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Machinery
Overview
A relatively high growth rate of 12.2% in production of machinery stems from strong exports on rising demand from within and without the country, including China in particular.
- From 2000-2007, domestic demand had remained at a relatively high growth rate of 9.8%.
At an annual average growth rate of 18.2%, machinery has showed signs of continued increase in export since 2000, topping US$25 billion in 2007.
- This increase is due to growth in exports on the back of higher demand for facilities in developing countries like China and India, together with improved performance of Korean machinery and consequently, a continued increase in exports to advanced countries like the U.S. and those within the EU.
The prospect that exports will likely slow down is based on concerns that exports to China, which has been the largest recipient since 2000, are forecast to decrease.
- However, a potential free trade agreements with the 27 countries in the EU will likely play a role in further expanding exports if it, along with the Korea- US FTA, is executed and takes effect.
In contrast, the outlook for exports to Japan still remains bleak despite improved economic conditions there, as areas where Korea has a competitive edge over Japan are limited, aside from such items as molds.
Changes in Supply-Demand Structure in the Machinery Industry in Korea
(Unit: US$ million)
| 2000 | 2004 | 2006 | 2007 | Average Annual Growth Rate (%) (’00 - ’07) |
|
|---|---|---|---|---|---|
| Production | 31,766 | 48,331 | 63,537 | 71,260 | 12.2 |
| Import | 11,103 | 14,686 | 18,747 | 21,219 | 9.7 |
| Export | 7,887 | 14,304 | 20,706 | 25,383 | 18.2 |
| Domestic Demand | 34,981 | 48,712 | 61,578 | 67,096 | 9.8 |
| Employment1)(thousand persons) | 247 | 273 | 279 | 285 | 2.1 |
| Dependency on Import (%) | 31.7 | 30.1 | 30.4 | 31.6 | |
| Trade Specification Index | -0.17 | -0.01 | 0.05 | 0.09 |
Notes :
- 1) Source: Ministry of Labor (MOLAB)
- 2) Dependency on Import = (Import/Domestic Demand) x 100, Trade Specification Index = (Export-Import)/(Export+Import)
- 3) Production and employee numbers are computed by KSIC 29 (Machinery) - KSIC2951 (Home Appliances) - KSIC 2952 (Household Non-Electric Cooking and Heating Appliances)
- 4) Production and employee numbers for 2006 and 2007 are estimated on the basis of annual average growth rate (2000-2004).
Although growth in imports remains at a single-digit rate (annual average of 9.7%) as the import-dependent structure for key parts has improved to a certain extent, imports for 2007 stood at US$21.22 billion, thus exceeding US$20 billion for the first time.
In the international trade arena, Korea's chronic adverse trade balance returned to almost zero in 2004, showing signs of continued improvement since then. Trade surplus amounted to US$1.96 billion in 2006 and surged to US$4.16 billion in 2007.
- Trade specification index by year is -0.17 ('00), -0.06 ('02), -0.01 ('04), and 0.09 ('07).
Trends in Trade Specification Index by Year in the Machinery Industry
- 90 -0.78
- 91 -0.78
- 92 -0.72
- 93 -0.68
- 94 -0.67
- 95 -0.64
- 96 -0.60
- 97 -0.50
- 98 -0.15
- 99 -0.27
- 00 -0.23
- 01 -0.16
- 02 -0.17
- 03 -0.16
- 04 -0.12
- 05 0.3
- 06 0.5
- 07 0.8
In view of ROA, machinery stood at 5.45% as of 2006, while machine tools and heavy construction equipment, among key items, posted rates of 7.72% and 8.53%, respectively, both of which are well ahead of the machinery industry average.
- On the other hand, agricultural machinery showed a low 2.06% in ROA largely because competition was growing fiercer in the relevant industry as domestic demand is based more on alternative sources of demand than a new ones.
From an ROE standpoint, machinery stood at 12.45% in 2006, while machine tools and heavy construction equipment, among key items, posted rates of 17.5% and 20.12%, respectively, both of which are also well ahead of the industry average. However, agricultural machinery showed a relatively low level in this regard.
In labor productivity based on value added per employee, machinery stood at KRW66.9 million on average, while heavy construction equipment posted KRW110.37 million, the highest among key items.
- This can be attributed to the fact that heavy construction equipment is produced mostly by large firms, with a focus on excavators.
- In contrast, machine tools posted a relatively low level of KRW63.5 million, mainly due to the fact that they are manufactured by both large and small/medium businesses.
