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Characteristics of Industrial R&D in Korea

Characteristics of Industrial R&D in Korea. International Workshop on Research & Innovation in South Korea. 2003. 3. 4. Jae-ik Choi, Ph.D. Korea Industrial Technology Association. 1. Contents. I. Current Status of Industrial R&D 1. Industrial R&D History

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Characteristics of Industrial R&D in Korea

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  1. Characteristics of Industrial R&D in Korea International Workshop on Research & Innovation in South Korea 2003. 3. 4. Jae-ik Choi, Ph.D. Korea Industrial Technology Association 1

  2. Contents I. Current Status of Industrial R&D 1. Industrial R&D History 2. Features of Industrial R&D 3. Features of Industrial R&D Centers 4. Major Achievements II. Industrial R&D Support 1. Tax Credit 2. Manpower 3. Financial Support III. Problems & Policy Directions 1. Problems & Challenges of Korea’s Industrial R&D 2. R&D Trends in Industry 3. Policy Directions IV. Government’s Policies to Attract Foreign R&D Centers 1. Foreign Direct Investments in R&D 2. Incentives for Foreign Direct Investments in R&D 2

  3. I. Current Status of Industrial R&D 3

  4. 1990’s Industrial R&D History • KIST(1966), Ministry of S&T(1967) • Technology Development Promotion Law(1972) • KOITA(1979) 1960~70’s • National R&D programs and Accreditation system of industrial R&D centers(1981) • Industrial R&D support policy launched • - Tax credit on R&D(1981), Military service exemption(1981), Customs duties credit(1983) 1980’s • Increase in the number of R&D centers • Venture Promotion Act(1996): Surge of Venture Companies’ R&D centers • Industry becoming the core of NIS(10,000, 75% of national R&D) • Foreign R&D centers’ increase(134) 2000’s 4

  5. 1981 1985 1990 1995 2000 2001 2002 Total(A) Industry(B) 5.2 2.1 13.9 9.1 46.7 33.1 121.9 89.1 122.5 90.7 124.8 95.1 144.3 108.1 B/A(%) 41.1 65.4 70.9 73.1 74.0 76.2 74.9% Features of Industrial R&D R&D Investments by Industry in US 100million dollars R&D Spending by Manufacturing Sector(2002) in US 100million dollars Mechanical appliances Chemical Food processing Textile Other manufacturing Total Subtotal Electronics Automobile Others Amount 77.1 49.4 13.7 14.0 9.7 1.7 1.0 3.1 92.6 % 83.4 53.4 14.8 15.2 10.5 1.8 1.0 3.3 100.0 5

  6. Country 1991 1995 1997 1995 2000 2002 Korea 2.02 2.51 2.57 2.15 2.37 2.51 US Japan Germany Korea 3.6%(1999) 3.99%(2002) 3.90%(1999) 2.51%(2002) Features of Industrial R&D R&D Intensity of Industry(R&D/Sales) (%) International Comparison 6

  7. 1981 1985 1990 1995 2000 2001 2002 Total R&D manpower(A) 20,718 41,473 70,503 128,315 159,973 178,937 189,888 Industrial R&D personnel(B) 7,165 18,996 38,737 68,625 94,333 111,299 118,160 B/A % 34.6% 45.8% 54.9% 53.5% 59.0% 62.2% 62.2% By degree Ph.D.(%) 79(1.1) 251(1.3) 1,139(2.9) 3,373(4.9) 5,351(5.7) 6,932(6.2) 7,324(6.2) MA(%) 612(8.5) 3,594(18.9) 8,822(22.8) 20,450(29.8) 29,166(30.9) 33,288(29.9) 37,596(31.8) BA(%) 5,685(79.3) 14,280(75.2) 27,414(70.8) 41,191(60) 51,594(54.7) 61,437(55.2) 65,249(55.2) Others(%) 789(11.0) 871(4.6) 1,362(3.5) 3,611(5.3) 8,222(8.7) 9,642(8.7) 7,991(6.8) Features of Industrial R&D Korea’s R&D Manpower 7

