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Digital Transformations: South Korea (A)

Manufacturing and financial services are two key industries in South Korea that are currently experiencing a digital transformation.

Manufacturing

  • Manufacturing was identified as one of the most significant industries in South Korea that is working through a digital transformation based on the analysis of top-tier researchers (e.g., McKinsey) and industry experts (e.g., Information Technology & Innovation Foundation, Asian Insiders).
  • Specifically, the country's manufacturing sector is currently in the midst of a broad-based movement towards Industry 4.0, also referred to as the Industrial Internet of Things (IIoT), smart manufacturing and/or information and communication technology (ICT).
  • This momentum appears to be primarily driven by the South Korean government, in recognition of the fact that manufacturing represents over 30% of the national economy.
  • As early as 2014, South Korean President Park Geun-hye launched the country's Manufacturing Industry Innovation 3.0 program which, among other initiatives, included the development of a digital transformation roadmap for the country's manufacturing industry.
  • Subsequently, South Korean President Moon Jae-In declared that "smart manufacturing and the fourth industrial revolution" as "key themes" of his presidency.
  • As a result, South Korea has made great strides towards the digital transformation of its manufacturing facilities, as evidenced by the achievement of several notable milestones, such as:
  • However, McKinsey and ITIF are among the industry experts that report that South Korea has "further to go" and remains in the middle of its digital manufacturing transformation.
  • In particular, McKinsey reports that over 70% of companies in the country that have attempted digital transformation continue to struggle in the early pilot stage, termed "pilot purgatory."
  • In parallel, a 2016 UBS study found that South Korea was still much less "capable of adapting to Industry 4.0" than 24 higher-ranked countries, adding that digital transformation within the country's manufacturing industry appeared to be stagnating in some respects.

Financial Services

  • South Korea's financial services sector was also selected as a key industry undergoing a digital transformation in the country based on the consistent reporting of this shift by local media (e.g. The Korea Herald), industry trades (e.g., Crowdfund Insider, PYMNTS) and top-tier researchers (e.g., McKinsey).
  • As recently as this past June 2020, The Korea Herald reported that South Korea is "making all-out efforts to accelerate digital transformation in the financial sector."
  • This digital transformation has ranged from more basic transformations (e.g, the shift to online banking, the collection of financial data within a central Korean financial data exchange platform) to the adoption of emerging technologies including big data, artificial intelligence and blockchain within the industry.
  • Unlike manufacturing, these transformations are being spurred by a variety of influences, ranging from the South Korean government and the COVID-19 pandemic to the competitive plans of financial institutions in the country.
  • As early as 2015, South Korea's government laid the foundation for this digital revolution with the establishment of the Financial Security Institute, which helped to strengthen security within the financial services industry and develop related national policies.
  • More recently, South Korea launched an open banking system in 2019 to facilitate cross-fertilization between traditional financial organizations and fintechs in the country, and created the data exchange platform FinDX this past May 2020 to further bolster digital information management and protection across the industry.
  • In parallel, the "chiefs of the country's biggest banks" are embracing digital innovation as core to their growth strategies, while the latest coronavirus outbreak has shifted 91.2% of financial transactions in South Korea to online and mobile channels.
  • Although McKinsey and The Korea Herald report that "numerous" financial organizations are already making the digital transition, the financial sector as a whole in South Korea remains in the middle of its digital revolution.
  • In particular, Ernst & Young reported in 2018 that South Korea remains 11th out of 27 global markets in terms of its adoption of fintech, with a rate of 67% (slightly above the global average of 64%).
  • This marks a meaningful level of development since 2017, when the country's fintech adoption was only at 32%, but still leaves significant room for growth in this key facet of the industry's digital transformation.
Sources
Sources