-0-

"What is the fastest way to travel from Manchester to London?"

Competition in the UK has never been this information in broadcasting. Of course,

with big money, over $10,000.

Many attender for the question has had submitted to the general public as well
as a mathematician and transportation expert.

Planes, trains, automobiles, how to go on a motorcycle, by measuring the

shortcut on the map.
The answer was also unexpected.

But everyone was convinced of that decision.

The answer is:

What’s Korean Industrial Cluster?

Industrial Complexes (Capacity Building) :

Imitation Phase (1962~1979)
Industrial Clusters :
Creative Imitation Phase (1980 ~1997)
Innovation Clusters (Capability Building) :
Innovation Phase (1998 ~)

Implication of Korean Industrial Clusters & FTZ

-2-
 What’s Korean Industrial
Ⅰ Cluster?

-3-
 Korea’s Industries in 1960 and in 2010
1960 2010 2020
GDP per capita (in US$) 82 23,087 31,489
Population 25 mil. 48.9 mil. 51.8 mil.
Share of Manufacturing (in
14.4 27.6 27.1
GDP(%))
Shipbuilding(world # 2)
Semiconductor(world # 3) 77 Products are
Wigs
Flat Display(world # 1) first ranked in the
Eyelashes
Major Industries Automobile(world # 5) world, including
Clothes mobile phone, D-
Steel(world # 6)
Plywood ram, etc.
Mobile Phone(world # 2)
Petrochemical products(world # 5)
4
 Establishment of Industrial Clusters

Korean industrial cluster (or Korean industrial complex) development used

one of the key strategies of Korean industrialization.
Korean industrial complexes have been positioned as a foundation of Korean
industrialization and as one of the driving forces of Korean industrialization.

[Status of Contribution of Industrial Complexes to the National Economy]

unit: %, %p
Growth Rate
Share of 2000 2003 2006 2010
(2000～2010)
Number of Firms 7.9 10.0 13.1 16.3 8.4
Production
51.1 52.2 59.9 62.3 11.2
(Output)
Export 59.4 68.6 80.4 79.1 19.7
Employment 28.9 30.8 37.1 42.1 13.2
Source: KICOX, 2012

-5-
 Type of Special Economic Zones

- Free Trade Zones are small, fenced-in, duty-free areas, offering ware housing,
storage, and distribution facilities for trade, transshipment, and re-export
operations, located in most ports of entry around the world.

- Export Processing Zones offer special incentives and facilities for

manufacturing and related activities aimed mostly at export markets.

- Freeports accommodate all types of activities, including tourism and retail

sales, permit people to reside on site, and provide a broader set of incentives.

- Enterprise Zones are intended to revitalize distressed urban or rural areas

through the provision of tax incentives and financial grants.

- Single Factory EPZ schemes provide incentives to individual enterprises

regardless of location
Traditional Commercial Single
Hybrid EPZ
Factory EPZ Freeport
EPZ Free Zone
Source : Special Economic Zones, Worldbank, 2008; Kim, 2014
6
 Types of Special Economic Zones

Size
Type Objective Location Activities Markets Examples
(1,000 m2)

entreport, domestic, Colon FZ,

Free Trade Zone support trade < 500 ports of entry
trade-related re-export Panama

manufacturing, Karachi EPZ,

Traditional EPZ export mfg. < 1,000 none mostly export
processing Pakistan

manufacturing, export, Lat Krabang,

Hybrid EPZ export mfg. < 1,000 none
processing domestic Thailand

integrated domestic, Aqaba SEZ,

Free Port > 100 km2 none multi-use
dev int’l, export Jordan

urban distressed Empowerment

Enterprise Zone < 500 multi-use domestic
revitalization urban Zone, Chicago

Single Factory manufacturing, Mauritius,

export mfg. countrywide export
EPZ processing Mexico,

Source : Special Economic Zones, Worldbank, 2008; D. Kim, 2014

7
Theory of Industrial Clusters

Industrial Clusters refer to an ensemble

of functional linkage (production system,
R&D, business support services) and
spatial agglomeration.

Key Concepts of Industrial Clusters

- Specialization
- Agglomeration
- Innovation
- Network
- Multilateral Governance

8
 Theory of Industrial Clusters

Scope of Industrial Clusters Industrial

Policy
- Type I : Industrial Complex
- Type II : R&D Special Zone
- Type III : Free Economic Zone
Cluster
Policy
Science &
Regional Policy
Technology
Policy

Components of Industrial Clusters

- Enterprises
- Universities
- Institutes
To link each sub-system efficiently - Governments(Administrative Authorities)

9
 Theory of Industrial Clusters

1980s 1990s 2000s

Marshall Porter Miller & Morris

Theoretical
Evolution Industrial Parks:
& Needs Clusters:
Production R&BD Clusters
Network
Concentration
Regional Industries New Industries
Collaboration Integrated Value Added
Accumulation of Human
Cap Specialization Innovative Investment Practical R&D

Industrial Infra Innovative Infra Tech Transfer

Policy Industrial Complex Networking Venture Business Ecology
Tools Skilled Labor Governance Global Networking

Source: D. Kim, 2014

- 10 -
 Benefits of Industrial Clusters
The economic aspects of enterprise
▶ Businesses’ easy and convenient access to industrial locations
▶ Improved efficiency in facility investment through clustering of
infrastructure
▶ Cost saving by locating manufacturing-related facilities
▶ Improving competitiveness by stimulating cooperation through clustering
of related businesses

The land and SOC aspects

▶ Industrial clusters enable intensive and efficient use of limited land.
▶ Efficiency of SOC investment is improved by systematic development of
SOC such as roads, ports, water systems and power systems.

The environmental perspective

▶ Minimizing impacts of industrial locations by installing and operating
environmental pollution prevention facilities in packages.
511
 A Brief Look at Korean Industrial Clusters

The first generation of KICs (Industrial Complex), centered on export-

oriented heavy and chemical industries (HCIs), began to appear in Korea in
1962.

