ASEAN and India are prominent emerging economies within the global economy. The Korean government is also paying attention to the so-called “New Southern Region” from its perspective (i.e. ASEAN and India), which has high growth potential, and is promoting a policy of expanding trade with the region. However, in light of the decline in trade with the New Southern Region in 2019, it looks difficult to achieve this goal. This is because the internal and external environment surrounding the New Southern Region is not as good as before. The external environment is deteriorating due to such factors as the spread of global protectionism and the global economic slowdown. In addition, trade and investment policies in the New Southern Region are less favorable than before, including intensifying competition, increased production costs, and policy changes such as increased local contents proportion, an emphasis on technology transfer, and pressure to improve trade imbalance with Korea. Due to these environmental changes, it is becoming more important to find ways to expand and upgrade trade with the New Southern Region. This is also an important task in promoting policies for Korea’s economic cooperation with ASEAN and India based on the principle of co-prosperity, which is the core of Korea’s New Southern Policy.
   Therefore, the study performs various types of GVC analyses in both macro and micro perspectives, which include analysis of the GVC structure of ASEAN and India, GVC-related policy and sector-level demand, the current status of Korea’s GVC structure, and Japan’s GVC network in ASEAN and India. Through this extensive analysis, the study proposes measures on promoting an extension of trade and GVC advancement with the New Southern Region.
   We can summarize the key findings as follows. First, in Chapter 3, we found unique characteristics within the GVC structure in New Southern Policy (NSP) countries. An analysis of data from the world input-output table reveals six characteristics: ① New Southern Policy countries have a higher GVC participation rate compared to other major regions, such as the coverage areas of the RCEP and NAFTA. In particular, NSP countries use foreign intermediate goods in their exports. ② The GVC participation rate in NSP countries has gradually decreased over the years, along with increasing domestic value-added in the exports. The trend indicates the evidence of localization in production. ③ NSP countries show advancement in export items and GVC activities, in the form of many countries in the region starting to produce more intermediate goods exports than final goods. ⑤ The GVC hub of intermediate goods (re)export within NSP countries has been diversified from Malaysia to Vietnam, India, and Indonesia. ⑥ Korea’s GVC status has changed significantly over the years. Korea’s GVC participation rate is higher than other major countries, and its GVC location has increased substantially. Korea has high backward GVC participation, which means Korea uses extensive foreign intermediate goods in its exports. The improvement of Korea’s GVC location implies that Korea’s intermediate goods exports have risen over time. The major destinations of Korea’s value-added exports are Vietnam, Singapore, India, and Indonesia. Among these countries, Korea is vertically integrated with Vietnam and Singapore.
   Second, in Chapter 3, we propose country/industry-specific potential cooperation possibilities with New Southern Policy countries. The cooperation with ASEAN and India is important for Korea to expand its GVC network and promote efficient production through international specialization. To identify Korean industries with a comparative advantage at the international level and high growth potential in NSP countries, the study performs various analyses, including an analysis of value-added comparative advantage, GVC-related policy, and sector-level demand. First, the value-added comparative advantage analysis reveals that Korea has comparative advantages in the areas of Coke, Refined Petroleum and Nuclear Fuel, Chemicals and Chemical Products, Electrical and Optical Equipment, and Transport Equipment. Among these industries, Singapore, Thailand, and Vietnam have either comparative advantages or high backward GVC participation in the Coke, Refined Petroleum and Nuclear Fuel sector, Vietnam in Chemicals and Chemical Products, the Philippines and Vietnam in Electrical and Optical Equipment, and India and Thailand in Transport Equipment. The country-industry matching indicates potential cooperation chances between Korea and NSP countries.
   To supplement the matching above, in Chapter 4, we conduct additional analysis on GVC-related policy and industry-specific demand. We choose seven countries which have an economically significant domestic market (Indonesia, Malaysia, Myanmar, the Philippines, Thailand, Vietnam, and India) for the analysis. We analyze each country’s national industry development scheme, five major industries (focused on manufacturing sector), and distinguish high-growth potential industries to propose specific industries for potential cooperation between Korea and NSP countries. Korea has a potential cooperation possibility in the Food, Beverage and Tobacco industry in all seven countries. More specifically, Korea has better cooperation chances with Indonesia in Coke, Refined Petroleum, Chemicals, and Chemical products, Basic Metals and Fabricated Metal industries, with Myanmar in Textiles and Textile Products, Construction parts, and Consumer Product industries, with the Philippines in Chemicals and Chemical products, Telecommunication Device (Radio, TV), and Construction parts industries, with Thailand in Coke, Refined Petroleum, and Rubber and Plastics industries, with Vietnam for Textiles and Textile Products, Leather Products, Computer, Office and Telecommunication Device, Basic Metal, Other Non-Metallic Mineral, Wood Products, and Rubber and Plastics industries, with India in Coke, Refined Petroleum, Chemicals, and Chemical Products, Basic Metal, Pharmaceutical products, Food, Beverages and Tobacco, Transport Equipment industries.
