[Debate] K-Manufacturing Industry New Growth Criteria and Sustainable Survival Strategies

Digital Transformation, Need of Information Sharing · Collaboration

Along with the AI revolution, K-manufacturing must face new growth momentum

At the Korea Technology Center located in Yeoksam-dong, Gangnam-gu, Seoul, ‘2023 German Hannover Messe INSIGHT WRAP-UP Seminar’ was held by the Smart Manufacturing Innovation Business Association and the Korea Economic Daily.

Experts reviewed Hanover Messe 2023 and pointed out technology trends and market prospects in the global industry. In the discussion that followed, the K-manufacturing industry's new growth criteria and sustainable survival strategy plans were discussed. The content of the seminar is as following.

■ Hyun Sil Ahn (Chairman), Head of AI Economic Research Center of The Korea Economic Daily:

Historically, since the Industrial Revolution, capitalism has developed around two axes: the market and energy costs. Markets create new opportunities, and energy always comes with costs. Accordingly, countries around the world, including the United States, China, and Europe, are contemplating which path to take based on these two axes.

As seen through this Hannover Messe 2023, many must have felt what kind of worries Germany is also having. The important thing is that the Korean government and companies also need to put their heads together and seek a national strategy to overcome the new wave of capitalism. What would be a strategy? Chairman In-sook Kim, would you like to speak first?

The Way We Work Must Change

□ In Sook Kim (Chairman of Korea GAIA-X): I would like to mention two. First, I think the way we work must change. In order to undergo a digital transformation, it is important to jump right in and not put a plan first as in the past. Wouldn’t something like running a working group every month for each topic or deriving a few hundred use cases be the least we could do to say that we have ‘changed?’ Second, as Hannover Messe transparently opens all of its policies, Korea’s national projects including the Ministry of SMEs and Startups should also be disclosed in one place and made regular.

Must Consider A Way To Maximize Profit

□Sung Sik Han (SAP Korea): What I thought while watching this Hannover Messe is that it is a very reckless and cost-effective investment for Korea to follow as a latecomer in an area already occupied by companies in other countries and hope to make it like Google or Amazon.

The board has already been set, so we can use it well. For example, in the case of Catena-X, the board is already set. We have to think about how to make money using it, not ‘how to make a Korean version of Catena-X’.

Another thing is that I wish we could do something we could do well. When we meet customers, there are a lot of people who develop SI. However, Korean software companies and software vendors are seldom receiving a solution license and engaged in labor cost business. There is no productivity whatsoever. I think it would be nice if we could move swiftly by thinking about how to maximize profits.

‘Infrastructure’ Needs to be Established

□Young Jae Chang (KAIST): I would like to talk about a few issues that I have noticed recently. One is that the US is back in the manufacturing industry. The revival of leadership in the US manufacturing industry is on fast track, and the escalating confrontation between the US and China is further triggering US companies to move away from China and return to the US.

If the United States starts investing in manufacturing, it will be a powerful threat to Korea, a manufacturing powerhouse. Therefore, from now on, we must seriously consider how Korea can sustainably maintain its manufacturing competitiveness.

Then, is Korea really a manufacturing powerhouse? Of course, it can be said to be a strong country. However, it wouldn’t have been done if not the effort of the small and medium-sized businesses. These days, there aren’t enough people to work for the manufacturing industry as before.

Moreover, as young people avoid small and medium-sized manufacturing companies, the generational shift is not taking place properly. If young people leave the manufacturing industry, there is no future. This is another big issue. In order to solve this problem, the 'infrastructure' that can efficiently work must be established first.

Strategically Lead the Business We’re Good At

□ Jung Yoon Park (CEO of InterX): To answer your question, I'll tell you a little bit about my personal experience. I majored in mechanics and worked in the automotive field. It was the late 1990s when I have been working for a long time. At that time, the world did not even know what kind of company Hyundai Motor Company was, but now Hyundai Motor Company production ranks third in the world. What I have felt after working for about 30 years is that there are so many things we are good at. Like this, we need to strategically lead the business that we are good at, including digital transformation. In particular, since our country is good at software, I think that we can take a much better position than Germany if we link this well with manufacturing companies.

Understanding Digital Transformation is First

□ Gwang Hyun Ahn (KOSMO): Ironically, I have no choice but to raise this topic about what small and medium-sized businesses need for digital transformation. Understanding seems to be the first problem. In a way, digital is a leading part of technology, so a lot of government support is being put into it. Over the past three years, the Smart Manufacturing Innovation Promotion Team has spent over 1 trillion won. However, the problem of understanding was also on the rise. In other words, there is a lack of understanding about digital transformation, which can be said to be the most essential of the industry.

Therefore, the understanding of small and medium-sized business owners who have a sense of purpose that says, “‘If we don’t digitally transform, our company will fail. I have to do this properly” and want to accept the part led by the government to some extent and apply the global standard to have global competitiveness should be put first. Then, enlightenment on the necessity of digital transformation, I think that this part is realistically necessary for us.

