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Policy issues: comprehensive measures to advance the service industry:--Service PROGRESS I--.

Korea has been transitioning into a service-led economy, as the service industry's share of Korea's total employment and GDP has continued to grow. In particular, the service industry has played an instrumental role in creating jobs. Korea's service account balance, however, has continued to deteriorate, since the service industry failed to stay as competitive as other advanced nations'. Low productivity of Korea's service industry has detracted from the competitiveness of the manufacturing industry, further making negative impacts on the overall economy. In addition, at a time of market opening as represented by an impending Korea-US FTA, there is a strong need for making breakthroughs in the service industry.

Against this backdrop, the government has announced a new plan, "Service-PROGRESS I", on April 28 to upgrade Korea's service industry on April 28. Ninety three short-and long-term tasks have been selected and will be implemented in three stages (Service-PROGRESS I, II, and III) as scheduled. In particular, the government has envisioned a nation where the service industry is the greatest contributor to job creation and where service and manufacturing industries are the two biggest props of economic growth.

"Service-PROGRESS I" will be followed in succession by Service-PROGRESS II and Service-PROGRESS III which are planned to be launched in September and December of 2008, respectively.
Strategy for Service-PROGRESS I

P   Productivity              Achieving a high-value
                                added service industry
R   Regulatory reform         Reforming competition-stifling
O   Openness                  Adopting advanced know-how from abroad
G   Global standard           Laying the groundwork for an advanced
                                service industry
R   Rivalry                   Reinforcing fundamentals
E   Environment improvement   Creating a service-friendly management
S   Specialization            Raising efficiency
S   Scale economy             Enhancing revenues in a cost-effective

Boosting tourism

On the tourism front, the government will create an environment where the private sector and local authorities can initiate projects aimed at revitalizing tourism in an autonomous and creative manner. In addition, local tourism boards (LTB) will be formed and LTB-led tourism projects will receive financial and promotional support from the government. The government will help form networks between LTBs and offer grants and incentives to better-performing LTBs in order to induce voluntary participation.

A legal framework will be developed in July this year to help Jeju Island emerge as an international tourism destination. Jeju Island will be exempted from three tourism-related laws (Tourism Promotion Act, Tourism Promotion and Development Fund Law, and International Conference Industry Promotion Act), which is believed to help Jeju Island's tourism industry grow autonomously. In other words, the central government will transfer authority to Jeju Island over designing and developing tourist resorts.

The whole process of tourism will be revamped to help provide foreign tourists more convenient and high-quality travel services in Korea. To offer a wider range of low-and mid-priced accommodations, the government will ratchet up financial assistance to facilitate the influx of well-known budget hotel chains such as Ibis and Benikea. By changing directional and road signs into foreign tourist-friendly ones, foreign tourists will find it much easier to navigate their way to tourist attractions. For example, Japanese and Chinese languages will be added to information signs in major tourist spots.

In addition, the tourism industry will be encouraged to build a self-regulatory management system to prevent foreign tourists from falling victim to poorly-organized tour packages and any inconveniences. Moreover, hiring accredited tourist guides for foreign tourists will become mandatory in order to provide high-quality services to foreign tourists. As part of efforts to bring professionalism into offering tourism services, the government will allow foreigners to work as civil servants in charge of tourism in municipalities. Up until now, the hiring of foreign civil servants has been restricted to R&D and education sectors.

The elements of the environment, culture, and traditions will blend into tourism resources, adding uniqueness to Korea's tourism industry. In addition, tourism clusters will be created by 2012 along the southern coast line under the five themes: island, cruises, Admiral Lee soon-shin, dinosaurs, and wetlands. On top of that, tour packages to the DMZ will be soon on the market for the first time in history. For a start, familiarization (FAM) tours to the DMZ by tour experts and journalists will be made in May, and then domestic and foreign tourists will have a chance to join DMZ tours in July.

Innovative plans will also be drawn up to transform Korea into an international shopping center like Hong Kong. "Korean Grand Sale" (tentative name) periods, modeled on grand sales periods in Hong Kong and Thailand, will be designated in major shopping districts such as Dongdaemun and the Busan international fish market. In a bid to promote the excellence of Korean foods, Korean Food Festivals will be held in October 2008 in Korea as well as in the US and Japan simultaneously. In addition, tour packages to TV drama shooting locations and live music shows will be developed to rekindle the Korean wave, which refers to the popularity of korean pop culture in other Asian countries.

