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    BusinessSouth Korea: miracle still unfolding

    South Korea: miracle still unfolding

    Dubbed the miracle on Han River, South Korea’s growth narrative is the ultimate underdog story in development. Now wielding an economic power, which is the 11th largest in the world, the country pulled off the unthinkable in a matter 60 years. In his recent visit to South Korea Asrat Seyoum of The Reporter observes that industrial clustering, innovation in textile industry and the so called Saemaul movement played pivot roles in the country’s development. And that Korea is still an evolving narrative.

    Like any other story worth telling, the story of modern-day Republic South Korea starts with a single man; a man who led his country during the most interesting era in the history of the world. And like any other historically significant man, public opinion of this man was highly divisive. Perception of his leadership style oscillated between someone whose actions are little short of stroke of a genius and to a man who is simply obsessed with control and authoritarianism.

    He has been called an ardent nationalist who loved his Korean roots; while at the same time characterized as someone who sympathized with the colonial power which ruled Korea owing to his military service in the Japanese armed forces. He is even bashed for taking a Japanese name at some point and has been reduced to a collaborator.

    This leader was also suspected of being closet communist on grounds that he favored strong state presence in the economy and the development process. On the flip side, the same guy is also characterized as devote market proponent owing to his somewhat enlightened export-orientated economic strategy especially at the time where the newly liberated countries in Asia and Africa were engulfed by the frenzy of excessive inward looking and associated import substitution economic strategies.

    Yes, this man is none other than South Korea’s very own, President Park Chung-hee, an ex-general who seized political power via a military a coup d’état in 1961—a time when the world is freshly dealing with the ensuing cold war. He is also a leader who after all the odds managed to get his approval rating up and won his presidential mandate in an election hailed as free and fair even by his critics. Yet again, he is someone who pushed a constitutional amendment to produce what is called the “Yushin” constitutions which solidified his grip to power for years to come.

    However, there is one characterization that all his supporters and opponents agree on. That is the fact that President Park is the first among his contemporary leaders in the South Korean government to wield his sword at the shackles of poverty and underdevelopment.

    Just like his persona and leadership style, his economic policies which he put in place in his three five-year economic plans were also quite controversial. His belief in the role of the government in economic development and the need to tighten control over resource allocation during the early stage of development were also disputed at best.

    Signifying his ‘the end justifies means’ policy, Park took a hands-on approach in incorporating and managing private companies laying the bedrock for today’s big conglomerates (Chebols).  He took it up on himself to siphon of huge financial and technical resources to the benefit of the family-owned Chebols and he did that at great political risk had these companies failed him and South Korea.

    Park’s administration devoted a lot of resources to establish the first industrial complex in South Korea called Guro Industrial complex 1964. In fact, he was bold enough to redirect up to 20 percent of the overall annual budget around the 1970s for the establishment of Ulsan Industrial Complexes, located in the southeastern part of South Korea, says Cho Hyeyoung (PhD), director general of industrial location research institute under the Korean Industrial Complex Corporation (KICOX).

    Well, it suffices to say that Park’s bet has paid off; perhaps beyond his wildest dreams. Although he did not live to witness it as he was killed in 1979 by his own prodigy, his policy elevated South Korea from a war torn poor nation with Per Capita Income (PCI) of USD 79 to the 11th biggest economies in the world with PCI above USD 35,000 today.

    The world refers to it as an all out economic miracle on the Han River, a river that cuts across the capital Seoul, while others allude to the fact that it is an economic success achieved by carefully picking a winner like the giant Chebols. Cho is of the view that it was a clear plan to nurture local productive capacity first in the light manufacturing sector such as leather and textile and later in the 1970s with heavy-machinery, steel and petrochemical industries.  

    What was once the Guro Industrial Complex, the first complex to be build in South Korea, lays today one of the thriving industrial complexes in South Korea: the Seoul Digital Complex (G-valley). This complex now hosts 9,600 operators mostly focusing on venture, ICT and cutting-age technology generating export revenue of USD 2.4 annually.

