Koreas Green Growth Strategy - Implications on Business Fields: Case of Secondary Battery(Based on Samsung SDI)

Eric Britton eric.britton@ecoplan.org

Submitted By Youngji LEE(leemush@naver.com)

July.10th, 2011

Executive Summary In 2008, August 15th, on 60th anniversary of the founding of the nation, Lee, Myung Bak, President of Korea put forward Low Carbon, Green Growth as the core of the Republics new vision of Korea for next 60 years. Green Growth refers to sustainable growth that supports to reduce greenhouse gas emission and environmental pollution1. Also, it becomes a new national development paradigm which creates new growth engine and job with green technology and clean energy. For the vision, Low Carbon/Green Growth, the government announced in July 2009 the National strategy for Green Growth up to 2050, which includes mitigating climate change, creating new engines for economic growth, improving the quality of life and 10 policies for driving the market and industry. Such environmental policies can create new markets for low-carbon technologies and equipment. Also, Korean government established a mid- and longterm roadmap in May 2009. A pan-ministry and agency execution plan to maximize synergy for short term commercialization in 2010 and 2011 or of which development effective results: next generation secondary batteries, LED lighting/display, green IT, high efficiency solar cell, green car, smart grid, future nuclear energy, fuel cell. Especially, the world market of secondary battery is forecasted to be expanded to 1,790 billion in 2030,an average annual 15% growth compared to in 2007 based on the expansion of IT units convergence, eco-friendly electric cars, and renewable energy. Also, Korean companies such as Samsung SDI, developed and exported lithium-ion batteries as high-end products to the advanced countries since 2004, so they converted the trade to profit since 2004 and made it as the emerging strategy of exports which reached the average annual growth of 66%. As Samsung SDI has shifted core business model and infrastructure from its display industry to renewable energy, SDI has continued to pioneer and become a world leader for Koreas new energy industry. Nowadays, the next lithium ion battery business in Samsung SDI is rapidly extending its territory over digital mobile devices, Electric Vehicles and ESS (Energy Storage Systems). However, Samsung SDI must focus on high-levels of automation for its lithium-ion battery plants. To maintain strong profit margins, it needs to maintain its high-tech edge on battery R&D and production to avoid competing head-on with China on mass production and to cope the original technology.
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OECD Multiligual Summaries Towards Green Gorwth

I.

Introduction

In 2008, August 15th, on 60th anniversary of the founding of the nation, Lee, Myung Bak, President of Korea put forward Low Carbon, Green Growth as the core of the Republics new vision of Korea for next 60 years. Green Growth started as the strategy model for Korea, but now this concept becomes global because OECD MCM (Ministerial Council Meeting) adopted it and researched for two years. The world now face two challenges; i) expanding economic opportunities for a growing global population and ii) addressing environmental pressures that, if left unaddressed, could undermine our living standard. Growing concerns about the environmental unsustainability of past economic growth patterns and increased awareness of a potential future climate crisis have made it clear that the environment and the economy can no longer be considered in isolation. In this context, many countries now pursue the Green Growth Strategy as a new growth paradigm. However, Korea is one of the countries which proclaim and pursue the Green Growth for sustainable development of the world, so this paper will be reviewed what the Green Growth in Korea and its policies. Furthermore, one of example cases for green technology based on those policies for green growth in the business like Samsung SDI will be reviewed in order to dominate the market in advance in the world. II. What is Green Growth? Green growth is the pursuit of economic growth and development, while preventing costly environmental degradation, climate change, biodiversity loss, and unsustainable natural resource use2.Also, Green Growth aims to combine mutually supportive economic and environmental policies. On the other hand, Korea Green Growth refers to sustainable growth that supports to reduce greenhouse gas emission and environmental pollution3. Also, it becomes a new national development paradigm which creates new growth engine and job with green technology and clean energy. Furthermore, Green technology puts together information and communications technology, biotechnology, nanotechnology and culture technology, and transcends them all. Korean government intends to make all-out investments to boost the use of new and renewable energy from the current 2% to more than 11% by 2030 and, ultimately, to more than 20% by
2 3

