SOUTH KOREA: INDUSTRIAL TECHNOLOGY DEVELOPMENT PROGRAMS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80T00634A000400010001-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 16
• Document Creation Date: December 20, 2016
• Document Release Date: April 20, 2006
• Sequence Number: 1
• Publication Date: August 25, 1978
• Content Type: IM

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CENTRAL INTELLIGENCE AGENCY
National Foreign Assessment Center
25 August 1978
South Korea: Industrial Technology
Development Programs
Key Points
The Western nations recently have begun to view
South Korea as an "advanced developing country,"
and Seoul too believes that its economy is approach-
ing a decisive turning point.
Since 1962 the country's development strategy
has been export-led growth based on labor-
intensive light industry.
Korea now intends to shift the economy to
technology-intensive industries with growing
emphasis on the export of machinery, electronics,
and heavy industrial goods such as autos.
This memorandum was prepared by the East Asia-Pacific Division
of the Office of Regional and Political Analysis as the first of a series
of studies on South Korean economic decision-making. Comments and
queries may be addressed to the author,
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-- To achieve this goal, Korea must first improve its
industrial technology.
-- The country is a long way from innovative
technology development, but planners are con-
fident Korea will achieve substantially greater
self-sufficiency in technology over the next
decade.
-- Korea's immediate goal is to make its goods
more export competitive in Western markets; in
the longer term Seoul hopes to reduce expendi-
tures for foreign licensing rights.
-- Few business enterprises as yet have their own
research and development programs, although industry
is collectively assuming greater funding responsibility
for government-initiated programs.
-- Planners in Seoul see technology development as a
problem that requires the improvement of both labor
and research institute resources.
-- By 1981, Korea anticipates training 430,000
more skilled workers and establishing a network
of specialized research organs that will begin
to develop technology indigenously.
-- For near-term advances, however, Seoul is banking
on the accelerated import of foreign technology.
-- Korea's technology development efforts have not
been without some rough patches, but the program on
the whole has been successful.
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Basic Policy Directions
Although they are still a long way from the independent
development of innovative technology, the South Koreans are
embarked on an ambitious program of upgrading the quality of
their industrial technology. Seoul anticipates that this
program will lead to greater technological self-reliance
over the next decade, which in turn will pave the way for
the country's planned transition from an economy built on
labor-intensive light industry to one concentrating on skill-
and technology-intensive heavy industry. The restructuring
of the economy is now in its early stages of execution under
a 15-year development plan. It is designed to cope with a
changing international trade climate, in particular the
movement toward greater protectionism, as well as with changes
in Korea's comparative trading advantages stemming from
steeply rising wages.
In upgrading their industrial technology, the Koreans
also seek to:
-- Avoid problems caused by increasingly stringent
commercial controls applied abroad to the export
of advanced technology. Seoul wants to increase
its freedom of action, especially in the application
of defense industry technology.
-- Meet the quality standards of the international
community so as to strengthen the export appeal
of Korean goods.
-- Reduce expenditures for technology imports. Between
1962 and 1975, Seoul paid a total of $83.1 million
in royalties for foreign technology. The annual
outlay rose to $30.4 million in 1976 and to $42.1
million last year.
South Korea defines technology development goals
within the framework of its overall economic plans, project-
ing expenditures first on a five-year schedule and there-
after on a yearly basis. The goals outlined and the measures
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proposed to implement them have become progressively more
ambitious. So too has the financial commitment. The Fourth
Five-Year Plan (1977-1981) calls for raising the ratio of
research and development (R&D) expenditures to gross national
product (GNP) from 0.5 to 1.0 percent.
Investment Projections for Manpower
Development and Science Programs, Combining
Government and Industry Expenditures*
Technical Training Research Programs
Second Plan
(1967-1971) $98.37 $72.58
Third Plan
(1972-1976) $345.64 $244.88
Fourth Plan
(1977-1981) $692.98 $420.12
Korean planners view technology development as a dual
challenge that requires separate but interrelated programs
for improving labor skills and increasing the resources of
research institutions. Long-term goals are kept in mind,
but implementing measures are geared to more immediate
targets. In the area of manpower development, these short-
term targets include:
-- Training technicians and craftsmen to meet present
industrial needs and, by engaging larger segments
of the work force in high-productivity labor, advance
social welfare.
