"Expanding Participation in Global Supply Chains Requires Significant Investment and Time"
Efficient Support Needed Through Selection and Focus
Research Talent Concentrated in the Seoul Metropolitan Area... Establishment of 'Three Major Hubs' Also Proposed
Amidst the declining global competitiveness of the domestic parts industry, there has been a call to focus on fostering a select group of electronic parts manufacturers. It has also been suggested that, in order to support technological innovation among domestic companies, it is necessary to establish a major hub-linked system to transfer research and development (R&D) capabilities from the Seoul metropolitan area to regional areas.
The Korea Automotive Technology Institute stated in its report, "Environmental Changes and Response Directions for the Parts Industry," released on July 24, "In order for domestic parts companies to become as competitive as their global counterparts, support for strengthening innovation capabilities and business transformation is essential."
The report proposed that, by evaluating the potential of companies based on factors such as growth, profitability, innovativeness, financial stability, the presence of specialized personnel, and R&D investment history, 300 companies should be selected for intensive investment.
Domestic automotive parts manufacturers were found to lag behind global competitors in both quantitative and qualitative indicators.
Last year, the average operating profit margin of major domestic parts companies was 3.62%. This is nearly half the average operating profit margin of 7.5% for 103 parts companies among the world’s top 2,000 companies selected by the European Union (EU).
In terms of R&D intensity, an indicator measuring the innovativeness of industries and companies, major domestic parts companies recorded 3.92% last year. The average for the 103 parts companies listed among the world’s top 2,000 companies was 4.7%, which is 0.78 percentage points higher than that of Korean parts companies.
Im Hyunjin, lead researcher, stated, "The main challenges for the domestic automotive industry are not business diversification, but rather focusing on core competencies through strategic technology development, achieving structural cost reductions, and preparing for competition with China." She added, "Since expanding the participation of domestic parts companies in the global supply chain requires significant investment and time, it is important to focus on the basics, such as improving production efficiency and strengthening innovation capabilities, while also aiming to maintain or increase market share in current key markets."
Furthermore, to enable the structural transition of parts companies toward future vehicles, she said, "If we focus on fostering 300 major parts companies, the policy effects can also spread to their long-term partners. Given the current situation of U.S. trade pressure and large-scale investment in future vehicles by China, rapid technological innovation is also necessary for the domestic parts industry."
She also stressed the need to connect major hubs due to the increasing concentration of specialized personnel and research institutions in the Seoul metropolitan area. Im emphasized, "We should consider building the Seoul metropolitan area, northern Chungnam, and Daegu as the 'three major hubs' for electronic parts, and establish a networked cooperation system with neighboring hub regions."
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