www.oecd.org/greentrowth OECD Multiligual Summaries Towards Green Gorwth

2050. R&D investments in green technology is going to be increased more than two times, so it is projected for Korea leading powerhouse in the green technology market. For entering the age of an environmental revolution which mean that an age of new energy is now being opened leaving behind the era of wood, coal and oil. III. Green Growth Strategy and Policies In order to implement the vision, Low Carbon/Green Growth, the government announced in July 2009 the National strategy for Green Growth up to 2050, which includes mitigating climate change, creating new engines for economic growth, improving the quality of life and 10 policies for driving the market and industry. 1. Mitigating climate change Climate change is one of the key challenges facing the world in the 21st century with serious environmental and economic implications. In august 2009, the Korea government presented the options of cutting greenhouse gas (GHG) emissions by 21%, 27% or 30% relative to the projected level in 20204. Therefore, Korea has implemented polices to combat climate change such as a voluntary agreement system in business sector. The companies that take part in this program sign agreements with the government specifying their voluntary energy conservation and greenhouse gas(GHG) emissions reduction targets, as well as their timelines and strategies. In return, the companies can acquire qualification for low interest-rate loans on energy-saving facilities, tax benefits and technical support. Thus, the government launched a pilot project of mandatory negotiated agreements on energy use in 2010. It includes 38 companies, which cover 41% of total energy consumption in the industrial sector. On the other hand, Korea government has already suggested the three energy-efficiency programs for electronics and appliances; Mandatory energy-efficiency standards and labeling (1992), The high-efficiency appliance certification (1996), Standby electricity reduction program (1999). For example, 23 items are currently subject to energy-efficiency standards, including refrigerators, air conditioners, washing machines and dishwashers, which require them to achieve at least a minimum level of efficiency in order to be sold. Also, a total of 46 items are
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Randall S. Jones and Byungseo Yoo., Koreas green growth strategy; Mitigrating Climate Change and Developing New Growth Engines OECD Economics Department workingpapters. No.798

subject to the high-efficiency appliance certification, including converters, LED lighting systems and oil-fired hot-water heaters. The Korea government grants labels for 20 home electronic and office equipment products, such as televisions, microwaves, computers and printers, which meet the official standard. Since 2005, the government has been operating a voluntary carbon market called Korea Certified Emissions Reductions (KCERs), which is open to firms that that have reduced CO2 emissions by more than 500 tones a year through improved energy efficiency and production processes and investment in renewable energy development. Revenue from environmental taxes in Korea increased from 2% of GDP in 1994 to 2.5% in 2008, thus surpassing the OECD average, which actually decreased slightly over the same period. In Korea, there is pricing greenhouse gases (GHG) which has several advantages. For example, it minimizes the cost of reducing emissions by equalizing the marginal abatement cost across all individual emitters for any reduction objective. Furthermore, in the long run, market-based instruments provide incentives for companies to develop new technologies which will lower future abatement costs. New technologies, such as carbon capture and storage, can never be developed and deployed on a large scale without such a price signal. 2. Creating new growth engines for the future Environmental policies can create new markets for low-carbon technologies and equipment, so those policies affect on employment positively. For example, green jobs can be more concentrated in more labor-intensive sectors, such as renewable energy, recycling, public transport and construction. The Korea government announced in July 2009 the Five-Year Plan (Table 1) for Green Growth. So, the Five-Year Plan suggest that 2% of GDP per year over the period 2009-13 will be spent, completely financed by the central government budget except for 8.5 trillion won (0.8% of GDP).

Table 1. The Five-Year Plan for Green Growth (2009-13)5 Trillion own

The other key factor of the most important things to minimize the cost of addressing the climate change problem is Technological change. In the Five-Year Plan, the government plans to expand its R&D investment in green technologies from 2 trillion won in 2009 to 3.5 trillion won by 2013, making a cumulative amount of 13 trillion won, which could boost green R&D from 16% of the governments total R&D spending in 2009 to 20% by 2012. Also, R&D will concentrate on 27 core technologies (Table 2) which were announced in January 2009 as new growth engines for Korea. The government has selected 27 major technologies in consideration of their contribution to economic growth, reduction of carbon emissions, environmental protection, and strategic importance. The Korean government established a mid- and long-term roadmap in May 2009. A pan-ministry and agency execution plan to maximize synergy for short term commercialization in 2010 and 2011 or of which development effective results: next generation secondary batteries, LED lighting/display, green IT, high efficiency solar cell, green car, smart grid, future nuclear energy, fuel cell, CCS(carbon capture and storage) and enhanced water treatment. 3. Improving the quality of life through better air quality
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Ministry of Strategy and Finance and Presidential Committee on Green Growth

Air quality in Korea is one of the worst among OECD countries 6, so cutting greenhouse gas(GHG) emissions is important projects. Furthermore, recent studies have found that climate change and air quality are closely interrelated with respect to the sources, atmospheric processed and environmental effects, reflecting the fact that fossil fuel combustion is a major sour of both air pollution and GHG.

Table 2. Core green technologies7

Kim, J. and K. Kang (2009), A Case Study of the Innovation Impacts of the Korean Emission Trading System for NO x and SOx Emissions, prepared as a contribution to OECD (2010e).
Presidential Committee on Green Growth (2009a), National Strategy for Green Growth and Five-Year Plan, Seoul (in Korean).

IV.