Revenues and Assets of the Machinery Industry and Other Major Industries (2006)
| Item | Machinery | Machine Tools |
Heavy Construction Equipment |
Agricultural Machinery |
|---|---|---|---|---|
| No. of Manufacturers | 16,057 | 1,455 | 561 | 462 |
| Employees (thousand persons) | 327 | 24 | 13 | 9 |
| Sales (US$ million) | 49,723 | 5,260 | 4,511 | 1,440 |
| Net Income (US$ million) | 8,375 | 989 | 951 | 297 |
| ROA | 5.45 | 7.72 | 8.53 | 2.06 |
| ROE | 12.45 | 17.50 | 20.12 | 5.10 |
| Labor Productivity (value added per employee: US$1,000) |
70.01 | 66.46 | 115.51 | 68.16 |
| Liabilities (US$ million) | 25,316 | 2,787 | 1,938 | 712 |
| Total Assets (US$ million) | 45,019 | 5,100 | 3,321 | 1,185 |
| Export (US$ million) | 25,383 | 2,036 | 5,286 | 116 |
| Import (US$ million) | 21,219 | 1,629 | 612 | 293 |
| Balance (US$ million) | 4,164 | 407 | 4,674 | -177 |
Notes:
- 1) "Corporate Management Analysis" (July 2007) by the Bank of Korea (BOK) for the Management Performance Indicators like Sales and Profit Ratio
- 2) 2006 Average Exchange Rate: US$1 = KRW955.5
Over the past 3 years, machinery has expanded its trade surplus, while other key items showed significant differentiation among themselves.
- Machine tools, the heart of industrial facilities, were in the red until 2006, and then turned to black for the first time in 2007, while agricultural machinery posted a low level of less than US$200 million in annual deficit, remaining in negative territory.
- However, heavy construction equipment has continued its trade surplus over the past 3 years.
- In 2007, trade surplus reached US$4.67 billion on strong growth in exports on the part of major excavator makers like Doosan Infracore and Hyundai Heavy Industries, together with concurrent exports of parts to local factories in China.
Major Companies
The Korean machinery industry is composed of small and medium companies to the tune of 95%, although large firms lead the industry in production, export and technology development.
Major Companies in the Korean Machinery Industry
(Unit: KRW100 million)
| Major Products | Company Name | No. of Employees |
Sales | Capital | |
|---|---|---|---|---|---|
| General- Purpose Machinery |
Vessels·Industrial engines | Hyundai Heavy Industries | 25,958 | 90,845 | 3,800 |
| Power/Industry Facilities | Doosan Heavy Industries & Construction |
4,834 | 24,555 | 5,210 | |
| Air Pumps, Valves | SC Engineering | 330 | 1,225 | 127 | |
| Bearings | Samik THK | 292 | 1,126 | 105 | |
| Elevators, Escalators, Parking Facilities, Distribution Systems |
Hyundai Elevator | 1,143 | 4,409 | 357 | |
| Heat Exchangers, Pressure Vessels | Daekyung Machinery & Engineering |
346 | 1,554 | 177 | |
| Machine Tools |
Machining Centers, Industrial Robots | Doosan Mecatec | 618 | 4,086 | 548 |
| Machine Tools | Hwacheon Machinery Works | 288 | 1,419 | 110 | |
| Presses | SIMPAC | 161 | 438 | 130 | |
| Special- Purpose Machinery |
Heavy Construction Equipment, Machine Tools |
Doosan Infracore | 4,470 | 28,606 | 8,398 |
| Trucks, Cranes | Soosan Heavy Industries | 185 | 566 | 252 | |
| Agricultural Machinery | Tong Yang Mool San | 670 | 2,440 | 327 | |
| Furnaces | KIC | 156 | 232 | 43 | |
| Textile Machines, Chemical Machines |
Samyang Heavy Machinery | 97 | 221 | 62 | |
| Semiconductor-making Machinery | Shinsung Eng | 278 | 2,160 | 177 |
Overseas direct investment is primarily made by a handful of large firms such as Doosan Infracore and Hyundai Heavy Industries. In contrast, small and medium manufacturers tend to enter overseas markets as suppliers of relevant parts and materials in parallel with large firms.
Doosan Infracore, which represents the machinery industry, has been seeking a win-win partnership through strategic alliances (M&A) with foreign counterparts.
- In July, 2007, Doosan Infracore acquired Bobcat, the world's leading multinational machinery enterprise, thus securing a new network of 2,700 dealerships in the U.S.
- Doosan's goal was to boost global competitiveness through the sharing of technology and sales networks to gain a relative advantage.
- Furthermore, the acquisition of Bobcat made the combined entity grow to become the world's 7th largest, up from 17th.