The second generation of KICs (Industrial Cluster) featured stronger R&D

functions and spread nationwide in the 1980s and the 1990s.
▶ The second-generation complexes were an evolution of the first-
generation ones, adding greater capabilities for innovation to the simple
aggregations of industrial production facilities, for example, the R&D SEZ.

The third generation of KICs (Innovation Cluster) started to emerge,

centered on and supporting Regional Innovation Systems in the 2000s, for
instance, 18 Techno Parks in Korea.

512
Source: D. Kim, 2014

513
Korean Industrialization Phases

Phase I Phase II Phase III

1960-1979 1980-1997 1998-
Economic
Dev Distance
Economic Density Division
Network Industrial
Costal Cities with Regional Competitiveness
Complexes with
Industrial Parks by Hub & Spoke
Infrastructure
Selection & Concentration
full fledged Autonomy(‘94)
Park Admin(‘61-’79) Rho admin(‘03-’08)
Time
Oil shock Financial Crisis(‘97)
Political Turmoil
Factor Intensive Technology Innovation & Creativity

National Dev National Dev Regional Dev

Infra (Gyeongbu HWY,’70) Human Cap (KAIST,’78) New Growth Engine

Light to Heavy Industries Heavy to Strategic Mfg Strategic, Leading, Green Industries

Source: D. Kim, 2014

514
Ⅱ
Industrial Complexes(Capacity Building):
Imitation Phase (1962~1979)

- 15 -
1. Export Promotion

2. Industrial Targeting Policy

- 16 -
Monthly Meeting for Export Promotion in the 1960s

- 17 -
3. Establishment of Industrial Complexes

What has been provided in industrial complexes?

Land provided by the Ministry of Construction and Transportation(MOCT) or local
government.
Access roads, industrial water supply, electricity, communication system,
pollution control, land scraping and other facilities(e.g. schools, housing,
recreation, medical centers) provided by MOCT and/or public utility corporations
such as Korea Land Development Corporation, Water Resource Development
Corporation, and Agriculture Promotion Corporation
Financial support by central or local governments

- 18 -
Source: Korea Industrial Park Corp., 2009. Revised by Kim (2014)

- 19 -
1st Generation Industrial
Clusters in Korea : Industrial
Complexes
- Korea Industrial Complex Corp.
(KICOX) is an industrial
complex management and
supervision agency which was
established in 1964 after
integrating five regional
industrial complex management
corporations.

Source : KICOX (www.kicox.or.kr)

- 20 -
Source: Korea Industrial Park Corp., 2009. Revised by Kim (2014)

- 21 -
 4. First Generation Industrial Clusters in Korea : Industrial Complexes

1st Generation Industrial Clusters in Korea : Industrial Complex

- Backbone of Korean manufacturing industries
- on re-structuring
- Started with Export Promotion Zones and Custom Free Zones
- Evolved to Free Trade Zones

Industrial Complexes in Korea, 2021

Source: Korea Industrial Complex Corporation(KICOX), 2022

- 22 -
1. Definition of KIC

2. Establishment of Industrial Complexes

23
 3. Types of KIC

– Classified by types of development actors

• Industrial park developed by public sectors (central government, local
government)
• Industrial park developed by private sectors (developer)

– Classified by different purpose of development

• Special economic zone for attracting FDI
• General industrial park for promoting domestic industrial firms

– Classified by different types of development process

• Development of an industrial complex equipped infrastructure in a pre-selected
area
• Industrial zone is selected as part of the comprehensive urban planning, allowing
private firms to freely engage in development of factories and production of
industrial goods.

- 24 -
 Designation Authority
Type Purpose of Designation Target Region
Holder

Attract foreign investment,

Minister of Trade, A region surrounding a
Free Trade promote trade and
Industry and Energy harbor, an airport and an
Zone promote local
(MOTIE) existing industrial park
development
An industrial park and a
Foreign Mayors and governors of Promote attraction of foreign
region where foreign investors
Investment Zone provinces investment
wish to invest
A region having a high
Improve business and living
Free Economic Minister of Trade, Industry possibility of foreign
conditions for foreign
Zone and Energy (MOTIE) investment and settlement of
investors
foreigners
Joint technology development
A region having a high
Minister of Trade, Industry and activation of local
Industrial possibility of clustering and
and Energy (MOTIE) economies through clustering
Technology Park connection of industry,
industry, academy and
university and institute
institute
Source: KICOX (2011)

- 24 -
 Types of Industrial Complexes in Korea
Types Designation Authority Holder Purpose of Designation Target Region
To promote the nation's key industries and high Underdeveloped regions requiring
technology industries, etc. or to develop
National Minister of Land, promotion of development, and
underdeveloped areas requiring promotion of
Industrial Transport & Maritime regions with infrastructure
development or areas where planned industrial p
Complexes Affairs advantages for the high-tech
arks are stretched over two or more of Special
Metropolitan City and Metropolitan Cities Industry

Local A region requiring balanced

Head of Metropolitan To promote appropriate decentralization of
Industrial Development
Complexes Local Governments industries and to activate local economies (at the city and provincial level)
To foster and promote development of the
Urban High-Tech Urban regions with advantages
Industrial Head of Metropolitan knowledge industry, the cultural industry, the for fostering the high-tech
Complexes Local Governments information and communications industry and Industry
other high-tech industries
Agricultural To attract and promote industries for increasing A region having an advantageous
Industrial Mayors and Governors income of farmers/fishermen in agricultural and location in cities and counties
Complexes fishing areas prescribed by Presidential Decree
Source: KICOX (2011)
- 24 -
 Industrial Complex Development
▶ Development: “Industrial Site and Development Act”
❖ This act defines the general procedures related to designation and
development of industrial complexes(IC).
❖ Central administrative agency : Ministry of Land, Infrastructure and
Transport(MOLIT) , Korea Land and Housing Corporation(LH)
❖ By the law, LH, public utility corporation, has taken charge of the site development for industrial
complexes and played a key role for industrialization and balanced national land development
since 1962, fully funded by the central government.

