen by the country.
It is important to emphasize that the achievement of
these tasks and the development of the advanced
economy were achieved through the integration of
market mechanisms and state intervention in a targeted
manner. The Republic of Korea's "economic miracle"
phenomenon is largely due to the study of the state-
business partnership model, where private business
played a key role, but all permissions were granted by
the government. At the same time, the government never
aimed to fully control the business. South Korea's
economic
growth
was
achieved
through
the
harmonization of market mechanisms and state
management.
In the early 2000s, the Republic of Korea pursued a
state policy aimed at developing innovation and human
capital in this area, not only promoting innovation in a
broad sense but also accelerating the creation of "smart
industry," "smart farming," and "smart cities." In 2015,
President Park Geun-hye's government developed and
adopted the main principles of the "Creative Economy"
program at the state level.
As part of this program, in 2015, a strategy for
developing industry was presented - "Innovative
Manufacturing 3.0." To support this strategy, the
Standards Research Council - Smart Factory and the
Korea Smart Factory Foundation were established. This
organization was created to effectively respond to
international trends and standardize local legal
regulations in a timely manner. The Ministry of Science
and Technology Development and the Ministry of
Trade, Industry, and Energy were appointed as key
organizations to support this strategy in developing
science and technology, as well as supporting small and
medium-sized businesses in trade, industry, and energy.
The concept of "smart manufacturing" not only
involves the use of robots in production but also
encompasses the effective utilization of information
technologies to monitor, synchronize, and optimize
manufacturing processes. This includes technologies
such as Smart Sensors, Cyber-Physical Systems (CPS),
3D printing, Internet of Things (IoT), Big Data, and
holograms.
The Republic of Korea's Innovative Manufacturing
3.0 program aims to integrate the entire manufacturing
process into the Fourth Industrial Revolution. It seeks to
enable the government to enhance and optimize smart
manufacturing, as well as increase the competitiveness
of the manufacturing industry. To achieve this, the
government plans to attract $172 million (200 billion
won) in investment annually and aims to establish 1,500
smart factories by 2020, with the target of doubling this
number by 2022. The key feature of this program is the
government's support and promotion of smart
manufacturing technologies for local small and medium-
sized enterprises (SMEs).
The main stages of the development of the "smart
manufacturing" model in the Republic of Korea are as
follows:
• June 16, 2014: Creation of the "Manufacturing
Innovation 3.0" strategy, which identifies the objectives,
tasks, and implementation tools of manufacturing. The
strategy focuses on the integration of business processes
in
manufacturing,
including
planning,
design,
production, delivery, and sales, through automated
systems known as "smart factories." These factories are
equipped with various types of information and
communication technologies tailored to the needs of
individual customers. This allows for the production of
customized products while improving quality and
reducing time and costs
. [6]
According to the main objective, there are two
directions in the adoption of smart manufacturing
technology: manufacturing optimization for service
enhancement and personalized manufacturing.
Here are the key milestones in the development of
the "smart manufacturing" model in the Republic of
Korea:
•
December 17, 2015: "Smart Manufacturing
R&D Roadmap" was established to develop eight key
technologies for innovative manufacturing and create an
implementation plan for 2016-2020.
•
March 18, 2016: "Intelligence Information
Industry Development Strategy" was introduced to
promote the protection and utilization of information
technologies, including artificial intelligence. An
investment strategy for 2016-2020 was formulated.
•
August 19, 2016: The "National Strategy
Project" identified nine national strategic projects,
including
artificial
intelligence,
virtual
reality,
autonomous vehicles, smart cities, and others.
•
In early 2017, the Ministry of SMEs and
Startups announced the expansion of the Smart
Factory/Smart Manufacturing project until 2019 and
proposed an investment of $305 million. This
represented a significant increase compared to the
previous year. Currently, efforts are ongoing to further
expand the project, with the aim of reaching up to 30,000
smart factories by 2022.[7] Every year, private
companies aim to create and modernize 2,800 state and
1,200 manufacturing facilities.
The government is actively supporting the training of
40,000
skilled
workers
in
fully
automated
manufacturing facilities through various educational
programs. In order to facilitate the proper establishment
of smart factories for small and medium-sized
companies, the Ministry of SMEs and Startups (MSS)
allocated financial support ranging from $89,000 to
$133,000 in 2019 for new and existing factories.
