Emeritus professor Pil Hwa Yoo of Sungkyunkwan University's SKK GSB and worldwide best-selling author of "Hidden Champions," Hermann Simon, chairman of Simon-Kucher & Partners, have published an article in the July issue of Dong-A Business Review.

In the article titled "South Korea-Germany Service Exports," Prof. Yoo and his co-authors point out that as the global market for services expands, South Korea, which heavily relies on manufacturing and exports, needs to expand its service exports.

If so, what strategies should Korean companies pursue to dramatically increase their service exports?

Capitalizing on the strength of Korea's manufacturing industry to develop more high-value-added services derived from manufacturing and exporting the results is considered a solution.

The lines between service and manufacturing are becoming increasingly blurred. In many cases, service is an integral part of the product. We call this phenomenon the servitization of manufacturing.

If a Korean manufacturing company wants to export products to Dubai, it needs to build a value chain that incorporates service elements throughout the supply chain, from planning and development for localization and sourcing raw materials to maximize profits, production, distribution, and after-sales management.

For example, 1) product planning based on big data analysis related to localization; 2) introduction of a modeling system for purchasing raw materials, optimal production, and inventory management; 3) application of smart process technology to production processes and inspection systems to improve productivity and reliability; 4) training of local personnel using remote services to reduce costs; and 5) automation of customer after-sales management using AI technology.

The OECD estimated that in 2022, the share of services embedded in the manufacturing of goods in South Korea was about 28%. According to EU statistics, the percentage of services exports triggered by goods exports is between 25% and 30%, and this percentage is rising.

As the importance and proportion of services derived from manufacturing grow, Korea's service industry should focus on improving the quality of manufacturing-related services such as design, education and training, installation, maintenance, repair, and refurbishment, and actively sell these services to overseas markets.

Also, when Korean companies export their services, they need to adopt the success formula of the German Hidden Champions: strong aspiration, focus (specialization), and globalization.

Original Article: https://dbr.donga.com/article/view/total/article_no/11334/ac/a_list/ac/m_editorpick