➢ Procedures of KIC Development

❖ Land development : To arrange lands for enterprises and those for
supporting facilities to enhance efficiency and functions of the IC.
❖ Construction of infrastructure : To supply of the infrastructure required for
an IC, which includes water supply, electricity, energy, transportation,
sewage and waste treatment, and prevention of environment pollution

- 25 -
Source: KICOX (2011)
- 25 -
Incentives for KIC

Support system for development of industrial complexes

Support system for developers Support system for resident enterprises

Financial support/ Support for land Tax and financing Installation of welfare
Payment of expenses development support facilities

- 28 -
Government Subsidization for KIC

- 28 -
Industrial Complex Management

- 25 -
- 25 -
 Industrial Complexes as Industrial Clusters

Incentives for Resident Enterprises

▶ Reduction or Exemption of Taxes
- 100% exemption of registration tax and acquisition tax, and 50% reduction of property tax
▶ Financial Assistance
- Agricultural Industrial Complexes : Subsidization of the capital expenditure and the
operating expenses of resident enterprise
- Urban high-tech industrial complexes : Low-interest financing for the projects of resident
enterprises
▶ Support of Welfare Facilities
- A management agency may operate support services such as improvement of energy
efficiency, promotion of labor relations and vocational training.
- A lot of welfare facilities are installed and managed by the agency
- 33 -
1. Background of FEZ

2. Establishment of FEZ

34
35
3. Incentives to Companies in the FEZ

36
 4. Types of FEZ
– FEZ or Free Trade Zone(FTZ) Centered on Logistical Hub Model
• Hong Kong’s FTZs and Singapore’s FTZs

– FEZ or Free Trade Zone(FTZ) Centered on Production

• Mexico’s Maquiladora, Export Processing Zones in Taiwan and China, Korea’s FEZ

– Complex Free Trade Zone(FTZ)

• The main functions of Complex Free Trade Zones are production, distribution,
business and exchange
• FTZ in the US

5. Outcome of the Masan FEZ

– Impact on Exports

– Impact on Foreign Exchange Earning

– Impact on Foreign Investment Attraction

– Impact on Employment

– Impact on Technology Transfer

- 24 -
<Export Growth Rate in the Free Export Zone(Compared with Gross Export)>

<Impact on Foreign Exchange Earnings>

Source: Kim (2011), pp. 22-23

- 24 -
 Guro Industrial Complex in 1960s and 1970s

⚫ Guro Industrial Complex or Korea Export Industrial Complex, later renamed as

Seoul Digital Industrial Park, was developed to foster the export industry at
Seoul in 1964.
- According to the provisions of the Act for the Development of Export
Industrial Complexes
- It was intended to generate more revenues in foreign currencies through
export, to build new factories and to construct roads and harbors by
investing the profits.
⚫ As Korea was exporting mainly labor-intensive products in the 1960s, the
Guro Industrial Complex was constructed on a 430,000 m2 site

- 39 -
 Characteristics of Gruro Industrial Complex

⚫ Korean government, which suffered lack of fund and technology, started

aggressively attracting investments and technologies of Korean residents in
Japan, in order to foster the export industry.
⚫ Guro industrial complex continuously grew, supported by the policy to drive
exports through light industries implemented in 1960s and the early 1970s.
- Establishing Korea Export Industrial Estates Corporation (now, KICOX) to
manage Korean industrial complexes.
⚫ The industrial complex continuously thrived from 1969 to 1980 by accounting
for 43.3% of the annual export amounts.
⚫ The major business types were textiles, sewing, wigs and electrical equipment.
- Textiles accounted for 44% of total exports.
Items 1967
Number of Resident Enterprises 31
Number of Employees 2,460
Production (KRW 100 million) -
Export (USD 1 million) 1
Source: KICOX, 2012
- 40 -
 Guro Industrial Complex in 1980s and 1990s

⚫ In the late 1970s, the wig industry started to decline and electrical,
electronics, etc. ranked second in exports at the industrial complex
following textiles and sewing snatched the top position in 1985.
- After mid 1980s, the competitiveness of the complex was weakened
due to labor disputes, wage hikes and land price hikes.
• Losing vitality, exports from the complex sharply plummeted from US$4.2
billion in 1988 to US$3.8 billion in 1991 and to US$1.5 billion in 1999.
Employment also declined to 30,000 in 1999.
Items 1990
Number of Resident Enterprises 261
Number of Employees 55,694
Production (KRW 100 million) 44,750
Export (USD 1 million) 4,088
Source: KICOX, 2012

- 41 -
• In the successful transformation of the Guro Industrial Complex into
Seoul Digital Industrial Complex, deregulation and cheap and intelligent
apartment-type factories that complement the IT sector have played a
significant role.
- Furthermore, analysts believe that being 'in Seoul,' transportation
accessibility from all directions and network effects following
clustering have also been helpful.

Source: KICOX, 2015

- 42 -
 Seoul Digital Industrial Park in the 2000s

⚫ Korean government revised the Enforcement Decree of the Industrial Placement

and Factory Construction Act in 1997 and prepared a systematic foundation to
revamp the Guro Industrial Complex, allowing entry of nonmanufacturing and R&D
businesses into the complex.
⚫ In 2000, the Complex was renamed as Seoul Digital Industrial Complex, and rapidly
restructured into a complex specialized in high-tech and knowledge industries
including IT and software.
⚫ The biggest change is that it became a cluster of new technologies, and software,
game or IT companies began to emerge and succeed in the complex.
<Operation Status of Seoul Digital Industrial Park (2011)>
Electric Machin Textile Paper/ Manufac Non-
Industry total IT Other
/Electron -ery /Apparels Printing -turing(MFG) MFG
# of Resident 92 37 559 226 8,561 3,193 5,368 1,348
10,823
Enterprises (0.%) (0.3%) (5.1%) (2.1%) (79.1%) (29.5%) (49.6%) (12.5%)

