"Smiled at K-Content like Squid Game" The Reason Behind Last Year's Reduced Trade Deficit in Knowledge Services

Knowledge Service Trade Deficit at $7.26 Billion Last Year
Exports Grow, Share Rises, Deficit Narrows... High Growth Potential
Surpluses in Information and Communication ($2.76 Billion), Culture and Leisure ($870 Million)
Impact of Pre-installed Apps on Korean-made Phones and Overseas K-Content Sales to OTT
Deficit Widens Year-on-Year... Driven by Patent Royalty Payments and Overseas R&D Outsourcing

Last year, South Korea's knowledge service trade recorded a deficit of $7.26 billion. Since 2010, knowledge service trade has significantly increased exports, expanded its share, and reduced the deficit. The Bank of Korea has newly developed the 'Knowledge Service Trade Statistics' as a supplementary international balance of payments statistic to facilitate a detailed understanding of the import and export of knowledge service industries with high growth potential, analyzing a database of approximately 150,000 data points and publishing it quarterly.

On the 26th, the release date of the Netflix original series "Squid Game 2," a sculpture of the Squid Game character "Young-hee" and promotional banners were installed at Gwanghwamun Square in Jongno-gu, Seoul. Photo by Kang Jin-hyung

According to the 'Compilation Results of South Korea's Knowledge Service Trade Statistics (2010?2024)' released by the Bank of Korea on the 19th, South Korea's knowledge service trade recorded a deficit of $7.26 billion last year, reducing the deficit compared to 2010 ($12.77 billion deficit). Despite surpluses in information and communication services ($2.76 billion) and culture and leisure services ($870 million) last year, deficits centered on intellectual property royalties (-$3.34 billion) and professional and business services (-$7.55 billion) led to this outcome. The share of knowledge services in service trade increased from 14.1% in 2010 to 26.8% last year, as exports grew faster than imports. However, due to factors such as patent royalty payments and overseas outsourcing of research and development (R&D), the deficit widened compared to the previous year (-$6.23 billion).

The Bank of Korea classified the knowledge service sector, which is mainly produced based on knowledge and information, traded in digital form, and has international significance and high growth potential, into four major categories for the knowledge service trade statistics: intellectual property royalties, information and communication, culture and leisure, and professional and business services. Kim Seong-jun, head of the International Balance of Payments Team at the Bank of Korea's Economic Statistics Department 1, explained, "This is the first official compilation and announcement of South Korea's knowledge service trade status from 2010 to last year to comprehensively understand the country's knowledge service trade structure."

In the intellectual property royalties sector, R&D-based rights centered on manufacturing industries reduced the deficit significantly from -$5.12 billion in 2010 to -$990 million last year. R&D-based rights refer to compensation for the use of intellectual property rights produced through research and development, such as patents, industrial processes, and designs. The export scale expanded as South Korean companies received increased patent royalty payments from overseas subsidiaries.

Among copyrights, computer and mobile software shifted from a surplus of $160 million in 2010 to a deficit of $1.72 billion last year. This can be examined in more detail by industry classification: the information and communication sector recorded a surplus of $2.67 billion last year, driven by increased overseas sales of games by South Korean companies, whereas the personal and other industries recorded a deficit of $3.88 billion last year due to paid app purchases through platforms like Google Play Store and Apple App Store by individuals, resulting in an overall deficit.

In information and communication services, notable growth was seen in information provision and platform services, which turned from a $90 million deficit in 2010 to a $1.56 billion surplus last year. This was due to payments received for pre-installed programs by foreign big tech companies on smartphones produced in South Korea, which were recorded as exports. Consequently, surpluses were larger in manufacturing-centered detailed industries.

Expanding the scope beyond the previously announced intellectual property trade balance, the newly added professional and business services category saw research and development services stand out, growing from a $790 million deficit in 2010 to a $5.14 billion deficit last year. This was due to the increased scale of specialized R&D outsourced by South Korean manufacturers to foreign companies. In professional and management services, advertising and PR recorded a deficit of $1.26 billion, reducing the deficit compared to 2010 (-$4.28 billion). This was because advertising commissioned by overseas companies on South Korean platforms such as Naver was recorded as exports, thereby reducing the deficit.

Although the overall scale was small, the rise of K-content was also prominent during this period. The culture and leisure services sector recorded a surplus of $870 million last year, up from a $390 million deficit in 2010. Multimedia production recorded a surplus of $490 million last year as South Korean production companies increased deliveries of dramas to overseas online video service (OTT) providers. Income earned by South Korean idol singers from concerts held overseas was recorded as exports, resulting in a $340 million surplus in performance and exhibition-related services last year.

By industry, as of last year, the information and communication sector recorded a surplus of $2.25 billion, while manufacturing (-$4.4 billion) and personal and other industries (-$2.84 billion) recorded deficits. The information and communication sector saw rapid growth in software copyright and multimedia copyright exports centered on content industries such as games and music, as well as significant increases in exports of IT development and operation services and advertising and PR services through online platforms. Kim noted, "Knowledge service trade in manufacturing also used to rely heavily on imports, but exports have rapidly increased, reducing the deficit." The knowledge service trade balance in manufacturing reduced its deficit from $11.06 billion in 2010 to $4.4 billion last year.

By region, as of last year, surpluses were recorded in Asia ($5.11 billion), while deficits were seen in North America (-$5.73 billion) and Europe (-$2.85 billion). By institution type, surpluses were mainly recorded by medium-sized enterprises ($1.82 billion), while large enterprises (-$5.65 billion) and digital intermediary platforms (-$3.88 billion) recorded deficits.

The Bank of Korea also plans to provide special classification statistics for the information and communication technology (ICT) industry and content industry, which do not have separate industry classifications under the standard industrial classification. This is to more accurately diagnose the performance of strategically important promising service industries. Last year, the ICT service industry and content industry recorded surpluses of $2.23 billion and $3.58 billion, respectively. Kim explained, "Since 2010, knowledge service exports in promising service industries such as ICT and content have rapidly grown, establishing themselves as key players in service trade." During the survey period, the average annual export growth rate of the ICT service industry reached 15.6%, centered on software (17.5%). The content industry also showed 16.0%, centered on games (16.4%) and music (27.7%).

Meanwhile, through this knowledge service trade statistics, South Korea became the fourth country in the world, following the United States, the United Kingdom, and the European Union (EU), to publish detailed statistics related to service trade. The Bank of Korea plans to publish quarterly data up to the previous half-year every March and September. Kim stated, "The new statistics provide a vast database of approximately 150,000 data points on exports, imports, and balances, segmented by four major categories and 16 detailed types, by type, industry (standard industrial classification), institution type, and region. We hope that the knowledge service trade statistics will be widely used for establishing service industry development policies, analyzing trade structures, and conducting global comparative research, contributing to discovering new growth engines and enhancing competitiveness in the national economy."

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