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| Choi Won-sik, McKinsey & Company's Managing Partner for Korea. / Korea Times photo by Choi Won-suk |
McKinsey's Seoul chief says country is 'only scratching surface'
By Kim Bo-eun
Asia's significant growth potential is not exactly breaking news; but a top consulting firm's figures offer a sobering realization of the future magnitude of the region's economy and the opportunities this will ultimately unlock.
According to McKinsey & Company, by 2040 Asia will account for 52 percent of global GDP, and 54 percent of the global middle class will be in the region, accounting for 39 percent of global consumption.
Growth is ongoing, with 60 percent of foreign direct investment flowing into Asia being regional and 43 percent of the top 5,000 global companies based in the region.
Amid these developments, Korea has been setting up and expanding its footprint in the region, especially in Southeast Asia. Yet, McKinsey's Seoul chief says there is so much potential yet to be captured.
"I think Korea is only scratching the surface ― it has a comfortable degree of affinity with several Southeast Asian countries," Choi Won-sik, managing partner of the consulting firm's Seoul office, said in an interview Feb. 4. "But beyond those, in broader Asia, I think blind spots exist that ought to be brought into the spotlight from Korean companies' and an economic point of view."
Choi stressed Korea needs a more "granular" approach. "A country is too big. You need to explore opportunities at the level of cities and sectors," he said.
"Next-generation cities that people need to pay attention to are cities like Hai Phong in Vietnam, or Bekasi in Indonesia."
Choi said the Vietnamese city is noteworthy due to its proximity to China and its rapid development as a manufacturing and logistics hub. Bekasi is dubbed the "Detroit of Indonesia," as the center of Indonesia's automotive and motorcycle industry.
Regarding sectors, Choi said economies and companies should focus on "anything driving urbanization."
Data shows China's urbanization is still at roughly 60 percent, which presents major opportunities in cities that will be newly developed. This applies to the region as a whole.
Choi also referred to healthcare and mobility, of which the latter includes basic transportation infrastructure as well as advanced mobility.
Asian Century
The McKinsey report sheds light on Asia as regional blocs consolidate ― it is noteworthy as the world's largest regional economy, with a diverse mix of developed and developing countries.
The region's immense growth potential is based on emerging supply-chain networks within Asia. Due to the mix of advanced and emerging economies, they are able to complement each other by taking on different roles.
Advanced economies provide capital and technology. China acts as a regional anchor and a connectivity platform. Emerging economies offer labor and long-term market growth potential.
For example, Vietnam's low labor costs make the country a strategic partner for Korea, which has based production facilities in the region and built partnerships with local parts makers. Based on subsidiaries or joint ventures, Korea accounts for 79 percent of Vietnam's computer and electronics foreign direct investment flows.
Meanwhile, the global flows of trade, capital, people, knowledge, transport, culture and resources is shifting toward Asia. And Asian networks of capital, ideas and technologies are creating innovation hubs.
"Asia is the future, and that future is now," Choi said.
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| Choi Won-sik, McKinsey & Company's Managing Partner for Korea, speaks during an interview with The Korea Times at the consulting firm's office in central Seoul, Feb. 4. / Korea Times photo by Choi Won-suk |
Wakeup call
Korea is often referred to as an IT powerhouse, but Choi says it is missing core capabilities.
"We often think that Korea is a very strong IT country, but I actually respectfully disagree," he said. "If you measure IT status in terms of hardware and internet and mobile penetration, maybe. But if you define IT in terms of what really matters ― in terms of software, content and digital innovation ― Korea is actually behind.
"I think this has been a wakeup call. We need to stand behind those that consider this to be an important issue."
The manufacturing sector ― such as the automobile and shipbuilding industries ― has driven Korea's economic growth, but concerns have grown over falling competitiveness in the past decade. Choi said economic contribution for manufacturing should not be underestimated.
"Korea's manufacturing sector is very competitive," he said. "But many countries' sectors are actually leapfrogging through the application of frontier innovation and Korea needs to make sure we don't fall behind."
Companies in energy and petrochemical sectors in regions like the Middle East and Southeast Asia have been boosting their competitiveness through advanced technologies such as "digital twinning."
This is done by creating a digital twin of an actual manufacturing facility. Instead of tweaking the actual facility, optimization is done virtually, based on its digital replica.
Strategies for companies, policymakers
Essentially, the core challenge Korea faces is enhancing productivity as its working population ages, Choi said.
According to the leading partner, Korean businesses should be seeking to build competitiveness around three capabilities ― the backbone of the business, dynamic innovation and getting employees truly engaged in these efforts.
One aspect of the changes sectors are undergoing due to the Fourth Industrial Revolution is the replacement of jobs.
"The number of jobs is important too, but the real question is what kind of jobs should be created and those jobs inevitably have to be higher value-added, higher productivity jobs," Choi said.
According to the McKinsey Global Institute, 15 percent to 30 percent of the global workforce, or 400 million to 800 million people, will be displaced due to automation by 2030. However, 555 million to 890 million new jobs will be created through technological advancement.
"Are we training not just the current employees but the up-and-coming citizens of this country?" Choi said. "Are they learning the right things to deal with these changes? I think that's a very important agenda topic for us."