Cases : Secondary Battery in Samsung SDI

Korea anticipates that the green growth technology field such as solar power generation and secondary batteries has potential for further development in the business sector. Among those, secondary batteries provide energy with no environmental consequences and can be used repeatedly for notebook computers, desktops, mobile phone, MP3 players, digital cameras, and other electronics through recharge. Presently small secondary batteries for mobile equipment lead the market, but demand for larger secondary batteries used for electric cars or power storage is forecast to make a sharp increase.

Moreover, the world market of secondary battery is forecasted to be expanded to 1,790 billion in 2030(Figure 1) ,an average annual 15% growth compared to in 2007 based on the expansion of IT units convergence, eco-friendly electric cars, and renewable energy. Also, Korean companies developed and exported lithium-ion batteries as high-end products to the advanced countries since 2004, so they converted the trade to profit since 2004 and made it as the emerging strategy of exports which reached the average annual growth of 66%.
$ millions,%

Figure 1. World & Domestic Production Forecast

Korean companies have secured high technological prowess and is now at the top in terms of international market share. Therefore, Samsung SDI enters into the field for the first time in 11 years after 2010, surpassing Japan SANYO, boarded the world first. LG chemical after the SANYO in Japan is ranked third in the world. Lithium ion battery market share of global secondary battery is the main market share market 76%.

www.gtnet.go.kr Green technology Information Portal

Samsung SDI 1. Business description Samsung SDI Co., Ltd. (Samsung SDI) is a Korea-based leading manufacturer of display and energy products. The company is engaged primarily in the research and development, and manufacture and marketing of a wide range of digital products. Samsung SDI focuses on developing superior quality display panels and energy storage systems. The company operates its business through four operating divisions, namely, PDP division, Battery division, Mobile Display division and CRT division. The product portfolio of the company includes plasma display panels, CRT displays, vacuum fluorescent displays and lithium-ion batteries. 2. Corporate strategy Since 2000, Samsung SDI started to develop lithium ion battery (LIB) technology as a new business division and achieved world #1 rank in a very short period of time. Therefore, LIB business became a successor to its already striving Display business. Through these sectors, Samsung SDIs flagship business has been growing strongly and solidly. As Samsung SDI has shifted core business model and infrastructure from its display industry to renewable energy, SDI has continued to pioneer and become a world leader for Koreas new energy industry. Nowadays, the next lithium ion battery business in Samsung SDI is rapidly extending its territory over digital mobile devices, Electric Vehicles and ESS (Energy Storage Systems). 3.
1)

SWOT Analysis Strengths & Opportunities

For the next 10 years at least, global capacity for lithium-ion batteries will be double the amount needed to satisfy projected 2016 demand, because the Electric Vehicle(EV) and Plug-in electric vehicle(PHEV) market will be 200,000 vehicles in 2015 and one million by 2020. A global forecast by international management consultant form PRTM-estimating future sales of electric vehicles and all other vehicles- is found in Figure 2. According to this forecast, by 2020, sales of Hybrid electric vehicle (HEV)s, PHEVs and EVs will reach approximately 40 million vehicles, representing roughly half of the total market. HEVs will continue to lead the way, making up bulk of electric vehicle sales while showing a steady shift away from NiMH to lithium-ion batteries.

Figure 2. Global vehicle forecast, 2010-20209-.

Samsung SDI has secured the long development and production technology for small and medium-sized lithium-ion battery business and has collaborated with Bosch which is the worldwide number one vehicle component manufacture and has a powerful influence in European market. Also, it started the early HEV (Hybrid Electric Vehicle) battery business through the CORBA system in the US. The number of patents is an important measure used to determine the international competitiveness in US in lithium-ion battery manufacturing. Samsung SDI has 415 patents in US. Totally, Korea increased its proportion of lithium-ion battery patents filed in US from 11% in 1998-2001 to 20% in 2005-2007.

Table 3. Top 10 applicants for lithium-ion battery patents in the United States10

There are strong possibilities for Samsung SDI to have additional contracts with automobile
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10

PRTM(2010). Paving the Way for Electric Vehicles METI(2009b). Current Status and Initiatives for Battery Technology. Retrieved June 1, 2010.