* Investment in defense-related research is not included. It should
be noted that actual expenditures may fail to match five-year plan
projections. Figures are in million dollars at 1975 prices.
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-- Developing standards of advanced education to the
point where Korea is generally self-sufficient in
training its own scientists and is able to reverse
the "brain drain."
The major share of investment in technology develop-
ment will be in the establishment of specialized science
institutes, to both facilitate the introduction of advanced
foreign technology and undertake independent developmental
research. For these R&D efforts to be successful, however,
Korea must first rationalize the structure of industry to
achieve greater economies of scale and more efficient produc-
tion methods, internationalize its patents system, strengthen
its standardization systems, and expedite the exchange of
technical information with other countries. Liberalized
guidelines for the import of technology are meant to give
impetus to all these endeavors.
In the current plan period (1977-1981), training labor
for, and improving technology standards of, the nuclear energy,
resource utilization, metallurgical, semi-conductor, and
chemical industries have top priority.
Government Versus Private Initiative
The most prominent feature of the Korean technology
development program is the dominant role played by the govern-
ment in initiating programs. Seoul is seeking to transfer
more responsibility to the private sector, but the shift is
so far mostly limited to the assumption of greater costs by
industry.
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Investment Projections for Manpower Development
and Science Programs, Showing the
Balance of Government and Industry Expenditures
Technical Training
Research Programs
Government
Industry
Government
Industry
Second Plan
(1967-1971)
100%
0%
100%
0%
Third Plan
(1972-1976)
55.9%
44.1%
60.7%
39.3%
Fourth Plan
(1977-1981)
77.4%
22.6%
55.7%
44.3%
Investment Projections, Showing the
Division of Government and Industry Expenditures*
Technical Training
Research Programs
Government
Industry
Government
Industry
Second Plan
(1967-1971)
$98.37
0
$72.58
0
Third Plan
(1972-1976)
$193.09
$152.52
$148.59
$96.27
Fourth Plan
(1977-1981)
$536.33
$156.65
$233.90
$186.21
* In miZZion doZZars, at 1975 prices.
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Prodded by Seoul, major enterprises are expanding
in-plant vocational training programs, extending technical
aid to suppliers, and sponsoring the establishment of technical
high schools and engineering colleges modeled after those
in Europe. The government usually takes the first step in
"inviting" corporate groups to establish sister relations
with technical schools; it also solicits funds for these
facilities from foreign governments. Again at Seoul's
behest, business is assuming collective financial responsibility
for the operation of several new research institutes.
Unilateral corporate initiative in the research and
development field is as yet quite limited. According to the
Ministry of Commerce and Industry, Korean enterprises spent
only $48 million on research related to technological and
managerial innovation in 1977. These sums will probably
climb as high economic growth continues, industries most in
need of technological improvement--such as the fragmented
machine tool sector--are streamlined, and competition in
the domestic market sharpens. Artificially depressed con-
sumer demand and Seoul's policy of limiting competition among
Korean corporations that operate or sell abroad have thus
far reduced the incentive for R&D competition among local
firms.
The case of the Lucky Group, a newcomer to the "Fortune
500" list of non-US industrial firms this year, appears to
illustrate the importance of domestic demand to corporate
investment in R&D. Lucky is probably the most domestically
oriented of the Korean conglomerates, monopolizing several
key areas of consumer production. The group, with combined
sales of $1.7 billion in 1977, spends about $4 million on
research in the electronics and chemical fields, a sum that
is small by Western but immense by Korean standards.
Apparently some 600 of the group's 36,000 employees are
engaged in R&D work. The group still relies on imported
technology for most of its product-line development,
however, demonstrating the current limits to Korea's
technological advances.