  8. Eligibility of Industrial R&D Centers Features of Industrial R&D Centers Manpower requirements SMEs Five or more BA or higher degree holders in science and engineering - Two or more researchers for venture companies’ R&D centers LARGE Ten or more BA or higher degree holders Physical Requirements Independent R&D facilities(including space and R&D equipments) necessary for R&D activities - Space should strictly be seperated by the wall 8

  9. Features of Industrial R&D Centers Rapid Growth of Industrial R&D Centers 9

  10. Features of Industrial R&D Centers SME research centers 8,927 / 91% Concentrated on Electrics & Electronics(ICT) 5,573 / 57% of the total Concentrated in the metropolitan areas 7,140 / 73% 10

  11. Competitiveness of Korea’s Major Industries Market Share in the Global Market Semiconductor DRAM - No. 1 since ’98 ICT CDMA Mobile Phones - No.1 Shipbuilding Market share - 33% (No.1) Steel Market share - 5% (No.5) Automobiles Market share – 5.5% (No.6) Major Achievements 11

  12. II. Industrial R&D Support 12

  13. Tax Credit Tax Credit • Reserve3~5% of profit for future research and manpower development • Tax deduction of either 15% of research and manpower development costs occurred in the taxation year or 50% of the excess of the average research and manpower development costs for the last four years • Deduction of 7% of facility investment for R&D • 80% deduction of custom duties imposed on research equipment imported for R&D • Exemption of local taxes including acquisition and registration tax on real estate for R&D • Income tax exemption for foreign R&D personnel 13

  14. Manpower & Financial Support Manpower • Exemption from military service duties for young researchers (MA & Ph.D degree) (2~3,000 a year) employed at accreditated industrial R&D centers Financial Support • Direct funding through national R&D programs • Loan from Public Funds : Science Technology Promotion Fund, Information Promotion Fund • Venture Capitals : KDB Capital, Kibo Technology Advancing Capital, Korea Technology Credit Guarantee Fund 14

  15. III. Problems & Policy Directions 15

  16. Korea’s Tech Level Reference Country(100%) Time required to catch up IT 60~70% US•Japan 2~3 years BT 60% US • UK 3~5 years NT 25% US • Japan 3~6 years ET 40~50% US • Germany 4~5 years Problems & Challenges of Korea’s Industrial R&D Korea’s Technology Level : A comparison with Advanced Countries KISTEP(Korea Institute of S&T Evaluation & Planning) 16

  17. Number of World’s Top Products by Country of Origin Problems & Challenges of Korea’s Industrial R&D KOTRA(Korea Trade-Investment Promotion Agency), Trade Focus 17

  18. Problems & Challenges of Korea’s Industrial R&D □ Accelerating Hollowing-out of Manufacturing Industries - Approximately 65% of manufacturing firms are planning or considering moving their production plants overseas, while maintaining core R&D operations at home(KOITA Survey) 18

  19. R&D Trends in Industry • R&D Drive Geared to the Development of Ten Technologies Focus on the development of ten growth industries • Utilization of Global R&D Resources, including Research Manpower, Information and Financial Resources Global sourcing of R&D Resources • Strengthening Int’l Tech Cooperation and Promotion of Off-shore R&D Activities - Large companies prefer collaboration with global companies while SMEs with domestic universities Global Networking • 2004 Survey of Korean Industries - R&D Investment - Increase(53.5%), No change(41.2%) Decrease(4.5%) - R&D Manpower - Increase(51.1%), No change(45.8%) Decrease(2.6%) Enlargement of R&D Investments & Manpower 19

  20. Policy Directions □ Fostering Next Generation Growth Engines ○ Development of 10 New Growth Industries ― To plan and coordinate the development of the new growth industries, special committee was established under the National Science & Technology Council(NSTC) ○ Link advanced new technologies to the development of the traditional industries 20

  21. Bio/New Medicine Display Next generation semiconductor Next generation fuel cell Future Automobiles Intelligent Robotics Digital TV/ Broadcasting Next generation Mobile Communication Intelligent Home Networks Digital contents/SW Solutions Policy Directions 10 Strategic Industries – Next Growth Engines(Examples) 21