The process of submitting, reviewing, and selecting
applications has been simplified, allowing companies to
expedite the establishment of smart factories. The
inspection period, which used to take up to 5 weeks, has
been reduced to as short as 2 weeks. Additionally, the
MSS is planning to establish innovation centers in 19
technological parks in South Korea to enhance the
selection system for companies and provide direct
support. By 2022, there are plans to establish 25
experience factories in MSS technological parks, with 5
of them focusing on innovative support projects utilizing
robots. Selected companies for pilot projects will receive
financial assistance ranging from $267,000 to $445,000
if their projects are related to industrial innovations
supported by robot utilization. [8]
In 2017, when Mun Jae In became the new President
of the Democratic Party, a series of issues related to
implementing the innovation strategy were reviewed,
along with a focus on the Fourth Industrial Revolution.
Based on the gathered experience, the government
started developing a new manufacturing strategy. As
part of the "Fourth Industrial Revolution," a program
was developed that continued the "Innovative
Manufacturing 3.0" approach while also expanding it.
President Mun Jae In's "I-Korea 4.0" initiative is one of
the most important
political
projects
of his
administration. [11]
By mid-2019, the overall sales of artificial
intelligence (AI) dynamics in the country had exceeded
4.1 million units, which was more than double compared
to the previous year. AI dynamics enable the
management of various smart devices and provide real-
time information to users. The number of subscriptions
to Internet of Things (IoT) services also increased,
reaching 18.6 million, a growth of 33.2% compared to
the previous year.
These figures demonstrate that technology is not
only being utilized in industrial factories but is also
actively integrated into people's daily lives. By June
2019, the number of 5G mobile service users had
reached 1 million. On April 5, 2019, Korea became the
first country in the world to launch commercial 5G
services, and steps were taken to establish an ultra-fast
internet infrastructure capable of delivering speeds of up
to 10 Gbps by 2020.
The high achievements in advancing innovation in
the country are directly related to the level of investment
in scientific research. The following are the expenditures
reported by Korea to the Ministry of Science and ICT
(MSIT).
NTIS DATA 1,176.6 ten thousand[9]
NOV 28, 2023
It can be seen from the table that the government's
support and development program has been effective in
attracting private investors. The percentage of
government subsidies is decreasing, while private
investments are increasing. This is mainly due to the
successful utilization of technology by private
companies, their interest in developing technologies, and
their satisfaction with the state support mechanism.
According to the Korea Federation of Industries
(FKI), the country's research and development expenses
reached 75.4 billion dollars (93.1 trillion won) in 2020,
accounting for 4.81% of the country's total domestic
product. This makes South Korea the largest spender on
research and development among 36 out of 38 OECD
member countries, second only to Israel.
The report also states that South Korea's investment
in research and development increased by 2.54% in 2021
compared to 2001, which is nearly five times higher than
the OECD average of 0.53%.
Large companies spent 71.3 trillion won, which
accounted for the majority of the expenses, while 21.6
trillion won was spent by the government or other state
organizations. However, research and development
expenses accounted for only 7.5-8.0% of the total
expenses in the past decade, which is lower than the
average of 11.4% from 2001 to 2010.
In 2018, South Korea's intellectual property royalty
revenues were much lower than the OECD average in
terms of research and development expenses, accounting
for only 9.9% compared to the OECD's average of
27.7%.
The South Korean government plans to allocate 24.7
trillion won (approximately 19.2 billion dollars) towards
research and development (R&D) related to digital
innovation in 2023. This information was reported to
representatives of Yonhap News Agency and the
Ministry of Science and ICT.[10]
Various types of "smart factories" are successfully
operating in the Republic of Korea today. For example,
at the Changwon plant (a company that produces aircraft
engines), Bluetooth sensors have been installed on every
machine, and the sensors help monitor each machine
during the assembly process. Previously, barcode
scanners were used for this purpose, but network
managers always had to scan them. New sensors used
through the Internet of Things technology make the final
product delivery and management process more efficient
and accurate. The company installed 2,000 sensors in its
factory by the end of 2020, and 20,000 sensors by 2021.