- 43 -
 The Industrial Cluster as a High-Tech Mecca

• In the successful transformation of the Guro Industrial Complex into

Seoul Digital Industrial Complex, deregulation and cheap and intelligent
apartment-type factories that complement the IT sector have played a
significant role.
⚫ As of the end of 2010, the Complex accommodated over 123,596 workers
and 10,025 companies as an Urban High-Tech Industrial Complex.
• Being 'in Seoul,' transportation accessibility from all directions and
network effects following clustering have also been helpful.
Items 2000 2010
Number of Resident Enterprises 712 10,025
Number of Employees 32,958 123,596
Production (KRW 100 million) 51,470 129,917
Export (USD 1 million) 1,591 1,972
Source: KICOX, 2011
- 44 -
Ⅲ Industrial Clusters:
Creative Imitation Phase (1980~1997)

- 45 -
- 46 -
- 47 -
 Stages First Stage Second Stage Third Stage Fourth Stage
Years (1962~1983) (1984~1989) (1990~1997) (after 1998)
Policy Foreign Investment Foreign Investment Foreign Investment Foreign Investment
Goal Restriction Foundation Liberalization Promotion
- Foreign Investment
Restrictions sector further
- Foreign Investment
opening(1998)
Report (1991)
- Allowing Foreign
- Permit exception of
Investors' M&A of
- Switch from the foreign investment sector
Domestic Companies
negative to positive (1992)
- Priority to attract (1998)
Policy - Abolish the - Foreign Investment five
foreign investment - Foreign exchange
Measures restriction of year plan(1993)
by foreign loans liberalization(1998)
holding 50% of rest - Combined civil
- Foreigner Land
ricted sector complain investigation
Acquisition allowed (1998)
system(1995)
- Foreign Investment
- Favorable M&A
Promotion Act (1998)
allowed (1997)
- Regulatory and 4 sector
reform
Source : Choo et.al (2012)
- 48 -
Technology Development

Soaring R&D Expenditures and GDP Ratio

Source: Song, B. (2009)

- 49 -
Technology-driven Policy

- 50 -
Korean R&D Process

100%

90%

80%

70%

60%
Business Enterprises
50%
Universities and Colleges
40%
Public Research Institutes
30%

20%

10%

0%

Source: KOSIS, 2011

- 51 -
Source: Korea Industrial Park Corp., 2009. Revised by Kim (2014)
- 52 -
Source: Korea Industrial Park Corp., 2009. Revised by Kim (2014)
- 53 -
2nd Generation Industrial Clusters in Korea : R&D Special Zones
- Established as science parks in 1974, turned into R&D special zones in 2005
and expanded in 2011 and 2012
- Featured stronger R&D functions and spread nationwide in the 1980s and the
1990s.
- An evolution of the first-generation ones, adding greater capabilities for
innovation to the simple aggregations of industrial production facilities, for
example, the R&D SEZ.
<Statistics of R&D Special Zone of 2012>

R&D Special Institutes & Products R&D exp Employee Area

Industry
Zone Universities (million $) (million $) s (km2)

Daedeok 89 IT, Biomedical 16,698 6,652 64,321 66.8

Gwangju 46 Photonics, Bio 8,208 473 19,748 18.7
Daegu 29 Green energy 4,320 566 28,817 22.3
Busan 16 Ocean plant 3,898 388 21,316 14.1

Total 180 33,124 8,079 134,202 121.9

Source : Innopolis (www.innopolis.kr)
- 54 -
Cluster Policies in Korea

Daedeok
San
Silicon Valley Gumi
Science (prototype cluster of Kista Industrial
Diego
Town combining R&D and (Sweden) Complex
(USA)
(Korea) (Korea)
production function)

R&D-driven cluster Innovation Production-driven cluster

Source: Park, 2013 Cluster

- 55 -
 Korean Industrial Complexes from 1960s to 2010s

1960s 1970s 1980s

1990s 2000s 2010s

- 56 - Source: MOTIE and KIAT, 2013

Factors that Led to Free Trade Zones
- (Stage 1) FEZs attracted foreign direct investments and one or two labor
intensive industries such as electronics, textile or clothing grow.
- (Stage 2)When the industries were matured, foreign direct investment dropped
off and the rate of increase slowed.
- The cost of labor increased and the upgrading of manpower proceeded while
high value-adding industries replaced basic processing and assembly
industries.
- (Stage 3) The impact of export growth decreased and the export processing
zone underwent a structural change.
Evaluation of the FEZs in Masan and Iksan
- The Masan Free Export Zone had 78 companies in 1999, still maintained an
employment level of 13 thousand(maintaining a high level of employment);
labor intensive industries have been replaced by technology intensive
industries such as electronics and precision tools.
- The Iksan Free Export Zone had 28 companies in 1999 with 1,507 employees,
showing much lower results compared to the Masan FEZ.
- The difference in performance becomes bigger in terms of exports, showing
less than 5% of the result of Masan FEZ (Kim, 2011).
- 57 -
 <The State of Free Export Zones in 1999>

<Comparison between Two FEZs in 1999>

(Unit: $1,000)

Source: D. Kim, 2011, pp. 26-27.

- 58 -
 Gumi National Industrial Complex in 1970 vs. in 2010

• As the government shifted the focus of its economic development strategy from export-
orientation to diversification of industries as part of its efforts to reduce dependence on
heavy industries, develop diverse industries and overcome the challenge of lack of
resources, Gumi Industrial Complex was developed into a complex specialized in
electronics.
• The Complex was developed and operated in accordance with the Electronics Industry
Promotion Act and the Act on Development of Export Industrial Complexes enacted in
1969.
• In order to attract resident enterprises to Gumi Industrial Complex, the government
established the Electronics Industry Promotion Plan in 1974, and facilitated construction
of electronics-related factories in the Complex.
• At the same time, the government controlled construction of electronics factories in
Free Export Zones and other zones.
• In 1971, the Complex accounted for only 0.7% of the national exports, but the share
increased to about 10% in 1990s, proving its role as a driver of export growth and trade
surpluses, and the nation’s largest inland high-tech electronics & IT industrial complex.

