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The Vicious Cycle of the Domestic Plant Industry and Policy Implications for Its Competitiveness

Author Lee Sanghyun(이상현) Date 2020.08.31 Series
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Considering its industrial scale and ripple effects on other industries, the plant industry has a significant impact on the national economy.
In particular, the industry is considered have the potential to help address continued sluggish growth in the Korean economy.
Its contributions include the acquisition of foreign currency through overseas projects, quality employment generation and the utilization of comprehensive technologies, among others. During the last two oil shocks, Korean plant firms acquired foreign currency from the Middle East that became the seed money for what would become the engines of future growth, including the automobile, machinery and semiconductor sectors. With accumulated technologies, they are still supporting the Korean economy and serving as a competitiveness base for domestic firms.
The Korean plant industry has developed in terms of quality (engineering capabilities) as well as quantity (order size). However, the industry is mired in a chronic vicious cycle and its constituent firms are facing repeated structural insolvency. Over a series of economic crises1, local firms have been shown to suffer from a consistent problem: continuously thinning profits margin owing to a reliance on an underbidding strategy. The continuous threat of insolvency can be attributed in part to this type of bidding strategy. However it should be noted that local firms have had to rely on such strategy historically due to a lack of technological prowess and competitiveness.