Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
INTERVIEW Reform, foreign talent crucial to revitalizing Korean economy: McKinsey
McKinsey & Company senior partner Richard Lee speaks during a recent interview with The Korea Times at the firm's office in Seoul. Courtesy of McKinsey Korea
By Anna J. Park
Global consulting firm forecasts Korea to join world's top 7 economies by 2040
Korea will overtake France and Italy and ascend to the world’s top seven economies by 2040 with its per capita GDP exceeding $70,000 if the Asian country succeeds in overhauling its industrial structure and embraces more foreign talent, according to McKinsey & Company.
In a recent interview with The Korea Times at its Seoul office, McKinsey senior partner Richard Lee said that although Korea has been mired in a low growth trap of around 2 percent a year on average, it has tremendous potential to rekindle the dynamics of expansion through structural reforms.
“Korea still can capture new growth momentum in burgeoning business sectors like artificial intelligence, bio, non-memory chips and climate technology, where the country can be highly relevant,” he said.
“Venturing into these ‘higher value-added industries’ is what Korea should take on at this juncture to step up into the world's top seven economies in the future,” he added.
Lee’s rosy outlook is based on the latest strategic report titled “Korea’s Next S-Curve" by the world’s leading consulting firm.
Lee, who co-authored the report, said it underscores the imperative for Korea's industrial landscape to undergo a transformation, coupled with improvements in capital market regulations and frameworks to achieve the optimistic forecast.
The Seoul-based senior partner elaborated that the first S-curve — cumulative growth of the Korean economy shown progressively over time — was until the 1980s, primarily driven by heavy industries like steel, shipbuilding and petrochemicals.
The second S-curve during the 1990s to the early 2000s was around advanced manufacturing, such as semiconductors, automobiles and electronic materials. The third S-curve, which is what Korea needs to attain further growth, can be achieved based on the higher value-added sectors.
But for now, the country's economy, in terms of key export items and main industrial structures, is still stuck in the second phase of the S-curve.
"Unfortunately, we don't see a big change in the shift of the Korean economy in terms of what's driving the export growth," Lee said during the interview. "If you look at the top 10 export items of Korea, it hasn't changed very much since 2005. While the order of the top 10 might have changed, there's only one new item that has joined the list. The country needs to go through a pretty significant, radical change in the way it thinks about growth," Lee stressed.
Restructuring ensures 3rd S-curve
Lee, who leads high-tech, media and private equity practices in Seoul, said Korea needs to grab new growth opportunities the world is offering by undertaking the major restructuring of some of the industries that once helped the country achieve high growth in the past, but not anymore.
"The most representative one is the petrochemical industry. The petrochemical industry has always been the source of the top two or top three export items for Korea. Korea imports crude oil and sells petrochemicals, and a lot of the petrochemicals are sold to China. But China is becoming increasingly self-sufficient in the area," the senior partner said. "China is already expected to have more than 10 or 20 percent overcapacity for its chemicals in the next 10 years. So this industry is facing a major oversupply in Korea," he warned.
While undergoing such necessary restructuring in some of the industries, Korea also needs to take proactive measures to shift towards the higher value-added industries as mentioned.
"For example, one area we're particularly excited about is quantum computing. We think quantum computing in the next 10 to 20 years can be a $1.4 trillion industry globally, and we think Korea can play a major role. Quantum computing fundamentally changes how you do very high-intensity computing," Lee said.
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Other sectors include the bio industry's ever-growing markets for contract development and manufacturing organizations (CDMOs) as well as cell and gene therapy (CGT). Highly innovative green technologies also offer ample new growth opportunities, as seen in cases of carbon capture, utilization, and storage (CCUS) and wind power, which are each expected to grow into a $100 billion market. The small modular reactor (SMR) market is also projected to reach $480 billion in the future.
"So these are all markets where Korean companies can play a big role. We expect Korean companies that achieve innovation in these fields to be able to post annual earnings of $10 billion to $100 billion," Lee said.
To achieve the recommended national growth strategies, Lee stresses the importance of actively accepting foreign workers, especially highly-skilled ones, to address the country's declining population and to bring back vitality.
"Now's the time to inject a sense of urgency in the way we think about foreign talent," Lee said, explaining that Korea's issuance quota of professional visas per year has been flat over the past 10 years at around 50,000.
While Korea has stayed stagnant in that area, Lee said Japan has increased the number by more than four times — from some 120,000 to 480,000 — during the same period.
"Japan is already moving towards the direction where they're realizing that the natural birth rate is not going to cover the talent needed for industry," he said.
Besides taking in more overseas talents, Lee, who holds a Harvard MBA degree, also pointed to the need to attract more capital freely flowing into the Korean market.
"One of the big challenges is to make sure our capital markets are fully reflective of the underlying economy of the country; Korea's price-to-book ratio is one of the lowest in the world," he said.
"One of the things that we find very surprising is many large Korean conglomerates don't necessarily want their stock price to go up, which is very unusual. But that is because of the very large inheritance tax in Korea. So I think fixing both the labor and the capital markets to encourage more investments and more sort of healthy capital in the country are two of the things that we need," he said, adding that some capital market regulations that tend to discourage active venture investments by conglomerates should also be amended.
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Innovation as Korea's top strength
Lastly, the McKinsey senior partner highlighted that Korea's unique strength lies in its constant drive for innovation and relatively larger investments in research and development (R&D). As a percentage of spending of the national economy, Korea ranks among the top two globally, right after Israel, with around 4.95 percent of GDP injected into the R&D sector, Lee said.
"We think that's a real plus for Korea. Korea has always been a good testbed market for many items, and we think this is a great place where Korea can actually be a center of innovation and development," he said, adding that he hopes Korea captures the unprecedented level of wealth creation that's happening currently.
After studying economics and engineering at MIT, Lee spent the last 26 years at McKinsey, mainly focusing on tech, media, and telecom from an industry perspective, as well as mergers and acquisitions from a functional perspective. He is also actively working with private equity and venture capital funds.