- 59 -
<Overview of the Clusters of Gumi Industrial Complex >

Source: KICOX, 2015

- 60 -
<History of the Masan Free Export Zone>

Source: D. Kim, 2011, p. 27.

- 61 -
<History of the Iksan Free Export Zone>

Source: D. Kim, 2011, p. 28.

- 62 -
Ⅳ
Innovation Clusters (Capability Building):
Innovation Phase (1998~)

- 63 -
From Crisis to Recovery: 1998-present

The R&D expenditure of companies focused on large companies

- 64 -
Knowledge Based Economy

- 65 -
 Diversifying Exporting Industries, especially for ICT industries
Top 10 export items (%)
1970 1980 1990 2000 2010
Rank
Item Share Item Share Item Share Item Share Item Share
1 Textiles 40.8 Garments 16.0 Garments 11.7 Semiconductor 15.1 Semiconductor 10.9

Steel Plate-rolled
2 Plywood 11.0 5.4 Semiconductor 7.0 Computer 8.5 Vessel 10.5
Products

3 Wigs 10.8 Footwear 5.2 Footwear 6.6 Automobile 7.7 Automobile 7.6

Petrochemical Flat Panel

4 Iron ores 5.9 Vessel 3.6 Video Apparatus 5.6 5.3 7.0
products Display

Electronic Petrochemical
5 3.5 Audio Apparatus 3.4 Vessel 4.4 Vessel 4.9 6.8
goods products

Man made Wireless Wireless

6 Confectionery 2.3 3.2 Computer 3.9 4.6 5.9
filament fabrics telecom telecom
Parts of
7 Footwear 2.1 Rubber Products 2.9 Audio Apparatus 3.8 Synthetic Resin 2.9 4.1
Automobile
Woods & Wood Steel Plate-rolled Steel Plate-
8 Tobaccos 1.6 2.8 3.8 2.8 Plastics 3.7
items Products rolled Products

Man made Iron & Steel

9 Iron products 1.5 Video Apparatus 2.6 3.6 Garments 2.7 3.6
filament fabrics Products

Video
10 Metal products 1.5 Semiconductor 2.5 Automobile 3.0 2.1 Computer 2.0
Apparatus

Total 81.1 47.6 53.4 56.6 62.1

Source: KOTIS
- 66 -
<Ratio of Foreign Investment to GDP and FDI Regulation
Index Change>

Source: Nicolas, F., S. Thomsen and M. Bang (2013), OECD.

- 67 -
- 68 -
Changes in Technology and Innovation Policy in Korea: 1970s ~ 2000s

1970s 1980s 1990s 2000s

Technological
Advanced-level Creating new
National R & D Improvement in
Goal high-tech industry generation
Infrastructure leading
development growth-power
Industries
(Processing and
(Heavy (IT industry)
Industry of assembly industries) (New growth
Industrial) Semiconductors,
Focused Electronics, engines)
Steel, machinery, advanced consumer
Support shipbuilding, IT, BT, NT, ET
chemical mobile devices
automobiles

Development Technology adoptio

Internalization of Start of the creation
of innovation n and Knowledge creation
Technology of technology
capability absorption

Corporate, Corporate,
Formation of Government- funded Government- funded
government-funded government-funded
Principal research research institutes,
research institutes, research institutes,
Innovations institutes corporate
universities universities

Source: Cho, Y. 2012, KIET

- 69 -
 Rising Commitment of the Private Sector to R&D, Korea

100% 4.0
90% 3.5
80%
3.0 Private sector financed
70%
R&D (as % of total
60% 2.5 expenditure)
50% 2.0 Government financed
R&D (as % of total
40% 1.5 expenditure)
30% Total R&D expenditure
1.0
20% as % of GDP

10% 0.5

0% 0.0
1976

1982
1985
1988
1991
1994
1997

2003

2009
1979

2000

2006

Source: OECD, 2011

- 70 -
Exports by Technological Intensity (1970-2010)

90

80

70
% over total mfg export

60

50

40 High-Tech Export
Medium-Tech Export
30
Low-Tech Export
20

10

0
1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Source: OECD (2012) 2009

80 - 71 -
Source: Korea Industrial Park Corp., 2009. Revised by Kim (2014)
- 72 -
3rd Generation Industrial Clusters in Korea : Free Economic Zones
- Established as comprehensive zones with global standard in 2003 and
expanded in 2008 and 2012 as Growth pole with global competitiveness
- Attract FDI (int’l univs, R&D centers, int’l enterprises and schools & hospitals
- Establishing hi-quality business environment with decent housing, education
and leisure facilities

<Statistics of Free Economic Zone of 2013>

FEZ Designed Date Completion Industry Area (km2)

Incheon 2003 2020 Business Finance, Logistics; GCF HQ 169.5

Busan-Jinhae 2003 2020 Logistics, Tourism 83.1

Gwangyang Bay 2003 2020 Logistics, Manufacturing 85.1
Yellow Sea 2008 2020 Auto Parts, Semiconductor 16.0
Daegu-Gyeongbuk 2008 202 U-IT, Green Energy
Saemangeum 2008 2020 Automobile, Renewable Energy 22.3
East Coast 2013 2024 Hi-tech components, Tourism 14.1
Chungbuk 2013 2020 Bio, Airline Parts 121.9
Source : Free Economic Zone Authority (www.fez.go.kr)
- 73 -
3rd Generation Industrial Clusters in Korea : Free Economic Zones

Source : Free Economic Zone Authority

(www.fez.go.kr)

