Academic journal article Public Administration Quarterly

Industrial Transformation: Interactive Decision-Making Process in Creating a Global Industry (Korea's Electronics Industry)

Academic journal article Public Administration Quarterly

Industrial Transformation: Interactive Decision-Making Process in Creating a Global Industry (Korea's Electronics Industry)

Article excerpt

ABSTRACT

This article analyzes industrial transformation as a continuous, interactive decision-making process by industry and the government in response to information and capability constraints. Both the market mechanism and the institutional interaction between the public and the private sector are important to successful industrial transformation, especially in the context of developing countries. A case study of the Korean electronics industry illustrates how science and technology policies of the Korean government helped to transform the industry from low-valued, labor-intensive production in the early 1970s to high-valued, technologically sophisticated production in the late 1980s.

The mode of interaction between industry and the government is, however, subject to the influence of contextual changes in society and the economy. As an industry becomes more mature and the legitimacy of state leadership is eroded, as in the case of the Korean electronics industry, the interaction between the government and industry also changes and the government has to assume different roles to build the competitiveness of a domestic industry in the world market.

INTRODUCTION

This article analyzes the process of industrial transformation from the system-institutional perspective. A case study of the South Korean (hereafter called Korea) electronics industry will be used to illustrate how government and industry can interact to overcome the common problems in industrial transformation faced by many developing countries. "Industrial transformation" is the process in which an industry changes its production technology, market distribution, product scope, and location due to changes in external and internal factors such as market demand, factor supply, technological requirements, and government policies.

Many studies have been done to analyze how and why an industry transforms from the strategic perspective of business. For example, Lawrence and Dyer (1983:6-7) suggest an information-resource framework to analyze the adaptive process of industries in response to environmental changes. The "product-cycle theory" suggests that an industry transforms in a life cycle (Daniels and Radebaugh, 1992: 142-146). Port (1990:6-7) analyzes the mechanism of transformation and suggests that the pressure of new entrants, product substitution, suppliers power, buyer power, and the rivalry between competitors are the driving forces for industrial transformation.

This article takes a different focus from the above studies. Rather than analyzing the process of industrial transformation from the strategic perspective of business, it focuses on the institutional interaction between industry and government in maintaining industrial competitiveness. Both actors are interdependent and their interaction is highly essential to facilitate the transformation of an industry. A study of the Korean electronics industry illustrates how the active interaction between the private and the public sector can help to overcome the problems of externalities, risk bias against infant industries, and capability constraints in developing countries. It further demonstrates why the interaction is necessary to facilitate the upgrading of industrial capabilities.

SYSTEM-INSTITUTIONAL MODEL

To maintain competitiveness in the world market, domestic industries need to transform their production technology, market foci, product quality, and location continuously. Figure 1 illustrates the process of industrial transformation from the system-institutional perspective in which industry and the government are the actors in the model. Both actors make strategic choices that tailor a particular sector to "best fit" the social, economic, and political situation in the external environment.

There are two categories of inputs in the decision-making process: capability constraints and information input. According to standard economic theories, all production is subject to possible frontier constraints. …

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