Innovation Success Rate: Export Companies Twice as High as Domestic Companies

[Asia Economy Reporter Hwang Yoon-joo] Research and development (R&D) activities of service export companies were found to be more active than those of domestic companies. This highlights the importance of innovation for the successful entry of our service industry into overseas markets.

According to the "Status of R&D in Korea's Service Industry and Diagnosis of Export Competitiveness" released on the 12th by the Korea International Trade Association's International Trade and Commerce Research Institute, among companies with service exports exceeding 100 million KRW in 2017, 51.9% consistently invested in R&D from 2015 to 2017, more than four times higher than domestic companies (12.1%). The annual R&D investment per company was 2.74 billion KRW for export companies, while domestic companies invested only 980 million KRW.

The proportion of companies that succeeded in service innovation, such as developing new services and business models, was also nearly twice as high for export companies at 29.8%, compared to 15.1% for domestic companies. The share of process innovation, including improvements in service production, delivery, and distribution, showed a significant difference as well, at 17.5% versus 7.6%.

Meanwhile, in 2019, the export competitiveness by sector in Korea's service industry was ranked as follows: 'Construction' (0.560), 'Finance' (0.141), 'Personal, Culture, and Leisure' (0.139), and 'Telecommunications, Computer, and Information' (0.119). Except for processing, all import-specialized sectors showed improved export competitiveness compared to 2010. 'Transportation' was the only sector that shifted from export specialization (0.125) in 2010 to import specialization (-0.030) last year.

Regionally, the export competitiveness of intellectual property royalties stood out in Latin America, the Middle East, China, and Southeast Asia, while advanced countries such as the European Union (EU), the United States, and Japan showed high competitiveness in processing services. Additionally, except for the United States, most regions demonstrated strengths in exporting telecommunications, computer, and information services.

However, the report pointed out, "Although the trade specialization index has improved in many sectors compared to 2010, Korea's service industry's gross domestic product (GDP) and labor productivity per employee have stagnated for several years," adding, "This is closely related to Korea's low R&D investment in the service industry."

According to the report, in 2015, the share of R&D investment in the service sector within Korea's private sector was 8%, lower than Germany (14.1%) and Japan (12.1%), and government R&D investment accounted for only 4.6% in 2019.

Shim Hye-jung, senior researcher at the International Trade and Commerce Research Institute, emphasized, "To foster the service industry, which is narrowly focused on the domestic market, into a global industry, it is urgent to expand R&D investment by both the government and the private sector," adding, "In particular, the government should strive to create a private-led service R&D ecosystem by expanding tax and financial support for service R&D investment, nurturing specialized personnel, and establishing a foundation for protecting R&D outcomes."

This content was produced with the assistance of AI translation services.