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companies besides BMW, so it can expect for momentum in the market. The SB Lomotive that is a joint-venture company between Samsung SDI and Bosch can have a chance to collaborate with other automotive companies such as Volkswagen and Daimler because batteries industry companies can be clustered as like other vehicle components.(Figure 3 & Figure 4)

Figure 3. Automobile manufacturers- rechargeable battery supplier structure(Europe)

Figure 4. Samsung SDI Customer share of the secondary battery

2)

Weakness and Threats

China is a threat due to its lower labor and material costs. Certain battery components, such as natural graphite anodes play a key role, but are low-cost and uniform, and relatively easy to make. Such like commoditization of lithium-ion batteries can be mass-produced with low profit margins. Plant in China typically use manually operated facilities for much of their battery

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production The US government and firms try to place a high priority on retooling the automotive manufacturing sector for electric vehicles and are making the most of its research and innovation strengths. The technology and level of batteries are recognized well, but the component part or materials are 70% dependent on imports and the domestic lithium battery parts and materials industry has a large gap compared to advanced countries such as Japan. Moreover there are not no component parts and materials original technology. Also, the price and safety for the secondary battery is a very important factor of medium-grand batteries, which can be determined from the materials, so the development of the fundamental material with a competitive price and safety is very important for future growth of the secondary battery. 4. Key competitors A list of key competitors to the company. Table 4 lists the major battery pack firms. Among them, LG Chem recently broke ground on a $303 million, 650,000-sqaure-foot battery cell production facility in Holland, Michigan through its U.S. subsidiary, Compact Power, Inc(CPI).11 On the other hand, SB Limotive invested $ 500 million on the US, but the capacity to produce EV battery packs per year is projected to 149,000 units until 2015, which will the third among the competitors. A123 recently won important contracts to supply batteries for the Ford Focus PHEV, and for the Chevy Volt. Also, A123 is constructing three plants in Michigan which will have the capacity to produce approximately 120,000 EV battery packs per year in 2015 One of the leading battery firms is Johnson controls Inc., which has a joint venture with French battery manufacturer Saft since 2006 and is setting up a $220-million plant in Holland Michigan. This plant is projected to employ roughly 300 people and produce 10-15 million battery cells per year12, which will be surpassed to SB Limotive (Samsung SDI & Bosch)

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CGGC(Center on Globalization Government Competitiveness)(2010) Lithium-ion Batteries for Electric Vehicles; The U.S. Value Chain 12 Goodell, Andrew and Peter Daining(2010). Obama Coming to Holland. Holland Sentinel. Retrieved July 15, 2010.

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Table 4. Key players production capacity for lithium-ion batteries; Europe, Japan, south Korea, United states.13

IV. Recommendations Before giving recommendations for Samsung SDI, it should be suggested for pan-ministry or pan-national firms, because secondary battery industry is very important not only for individual company level but also national levels. Secondary Battery development is one of the important green technologies that Korea government implement as Green Growth strategy, because secondary battery industry is increasing rapidly in the world as a new international species of trees industry. Also, secondary battery is the key element to reduce greenhouse gases, which can make fuel vehicle replace electric vehicle. Korea since 1999 expedites this field, with only 12 years will surpass Japan. Moreover, Samsung SDI foray into the field for the first time in 11 years after last year, surpassing Japan SANYO, boarded the world first. However, there are some recommendations
13

Deutsche Bank(2009). Autos &auto parts Electric Cars: Plugged in 2. From http://www.db.com

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for fortifying weaknesses and threats of secondary batteries. First of all, it is needed to foster relationships between government, research institutions and industry to enable commercialization of technologies for coping with the US M&A of Korean battery or material companies which have the highest growth potential. Especially, Samsung SDI should establish a strategic alliance with LG Chem for exploiting and dominating the US and Europe market in advance. Secondly, Samsung SDI must focus on high-levels of automation for its lithium-ion battery plants. To maintain strong profit margins, it needs to maintain its high-tech edge on battery R&D and production to avoid competing head-on with China on mass production and to cope the original technology. Lastly, Samsung SDI should demand the government to organize the infrastructure and to buy some renewable energy source such as for ESS (Energy Storage Systems) in order to develop the market and to expand the area of secondary battery industry.

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VI. References CGGC(Center on Globalization Government Competitiveness)(2010) Lithium-ion Batteries for Electric Vehicles; The U.S. Value Chain Deutsche Bank(2009). Autos &auto parts Electric Cars: Plugged in 2. From http://www.db.com Goodell, Andrew and Peter Daining(2010). Obama Coming to Holland. Holland Sentinel. Retrieved July 15, 2010. Kim, J. and K. Kang (2009), A Case Study of the Innovation Impacts of the Korean Emission Trading System for NOx and SOx Emissions, prepared as a contribution to OECD (2010e). METI(2009b). Current Status and Initiatives for Battery Technology. Retrieved June 1, 2010. Ministry of Strategy and Finance and Presidential Committee on Green Growth OECD Multiligual Summaries Towards Green Gorwth Presidential Committee on Green Growth (2009a), National Strategy for Green Growth and Five-Year Plan, Seoul (in Korean) PRTM(2010). Paving the Way for Electric Vehicles Randall S. Jones and Byungseo Yoo., Koreas green growth strategy; Mitigrating Climate Change and Developing New Growth Engines OECD Economics Department workingpapters. No.798 www.oecd.org/greentrowth www.gtnet.go.kr Green technology Information Portal

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