Korea’s Services Sector Uncompetitive
By Lee Hyo-sik
Staff Reporter
South Korea has emerged as one of the world's major industrialized economies over the past six decades through a manufacturing and export-oriented development strategy. But its services industry still lags far behind Germany, Japan and other advanced economies in competitiveness.
The Science and Technology Policy Institute (STEPI) said Thursday that the nation should shift its economic structure into a more knowledge-based and high-value added services economy to create more jobs and achieve sustainable growth, suggesting the government set up research and development (R&D) centers and educate talented-manpower to make the services industry more competitive and innovative.
The state-run think tank pointed out that Korea is some 30 years behind other major advanced countries in the development of the services industry.
The sector accounted for 57.6 percent of the nation's gross domestic product (GDP) and 66.7 percent of employment in 2008, similar to those of Japan and Germany back in 1980.
The industry was responsible for 63.8 percent of the economic output in the United States in 1980, followed by Japan's 57.4 percent and Germany's 56.6 percent. About 47.3 percent of Korea's GDP were generated by the services sector that year.
"Korea has been placing top priority on developing its manufacturing industry over the years, while treating the services sector as an area that had to be heavily regulated and protected. This has resulted in the low productivity of domestic services providers," said STEPI research fellow Jang Pyoung-yol.
He then noted there are too many small-scale and unprofitable service-oriented businesses here, making the entire area more vulnerable to changes in the economy than the manufacturing industry. Small shops with fewer than five employees account for nearly 90 percent of the nation's service providers.
"Korean manufacturers of electronics, semiconductors and steel products have been able to emerge as a global leader, thanks to the government's aggressive R&D investments and other support policies. To boost the competitiveness of the services sector and turn it into a new growth engine, the government must ease regulations and expand R&D investments," Jang stressed.
The government has unveiled a series of measures over the past few years to boost the competitiveness of local leisure, medical and other services sectors. But they have largely failed to achieve their intended goal.
The institute suggested the government and universities establish R&D centers to foster high-value added and innovative services businesses. "There are only a few universities that provide "service science" courses, which are common among the U.S. and European higher learning institutions. Highly competent and creative human resources are the key to nurturing the advanced services industry."