"Service Level of Korean Export Products at 70% of China's"

Service Input Share in Export Product Manufacturing Process Also at 27.9%
Lagging Behind Major Countries Like US, Germany, Japan, and China... "Active Support for Manufacturing Services"

[Image source=Yonhap News]

[Asia Economy Reporter Moon Chaeseok] The service production inducement effect resulting from South Korea's manufacturing exports was found to be only about 70% of China's level.

On the 21st, the Korea International Trade Association's International Trade and Commerce Research Institute released these findings in a report titled "The Future of Manufacturing: Cases of Manufacturing Servitization and Innovation Strategies for Our Companies."

Analyzing the status by value chain (VC) stages?upstream, process, and downstream?in manufacturing, South Korea's manufacturing servitization rate was noticeably lower than major countries such as the United States, Germany, China, and Japan. 'Manufacturing servitization' refers to creating services or deriving new services throughout the entire manufacturing process, including planning, production, distribution, sales, and maintenance, thereby generating added value.

First, looking at the proportion of manufacturing-service companies, South Korea stood at 15.6%, only about one-third of Germany's 48.0%. It was also lower than the United States (22.6%) and Japan (17.6%). Regarding the proportion of services input in the manufacturing process of export goods, South Korea was at 27.9%, lagging behind Germany (36.5%), Japan (30.4%), China (29.7%), and the United States (28.2%).

The service production inducement effect from manufacturing exports was 0.30 for South Korea, only about 70% of China's 0.44. It was also lower than the United States (0.38), Japan (0.37), and Germany (0.36). The service value-added inducement effect of manufacturing exports was only 0.15 in South Korea, falling short of the United States (0.23), China (0.23), Japan (0.22), and Germany (0.19).

The report pointed out, "South Korea operates under a central government-led, quantity-focused, and direct support system targeting individual companies," adding, "This differs from the support paradigms of overseas manufacturing powerhouses."

According to the report, among South Korean manufacturers, companies that have adopted 'servitization' generated profit margins approximately 4 to 5 percentage points higher than those that have not. The value-added per capita was also about 1.3% higher. The problem is that the structure risks becoming fixed in a way that misses opportunities to create such added value by failing to revitalize products as services.

Recently, the industry has entered an era of 'hyper-personalization,' providing products, services, and experiences optimized to consumer preferences. According to global consulting firm McKinsey, effective 'personalization' alone can increase corporate sales by about 10 to 15%.

By effectively utilizing 'digital twin' technology in production processes to preemptively address issues such as defect detection, companies can expand their business models into solution businesses and seize opportunities for overseas expansion. The advice is that manufacturing processes need to move beyond 'automation' toward 'autonomy.'

New markets can also be pioneered by offering products in service forms such as sharing and subscription economies.

The report proposed strategies for servitization of South Korean manufacturing, including ▲promoting technology matching between large and small-to-medium enterprises ▲activating startup testbeds ▲supporting the development of core technologies and solutions ▲participating in smart manufacturing international standardization ▲organizing statistical infrastructure related to manufacturing servitization ▲and fostering specialized human resources.

The report emphasized, "Export effects increase when products and services are provided together," urging, "South Korea also needs to take a more proactive approach to manufacturing servitization."

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