  22. Policy Directions □ Promotion of Basic Research ○ Increase the share of basic research in national R&D budget ― 19.5%(’03) → Over 25% by 2007 ○ Upgrading university capability to a world-top level □ Facilitating the Commercialization of Public R&D Results ― Tech. transfer to private sector ― Increase of the budget to support technology transfer from 1.1% to 3~5% of public R&D budget 22

  23. Policy Directions □ Rearing Core R&D Personnel ○ Fostering S&E Workforce ― S&T Graduate School ― Establishment of Northeast Tech. Management Graduate School ○ Promotion of Science & Engineering Education ― Strengthening special education for young talents ― Linking university education to research ― Funding support to Post-Docs studying abroad ○ Promotion of Job Creation for S&E Graduates ― Salary support for the Ph.Ds and MAs newly employed by SMEs ― Tech training given to SMEs’ R&D managers and researchers □ Attract Foreign R&D Centers 23

  24. IV. Government’s Policies to Attract Foreign R&D Centers 24

  25. Foreign Invested R&D Centers in Korea R&D center R&D center By nation USA Europe Japan Others 56(41.8) 49(36.6) 16(11.9) 13(9.7) By Industry Electronics Chemistry Machinery Others 58(43.3) 35(26.1) 20(14.9) 21(15.7) Total 134(100.0) Total 134(100.0) Foreign Direct Investments in R&D The number of R&D centers which invested more than 100,000 US dollars is 932 as of 2003. The number of 100% foreign-invested R&D centers is 134 as of 2003. • Pateur Research Institute concluded an agreement with KIST(2003) to set up a branch lab within KIST • Cavendish Research Center will also come to Korea 25

  26. Incentives for Foreign Direct Investments in R&D Tax Benefits • Income Tax & Corporate Tax – 100% deduction for the first seven(7) years and 50% for additional three (3) years • Acquisition• Registration • Property • Land Tax - 100% deduction for the first five(5) years and 50% for additional three (3) years • Tariff • Special Excise Tax • VAT – 100% exemption within three(3) years after the report of the R&D equipments is made Financial Support • CASH GRANT will be provided to new foreign investors who invest over US$10 million dollars in high-tech industries or US$ 5 million in R&D facilities (Comprehensive Plan to Attract Foreign Investment) 26

  27. Incentives for Foreign Direct Investments in R&D Special Zones • <Free Economic Zone> Incheon Metropolitan City, Busan Metropolitan City and Gwangyang City designated as Free Economic Zone wherein foreign companies and R&D centers are fully exempted from various taxes for three years and 50% of taxes for additional two years. • <Industrial Complexes Exclusively for Foreign Investors> • Ochang 165,290 square meter(40.5 acre) → 495,870 square meter(121.5acre) : Jinsa(330,580 square meter(81 acre) → 495,870 square meter(121.5acre) • (75~100% Discount in Lease) • < Free Investment Zone> • Easing existing regulations • More than US $ 50 million for one company → More than US $ 30 million for several companies(100% Discount in Lease) • < Free Trade Zone> • Masan, Iksan, Gunsan and Daebul designated(100% Discount in Lease) • <Science Industrial Park> 14 Science Industrial Parks including Daedeok Science Town 27

  28. Incentives for Foreign Direct Investments in R&D Improve Living Environment including Traffic, Housing, Medical Service, Education, Culture and Leisure □ Encourage the establishment of foreign schools - Expand tax benefits for donations made to foreign schools - Process will be made easier to support foreign schools or other necessary facilities □ Physical facilities : Guest houses for foreign researchers, Cultural centers, etc. □ Deregulations on immigration processes for foreign researchers 28

  29. Other Incentives Incentives for Foreign Direct Investments in R&D □ Supply of qualified human resources - Establish the Northeast Asian Technology Management University to support qualified human resources to foreign investors - Allocate greater quotas of military service-exempted research personnel to foreign investors □ Establishment of one-stop service system - 『Korea Foundation for International Cooperation of Science and Technology』(KICOS) and『 Invest Korea』 29

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