- 74 -
 3rd Generation Industrial Clusters in Korea : Innovation Clusters

- Technoparks(TP) have been

established since 1999 to Regional
Industry
nurture local industries by and Policy Strengthening
Regional and
forming an organic
Planning
National

cooperative networks
Competitiveness

- Creating strategies and plans Technoparks as

that fit the regions Basis for
circumstances and Nurturing
Regional
Stronger
Cooperation
characteristics and by Industry among
Related
discovering knowledge- Business Fostering
Parties

based and small-but- Supports Small-but-

Strong
technologically-capable Businesses

businesses
- Operated by both central Business
government and local Creation Technolog
ical
governments Innovation

Source : www.technopark.kr

- 75 -
Techno Park as the Key Agency in RIS

- 76 -
Locations of Techno Parks and Specialized Centers
Gyeonggi Daejin TP( ‘05) Acceleration & Plasma Association
(IT Telecommunications, Bio, Cheorwon Plasma Research Institute
Contents,Logistics)
Seoul TP(’05)
Gangneung Science Industry Foundation
(Digital Contents, Bio,
(Wonju Medical Industry Techno Valley
Specialized Centers under TP IT Communications, Finance) Gyeonggi TP(‘98) (Chuncheon Bio Industry Foundation
(IT Communications, Bio,
Independent Centers Contents, Logistics) Ceramic Material Cluster Center
Songdo TP(‘98) Disaster Prevention Center
(Logistics, Auto,
Misc Centers Machineries, IT) Gangwon TP(‘03)
(Medical Device, Bio, Bio Industry Institute
Materials, Tourism) (Vehicle Embedded Tech Center
Chungbuk TP(‘03) (Hybrid Component Institute
Semi-Conductor Center
(Semiconductor, Batteries, Gyeongbuk TP(‘98) Marine Bio Institute
IT Convergence Center
IT, IT Convergence) (Electronics, Materials, BioInfoCenter (Gumi Electronics & Info Tech Institute
Bio Center
Oriental Medicals, Tourism (Pohang Institute of Metal Industry
IT Convergence Tech Center
Bio Center
Display Center Chungnam TP(‘98)
(IT, Auto Parts, Daegu TP(‘98) NanoApplicationCenter
Media Center Mechatronics&MaterialInstitute
Culture, Agri-Bio) (Fiber, Bio, MobileConvergenceCenter
Auto Parts R&D Center DyeTechInstitute
Mechatronics, IT) BioHealth ConvergenceCenter
OrientalMedicalCenter SewingTechInstitute
Daejeon TP(‘08) GyeongbukUnivCenter TextileDevelopmentInstitute
Bio Center
Nano Fab Robot Center (IT, Bio, Pohang TP(‘00)
Center at Mechatronics, Parts) FoundationofAutomotivePartsPromotion
Radio Engineering Center (Steel, Nano Materials,
KAIST Nano Material Center Robots)

Radiation Imaging Jeonbuk TP(‘03) Ulsan TP(‘04) Auto Parts Center

(InstituteforBioIndustry (Auto Parts, Bio,
Tech Center (Auto, Refined Chemicals, Fine Chemical Center
(InstituteforAutomobileTech RFT, Culture)
(MechanicalCarbonInstitute Marine, Environments)
Testing Research Institute
Institute for Chemistry
Gwangju TP(’98) Institute for Indus Tech
Association for Photonics (Photonics, Auto Parts,
AutoPartsCenter
Electrical Tech Institute Electronics)
Busan TP(‘00) Machine Component Tech Center
Photonics Tech Institute
(Machineries, Image IT, Auto Component Tech Center
Institute for Indus Tech
Jeonnam TP(‘03) Marine, MICE) Marine Life Industry Promotion Center
(Bio, Materials, MEMS/NANO Component Center
New Material Industry Center Logistics, Tourism) Heat Exchange Center
Gyeongnam TP(‘04)
Polymer Material Center Logistics Managementt Tech Center
(Machineries, Robots,
Jeju TP(‘10) Smart Electronic Component Center
Home Appliances, Bio)
(Bio Foundation (Bio, Digital Contents, Institute for Leather & Footwear
Bio Food Tech Center Tourism, Agri-Bio) HomeApplianceCenter Marine Equipment Association
Bio Pharmaceutical Research Center KnowledgedMachineriesCenter (Marine Equipment Research Institute
Nano Bio Research Center Bio Center
RefinedDeviceCenter Institute for Medium & Small Shipbuilding
Biological Control Center Mobile Telecommunication Center
AeroCenter Institute for Indus Tech
Natural Resource Research Center Volcanic Seawater Center
Gimhae Medical Bio Center
Industrial Complex Corporation Bio21 Center

Source: KARP &KIAT, 2014

- 77 -
 3rd Generation Industrial Clusters in Korea : Technoparks
Technoparks
Specialized Centers under TP

Independent Centers

Misc Centers

Semi-Conductor
Chungbuk TP(‘03)
Center
(Semiconductor, Batteries,
IT Convergence Center
IT, IT Convergence)
Bio Center

Bio Center
Chungnam TP(‘98)
Display Center
(IT, Auto Parts,
Media Center
Culture, Agri-Bio)
Auto Parts R&D Center

Bio Center
Nano Fab Daejeon TP(‘08)
Robot Center
Center at (IT, Bio,
Radio Engineering Center
KAIST Mechatronics, Parts)
Nano Material Center

Source : www.technopark.kr

Source: D. Kim, 2014

- 78 -
 The second generation of KICs (Industrial Cluster) featured stronger R&D
functions and spread nationwide in the 1980s and the 1990s.
▶ The second-generation complexes were an evolution of the first-generation
ones, adding greater capabilities for innovation to the simple aggregations of
industrial production facilities, for example, the R&D SEZ.

The third generation of KICs (Innovation Cluster) started to emerge,

centered on and supporting GPN industrial clusters in the 2000s with
Technoparks in Korea.
<Contribution of Industrial Complexes to the National Economy (Manufacturing Sector)>

Source: KICOX, 2015, p.16.

