"South Korea's Key Industries Compete with the US, China, and Japan... Need for Support Measures"

FKI Analyzes Market Capitalization of Domestic Listed Companies

There is a prospect that South Korea can fiercely compete with major countries such as the United States in key industries including semiconductors. To enhance the competitiveness of domestic key industries, it is evaluated that support measures such as increasing the scale of research and development (R&D) tax credits should be prepared.

On the 13th, the Federation of Korean Industries (FKI) announced this after analyzing the market capitalization proportions by industry and the level of industrial competition between South Korea, the G5 (United States, Japan, United Kingdom, Germany, France), and China.

[Image provided by Jeon-guk Gyeongjein Yeonhaphoe]

According to the FKI's analysis of the market capitalization of domestic listed companies by industry group last year, the proportions were ▲Technology Hardware and Equipment (23.7%) ▲Capital Goods (15.2%) ▲Materials (9.8%) ▲Pharmaceuticals, Biotechnology, and Life Sciences (8.4%) ▲Media and Entertainment (6.0%). In the Technology Hardware and Equipment sector, Samsung Electronics (KRW 371.6 trillion) and other major Samsung affiliates were listed. In the Capital Goods sector, which includes machinery, equipment, and parts, LG Energy Solution had the highest market capitalization at KRW 101.9 trillion.

In major countries, the proportions of Capital Goods and Materials were large. Looking at the top three industry groups by market capitalization in each country, the United States was ▲Software (9.6%) ▲Pharmaceuticals, Biotechnology, and Life Sciences (8.9%) ▲Financial Services (8.6%). China was ▲Capital Goods (12.3%) ▲Materials (10.0%) ▲Banking (9.2%). Japan was ▲Capital Goods (14.7%) ▲Automobiles and Components (8.0%) ▲Technology Hardware and Equipment (6.0%).

The FKI calculated the Revealed Comparative Advantage (RCA) index using last year's market capitalization data to analyze industrial competition between countries, and forecasted that South Korea will have a comparative advantage in industry groups such as 'Technology Hardware and Equipment,' 'Materials,' 'Capital Goods,' and 'Semiconductors and Semiconductor Equipment.' The RCA index is the ratio of the share of a specific product's exports in a country's total exports to the share of the same product's exports in the total global export market. If this index is greater than 1, it indicates a comparative advantage.

[Image courtesy of the Federation of Korean Industries]

Comparing the RCA indices of South Korea and major countries, South Korea may have overlapping comparative advantages with the United States, China, and Japan in four industry groups in the future. Competition with the United States is expected to be fierce in hardware and semiconductor industries. Competition with China and Japan is anticipated in industries such as materials and capital goods. On the other hand, in industries where competition among major countries is expected to intensify in the future, such as insurance, transportation, and real estate management and development, South Korea showed no comparative advantage. In particular, the competitiveness in the financial sector (banking and insurance) was found to be low.

Choo Kwang-ho, Head of the Economic and Industrial Department at the FKI, said, "We need to enhance South Korea's industrial competitiveness through a balanced industrial portfolio composition," adding, "To achieve this, bold R&D tax credit support for industries with competitive advantages such as semiconductors is necessary." He also added, "Regulations that hinder the development of industries with competitive disadvantages, such as finance, must also be innovated."