    Core of the miracle

    By all counts, the two approaches that the Park administration followed—industrial clustering and initial focus on the light manufacturing and cheap labor force—has paid off. The management of mammoth industrial complexes appears to have become part of Korean these days. KICOX is one such institution that has accumulated 50 years of experience in industrial management.

    Currently, the corp. manages 63 out of the 1040 industrial complexes in South Korea. The 63 complexes, which host close to 49,000 companies and employing over one million workers, are sources of 40 percent of the overall manufacturing output and 41 percent of country’s manufacturing export revenue. In fact, according to the corporation, as of 2015, Korea has 85,789 companies working in the industrial complexes nationwide employing 2.16 million people. Better yet, currently, 70.9 and 79.7 percent of the countries over all manufacturing value addition and export is generated in these industrial complexes.

    What is more noticeable is the high-level clustering that is done in the industrial complexes in Korea. Just under the management of KICOX, there are four types of industrial complexes: National (29), General (20), Foreign Investment Zone (11) and Agricultural Industrial Complexes (3). Each also have specific focus areas and specialized services provided to them.

    According to Cho, the primary focus of the industrial complexes was not attracting foreign direct investment either as it is claimed by many scholars in the sector. “It was not until the 1990s that the government started to setup foreign investment zones, free trade zones and free economic zones to attract foreign companies to the manufacturing sector,” he said. As a result there are close to 3,400 FDI manufacturing firms in South Korea as of 2015 and their combined production accounts for 19.7 percent of the manufacturing sales and 20 percent of the manufacturing export.

    On the other hand, one of the pillars of Korean growth is also the initial focus on light manufacturing and largely abundant labor force in the country. Min Kyu Song (PhD), director of the high-tech textile R&D division at the Korean Textile Development Institute (KTDI), argues textile is one of the major industries which have carried the country’s industrialization over the course of the past 50 years. “Starting in the 1960s, textile is one industry that kicked off industrialization in Korea,” Min said.

    When one talks of textile in Korea it is impossible to escape Daegu, the fourth largest city in the country. Koreans say Daegu is where textile industry started to take shape in the 1960s. With the availability of abundant natural raw material for textile industry namely wool, Gyeongbuk province is truly the hub of textile manufacturing in South Korea. Chil-Seok Yoon (PhD), director the Gyeongbuk Techno Park, said that the province was much like today’s Ethiopia, reliant on natural textile raw material and abundant labor force.

    According to artifacts displayed at the textile museum in Daegu, the revolution in the textile industry and the increased use of synthetic fiber such as nylon and polymer has opened up the region for much more investment in the sector. Song agrees saying that Daegu is in fact leader when it comes to synthetic fiber and in hosting cutting age textile research in the country. According to Chil-Seok Yoon, there are close 1,500 large textile manufacturers (employing more than 10 workers) in Korea in addition to the 5,000 to 7,000 smaller ones.

    Indeed, the discovery of the synthetic fiber has changed the fate of the textile industry in Korea forever. Today, medium size textile factories such as Duckwoo Corp., originating from the Daegu area, are making big strides in the world markets. Starting off as a very small operation in 1995—mostly sustaining on some outsourced textile contracts—Duckwoo is now a company with an annual turnover of USD 40 to 50 million. Although it has started to take contracts by its own in 2006, today it is supplying big global clothing brands like Zara, H&M, Mango and SPA Brands.

    What is more interesting is how the whole clothing manufacturing line has evolved in Daegu. For instance, Duckwoo is totally dependent on synthetic fiber for its processing. However, the company’s competitive age comes from its innovation in weaving out somewhat different variants of the polyester fabric, says Chang-Hun Lee, R&D Center Director at Duckwoo. Basically, what they do is make some hybrid out of different variants of polyester fabric threads and weaving it into unique fabric which has attributes close to naturally woven fabric. “We use a water pressure system to weave the threads into a fabric which oddly close to natural cloth fabric,” Chang-Hun Lee elaborates.