To encourage private investment in research, Seoul
will extend financial and tax benefits to enterprises that
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follow the Lucky example. The government will also protect
developers of selected new technologies by controlling for a
period the import, as well as domestic reproduction, of items
based on that technology.
Technical Training Programs
Although private enterprise is expected to train two-
thirds of the 430,000 additional skilled workers Seoul
estimates will be needed by 1981, massive investment in new
technical schools--including the establishment of 12 technical
colleges--will swing the percentage of spending for training
programs sharply back in the direction of the central govern-
ment. A recently negotiated loan from the US Export-Import
Bank is slated to cover some of these costs, as is financial
aid from West Germany, France, Belgium, and Japan. The funds
are part of the $49.3 and $91.6 million in foreign capital
that the Economic Planning Board is counting on to help meet
technical training and research program costs, respectively,
in the fourth plan period.
Export-Import Bank funds, together with a loan from
the International Bank for Reconstruction and Development,
will be used to expand the facilities of the Korea Advanced
Institute of Science (KAIS). This institute, founded in
1971 with support from AID, is Seoul's major hope for produc-
ing the applied science and engineering specialists required
in a rapidly industrializing society. In exchange for
generous scholarship support, students at KAIS are obligated
to serve the Korean industrial or scientific research community
for three years after graduation. This requirement, combined
with the institute's repatriation of staff members, nearly
all of whom hold doctoral degrees from the US, will help
significantly in keeping top scientific talent at home.
KAIS expects to grant its first ten doctoral degrees
this autumn, increasing the number to 60 in 1981 and to 500
by the late 1980s or early 1990s. The masters program, which
graduated 135 students this year, is expected to double or
even triple in size within a few years. The institute's
curriculum is tailored to meet industrial development needs,
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and students at KAIS receive on-the-job training. KAIS
recently set up a program in industrial electronics engineer-
ing in response to private sector demand, and it expects to
open a nuclear engineering division soon.
Science and Technology Programs
The establishment of research institutes which are to
begin the independent development of industrial technology
keynotes current science and technology programs. These
new research institutes--along with Korea's existing engineer-
ing consultative services and information control banks--will
serve business on an industry-wide basis.
In the mid-70s, the Ministry of Science and Technology
(MOST) sought to bring these dozen or so new institutes
under its control by having them located in the science city
being constructed near Taejon. In fact, not all of these
specialized institutes will operate there. Some are being
located close to the specific industries they will serve,
and a number have been transferred to the jurisdiction of
ministries other than MOST. The new Metallurgical and Machine
Industry Institute, for example, will be established in the
Changwon Mechanical Industrial Estate outside Masan, while
the Electronics Technology Institute is going into the Kumi
Semi-Conductor Industrial Estate near Taegu.
Despite this setback, MOST retains control of the
centerpiece of the country's industrial R&D program, the
Korea Institute of Science and Technology (KIST). The
institute was founded in early 1966 as a result of a commit-
ment by President Johnson to help the Koreans develop their
technology base. It undertakes research in applied science
and industrial technology, conducts techno-economic surveys,
and disseminates technical information. The principal
activities of KIST are based on contract research, which is
also the major source of revenues. Clients include private
enterprises and government organizations at home and abroad.
Over the next decade, KIST plans to continue performing
short-term contract work in support of industry, but it will
switch its emphasis to long-term developmental projects.
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Early this year the institute unveiled a research blueprint
calling for expenditures of $125.98 million between 1979
and 1983 in five major areas: energy, industrial materials,
environmental protection, technology-intensive industries,
and community development projects. Within these broadly
defined areas, KIST will concentrate on solar energy, uranium
extraction, coal use, oil substitutes, aluminum combinant
technology, and the exploitation of natural resources. The
software aspect of the computer industry is the prime area
of interest regarding technology-intensive industries.
Officials at the institute and its parent organiza-
tion MOST hope that these efforts will partially offset
costs for the introduction of foreign technology that they
estimate would otherwise amount to $258 million annually by
the early 1980s.
