The Vicious Cycle of the Domestic Plant Industry and Policy Implications for its Competitiveness

Sang Hyun Lee ()
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Sang Hyun Lee: Korea Institute for Industrial Economics and Trade, http://www.kiet.re.kr

No 20-10, Industrial Economic Review from Korea Institute for Industrial Economics and Trade

Abstract: Considering its industrial scale and ripple effects on other industries, the plant industry has a significant impact on the national economy. In particular, the industry is considered have the potential to help address continued sluggish growth in the Korean economy. Its contributions include the acquisition of foreign currency through overseas projects, quality employment generation and the utilization of comprehensive technologies, among others. During the last two oil shocks, Korean plant firms acquired foreign currency from the Middle East that became the seed money for what would become the engines of future growth, including the automobile, machinery and semiconductor sectors. With accumulated technologies, they are still supporting the Korean economy and serving as a competitiveness base for domestic firms. The Korean plant industry has developed in terms of quality (engineering capabilities) as well as quantity (order size). However, the industry is mired in a chronic vicious cycle and its constituent firms are facing repeated structural insolvency. Over a series of economic crises, local firms have been shown to suffer from a consistent problem: continuously thinning profits margin owing to a reliance on an underbidding strategy. The continuous threat of insolvency can be attributed in part to this type of bidding strategy. However it should be noted that local firms have had to rely on such strategy historically due to a lack of technological prowess and competitiveness. This study addressed the plant industry from the perspective of engineering capabilities, which determines fundamental technological competitiveness. In particular it suggests plans for enhancing engineering capabilities through the utilization of AICBM, a technology of the Fourth Industrial Revolution (4IR). The work first determines structural problems related to the continued decline of profit margins in domestic plant sector and then derives implications and designs plans for enhancing domestic firms’ competitiveness based on global market trends and issues.

Keywords: plant industry; Korea; plant industry policy; plant industry competitiveness (search for similar items in EconPapers)
JEL-codes: L64 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2020-08-01
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