The growth of the industrial sector was the principal stimulus to economic development. In 1987 manufacturing industries accounted for approximately 30 percent of the gross domestic product (GDP) and 25 percent of the work force. Benefiting from strong domestic encouragement and foreign aid, Seoul's industrialists introduced modern technologies into outmoded or newly built facilities at a rapid pace, increased the production of commodities--especially those for sale in foreign markets--and plowed the proceeds back into further industrial expansion. As a result, industry altered the country's landscape, drawing millions of laborers to urban manufacturing centers.

A downturn in the South Korean economy in 1989 spurred by a sharp decrease in exports and foreign orders caused deep concern in the industrial sector. Ministry of Trade and Industry analysts stated that poor export performance resulted from structural problems embedded in the nation's economy, including an overly strong won, increased wages and high labor costs, frequent strikes, and high interest rates. The result was an increase in inventories and severe cutbacks in production at a number of electronics, automobile, and textile manufacturers, as well as at the smaller firms that supplied the parts. Factory automation systems were introduced to reduce dependence on labor, to boost productivity with a much smaller work force, and to improve competitiveness. It was estimated that over two-thirds of South Korea's manufacturers spent over half of the funds available for facility investments on automation.

In 1990 South Korean manufacturers planned a significant shift in future production plans toward high-technology industries. In June 1989, panels of government officials, scholars, and business leaders held planning sessions on the production of such goods as new materials, mechatronics-- including industrial robotics-- bioengineering, microelectronics, fine chemistry, and aerospace. This shift in emphasis, however, did not mean an immediate decline in heavy industries such as automobile and ship production, which had dominated the economy in the 1980s.

Except for mining, most industries were located in the urban areas of the northwest and southeast. Heavy industries generally were located in the south of the country. Factories in Seoul contributed over 25 percent of all manufacturing value-added in 1978; taken together with factories in surrounding Kyonggi Province, factories in the Seoul area produced 46 percent of all manufacturing that year. Factories in Seoul and Kyonggi Province employed 48 percent of the nation's 2.1 million factory workers.

Steel

In 1989 South Korea was the world's tenth largest steel producer, accounting for 2.3 percent of world steel production. South Korea continued to expand crude steel production--19.3 million tons for 1988, up 14.9 percent over 1987. Domestic demand for steel products increased 8.5 percent from 15 million tons to 16.3 million tons over the same period because of the growing demands of South Korean industry. Domestic demand accounted for 70 percent of the total, mostly because of the increased needs of such steel-consuming industries as automobiles, shipbuilding, and electronics.

The steel industry grew in the 1970s after the government constructed the POSCO mill to service Seoul's rapidly growing automobile, shipbuilding, and construction industries. In 1988 South Korea's steel industry included 200 steel companies. Iron and steel production was expected to increase in the early 1990s, given the output increases in domestic user industries. Exports were likely to be flat or to decline because of decreased international demand.

Electronics

In 1989 South Korea was a major producer of electronics, producing color televisions, videocassette recorders, microwave ovens, radios, watches, personal computers, and videotapes. In 1988 the electronics industry produced US$23 billion worth of goods (up 35 percent from 1987), to become the world's sixth largest manufacturer. The total value of parts and components (including semiconductors) produced in 1988 totaled US$9.7 billion, overtaking consumer electronics production (US$9.2 billion) for the first time. Manufacture of industrial electronics also grew significantly in 1988 and totaled US$4.6 billion (20 percent of total production). Electronics exports grew rapidly in the late 1980s to more than US$15 billion in 1988, up 40 percent from 1987--to become Seoul's leading export industry. Although South Korean electronic goods enjoyed substantial price competitiveness over Japanese products, the electronics industry continued to be heavily dependent on Japanese components, an important factor in South Korea's chronic trade deficit with Japan. Some South Korean firms formed joint ventures with foreign concerns to acquire advanced technology. In the late 1980s, South Korea's leading electronics firms (Samsung, Lucky-Goldstar, and Hyundai) began establishing overseas plants in such markets as the Federal Republic of Germany (West Germany), Britain, Turkey, and Ireland.