As a means to promote basic rather than applied research,
Seoul established the Korea Science Foundation (KSF) with
the help of the US National Academy of Sciences in December
1976. The foundation is to encourage scientific study at
the university level and to arrange technology cooperation
agreements abroad. By January 1978, it had concluded agree-
ments with the US and Germany, and was planning to add Japan,
France, Great Britain, and Australia to the list this year.
Technology Import Liberalization
While Seoul is banking on its research institutes to
help the country attain greater self-sufficiency in industrial
technology over the long haul, the South Koreans look to
accelerated technology imports for more immediate advances.
In the 18-month period from January 1977 to June 1978,
the government approved 28 percent of all licensing agree-
ments made over the past 16 years.
Earlier this year, the economic ministers liberalized
licensing guidelines to further step up the tempo of introduc-
ing Western know-how. Approval is now automatic in seven
major industrial areas so long as licensing terms meet
certain criteria. For cases that do not qualify, the ministe-
rial review process has been speeded up. Seoul considers the
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defense, nuclear energy, and computer industries to have
special sensitivity, and in these areas all licensing pro-
posals go to the newly formed Technology Inducement Review
Committee.
Typical of the manner in which the Korean Government
makes even seemingly minor economic decisions, Seoul will
take the lead in identifying technology for import. The
Commerce Industry is to list the kinds of industrial processes
that will be needed by 1981, and KIST is to designate equip-
ment and patents best suited for Korean needs.
This process may be used to implement what early
indications suggest will be an officially sanctioned effort
to purchase more technology from the US and less from Japan.
Between 1962 and 1977, over 65 percent of Korea's technology
imports came from Japan--about three times the number of
licensing cases for US technology--contributing to what
Seoul perceives as an increasingly intolerable trade deficit
with Tokyo. A "Buy America" policy may be given further
impetus by a Federation of Korean Industries' survey pub-
lished in March 1978. The study concluded that US-Korean
business links (direct investment, joint ventures, and
technical licensing ties) usually provide Korean industry
with proportionally more advanced technology capability than
similar arrangements with other countries.
A Case Study: The Automotive Parts Industry
Efforts to upgrade the automotive industry illustrate
the magnitude of the technology improvement problem, the
need for government planning coordination at this stage, and
the manner in which industry is assuming greater program costs.
One goal of the current economic plan is to expand
the automotive industry so that Korea will be among the ten
top exporters of cars by 1981. That goal entails raising
exports from a current level of 10,000 cars sold abroad in
1977 to 100,000. This will require penetration of the European
and American markets which cannot be achieved unless quality
standards are markedly improved. South Korea's main problem
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is its parts industry. Last year a government survey
revealed that only 5 percent of the country's 300 parts
suppliers produced items at quality levels that meet inter-
national demands. Worse, Seoul judged that 36 percent of
the firms were beyond redemption.
Korea has drafted a comprehensive strategy that treats
quality improvement and export development as mutually support-
ing objectives. Central to its plan of attack is a re-
organization of the parts industry in an effort to achieve
production economies that will place advanced technology in
closer reach. The government will also mate parts suppliers
with the major automotive manufacturers. The latter are
obliged to assist the parts industry by supplying technical
training. Meanwhile, the parts producers are committed to
introduce better technology and to improve standardization
and quality controls.
This year Korea will set up a Metallurgical and Machine
Industry Research Institute at the Changwon Machine Industrial
Estate and expand the work of the Standards Research Institute.
Each institute will undertake work for the machine industry
as a whole. The government has applied for a loan from the
Asian Development Bank to purchase testing equipment for
these and other institutes, but private industry will shoulder
a good share of the R&D costs. Help for individual machine
tool makers, including auto parts suppliers, will come from
the Commerce Ministry. In 1976, the ministry began designating
small and medium-sized enterprises in these sectors to receive
special governmental development assistance in the form of
soft-term loans and technical aid.