- 79 -
 Innovation Clusters (RIS) in Korea, 2005-2010

Source: KICOX, 2012

- 80 -
The limitations of Free Export Zones
- The size of zones was limited by the lack of available land.
- Capabilities of Free Export Zones were limited due to the entrance of too many
low value added domestic firms in zones (D. Kim, 2011).
- The integration of distribution and circulation functions is difficult due to the
initial purpose which emphasizes on manufacturing factory (D. Kim, 2011).
- Changes in Korean economic structure

Key Factors that Led to Change of Free Export Zones

- Strengthening Free Export Zones

- Complex Functions

- Improving the Management of FTZs

- 81 -
 Benefits of FTZs

Low Rent
- Companies that moves in the zone can benefit from much lower rent relative to
nearby regions or standard factories if the investment is in high-technology or a
new large foreign Investment (D. Kim,2011).

Internal Tax Reduction

- Companies would be subject to reduced corporate and income taxes for five
years. (100% for three years and 50% for two years) (D. Kim,2011).
- Companies are completely exempt from acquisition tax, registration tax,
property tax, and composite income tax for 15 years.

Tariff Reduction

Administration Service
- Administrative processes like Settlement License and Construction License,
etc. can be handled collectively by the administrator, who is in charge of
corporate activities in the FTZs (D. Kim,2011).

82
 Korean FTZ

What is a FTZ?
- An area which guarantees unrestricted production, logistics and distribution by
offering a wide range of support such as exemption from tariffs and tax breaks,
thereby providing an optimal investment environment of foreign invested
companies and export companies.

Tenant qualifications
- Forein invested companies (manufacturing or knowledge-based service
industries): Foreign investment of more than KRW 100 million and foreign
investor ownership of more than 10% of total outstanding shares or total
capital.
* exchange rate: USD 1 ≒ KRW 1,100
- Export-oriented manufacturing industries: Exports representing more than 30%
of total sales.

83
 Key Incentives for Enterprises

Convenient one-stop services

Tariff breaks

No VAT

Low rent for land and standardized factories

No traffic generation charges

Many subsidies from municipalities

Incentives exclusive to foreign invested companies

- Rent-free lease of land and standardized factories
- Tax breaks
- No obligation to hire social minorities (i.e. senior citizens, veterans, people with
disabilities, etc.).

84
 Changwon National Industrial Complex in 1973 vs. in 2009

• Since its foundation in 1973, Changwon National Industrial Complex has grown
into the mecca of Korea's machinery industry (KICOX, 2011).
• In terms of production items, this industrial complex has been rapidly
transformed from the initial form of the machinery production base into a
mechatronics park combining the high-tech machinery business and the
electronic industry, and the complex has grown into the nation's largest
machinery industry cluster.
<Operation Status of Changwon National Industrial Park>
Items 1975 1990 2000 2009
Number of Resident Enterprises 44 315 1,026 1,893
Number of Employees 1,151 80,084 71,554 80,015
Production (KRW 100 million) 15 59,690 182,770 494,398
Export (USD 1 million) 0.61 1,446 6,522 17,542
Source: KICOX, 2011
- 85 -
<Overview of the Clusters of Changwon Industrial Complexes>

Source: KICOX, 2015

- 86 -
 <Operation Status of Korean FTZs (2019)>
Masan Gunsan Daebul Donghae Yulchon Gimje Ulsan Total

Designate
Date

Opening
Date

Total area
(1000m2)

Land for
factories
Standardized
factories

Occupancy
Rate(%)

Land for
factories
Standardized
factories

Number
of tenants
parts, automobiles,
cell phones, renewable non-metal, new materials,
semiconductors, machinery, electric, shipbuilding,
Key audio equipment, metal,
energy, steel, fine chemistry,
electronics, parts,
new materials, new materials, automobiles,
industries IT products, electrical &
shipbuilding electrical machinery, machinery,
automobiles
electrical
& electronic,
automotive parts electronic materials & electronic assembly
metals assembly metals

Source: MOTIE(www.motie.go.kr)
- 87 -
 Masan Free Trade Zone

Source: MOTIE(www.motie.go.kr)

- 88 -
Gunsan Free Trade Zone

Source: MOTIE(www.motie.go.kr)
- 89 -
Daebul Free Trade Zone

Source: MOTIE(www.motie.go.kr)
- 90 -
Donghae Free Trade Zone

Source: MOTIE(www.motie.go.kr)
- 91 -
Yulchon Free Trade Zone

Source: MOTIE(www.motie.go.kr)
- 92 -
Ulsan Free Trade Zone

Source: MOTIE(www.motie.go.kr)
- 93 -
Gimje Free Trade Zone

Source: MOTIE(www.motie.go.kr)
- 94 -
Ⅴ
Implications of Korean
Industrial Clusters & FTZ

- 95 -
Implications from Korean Industrial Clusters

The role of the government in technological innovation is the promotion of the

technological development of the main actors (companies, research institutes,
universities).
Specialized industrial complexes with basic imitation of advanced technology in
the early stage(Capacity Building) → Industrial clusters with reform through
assimilation and absorption → Innovation Clusters with adequate governmental
support (Capability Building) in the process of securing proprietary technology
for some sectors.
The Engine of Industrial Growth: Clusters
Industrial complexes in Korea have played a major role in the rapid
industrialization and economic growth in Korea by enhancing the efficiency
of the industrial agglomeration effects in the process of Korean
industrialization since the 1960s (as capacity building).
Successful shift from industrial complexes to innovation clusters (as
capability building) is also very important for regional endogeneous growth
in Korea.