Company Profile of U.S.-based Bobcat
| Description | |
|---|---|
| History | Based in North Dakota, U.S.A., founded 50 years ago |
| Size | - Global Business Operations: 5,800 employees and 73 corporations in 27 countries - Sales: N. America 62%, Europe 27%, Other 11% - 2,700 dealerships, 16 production factories, 9 R&D centers |
| Sales | ·3 Business Sectors Acquired: sales of US$2.85 billion (2007 est.) - Compact construction machinery: 74% - Utility equipment: 19% - Attachments business: 7% |
The Effects of Strategic Alliance Between Doosan Infracore and Bobcat
| Major Areas | Expected Effects |
|---|---|
| Product | ·Establish a full product line-up ·Ease revenue volatility by securing recurring revenue· |
| Market | ·Secure a global sales/production base ·Secure a base for the creation of synergy effect in sales by region |
| Technology | · Secure R&D resources and key parts technology |
| Intangible Asset | · Brand, talents, advanced market management capability |
| Overall | Build the foundation for Top 5 through global competitiveness |
Foreign Direct Investment (FDI)
Overview of FDI
For fiscal year 2007, FDI in the nation's machinery industry totalled 91 cases worth US$309 million.
- Since 1962, FDI in this industry has reached 1,942 cases worth US$5.17 billion on a cumulative basis.
In the manufacturing industry as a whole, machinery industry FDI accounted for 14.5% of all cases and 9.2% by amount as of end-2007.
- According to investment amount by case, the machinery industry amounted to US$2.66 million, only 63.2% of the manufacturing industry average (US$4.21 million). This is because Korea's machinery industry is dominated primarily by smalland medium-size manufacturers and some large firms, as is the case in advanced countries like Germany.
Taken as a whole, the global investment environment is not favorable due to the subprime mortgage crisis, record high oil prices, and raw material price hikes. However, investment inflows into Korea are expected to grow if the investment environment gets visibly better, combined with expectations toward regulatory reform measures currently in progress under the new government.
- Furthermore, it is predicted that the Korea-US FTA, if ratified, will lead American investors to invest more in Korea, targeting the overall Asian machinery market, as well as Korea's.
- In addition, the U.S.-based multinational manufacturers are expected to establish their bases for production in Korea in an attempt to expand into the Asian market for heavy industries like heavy construction equipment and agricultural machinery, among others.
Investment in the Machinery Industry vs. Other Major Industry Sectors (notification basis)
(Unit: US$ million)
| 2005 | 2006 | 2007 | 1962-2007 | |||||
|---|---|---|---|---|---|---|---|---|
| Cases | Amount | Cases | Amount | Cases | Amount | Cases | Amount | |
| Manufacturing | 747 | 3,078 | 713 | 4,246 | 684 | 2,688 | 13,417 | 56,466 |
| Food | 32 | 327 | 18 | 60 | 16 | 8 | 697 | 4,178 |
| Textiles | 20 | 29 | 24 | 223 | 16 | 6 | 685 | 1,132 |
| Paper·Timber | 15 | 85 | 9 | 10 | 9 | 17 | 256 | 2,677 |
| Chemicals | 86 | 278 | 83 | 764 | 70 | 509 | 1,981 | 10,360 |
| Pharmaceuticals | 13 | 8 | 13 | 56 | 24 | 40 | 301 | 1,048 |
| Non-metallic mineralsMetals | 29 | 376 | 24 | 159 | 24 | 49 | 501 | 2,615 |
| & | 37 | 29 | 44 | 247 | 70 | 237 | 852 | 2,815 |
| Machinery·Equipment | 118 | 128 | 109 | 361 | 91 | 309 | 1,942 | 5,168 |
| Electric·Electronics | 252 | 1,041 | 241 | 1,803 | 205 | 930 | 3,846 | 18,813 |
| Transportation machines | 112 | 706 | 114 | 499 | 126 | 565 | 1,253 | 6,705 |
| Other | 33 | 72 | 34 | 64 | 33 | 18 | 1103 | 954 |
| Total | 3,668 | 11,565 | 3,107 | 11,240 | 3,559 | 10,509 | 39,678 | 137,288 |
Source: Ministry of Knowledge Economy (MKE), "2007 FDI" (Jan. 2008)
Major Foreign-Invested Firms in Korea (2007)
(Unit: KRW million)
| Name | Sales | No. of Employees |
Location | Standard Industry Code |
|---|---|---|---|---|