Some Rough Patches, But General Success
Ironically, economic success is responsible for the
failure of at least one aspect of the technology advancement
program--vocational training--to keep pace with current needs.
For each of the five-year economic plans, Korea's real GNP
growth has exceeded plan expectations. In the plan period
that ended 1976, for example, GNP growth averaged 11 percent
against an anticipated 8.6 percent when the plan was drafted
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in 1970. This has resulted in consistent shortages in skilled
manpower. The lucrative export of Korean labor to the Middle
East has exacerbated the situation in a manner that no
planner could have anticipated five years ago. Over 40,000
workers are employed on construction projects in that region,
constituting a significant drain on Korea's pool of engineers,
in particular and on its skilled labor force in general.
The development of the research institutes has occasion-
ally been clouded by a Korean tendency to force their R&D
pace. Scientists, encouraged by the ambitions of MOST,
have preferred to work on individual research projects, many
of them theoretical in nature, rather than form applied
science teams in support of industry. Top policymakers in
Seoul now believe that their country does not have sufficient
expertise or financial and personnel resources to make "pure"
research pay in the near future. The government has there-
fore taken a stronger line on this issue over the past year
or two. It is reinforcing business-research institute links,
more carefully molding research programs to Korea's industrial
development strategy, and setting the adaptation of. advanced
foreign technology needs as the first task of the researchers.
The matter of choosing specific sources or types of
technology has become more controversial. Planners in Seoul
are agreed on the need for rapid technology advances but--
as the stakes grow higher--have become divided on how to best
achieve that goal. Simply put,
-- The Ministry of Commerce tends to take a narrowly
defined and short-term look at technology acquisi-
tion questions. This often results in decisions
to go with the cheapest system available.
-- The Economic Planning Board is more likely than the
Commerce Ministry to consider points such as gain-
ing experience with varied technologies and invest-
ing for the long-term in the best, even if sometimes
more initially costly, process. With the board's
director serving concurrently as deputy prime
minister, politico-economic factors such as adjust-
ing the balance of trade and cementing broader
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cooperative ties with a foreign country, may also
be weighed in technology import choices.
The influence of the Economic Planning Board is increased
because it chairs both the Technology and Foreign Capital
Inducement Review Committees. It does not impose its views
on Korea's consensus-style decisionmaking process, but it
is taking a more aggressive interest in technology questions,
and that a trend is likely to persist.
Even with these problems and growing controversies,
the Korean technology development program, as presented in
each of three economic plans, is proceeding well. Technical
training programs, particularly at an early stage, paved the
way for a transition from an agricultural to a highly produc-
tive industrializing economy. Research programs, while less
well developed, have also grown more sophisticated in each
plan period. Now, for the first time, the Koreans look
forward to developing their own technology rather than merely
importing it. The contrast between the R&D goals of the
second and fourth economic plans reveals the measure of progress.
In the late 1960s, Seoul planned for no more than an engineer-
ing consulting service--i.e., KIST in its beginning years--
that would acquaint Korean business with foreign technology.
Developmental research was at that juncture a distant dream.
It is also notable that the fourth plan's program,
both for vocational training and scientific research, has
been devised by Korean, not foreign, planners. KIST and
KAIS, the triumph of the second and third plans, were the
carefully nurtured children of the US Agency for International
Development. Similarly, early vocational training programs
were established with funds and guidance from specialized
United Nations agencies. Foreign loans continue to be
applied to technology programs, but today Korea has assumed
virtually full responsibility for the shape and success of
its eevelopmental endeavors.
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Annex I: Major Research Institutes Being
Established During t He Fourth
Economic Development Plan Period (1977-1981)
Korea Standards Research Institute
Korea Research Institute of Shipbuilding and Oceanography
Korea Nuclear Fuel Development Institute
Korea Energy Conservation and Monitoring Institute
Metallurgical and Machine Industry Research Institute
Korea Institute of Electronics Technology
Chemistry Research Institute
Electrical Machinery Research and Testing Institute
Korea Solar Energy Development Research Institute
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