By 1990 significant shifts were occurring within the electronics industry. In 1989 South Korea had lost some of its cost advantage to newer consumer electronics producers in Southeast Asia. At the same time, production of electronic components and of industrial electronics, particularly computers and telecommunications equipment, continued to expand to such an extent that overall demand for South Korean electronics products was expected to increase modestly in the early 1990s. In 1990 Seoul projected that the microelectronics industry would grow at an annual rate of 17.2 percent in the early 1990s.

Shipbuilding

During the 1970s and 1980s, South Korea became a leading producer of ships, including oil supertankers, and oil-drilling platforms. The country's major shipbuilder was Hyundai, which built a 1-million-ton capacity drydock at Ulsan in the mid-1970s. Daewoo joined the shipbuilding industry in 1980 and finished a 1.2-million-ton facility at Okp'o on Koje Island, south of Pusan, in mid-1981. The industry declined in the mid-1980s because of the oil glut and because of a worldwide recession. There was a sharp decrease in new orders in the late 1980s; new orders for 1988 totaled 3 million gross tons valued at US$1.9 billion, decreases from the previous year of 17.8 percent and 4.4 percent, respectively. These declines were caused by labor unrest, Seoul's unwillingness to provide financial assistance, and Tokyo's new low-interest export financing in support of Japanese shipbuilders. However, the South Korean shipping industry was expected to expand in the early 1990s because older ships in world fleets needed replacing.

Automobiles and Automotive Parts

The automobile industry was one of South Korea's major growth and export industries in the 1980s. By the late 1980s, the capacity of the South Korean motor industry had increased more than fivefold since 1984; it exceeded 1 million units in 1988. Total investment in car and car-component manufacturing was over US$3 billion in 1989. Total production (including buses and trucks) for 1988 totaled 1.1 million units, a 10.6 percent increase over 1987, and grew to an estimated 1.3 million vehicles (predominantly passenger cars) in 1989. Almost 263,000 passenger cars were produced in 1985--a figure that grew to approximately 846,000 units in 1989. In 1988 automobile exports totaled 576,134 units, of which 480,119 units (83.3 percent) were sent to the United States. Throughout most of the late 1980s, much of the growth of South Korea's automobile industry was the result of a surge in exports; 1989 exports, however, declined 28.5 percent from 1988. This decline reflected sluggish car sales to the United States, especially at the less expensive end of the market, and labor strife at home.

The industry continued to grow, however, because of a surge in domestic demand, up 47 percent during the first half of 1989. In 1989, for the first time since car exports had doubled in 1985, domestic sales surpassed exports; two-thirds of the cars manufactured were sold domestically. Most of the domestic demand came from first-time car buyers whose savings had been buoyed by double-digit wage increases each year since 1987. Other factors leading to the growing domestic demand for motor vehicles included stable or slightly decreased new car prices because of cuts in special consumption taxes, reduced fuel taxes, and growing economies of scale by manufacturers.

Throughout the 1970s and 1980s, the automobile industry was subject to a series of government controls and directives designed to nurture the industry and prevent excess competition. For most of the 1980s, Hyundai was the only company permitted to manufacture passenger cars, but in 1989 Kia Motors and Daewoo were allowed to reenter the passenger car business. In 1989 Ssangyong Motors became South Korea's fourth car manufacturer.

South Korea's auto parts industry grew rapidly in the late 1980s, from US$3.8 billion in 1987 to US$4.6 billion in 1988 (US$4 billion produced locally). Automotive parts imports, most of which came from Japan, totaled US$610 million in 1988 (down from US$700 million in 1987). In 1989 South Korean automobile and parts manufacturers planned to spend more than 2 trillion won (US$2.8 billion) on facility expansion, research, and development.

