Southeast Region's Root Industries Shaken... Operating Profit Halved

BNK Financial Management Research Institute Southeast Region Research Center Releases Report on 'Root Industry Restructuring and Southeast Region Development Tasks'
Comprehensive Revision of Root Industry Scope for the First Time in 10 Years, Focused on Enhancing Responsiveness to the 4th Industrial Revolution Era
Time to Actively Build Future-Oriented Root Industry Infrastructure Suitable for Changing Industrial Trends

[Asia Economy Reporter Kim Min-young] A study has revealed that the competitiveness of foundational industries such as automobiles, shipbuilding, and machinery in the Southeast region is weakening. The operating profits of specialized root technology companies also plummeted to half the level of last year.

On the 3rd, the Southeast Regional Research Center of BNK Financial Group’s BNK Financial Management Research Institute released a research report titled "Restructuring of Root Industries and Development Tasks for the Southeast Region."

According to the report, while the number of root industry businesses in the Southeast region is rapidly decreasing, the performance of specialized companies is also deteriorating. Operating profits have been halved. The average operating profit per root technology specialized company was 1.71 billion KRW in 2015 but dropped to 790 million KRW in 2019, about half the previous level.

In particular, the report pointed out that difficulties have increased further this year due to the negative impact of the COVID-19 pandemic.

It mentioned that the long-term slump in front-end industries such as automobiles, shipbuilding, and machinery has severely weakened vitality, raising concerns in some quarters about damage to the local root industry ecosystem caused by this shock.

Examining the dependency of root businesses by demand industry, automobiles accounted for the highest at 27.5%, followed by machinery at 21.5%, electronics at 16.3%, and shipbuilding at 8.0%. Except for electronics, all correspond to the main industries of the Southeast region.

The research center emphasized that it is an urgent priority for the government, local governments, and the private sector to join forces to support the survival of root industries so they do not wither away amid the COVID-19 crisis. It also pointed out the importance of increasing investment in future-oriented root technologies in line with the rapidly changing business environment.

Since the government recently announced a comprehensive restructuring of the root industry scope for the first time in 10 years, it mentioned that regional-level responsiveness should also be enhanced accordingly.

Looking at the main points of the government’s restructuring, it was found that to respond to changes in industrial trends such as lightweighting and eco-friendliness, the core materials of the root industry were diversified from one metal to six, newly including ceramics, plastics, rubber, carbon, and pulp.

The core technologies of the root industry were also expanded. Previously, there were six technologies: casting, mold, plastic working, welding, heat treatment, and surface treatment. Eight additional technologies were added: injection molding and pressing, 3D printing, precision machining, engineering design, industrial intelligent software, sensors, robots, and industrial films and paper, increasing the total to 14.

It was mentioned that the Southeast region’s root industry has shown the second-highest status nationwide after the metropolitan area. This is because the existing six major root technologies?casting, mold, plastic working, welding, surface treatment, and heat treatment?have very high industrial relevance with the Southeast region’s main industries such as automobiles, shipbuilding, and machinery.

However, the benefits to Southeast region root companies from the restructuring of the root industry scope are expected to be relatively small. This is attributed to the inclusion of many future-oriented industries with low Southeast region shares, such as electronic parts and information and communication industries, in this restructuring process.

In particular, some newly included root technologies such as sensors, industrial intelligent software, engineering design, and industrial films and paper are estimated to have a business share in the Southeast region of only about 5-10% nationwide, indicating a weak foundation.

Baek Chung-gi, a researcher at BNK Financial Management Research Institute’s Southeast Regional Research Center, said, "The root industry is a crucial sector forming the foundation of regional manufacturing competitiveness," and emphasized, "We must devote considerable effort to preparing detailed implementation plans such as attracting companies, training specialized personnel, and investing in research and development to build future-oriented root industry infrastructure in the Southeast region."

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