Labor productivity rate -on a per-worker basis- in South Korea is 20% lower than the Organisation for Economic Co-operation and Development (OECD) average despite having one of the longest working hours among the OECD countries
South Korea has been a longstanding global leader in technology and innovation. The country is home to world-leading ICT companies such as Samsung and boasts world-class infrastructure, including the world’s fastest Internet speeds. However, the country faces several challenges to maintaining its status as a world technology leader. In 2020, Germany broke South Korea’s six-year streak as the world’s “Most Innovative Nation” on the Bloomberg Innovation Index.
The country is also facing a growing digital divide between large conglomerates and Small and Medium Enterprises (SMEs) in adopting advanced digital technologies such as big data. While more than half of large firms in South Korea are estimated to have adopted cloud computing technologies, only about 20 percent of small firms do.2 At the same time, labor productivity rate (on a per worker basis) in South Korea is 20 percent lower than the Organisation for Economic Co-operation and Development (OECD) average despite having one of the longest working hours among the OECD countries.
The importance of harnessing digital technologies has become more pronounced during the COVID-19 pandemic. By allowing businesses to engage customers digitally, and minimizing logistical bottlenecks amidst supply chain disruptions, technologies can help businesses manage the severe economic impacts of COVID-19. In the long term, digital technologies play an instrumental role in reversing slowing g labor productivity growth rates. Digital technologies can serve to augment efficiency in the workplace by equipping workers with the tools to automate repetitive and menial tasks, allowing them to focus their time on higher-order work.
Digital transformation is key to addressing South Korea’s productivity challenge as well as expedite economic recovery in the post-pandemic era. This also makes it essential for policymakers to understand the potential economic value of technology applications for South Korea – and the necessary steps to realize it. While there has been extensive literature on the productivity benefits of specific technological applications such as the Internet and Artificial Intelligence (AI), there is limited research on the economic value of different technologies across sectors, particularly in traditional ones such as agriculture.
To address this knowledge gap, AlphaBeta conducted a study in collaboration with Google to examine the economic significance of digital technologies in South Korea, especially in non-technology sectors. This study finds that if leveraged fully, digital transformation can unlock KRW281 trillion (USD236 billion) worth of annual economic value in South Korea by 2030.
Key messages from the research include:
- There is a significant economic prize attached to accelerating South Korea’s digital transformation. If fully leveraged by 2030, digital technologies could create up to KRW281 trillion (USD236 billion) in economic value. This is equivalent to about 13 percent of the country’s GDP in 2020. Of this total digital opportunity, a substantial 73 percent could be driven by technologies that help businesses and workers mitigate the economic impacts of COVID-19. For example, Internet of Things (IoT) devices embedded in distribution networks can report the positions of goods and services remotely, allowing businesses to optimize transportation and reduce distribution and supply chain operating costs by up to five percent.
- There are three areas of action required for South Korea to fully capture its digital opportunity: (i) nurture the local technology system; (ii) foster the adoption of cutting-edge technologies like AI and cloud computing, and (iii) facilitate access to digital export opportunities. While a range of policies is already being pursued to accelerate digital transformation, there is scope for South Korea to consider further actions such as developing sector-specific technology adoption roadmaps (e.g., New Zealand’s “Industry Strategy”) and participating in international trade agreements such as the “Digital Economy Partnership Agreement” which is aimed at helping businesses take advantage of opportunities from digital trade.
- Through both its programs and products, Google has made significant contributions to advancing South Korea’s digital transformation and supports benefits to businesses, consumers and the broader society. The Android operating system, for instance, allows app developers to cut development time and provide cost savings for both South Korean Original Equipment Manufacturers and app developers. Initiatives such as the “ChangGoo Program”, jointly organized by Google, the Ministry of SMEs and Startups and the Korea Institute of Startup and Entrepreneurship Development, connect local game developers with venture capitalists and promote the development of South Korean mobile app exports. Google also facilitates job creation in the country. For instance, through Google Search and Ads, as well as AdSense, Google supports the creation of over 54,000 jobs in South Korea. These jobs are created through the use of Google products that lead to businesses expanding their customer bases and increasing revenue, and subsequently hiring more staff to meet the additional demand. Furthermore, it has been estimated that more than 350,000 were employed in jobs that were linked to Android in 2020.