[Square] Changes in Manufacturing Conditions and Our Response

Jung Manki, Chairman of the Korea Industrial Federation (Former Vice Minister of Trade, Industry and Energy)

Manufacturing accounts for about 85% of our exports and 28% of the Gross Domestic Product (GDP). The number of people employed in manufacturing is approximately 4.1 million, representing about 18% of total employment. Manufacturing is important beyond simple statistics because it serves as the locomotive of our economy.

Our manufacturing sector is facing several changing conditions and challenges. First, there is the spread of personalized consumer demand. Online distribution platforms have become the mainstream. Customized demand through online platforms is rapidly increasing not only for durable consumer goods such as automobiles and electronics but also for everyday items. This raises the need for agile responses from manufacturers.

Second, the spread of digital transformation. Digital transformation driven by big data and artificial intelligence is expanding not only at the factory level but also into corporate decision-making systems. In manufacturing processes, while responding to the aforementioned personalized consumer demand, defect rates are also being reduced. In small and medium-sized enterprises’ mold and casting processes, defect inspections previously conducted visually by skilled workers are being replaced by data-based inspections. By accumulating and analyzing data on the correlation between various process variables and defects, it is possible to identify which variables cause defects under specific process conditions and control them accordingly. Artificial intelligence learns machine failure patterns from machine condition data, monitors abnormal signs to prevent breakdowns and accidents, and data-based energy management systems have enabled significant reductions in energy use. The general assessment is that our response is insufficient. There is a high dependence on overseas equipment, insufficient digital capabilities among personnel, and concerns about technology leakage, which are obstacles.

Third, the necessity of carbon reduction. Korea has limitations in reducing greenhouse gases due to its industrial structure centered on fossil fuels as well as manufacturing. While the carbon emission peak was reached in 2007 in the United States, 1990 in Germany, and 1991 in the United Kingdom, Korea only reached its peak in 2018. Major advanced countries have already transitioned their industrial structures to service sectors such as ICT and finance as manufacturing growth slowed, but Korea’s core industries remain steel, petrochemicals, and semiconductors, which are high greenhouse gas emitters. These industries are directly linked to the ecosystem and job maintenance of small and medium-sized enterprises in sectors such as automobiles, shipbuilding, and construction. According to the Ministry of Trade, Industry and Energy, growth is expected to continue with steel projected to grow 105.6%, petrochemicals 139%, and semiconductors 193% by 2030 compared to 2017. The problem is how to reduce carbon emissions under these circumstances. Developing technologies to achieve carbon neutrality takes a long time. If pushed recklessly, production and jobs will inevitably shrink. The industry has expressed concerns about the 2030 carbon reduction plan.

Fourth, trade conflicts between the U.S. and China. Since the Donald Trump administration, conflicts between the two countries have rather intensified. China, which accounts for 90% of global rare earth production, has strengthened control over rare earths by drafting the 'Rare Earth Management Ordinance' last January, while the U.S. depends on China for about 80% of its rare earth imports. Meanwhile, the U.S. government continues to maintain the possibility of imposing up to 25% tariffs under Section 301 on Chinese goods and repeatedly emphasizes a U.S.-centric semiconductor supply chain policy. This has increased uncertainty for us.

Individual changes related to manufacturing conditions may be minor, but the overall impact of these changes can be strong. While individual corporate responses are important, government industrial policies also seem crucial. It is time to once again put our heads together with experts from industry, academia, and research. We have already accumulated such experience over a long period. Research and development (R&D), workforce, as well as financial and tax measures need to be reexamined. When we recognize a crisis as a crisis, the answer emerges.