Armaments

South Korea is an important manufacturer of armaments, both for domestic use and for export. During the 1960s, South Korea was largely dependent on the United States to supply its armed forces, but after the elaboration of President Richard M. Nixon's policy of Vietnamization in the early 1970s, South Korea began to manufacture many of its own weapons. These included M-16 rifles, artillery, ammunition, tanks, other military vehicles, and ships. Aircraft were assembled under coproduction arrangements with United States firms. Arms exports, including quartermaster goods, vehicles, and weaponry, reached nearly US$975 million in 1982 but declined during the rest of the decade, reaching only US$50 million in 1988. In 1989 Seoul announced that its fledgling aerospace industry was planning to produce an indigenously designed highperformance jetfighter for its air force within two decades. The South Korean aerospace industry also developed a Korean Fighters Program in cooperation with McDonnell Douglas of the United States, with the goal of "acquiring the capacity to design and manufacture supersonic jetfighters."

Construction

Construction has been an important South Korean export industry since the early 1960s and remains a critical source of foreign currency and "invisible" export earnings. By 1981 overseas construction projects, most of them in the Middle East, accounted for 60 percent of the work undertaken by South Korean construction companies. Contracts that year were valued at US$13.7 billion. In 1988, however, overseas construction contracts totaled only US$1.6 billion (orders from the Middle East were US$1.2 billion), a 1 percent increase over the previous year, while new orders for domestic construction projects totaled US$13.8 billion, an 8.8 percent increase over 1987. The result was that South Korean construction companies concentrated on the rapidly growing domestic market in the late 1980s. By 1989 there were signs of a revival of the overseas construction market--the Dong Ah Construction Company signed a US$5.3 billion contract with Libya for the second phase of Libya's Great Man-Made River Project, which, when all five phases were completed, was projected to cost US$27 billion. South Korean construction companies signed over US$7 billion of overseas contracts in 1989.

Textiles and Footwear

Textiles, clothing, and leather products made up about 24 percent of South Korea's manufacturing output in 1980. Over 10,000 textile and footwear enterprises employed more than four workers each, and 34,000 smaller shops manufactured such products in 1978. Throughout the 1980s, textiles played a critical role in Seoul's exports, accounting for US$11.9 billion, or 19.6 percent of total export earnings. In 1989 the export of textiles (valued at US$15,340 million) grew 8.5 percent over the 1988 level. Textile manufacturers, concerned about diminishing export competitiveness because of wage increases and won revaluation, expanded their overseas investments in 1987 and 1988. Seoul approved sixty-six investment projects totaling US$38.4 million from January 1, 1978, through the end of September 1988. Most of these investments were located in the Caribbean Basin region and Southeast Asia. Upgrading product lines---particularly towards high fashion--and further shifting to the expanding domestic market were expected to cause slow growth in the industry in the early 1990s.

South Korea's footwear industry also expanded in the late 1980s. Footwear exports in 1988 totaled US$3.8 billion, a 34.7 percent increase over 1987, 6.3 percent of Seoul's total exports by value. Economic forecasters, however, predicted that the industry would decline in the 1990s despite the surge of orders in 1989; they attributed the 1989 surge to political unrest in China, normally a major producer of footwear.

Chemicals

The chemical industry began full production in the 1970s. Although dependent on imports of raw materials and certain hightechnology commodities, the chemical industry supplied many of the intermediate inputs for textile, plastic, synthetic rubber, rubber shoe, and paint factories, and had made South Korea virtually self-sufficient in fertilizers. The chemical fertilizer industry, a large part of the chemical industry, met most of South Korea's domestic consumption demands.

In 1987 chemical and pharmaceutical exports increased by 27 percent over the previous year, but accounted for only 2.8 percent of total exports; imports in that category comprised 11.2 percent of total imports. The chemical industry was expected to expand in the early 1990s, with new capacity coming online and Seoul committed to spending money for research and development and constructing new production facilities. Pharmaceuticals, agricultural chemicals, dyes, pigments, paint, perfumes, surface active agents (surfactants) including synthetic detergents, and catalysts were targeted as major areas for investment.

In the late 1980s, petrochemical production facilities included twenty-five companies, thirty-six plants, two naphtha crackers, and three aromatics extraction plants, with an aggregate total production capacity of 505,000 tons of ethylene per annum. There were two large petrochemical complexes, one in Ulsan, the other in Yosu. South Korea was an important producer of chemical fertilizers in the late 1970s (671,000 nutrient tons exported in 1980), but both exports and production declined in the 1980s.

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Source: U.S. Library of Congress