    Brain of the miracle

    Scholars argue that given the right policy it is possible to achieve economic growth in a reasonable amount of time; however, they assert that what is difficult is to sustain that growth in an environment of constant change. Especially, manufacturing is one such sector where constant advancement in technology and method of production pose a serious challenge for firms and countries to stay competitive. This is something that the Korean manufacturing sector looks to be taking seriously.

    One showcase would be the textile sector. To date, there are close to 10 R&D institutes which focus on the various aspects of research and development in the textile sector in South Korea. Min Kyu Song leads one of them, which is located in Daegu city, the KTDI. According to him, there are at least five textile R&D institutes in and around Daegu and each have their own thematic focus. He says that his institution’s focus is mainly on textile fabric and thread and as such KTDI researches at least 150 new cases relating to thread and fabric.

    With cumulative 38 years of experience behind it, KTDI owns its own textile processing facility and research laboratory. According to the director, the facility comes in handy when the institute comes on to new findings and need to test the product and produce prototype for the market. Inherently it is a government institution but like many other government agencies the activist it undertakes could come off as a private entity.

    For one, the budget that is allotted by the government is not fully disbursable to such institutions pending their performance evaluations. Yes, in Korea even the government institutions have to compete for their budgetary fund. “Only 20 percent of our budget is disbursed directly; the rest is considered as grant money which will be accessed only when meeting some standards,” he said.

    Such institutions, however, do have a lot of money to be made in the market. According to Min Kyu Song, that constitutes the bulk of the finding the institutions earns annually. “In this cut-throat competitive world, we are required to produce those future textile products, test them and sell prototype and the production process to the companies,” he explains. It we have high volume of research to be conducted which is coming from various textile companies. “We get 150 cases a year,” Min Kyu Song says, and that is on top of joint research that KTDI does with various textile firms. “Some of the textile firms use our laboratory space for joint research activities,” he says.

    Soul of the miracle

    South Korea’s industrialization faced all the problems that any growing country could face. In a sense, it is one of the recent histories where growth catch-up was attempted and successful. Around the beginning of the 1970s—owing to large scale dynamism that was created in the manufacturing sector and supportive industrial policies—the overall household income in urban areas started to diverge from their counterpart in the rural areas. It is the classical case of hardcore speedy economic growth and the resultant income gains.

    In addition to the already existing focus on the largely metropolitan Seoul and Southeastern coastal areas for industrial growth, the income gap started to pose political problems for the nation. Hence, in 1970, the government heralded one of the most innovative community based movements of all times in Korea namely the Saemaul movement. According to So Jin Kwang, president of Saemaul Undong Center, like in many African and Latin American countries, Korea as well had a lot of unsuccessful community, grassroots movements by 1970. “All failed miserably,” Kwang remembers.

    He also recalls that the government, at that time, did not have resources to fund an all-out rural grassroots development program and that necessitated an innovative program which will awaken the communities self-reliance and self-help spirit for a sustainable and long-term economic revival. Then, the government availed limited construction materials such as cement and reinforced bars to villagers across South Korea. The resources made available to the villages were not enough so that they divide it among themselves but it was just adequate should they decide to do something collectively. “This approach forced villagers to sit down and talk about what they need to do collectively. This means identifying their problems collectively and doing something about it,” So Jin Kwang explains.

    The president argues that this is the very first and yet most important step in the Saemaul movement. This means people organizing and deciding by themselves how to tackle their common problems. The government did not interfere in this process; rather the resources which were availed by the government were not even 30 percent of what the villagers need to do. So, they had to put up the rest and take control of the projects. This process was evaluate after a year by the government and village leaders and those villages, who performed well, received additional resources as a reward while others were taxed for shortfalls.

