Korea and Australia - time to join forces for the Fourth Industrial Revolution
Amanda Hodges, Senior Trade and Investment Commissioner, Korea
As Korea transitions its economy, Australia is well positioned to play a complementary role and move from a traditional supplier of raw materials and commodities, to a partner in innovation, services excellence and technological advancement.
Korea's Fourth Industrial Revolution is the next phase in the transformation of the Korean economy. Within 40 years, Korea has shifted from an agricultural based economy to a high tech sophisticated manufacturing economy with the rise of household names like Samsung, LG and POSCO, known as the chaebol, who account for 80 per cent of the economy. Korea is now investing heavily in the Fourth Industrial Revolution - the new wave of industrial development.
According to the OECD, Korea has the second highest gross domestic spend on research and development globally, with the government reportedly investing over USD2 trillion. Other contributors to research and development to foster new innovation and technology are the global companies, smaller firms and start-ups, universities and research institutes.
Korea's chaebol are also investing upwards of USD4 trillion in research and development to fast track technology convergence. Korea is making headway in batteries, autonomous cars, new fuel cars such as hydrogen fuel cell vehicles, biologics, the internet of things and 5G to name a few. Global expansion of the chaebol and manufacturers, seeking new technology and solutions, provides opportunities for Australian businesses and research organisations to partner with Korea.
Other key triggers and trends in the Korean economy which support increased bilateral commercial partnerships include:
- Korea's financial institutions, pension funds, insurance companies and banks, seeking higher yields offshore;
- Food safety and security concerns leading to investment interest in agribusiness assets;
- The expansion of the global value chains of Korea's chaebol;
- Korea's sophisticated engineering and construction capability seeking overseas growth;
- Ten research-driven Korean hospitals looking for international partnerships;
- A push by the Korean Government to develop start-ups and an environment conducive to scaling-up;
- Entry into force of the Korea Australia Free Trade Agreement (KAFTA) in 2014, reducing tariffs and providing a competitive edge for items such as horticulture; and
- A demand for vocational skill training and international higher education.
Examples of where Australian and Korean companies are reshaping the relationship include:
Korea's large pool of pension funds is seeking higher yields offshore through investment. With the lowest birth rate in the OECD, Korea's rapidly aging population now needs increased financial security from personal investment. See 'Case Study: Financial services find their footing in Korea' on page 11.
Infrastructure, construction and engineering
Korean Engineering and Construction (E&Cs) firms have high interest in Australian infrastructure projects - GS E&C, Samsung C&T and POSCO E&C are now firmly established in Australia. On infrastructure financing, Korean pension funds are seeking to invest in non-traditional asset classes. GS E&C was shortlisted as part of a consortium bidding to build the Cross River Rail in Brisbane. See 'Case Study: Building links – WestConnex, Samsung C&T and Lendlease' on page 10.
Life science units of the chaebols as well as major research and development spenders in the Korean pharmaceutical industry are increasingly showing interest in developing new drugs with high market potential in areas such as oncology and the central nervous system. See 'Case Study: science, innovation and technology' on page 20.
Resources, energy and renewables
The Korean Government is planning on gradually reducing the country's dependence on fossil fuel for energy – including coal, LNG and petroleum. The Korean Government has a long-term objective of transitioning to a cleaner energy mix, with more emphasis on LNG and renewables. Combined with scientific breakthroughs in energy technology, this shift presents new opportunities for cooperation in energy generation, capture, distribution and consumption. See 'Energy and resources – renewing the relationship' on page 17.
Agribusiness and food
Korea is a net importer of food and agricommodities due to a fragmented and ageing farming sector. Consequently, the Korean Government and business have traditionally focused on developing solid trade relationships. Korea currently has 15 free trade agreements in place covering more than 50 markets. These imports diversify and secure food sources in the international market, with Australia one of Korea's leading partners for agribusiness and food trade. See case studies promoting Australian food and beverages in Korea on page 18.
E-commerce and consumers
Australian company Sanitarium is supplying "Weet-Bix" cereal online as well as through major retail chain Olive Young. The chain also stocks Australian body care company "Nad's" hair removal products, which this year grew to the number one best seller its category. You can access Austrade's E-commerce Korea Guide online.
Austrade Seoul office works closely with key federal, state and territory government stakeholders, industry associations and bilateral business chambers to support the commercial growth of Australia and Korea.
Areas of opportunity Austrade maintains a strategic focus on include:
With nearly 30,000 Korean students studying in Australia, demand for Australian higher education courses continues, albeit in a subdued market. Enrolment figures increased by 2.2 per cent in 2017. In the same period, Vocational Education and Training (VET) student enrolments increased by over 10 per cent.
Korea was Australia's ninth largest market for visitor arrivals in 2017 and sixth largest market for total spending. Korean investors are seeking investment opportunities in tourist attraction locations, particularly outside the major cities.
Korea has one of the highest levels of defence expenditure in Asia, and has one of the fastest growing defence industries in the world. Korea is also looking to develop indigenous solutions and not simply purchasing 'off the shelf', an area where Australia can play a role.
Korea's introduction of fifth generation wireless systems (5G) has seen an abundance of gaming content and shopping services integrated with virtual reality and augmented reality. This market is expected to grow immensely by 2020.
Fintech, cybersecurity and block chain
Korea is well known to have the world's fastest and most mobile IT infrastructures and strong network connectivity, making it especially susceptible to cyber-attacks. Following several major attacks, cyber security is regarded as a matter of national security and a high priority issue for the Korean Government and banking industry. The current Moon Administration is set to abolish outdated security software ActiveX and foster innovation such as block chain and new cybersecurity solutions. This represents an opportunity for Australia to supply innovative security solutions such as file encryption and simulation hacking. See financial services case studies on page 11.
Korea's film and TV production sector presents considerable opportunities to partner with Australian production houses, but also to promote Australia's diverse filming locations, studios, special FX and animation technology. KAFTA includes an audio-visual co-production agreement, and Austrade and DFAT are working to raise the profile of the agreement and Australian capability through activities in Korea.
Austrade looks forward to working with you to identify commercial opportunities for your business. Austrade can be contacted at www.austrade.gov.au/contact/offices/korea.