96
 Contributions to the Regional Economies

Korean cluster(from industrial complexes to RIS) development used one of

the key strategies of industrial location policy in Korea.
The Korean clusters have been positioned as a foundation of development
for the local economies as well as key bases of the national economy.
The Korean RIS secured the firm position as a key clusters of the national
main industries including the primary industry, the next-generation strategic
industry and the next-generation growth engine industry in 2000s (KICOX,
2011).
[Status of Contribution of Industrial Complexes to the National Economy] unit: %, %p

Growth Rate
Share of 2000 2003 2006 2010
(2000～2010)
Number of
7.9 10.0 13.1 16.3 8.4
Firms
Production
51.1 52.2 59.9 62.3 11.2
(Output)
Export 59.4 68.6 80.4 79.1 19.7
Employment 28.9 30.8 37.1 42.1 13.2
Source: KICOX, 2012
97
1. Strong Government Leadership

2. Agglomeration Effects with Large Conglomerates and SMEs

3. Speed Economies of Constructing KIC with Targeting Industries

98
4. System Economies of Managing KIC with Export-oriented Industrialization

Rapid increase of export share of GDP(%)

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

3.2 8.3 13.6 26.8 32.0 31.9 27.9 28.8 38.5 39.2 52.3

Source: IMF (2012)

99
5. High Dependence on Human Resources in KIC

Catching up in Labor Productivity, Korea, 1970~2009

120

100

80
Korea
60 France
United Kingdom
40
United States

20

0
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
Source: OECD Development Centre on the basis of OECD Database.
100
Implications from Korean Clusters

The role of the government in technological innovation is the promotion of the

technological development of the main actors (companies, research institutes,
universities).
Specialized industrial complexes with basic imitation of advanced technology in
the early stage(Capacity Building) → Industrial clusters with reform through
assimilation and absorption → Innovation Clusters with adequate governmental
support (Capability Building) in the process of securing proprietary technology
for some sectors.

The Engine of Industrial Growth: Clusters

Industrial complexes in Korea have played a major role in the rapid

industrialization and economic growth in Korea by enhancing the efficiency
of the industrial agglomeration effects in the process of Korean
industrialization since the 1960s (as capacity building).
Successful shift from industrial complexes to innovation clusters (as
capability building) is also very important for regional endogeneous growth
in Korea.
- 101 -
Establishment of Industrial Clusters in Mongolia

▷ Establishing policy direction toward industrial cluster development and

investment promotion based on Korea’s experience on industrial cluster
development and management policy

Suggesting some ideas and polices for Mongolia capability as

well as capacity building to catch up:
① Selecting Strategic Industries
② Establishment of Innovation Cluster
③ Strengthening Industry-University Collaboration
④ Developing Human Resources, etc.

▷ Development strategies of industrial clusters will be high dependent on

foreign direct investment (Production and R&D facilities), yet needed to
establish Techno Park(TP) for capability building
- 102 -
◆ The top four suggestions for improvement include
➢ Developing common effluent infrastructure via public–private
partnerships or other modes for industrial clusters;
➢ Improving power supply availability and quality;
➢ Upgrading basic internal infrastructure of industrial clusters
(roads, sewage, drainage, and lighting); and
➢ Improving the last mile connectivity of public transport for labor
and employee commuting.
❖ Industrial Clusters can provide some of these public goods, but others require a
more strategic policy focus and sectorwide collective action in the areas of
workforce housing, industry-specific public goods such as quality testing facilities,
and other critical industrial infrastructure.

❖ Improving speed and flexibility will also require better logistics and transportation
capabilities, from logistical hubs to the development of last mile infrastructure
outside of Industrial Clusters.

❖ This is an area where the industrial clusters and economic corridor, as a strategy
and planning process, is relevant.

- 103 -
◆ Suggestion for Management of Industrial Clusters
Building strategic or targeting industry oriented management and
enterprise support system
 (As Is) Post-management system after development of industrial
clusters is insufficient. There are no particular incentives for tenant
firms.

 (To Be) Mongolian industrial clusters should only allow type of

business that fall under specific targeting industries, and provide
target industries oriented incentives.

❖ Development technical support center and manpower training center

pertinent to target industries in order support tenant firm’s business
activities

❖ Establish “industrial complex basic management plan” and agency

like KICOX for sustainable management

- 104 -
◆ Suggestion for Management of Industrial Clusters
❖ To achieve the other key component of investment promotion and
facilitation, it is imperative that Mongolian Government undertake the
following key policy, institutional, and process reforms:

❖ (i) enact a One Stop Service legislation to mandate time-bound delivery

of services to industries/ businesses and empower a central agency to
play the monitoring role;

❖ (ii) implement IT-based system for on-line application receipt, fee

payment, status tracking and monitoring, with a Management Information
System (MIS) to specifically highlight instances of delays by respective
Competent Authorities beyond mandated timelines; and

❖ (iii) strengthen institutions and management programs for industrial

clusters linking region by region with GVC.

❖ Collaborating with domestic and global suppliers can occur through

inward investments and partnerships, as well as through contract
manufacturing that eventually deepens into full-package production.

- 105 -
 Direction of Free Trade Zones

Policy Tool for Improving Investment Environment and Promoting

Deregulation

Role Model for Improving National Investment Environment

Creating International Comparative Advantage in Location

Focusing More on Improving Investment Environment rather than

Developing Underdeveloped Regions

Strengthening Linkage with the Local Economy

Response to Changes in External and Internal Environment such as FTA

106
 Policy Lessons from Korean FTZs

Selecting Locations
- FTZs should be located near the sea or air ports as much as possible
- The accessibility to the labor force: a nearby urban region with a sufficient
population to work in FTZs, easily commute and have an environment in which
they can enjoy appropriate everyday and cultural lives after work (D. Kim, 2011)
Preparation of Appropriate Incentive System

Purpose-tailored Management System

Selecting the Appropriate Model based on the Level of National

Economic Development
- A production location-type Free Trade Zone model, aimed at labor-intensive
manufacturing and assembly industry, thus, offering advantageous conditions
to manufacturing and exporting activities
- A complex Free Trade Zone model, aimed at attracting high technology and
technology-intensive service industry based on the country’s level of national
economic development
107
 Q&A
(질의 응답)

- 108 -
“If you want to go fast, go alone.
If you want to go far, go together.”