| Volvo Group Korea | 1,612,468 | 1,378 | Changwon, S. Gyeongsang | Manufacturer of civil engineering and similar machine equipment |
| Schaeffler Korea | 369,136 | 1,448 | Seoul | Manufacturer of ball and roller bearings |
| Carrier | 302,096 | 870 | Seoul | Manufacturer of air conditioning and regulating devices |
| STX Enpaco | 702,076 | 261 | Changwon, S. Gyeongsang | Manufacturer of internal combustion piston engines |
| Hyundai Elevator | 564,581 | 1,185 | Icheon, Gyeonggi | Manufacturer of elevators and conveyor systems |
| Tong Yang Mool San | 247,641 | 709 | Seoul | Manufacturer of agricultural machinery |
| Fanuc Korea | 343,366 | 191 | Gimhae, S.Gyeongsang | Manufacturer of machines/tools |
| Otis Elevator | 855,794 | 2,663 | Seoul | Manufacturer of elevators and conveyor systems |
| Abbott Korea | 136,339 | 290 | Seoul | Manufacturer of medical and surgical equipment and orthopedic appliances |
| Applied Materials Korea | 239,800 | 300 | Cheonan, S. Chungcheong/td> | Manufacturer of machines/tools |
| GMP | 61,596 | 312 | Paju, Gyeonggi | Manufacturer of machinery and accessories for printing and bookbinding |
| Parker Korea | 61,074 | 208 | Hwasung, Gyeonggi | Manufacturer of pumps and compressors |
| ABB | 240,373 | 415 | Seoul | Manufacturer of ventilating machines |
| Hyosung-Ebara | 129,464 | 257 | Seoul | Manufacturer of liquid pumps |
| TI Automotive | 66,929 | 154 | Cheonan, S. Chungcheong | Manufacturer of liquid pumps |
| Engel Machinery Korea | 36,457 | 51 | Pyeongtaek, Gyeonggi | Manufacturer of rubber, man-made fiber and plastic machinery |
| K.C. Tech | 130,069 | 310 | Anseong, Gyeonggi | Manufacturer of semiconductor- manufacturing machinery |
| Lusem | 213,254 | 332 | Gumi, N. Gyeongsang | Manufacturer of semiconductor- manufacturing machinery |
| Wilo Pumps | 108,574 | 218 | Gimhae, S. Gyeongsang | Manufacturer of pumps and compressors |
| Ulvac Korea | 237,548 | 390 | Pyeongtaek, Gyeonggi | Manufacturer of special purpose machinery |
Source: Korea Enterprise Data (www.kedkorea.com), company data
Investment Trends by Major Item and Implications
Based on items such as general-purpose machinery, machine tools and other special-purpose machinery, FDI in the machinery industry differs somewhat in yearly trends according to the amount and item in which investment is made for the relevant year.
- On a cumulative basis from 2006 to the first quarter of 2008, FDI in generalpurpose machinery accounted for 57.5%, the largest share by amount.
- However, in view of the number of cases, special-purpose machinery amounted to 93 (41.3%) in total, the most, followed by general-purpose machinery with 84 cases (37.3%).
FDI by Major Item in the Machinery Industry (notification basis)
(Unit: US$ million)
| Year | 2006 | 2007 | 1Q 2008 | Cumulative from 2006 to 1Q 2008 | ||||
|---|---|---|---|---|---|---|---|---|
| Item | Cases | Amount | Cases | Amount | Cases | Amount | Cases | Amount |
| Manufacturing as a whole |
3,107 | 11,240,395 | 3,559 | 10,514,105 | 864 | 2,715,369 | 7,530 | 24,469,868 |
| Machinery·Equipment | 109 | 361,129 | 91 | 309,053 | 25 | 69,854 | 225 | 740,036 |
| General purpose machinery |
32 | 188,908 | 43 | 225,938 | 9 | 10,773 | 84 | 425,620 |
| Machine tools | 15 | 33,840 | 7 | 12,169 | 6 | 45,958 | 28 | 91,967 |
| Other special purpose machinery |
47 | 133,307 | 37 | 67,488 | 9 | 8,840 | 93 | 209,635 |
| Medical equipment | 15 | 5,074 | 4 | 3,457 | 1 | 4,283 | 20 | 12,814 |
Source: Data from Investment Policy Division at MKE (Apr. 2008)
FDI by Major Industry Item (Cumulative from 2006 to 1Q 2008)
No. of notified cases
- General purpose machinery 37.3%(84)
- Machine tools 12.4%(28)
- Other special purpose Machinery 41.3%(93)%
- Medical appliances and instruments 8.9%(20)
Amount
- General purpose machinery 57.5%(425,620)
- Machine tools 12.4%(91,967)
- Other special purpose Machinery 29.3%(209,635)%
- Medical appliances and instruments 1.7%(12,814)
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