    This is where the miracle happened and So Jin Kwang says that the villages that were cut off began to put up their own resources and do something to be eligible for support the next year. The rest is history as they say. According to the president, rural Korea started to escape poverty quite fast after that. “And in just a few years in 1974, the rural urban imbalance was reversed and tilted in favor of rural community,” he explains.

    This in turn gave rise to another miracle in the words of So Jin Kwang; a sense of completion in the factory and urban communities. In 1974 the first factory workers started to get organized and extended the Saemaul principle to factory setting. The result, as the president called it, is a little short of a miracle; the defect rate in Korean manufacturing, which was 30 percent around the 1960s, was reduced to below three percent around end of 1970s. “This spiritual awakening was how Korea products started to penetrate the world market,” he argues, and soon the mood passed on education and other sectors.

    In a way, the Saemaul jump-started the so-called Korean social mechanisms. So Jin Kwang says that the movement had two basic outcomes; one is forming Korea’s social capital and the other is nurturing horizontal and vertical governance grid in rural and urban areas.

    Future of the miracle

    It is clear that the future of the Korean narrative rests on a firm ground. It is clear from the focus research and development afforded in the economy. Textile, a sector which once started as light manufacturing industry, is progressing fast in South Korea and the future of textile looks to be quite visible today.

    According to Min Kyu Song, Korea still has a long way to go in terms of enhancing its research and output in the area of industrial fabric. “If you look at the world today, the most advanced economies process fabric more for its industrial use that they do for garment or clothing,” he says. In fact, he indicates the ratio is 80 to 20 percent between industrial fabric and garment fabric.

    WELCRON Ltd. is one of the Korean companies that are at the frontiers of industrial fabric processing today. Located at an industrial complex in Seoul, WELCRON has specialized on the application of synthetic fiber especially for industrial use.

    Microfibers are the next best things in textile industry, Yong-Sung Yoo, manager of PR department at the company, says. Microfibers are synthetic fibers finer than one denier or decitex/thread he says, microfibers are 1/10 the size of the diameter of a human hair. Most common microfibers are synthesized from polymers like nylon, Kevlar, nomex or polyester.

    This attribute lends microfiber immense application industrial sector which includes as fabric clearers and wipers because of its observant character. “It is 3 times more observant that cotton,” Yong-Sung Yoo says. Its application in garment and bedding products is also uniquely advantageous for the company, the PR explained.

    Nano fibers are the other cutting-edge textile product which is developed by WELCRON. Nanos, as the name indicates, are even more minute and finer that microfibers; in fact nanofibers are 10 times smaller than microfibers which are 1,000nm in diameter. The application of nanofiber at the moment is in the area of industrial mask and filters and as alternative material for making body armors. According to Yong-Sung Yoo, traditional material for body armor, Kevlar, could benefit from mixing with nanofiber since it will be sturdier yet lighter because of the nanofiber. Apart from that, nanofiber looks to have other application which really sounds like a concept out of sci-fi movie; such as fire resistant suit, suit cable of accepting electronic communications and strong bullet proof vest.   

    On the other hand, carbon fibers are also other synthetic fiber types which are making headlines in the Korean textile industry. Carbon fibers are tiny fibers in 5-10 diameters and composed mostly of carbon atoms. Especially, its application in automobile body manufacturing is also turning few heads in the industry.

    With all this behind her, the current president Park Geun-hye is eyes alternative markets for her manufacturing sector in Africa. With the perpetual increase in the average wage rate in Asian markets where a number of South Korean companies are invested in, Park officially visited Addis Ababa this week where she met with members of the business community to talk about possible textile and other investments in Ethiopia. Later on, she will also visit Kenya and Uganda possibly with same intent of expanding Korean investment portfolio to Africa. This move would be a landmark step for her nation’s economy and perhaps an important one in advancing her father’s 60-years dream of building a strong Korea.

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