Innovation Characteristics of Korean Service Companies

In recent years, the importance of the service industry has been steadily increasing in terms of GDP and employment. In general, it is known that the service sectors of developed countries make significant contributions to overall economic productivity compared to those in less developed countries. However, the development of Korea’s service industry rates poorly compared to advanced countries. Employment in the service industry has been increasing since the 1990s, but growth in value-added has been stagnant for the last 10 years. In addition, while the employment creation effect of the service industry is large, the proportion of low-wage workers is high, and it is estimated that most service companies are small in scale. For comparison, in 2017 the proportion of workers with an average monthly wage of less than 2 million won is 29.3 percent in the manufacturing industry and 48.1 percent in the service industry. With such a high proportion GDP and employment in service industry, awareness of the problem of low productivity in the service sector is growing and the issue is naturally attracting policy attention to service innovation, that is, service R&D investment. In this paper, we analyze the characteristics of R&D investment behavior in order to derive policy implications for innovation investment in Korean service companies. The authors performed a principal component analysis (PCA) and a cluster analysis on Korean service and manufacturing based on innovation behavior. In the analysis, the firms are classified by the innovation behavior rather than Standard Industry Classification (SIC). Even if two companies are possess the same SIC designation, there may be various differences in innovation behavior depending on the management environment and capacity of each individual company. Therefore, classifying business groups based on innovation behavior rather than SIC is a better approach to understanding companies in terms of innovation.