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As the nation's economy continues to develop, the role that service industries play is also increasing. Still, its weight in the economy here is less than in other Organization of Economic Development (OECD) member nations.
As of 2006, service industries made up 57.2 percent of Korea's economy, the second-lowest among OECD countries and similar to Norway, the Czech Republic and Turkey.
The weight of service industries in the economies of major industrialized countries is already far above 70 percent. Korea's figure is also lower than it is in countries known to excel in manufacturing, such as Japan (69.9 percent), Germany (69.8 percent) and Finland (65.1 percent).
Service industries, such as the logistical, financial, consulting, engineering, software and design industries, are giving a boost to the competitiveness of more traditional fields, such as manufacturing.
As one example, the making and selling of automobiles are powered by market research, technological research and development, human resource management, business consulting and automobile financial service support.
According to various countries' input/output tables, the intermediate demand rate of Korea's service industries as a whole is not very low compared to that of other industrialized countries, but in the rate of the financial/insurance industry, Korea is far behind countries with strong manufacturing, such as Japan and Germany.
In terms of productivity, as of 2006, the amount per capita added in value by the service industries was just 56 percent of that of the manufacturing industries.
In comparison with major OECD economies, the productivity rate of Korea's service industries is low. The per-capita value added by the wholesale/retail industries is the lowest.
According to an analysis, the efficiency level of Korea's service industries is 58.3 percent, as low as the Netherlands and Australia. However, some positive aspects are beginning to appear in that area. In many OECD member countries, the efficiency level is either stagnant or in a decline but in Korea, the efficiency is on an upward trend.
Considering the weight of service industries in Korea's economy, and their productivity and efficiency, efficient investments are needed to improve the service industries' productivity. If productivity remains low while the share that service industries hold in the overall economy keeps growing, it can undermine the entire economy.
Finland makes considerable amounts of investments in business services while keeping its share of the manufacturing sector in the nation's economy at a very high level. For example, the proportion of investments in the financial/real estate industries of Finland is as much as 48.5 percent, while the corresponding percentage in Korea is at just about 30 percent.
The fact that the ratio of value-added to investments to Korea's service industries has been rising since the late 1990s also indicates that Korea needs to further increase its investments in the service sector, which can be expected to, in turn, improve the productivity of other industries.
Efforts to enhance the competitiveness of service industries on the demand side are also needed, as well as efforts to improve productivity from the perspective of the supply side.
As the nation's income levels continue to rise, consumers' demands are increasingly shifting from daily necessities and durable goods toward more differentiated and segmented services, particularly in the education, medical, health, and entertainment service fields.
Also, as more and more manufacturers outsource services for the purpose of cost-cutting, business service outsourcing in the areas of research and development, finance and logistics is significantly increasing.
Service providers need to set up a system to properly foster human resources, recognizing that securing good talent is directly related to productivity. The fact that "embodied" knowledge and technology is important in the service industry proves training good talent is directly tied to industrial productivity.
The writer is a research fellow at the Technology and Industry Department, Samsung Economic Research Institute (www.seriworld.org). Inquiries on this article should be addressed to jungwoo.kim@samsung.com.
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