As part of efforts to make Korea's rich history and tradition a tourism resource, the government will push up financial and promotional support from 15 billion won in 2008 to 24 billion won by 2009 in developing "temple stay" programs and herb medicine workshops. "Temple stay" programs have already been popular among foreign tourists who wish to get a glimpse of Korean Buddhist culture. In line with global trends, the government also attempts to promote a high value-added cruise industry. The construction of world-class theme parks will be given government assistance and more duty free shops will open on Jeju Island.

Ever-growing overseas golf tours are expected to taper off as measures are being hammered out to give rise to local golf courses and to push down the high costs of playing golf in Korea.

In a bid to build tourism infrastructures, the government will lend financial support and ease regulations on the tourism industry. The Tourism Promotion Act will be reformed to offer one-stop services to tourism resort developers. Zero value-added taxes for foreign tourists, currently limited to accommodations, will further expand to food services for foreign tourists.

Enhancing medical service competitiveness

On the medical front, the competitiveness of the Korean medical industry will be reinforced through the realignment of the existing rules and systems, hopefully resulting in attracting more foreign patients. The visa issuing process will be streamlined to help foreign patients and their family members stay in Korea until medical treatments are completed. In addition, specialized medical tourism products will be provided to cater to foreign patients' varied needs. For example, plastic surgery tourism products will be developed to target tourists from Japan and China. Furthermore, regulations on medical institutions will be eased to bring diversity to medical services. A legal framework will be made to pave the way for mergers and acquisitions of medical institutions. In a bid to ease regulations on foreign medical institutions operating in free economic zones, the Korean parliament is scheduled to pass a special law on September 30, 2008. Furthermore, Korean hospitals will be encouraged to seek international accreditation from accrediting bodies such as the Joint Commission International (JCI) to improve their credibility among foreign patients.

Improving english language education

In response to ever-growing spending on English language education abroad by Koreans, the government will come up with measures to help Korean students meet their educational needs locally. Regulations on the establishment of renowned foreign education institutions in Korea will be lifted to give Korean students more chances to enjoy high-quality language training programs without leaving the country. In addition, more Korean students will be admitted to foreign schools operating in Korea. The quality of compulsory English curricular in public schools will be enhanced as quotas of in-house native English speakers increase.

Furthermore, a program to build an English-only city on Jeju Island will be implemented as scheduled so as to satisfy growing needs for hands-on English language education.

Supporting knowledge-based service

On the knowledge-based service front, the government will provide assistance to create a high value-added service market. Export assistance, of which the manufacturing industry has been a main recipient, will be offered to the service industry. In the vein, the Export-Import Bank of Korea and the Korea Export Insurance Corporation will provide 1.4 trillion won and 800 billion won respectively in financial assistance by 2012. A service export guarantee system including credit guarantee funds and technology guarantee funds will be launched on a trial basis on July 1, 2008.

Outsourcing will be promoted to bolster weak demand for knowledge-based services such as management consultancies and to improve the quality of knowledge-based services. For example, Korea's consulting market can be given a boost in a newly launched "management consulting coupon system" whereby SMEs with scarce resources receive subsidies for management consulting services. In addition, Partnership Taxation will be applied to professional service providers such as law and accounting firms. Knowledge-based services companies will grow into specialized and large-scale ones as tax burdens imposed on them are relieved through the realignment of double taxation.

R&D investments in services, which have been sluggish compared to those in the manufacturing industry, will be boosted to raise productivity. Emphasis will be also put on the promotion of a high-value added cultural contents industry. Moreover, the government will promote the development of U-Learning (Ubiquitous-learning) technologies and contents to make next-generation interactive contents one of Korea's flagship export products.


Korea's service industry is on track to go through a major makeover with the help of Service-PROGRESS I, II, and III. The government envisions that Korea's service industry will play as pivotal a role as it does in other OECD member nations within five years. In addition, the government makes sure that continued policy efforts will be made to upgrade the service industry and the implementation of Service-PROGRESS I, II, and III will be monitored on a quarterly basis.
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Publication:Economic Bulletin (Korea)
Article Type:Company overview
Date:May 1, 2008
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