Chairman: We have talked about a rather big topic. As for the next question, can Korea join hands with Europe to create a third market or a third model? Because Germany and Korea are strong in the manufacturing industry, I wondered if the US and China would be able to compete if the two countries worked together to create a third model in manufacturing. What do you think?

Cooperate When Necessary

□ In Sook Kim (Chairman of Korea GAIA-X):

I think we should work together. Germany emphasizes the word "Strategic Autonomy" and says that even if the US and China eat 90% of the market, if Germany has 5%, negotiations are possible. What the negotiation is would be a very important point.

When it comes to global positioning in the data economy, it is important to find out what you can negotiate in that 5%. Germany is a country that has been constantly thinking about it.

What is equally important to us is to pick out the small percent that can pin the US and China down. In that respect, Germany really wants to work with Korean companies, but they say they can’t find one to work with. To find a Korean company, they have to go to an association, but there is no association or organization that can help, and even the government is not easy to persuade. If we feel a sense of crisis, I think we should cooperate, rather than trying to solve it alone.

Need of Information Sharing and Collaboration

□Sung Sik Han (SAP Korea): I introduced our solution to customers who visited the SAP booth during this Hannover Messe. For reference, the country that visited the SAP booth the most was Germany, followed by Korea. As such, Korean companies are very interested in digital transformation technology. Especially on that day, Ambassador Kim Hong Kyun of the Korean Embassy in Germany visited us with KOTRA staff. Watching how the Korean government is trying to help small and medium-sized businesses advance into Europe, I realized that the Korean government is also making great efforts.

Nevertheless, Korea does not have the best geographical environment. In the case of Germany, it has the background of the EU, and it has its own economic scale and friendly countries around it. Also, the level of neighboring countries is similar. On the other hand, South Korea is somewhat hostile to neighboring China and has a difficult environment to cooperate with Japan. Also, ASEAN countries, including Vietnam, are at a different level from us in terms of economic scale and politics and diplomacy. In order for Korea to reduce its dependence on China and advance into Europe, it seems that Catena-X or Manufacturing-X should be used so that it can gradually permeate without being politically and diplomatically sensitive.

Small and Medium-sized Enterprises (SMEs) Could Use References as a Cornerstone for Global Expansion

□Young Jae Chang (KAIST): Students from Germany at the KAIST lab said, “Germany is a manufacturing powerhouse, but there is a lot to learn from Korea in semiconductors, electronic parts, and batteries, excluding automobiles. In particular, there is no country like Korea that builds a lot of factories.” This made my mind jump. I was surprised that Germany was seeing opportunities that we haven't seen before. In fact, many SMEs have the technology and know-how to build factories. In the meantime, SMEs have been confined to the frame of working for large companies, so there has been a stereotype that SMEs do what only SMEs do. Recently, automation companies and robot-related companies are building factories overseas as partners of large companies, building references. If small and medium-sized businesses make good use of these references, that will be the cornerstone for going global.

Targeting the Niche Opens the Way for Collaboration

□ Jung Yoon Park (CEO of InterX): One of the things Germany has been bumping into over a decade of digital transformation in its manufacturing industry is software technology. In fact, there is a case where a German company built a solution for manufacturing data that could have been barely done in two years, while we completed it in three months. We can make it fast because we have a lot of experience and we know where sensors are used and how they are needed.

If our strategy fits into the gap that Germany and the United States are experiencing, I think the way for collaboration is open. Since we understand Asian culture better than European and American cultures, I think that if we make good use of that, we will be able to take a very advantageous global positioning.

Support for Standards, Technology, and Management is Required for Competitiveness

□ Gwang Hyun Ahn (KOSMO): I would like to tell you how to cooperate with Germany from the standpoint of SMEs and large companies. The German triad of standards are PI, SCI and LNI. Among these, PI is the organization that oversees the whole, and SCI and LNI have contents in their articles of incorporation that they work for small and medium-sized enterprises. So, if we continue to cooperate with PI, SCI, and LNI and support standards, technical parts, and managerial parts of SMEs, I think it will help Korean SMEs to acquire global competitiveness.

As for the cooperation with Germany from the standpoint of a large company, I suggest the following. There are many standards that large Korean companies, such as Hyundai and Samsung, have. For example, when it comes to quality standards, Hyundai Motor Company has 5S or SQ certification, and with these standards, they are exported back to Catena-X. In other words, if Hyundai Motor Company uses the SQ standard as the standard for Catena-X, use case will be created under Catena-X. Since Korean SMEs already have SQ certification, the moment SQ is listed as a standard, they will be able to advance overseas significantly. At this level, I think we need to think about cooperation between Korea and Germany.

[Debate] K-Manufacturing Industry New Growth Criteria and Sustainable Survival Strategies (hellot.net)