Korea drags the chain on fourth industrial revolution

By Choi Sung-jin

Industry 4.0, or the fourth industrial revolution, is emerging as the new technological innovation, but Korea’s preparation falls far short of major economic powers, a private think tank said Monday.

The fourth industrial revolution is the ongoing trend of automation and data exchange in manufacturing technologies and includes cyber-physical systems, the Internet of Things and cloud computing, according to Wikipedia. Industry 4.0 comes after industry 1.0 of mechanization, 2.0 of mass production and 3.0 of computers and automation.

In the report, Hyundai Research Institute quoted the national rankings of countries preparing for the fourth industrial revolution -- made by UBS, a Swiss bank, at the World Economic Forum’s annual meeting earlier the year. According to the UBS list, Korea was 25th out of 139 countries. Switzerland was at the top, followed by the United States (fifth), Japan (12th) and Germany (13th). China was ranked 28th.

The think tank focused on two factors -- performance of related businesses and their dynamism, judged by the replacement rate through corporate entries and exits. By the first standard, the sales of Korean companies related to Industry 4.0 grew at an annual average of 1.8 percent from 2011 to 2015, sharply retreating from the 9.7 percent in the five preceding years.

Their profitability also declined, as seen by the 0.4 percentage point drop in operating profit ratio between 2011 and 2015, compared with the 0.6 percentage point increase between 2006 and 2010, the report said.

Among major businesses that stand out in Industry 4.0 are autonomous vehicles, unmanned drones, 3D printing, robotics, big data, artificial intelligence, genetic engineering and synthetic biology.

Accompanying it is the reshuffle of industrial structures, marked by the sharing economy, in which rental business models replace possessing models, as well as the on-demand economy, which supplies what consumers need at the right time.

The think tank’s analysis of 13,762 related businesses listed on major bourses showed that unlike Korean companies, businesses in other major economies recorded sales increases. For instance, the Japanese companies’ annual average sales turned around from minus 3 percent in 2006-2010 to 4.3 percent in 2011-2015. The comparable growth rate for U.S. firms rose from 4.5 percent to 6.5 percent, and those for Chinese and German companies climbed from 12.6 to 13.2 percent and from 4.5 to 5.3 percent, respectively.

The operating profit ratio of the Japanese firms improved, from minus 2 to minus 1 percent, and that of U.S. and German firms went from minus 1.5 to minus 0.8 percent, and from minus 1.5 to 0.7 percent, respectively. China’s deteriorated from minus 0.8 to minus 3.4 percent, however.

Korea lagged in corporate dynamism, too. The replacement rate of listed companies related to the fourth industrial revolution stood at 14.4 percent here, the second lowest following Japan’s 11.8 percent. The corporate exit rate, in particular, was a mere 0.1 percent, the lowest among the five countries.

Few firms went bankrupt over the past five years, in other words. In contrast, the exit rate of U.S. and German companies reached 5.4 percent and 12.5 percent, respectively. The low exit rate of Korean businesses means marginal companies have subsisted thanks to government support and low interest rates, the report said.

In Korea, “technological hardware and equipment,” such as smartphones, took up the largest portion of 19.8 percent among related industries, revealing the high concentration rate compared with Germany’s capital goods (13.8 percent), the U.S.’s software and services (11.9 percent) and Japan’s capital goods (13.8 percent).

“Korean businesses need to develop the ability to forecast future changes with the fourth industrial revolution in mind when they set up mid to long-term visions and strategies,” said Chung Min, a fellow at the think tank.