   Third, in Chapter 5, we examine the current status of Korea’s GVC structure in the New Southern Region. In the case of ASEAN, we surveyed Korean electronics, automobiles, machinery, textiles and clothing companies in Vietnam and Indonesia, and automobiles and electronics companies in India. Our analysis identified the five following features. ① In the area of procurement of raw materials and parts in ASEAN, Korean companies are procuring the largest proportion of their demands from Korean sources, followed by local and Chinese sources. ② In the case of trading partners, electric, electronic, automobiles, and machinery companies are engaged in active transactions with their affiliates and Korean subcontractors in ASEAN. ③ The most important factors to consider when procuring local raw materials and parts were price competitiveness, followed by meeting and shortening delivery deadlines, and the demands of major customers. ④ In the case of entry into the market, electric, electronic, automobile and machinery companies mainly aim to expand sales in ASEAN, followed by exports to the Korean market. ⑤ The most representative obstacles to GVC construction of Korean companies are the lack of quality competitiveness and technological competence of local companies, followed by lack of logistics infrastructure, lack of parts or diversity, lack of cultural or language communication, and shortage of necessary workers.
   Next, ① India's procurement structure for Korean companies entering India shows that local Korean automakers and auto parts manufacturers have a high proportion of local procurement because the auto industry has a well-established local production network. On the other hand, the electronics industry has a relatively high proportion of import procurement due to the lack of production network in India. ② In the case of Korean companies entering India, automakers are expanding their exports of Indian products. In the electronics industry, on the other hand, exports of Indian products are just beginning. ③ Korean companies are experiencing difficulties in establishing GVCs in India due to difficulties in co-operation with local companies, poor infrastructure, and frequent policy changes.
   Fourth, in Chapter 6, we investigate the case of Japan successfully building GVC in the New Southern Region. The characteristics of the Japanese GVC construction in the New Southern Region are as follows. ① In terms of procurement of raw materials and parts, the proportion of local procurement is higher than that of Korea, and transactions with local companies and Japanese companies entering the market are also active. ② By industry, GVC construction is relatively active in the fields of electrical, electronics, machinery, and automobiles. This is because the company has a long history of entry and many companies have entered the market. In particular, there are many “anchor companies” leading production bases and global production network (GPN), and there are many Japanese companies that cooperate with these anchor companies. ③ Many Japanese companies that have entered ASEAN are rebuilding their production bases in light of changes in the global business environment and expansion of ASEAN economic integration. The most representative one is the Thai Plus One strategy.
   Meanwhile, in the case of product sales, Japanese firms that have entered the New Southern Region have a higher share of the local market than Korean firms. This is because not only transactions with local companies but also B2B transactions with many local Japanese companies are active. Japanese companies can successfully build GVCs in the New Southern Region thanks to various support and policies by the Japanese government. Representative policies include: active use of ODA to support local companies to reduce service linkage costs, improve location comparison advantages, build production networks, etc.; supporting industrial development and private sectors in developing countries; developing and supporting human resources development and technology transfer; identifying and addressing difficulties for local Japanese companies, including the establishment of GVCs.
   Finally, in Chapter 7, we present policy implications for expanding and upgrading Korea's trade in the value chain. First, three policy directions are presented. ① In terms of GVC construction direction, the production network and GVC should be expanded in the New Southern Region. This is accompanied by an increase in Korea's exports of intermediate goods, components, and materials for local production, and furthermore, Korea imports these intermediate goods and final goods which are produced in the New Southern Region, leading to increased trade. ② In the case of the production network and the GVC expansion method, it is first necessary to diversify the GVC base currently concentrated in Vietnam to India, Indonesia and Thailand. In addition, value chains should be upgraded and differentiated in the New Southern Region. In Vietnam, Korea's main production network and GVC base in ASEAN, Korea should expand to other industries such as chemicals and automobiles in addition to the electronics industry. In the case of labor-intensive industries, it is necessary to induce relocation to neighboring countries such as Cambodia and Myanmar, where labor costs are relatively low. This could be a Vietnam + 1 strategy. In addition, it is necessary to expand the GVC centering on the electronic, petrochemical and automotive sectors, which Korea has strength in the New Southern Region, and to expand and strengthen the regional linkage of the GVC. ③ When expanding investment in the New Southern Region to strengthen GVC, it is necessary to select investment sectors and support these sectors in consideration of Korea's comparative advantage, participation in the local value chain, local GVC-related policies and industrial demand.
   Next, we propose some policy measures to achieve this policy direction. First, ODA should be strategically used to foster local infrastructure, industrial complexes development, and training high-tech workers. Next, trade and investment agencies such as KOTRA and the Korea International Trade Association need to strengthen their GVC consulting capabilities for local Korean companies. And bilateral and multilateral FTAs, which are effective in expanding and upgrading trade, should be expanded, and FTAs already signed will need to be upgraded. In addition, it is necessary to strengthen the mechanisms for investigating and discovering and identifying the overall difficulties, including the establishment of GVCs by local Korean companies.