The company produces spare parts for world giants such
as General Electric and Pratt & Whitney, starting from
November 2019. The company plans to reduce
production losses by 20% and increase production
efficiency by 14% in the near future.[12]
As an example of utilizing advanced technologies to
optimize port logistics, we can highlight the companies
SK Telecom and Samsung Heavy Industries. They have
successfully conducted a trial of remotely managing a
shipyard using a 5G-based remote control system, which
allows
for
autonomous
and
remote-controlled
navigation of vessels. This trial aims to significantly
improve the safety of maritime operations. It enables
real-time monitoring of ships' movements and their
precise location, even in busy waters or near obstacles.
It can be said that the Republic of Korea is currently
experiencing successful advancements in industrial
production through the establishment of "smart
factories." According to IMD data, in the 2022 Digital
Competitiveness Ranking, the Republic of Korea ranked
8th globally in terms of digital competitiveness.[13]
In Korea, there has been a similar growth observed
in the use of robots, e-government adoption, and cyber
security. The country remained at the 13th position in
terms of technology advancement but dropped from the
15th to the 16th position in the Science Ranking.
Looking at the rankings globally, Denmark took the
first place this year, while the United States, which was
the leading country in 2021, dropped to the second
position. Sweden claimed the third spot. Singapore and
Switzerland followed, with China ranking 17th and
Japan 29th.
The Ministry of Education and Science of the
Republic of Korea announced that among the countries
in the Asia-Pacific region, Korea ranked second after
Singapore and was ahead of 27 countries with a
population of over 20 million, with only the United
States ahead of it.
"We will continue to enhance our digital
competitiveness by implementing the 'Korean Digital
Strategy' proposed by President Yun Sek Yol of the
Republic of Korea," stated the Ministry of Education and
Science.
South Korea claimed the first spot in the Government
and Government Services Digitization (GovTech
Maturity Index, GTMI) ranking this year.
On November 17th, the Ministry of Government
Administration and Home Affairs of the Republic of
Korea announced that Korea had taken the first place
with a score of 0.999 out of 1 among 198 countries in the
world in the GovTech Index, which was announced by
the World Bank a day earlier.
The term "GovTech" coined by the World Bank is
used to describe the next generation of digital
government. This year, the "maturity" of digitization in
countries was evaluated for the first time.
The GovTech Maturity Index was calculated by
adding scores in four categories: foundational digital
infrastructure,
digital
public
services,
citizen
participation, and institutional support.
Korea ranked first in the categories of "foundational
digital infrastructure" and "institutional support," and
second in the other two categories, securing the top spot
in the overall ranking. Brazil ranked second with a score
of 0.975, followed by Saudi Arabia (0.971), the United
Arab Emirates (0.961), and Estonia (0.956).
The Vice Minister of Government Administration
and Home Affairs, Han Chang-seop, said, "The overall
characteristics of our digital government, which is
leading the way in GovTech, are closely related to our
vision for the future, which is being realized through the
digital transformation of the entire government"[14].
CONCLUSION
It should be emphasized that South Korea's
innovation development model, the government's vision
and progress, identifying the need for innovation, and
timely response to new trends in the global economy
play a crucial role in the successful formation of the
economy. The Korean government's significant attention
to human capital not only allows the country to establish
a "smart industry" but also enables it to become a leading
country in creating an "intelligent society" capable of
accepting and utilizing new technologies.
Based on the success of South Korea's "smart
industry" model, it is recommended that the Republic of
Korea continue to prioritize investment in human capital
and technology innovation to support the development
of the digital economy. It is essential to establish a
comprehensive
national
strategy
for
digital
transformation and create an environment that fosters
innovation and entrepreneurship.
To achieve this, the government should provide
incentives for companies to invest in research and
development (R&D) and implement policies that
promote the development of emerging technologies such
as artificial intelligence (AI), the Internet of Things
(IoT), and blockchain. The government should also
support the development of digital infrastructure,
including high-speed internet access and 5G networks.
Moreover, it is crucial to focus on improving
education and training programs to ensure a skilled
workforce that can meet the demands of the digital
economy. The government should work closely with
universities and the private sector to develop programs
that provide students with the necessary skills for the
digital age.
Finally, it is recommended that the government
establish partnerships with other countries to promote
international cooperation in technology innovation and
digital transformation. This will enable South Korea to
share its expertise and knowledge with other countries
while also learning from their experiences.
ACKNOWLEDGMENTS
The author express her gratitude to the professor
of Tashkent University of Applied sciences
M.B.Ataniyazova and the professor of Tashkent State
University of Oriental Sciences N.B.Xolmatov for
their scientific and practical help in writing this
article.
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