ISSUE The localization rate of materials, parts, and equipment in South Korea are in the mid-60%.

Last year, export regulations on semiconductor materials were an issue in South Korea. Voices were raised on the importance of localizing related technologies. Since the materials, parts, and equipment needed for manufacturing weren’t localized enough, the sudden regulations imposed a challenge. Luckily, however, the event did not escalate into a crisis and did not cause as much damage as expected because Korean companies quickly jumped into handling the situation. The large companies of the manufacturing industry had the technology, and SMEs — aka Hidden Champions — supported them. The key was the cooperation between large companies and SMEs.

However, it is known that SMEs in Korea are generally not competitive in technology. According to the 2018 Survey on Korea Federation of SMEs, the technology of Korean SMEs is 1.9 years behind the U.S., 1.8 years behind Japan, and 1.6 years behind Germany, but estimated to be 2.7 years ahead of China. The technology gap with major countries affects the survival of SMEs themselves. However, it is also a threat that can adversely affect the entire industrial ecosystem of Korea, including large companies, in a chain reaction.

As mentioned in [Corporate Citizen POSCO’s SOLUTION Part 2] “Sharing Competitiveness, Sharing Growth,” polarization between large companies and SMEs is deepening, and cooperation is required for the industrial ecosystem.

SMEs need support from large companies, and large companies need the expertise of SMEs. Building an industrial ecosystem where all parties can coexist would be a way to cope with the rapidly changing business environment.

SOLUTION POSCO Presents “Benefit Sharing”

The Korean government is operating a “Benefit Sharing” system as a support program to create an industrial ecosystem where large companies and SMEs coexist. Actually, POSCO had first introduced the “Benefit Sharing” system in Korea in 2004. The system is one of POSCO’s seven major shared growth programs, which is about carrying out improvement tasks together with SMEs and sharing the achieved benefit. This in-house system was acknowledged as a successful business model and has spread to the entire industry.

Through the Benefit Sharing system, SMEs get the opportunity to stabilize supply and increase sales while focusing on technology development. On the other hand, large companies can attain competitiveness, such as improving product quality, through the expertise of SMEs. This has proved to be of advantage to both large companies and SMEs since their coexistence fosters each other’s competitiveness as well. Especially this year, POSCO has branded its shared growth program named “Change Up Together,” and is expanding support for its overall shared growth programs, including the benefit sharing system.

Task Performance Process Any POSCO employee or employee of suppliers is free to propose improvement tasks. The following five stages are carried out in order: Task selection, task performance, task evaluation, performance benefit, and monitoring. The entire process is operated transparently through a specialized system. (See the process of the Benefit Sharing system)

In the early stages of the operation, the concerning department differed from one task to another, making it inefficient to carry out the tasks. However, as of present, a unified department in charge of operation has enabled a one-stop service — from task selection to benefit sharing — eliminating the inconvenience of the past. Also, POSCO is implementing a non-financial model that carries out tasks that are difficult to quantify, such as tasks concerning safety and the environment.

As of last year, POSCO recorded a high localization rate of about 90%, which can be said to be the result of its long-term benefit sharing activities. It is a result achieved by integrating the technology of SMEs into specialized fields that were difficult for POSCO to improve on its own.

Task Evaluation & Benefit Recently, POSCO has upgraded the benefit sharing system by strengthening the benefit for successful tasks. It provides various incentives, such as rewarding 50% of the financial performance in cash or signing a long-term supply right for the solution. It has also sought to reduce the burden of SMEs with a new measure that compensates at least 50% of the task cost even if the task turns out to be inadequate.

In 2019, POSCO carried out a total of 174 tasks and rewarded 42.9 billion KRW for completed tasks. Since introducing the benefit sharing system in 2004, the company has operated 4,916 accumulated number of tasks, and accumulated shared benefits reach 552.8 billion KRW.

Amidst the harsh times triggered by the COVID-19 pandemic, POSCO is striving to grow together with its customers, suppliers, and partner companies. The company will expand substantial performance benefits, extend the participation of companies that have no direct business with POSCO, and support channels for growth through joint development and technology sales. As a measure to expand and sustain its achievements, POSCO plans to maximize the shared growth value by applying technologies in similar processes as well.

Expanding the benefit sharing system isn’t a solution for the growth of POSCO, but one for the coexistence of large companies and SMEs in the industrial ecosystem as well. POSCO will continue to expand the benefit sharing system and create opportunities for talented SMEs to grow further.

※ Case Study of the Benefit Sharing System

Since 2014, sales of products combined with Solution Marketing have tripled, and sales of POSCO’s World Premium Products (WPP) have increased by 56 percent.

It Wasn’t Always Smooth Sailing

When the 2008 global financial crisis hit, the global economy as a whole suffered. The steel industry experienced stagnant growth, even in its subsequent recovery. From 2012 to 2016, annual steel sales remained fixed at 35 million tons.

The 2008 Financial Crisis was felt in markets all over the world. (Source: South China Morning Post)

The main culprit for the slow recovery was overproduction, mostly from the heavily-subsidized Chinese steel industry. Between 2000 and 2014, steel production doubled from 800 million to 1.6 billion tons, exceeding the global demand for steel by 100 million tons.

As a result, steel markets around the world saw prices falling, layoffs and steel mill closures.

SEE ALSO: Asian Steel Watch: Megatrends Shaping the Future of the Steel Industry

A Strategy for Success

In order to stay competitive in a stagnant market, POSCO made the decision to focus on Solution Marketing and the sales of its World Premium Products (WPP) such as POSCO GIGA STEEL for cars and PosMAC for solar panels.

Solution Marketing involves hyper-customization for POSCO’s partners to deliver optimal material solutions for their products. Some notable projects this year have been with automakers GM Korea and Ssangyong Motors for the launch of their new models made of POSCO GIGA STEEL. POSCO gave them full support from development and R&D to testing and post-production evaluations, redefining the role of a steel supplier.

GM Korea and POSCO worked together to incorporate POSCO GIGA STEEL into the 2017 All New Chevy Cruze. (Source: GM Korea)

As a result, POSCO’s operating profit margin (individual basis) was 10.8 percent in 2016, making it one of the highest performing steel companies in the world. Its recovery and growth continued into 2017.

SEE ALSO: 6 Reasons Why POSCO GIGA STEEL is Ideal for Automakers

Cultivating the Industry

Following its continued success with Solution Marketing, POSCO is now determined to share its insights and technology with up and coming small and medium-sized enterprises (SMEs). POSCO has completed 32 shared-growth projects through which they work with SMEs to develop ways to cut costs, improve the quality of their work, provide financial assistance and education and training.

One of the most recent projects for shared growth is a collaborative business model called “System Construction” that provides a framework for effective technical cooperation among POSCO’s partners in the construction industry. The model was developed jointly with NI Steel and entails systemizing composite materials such as beams, floor decks, exterior panels and roofing materials, all based on joint R&D from both parties.

Under System Construction, workers from various sectors come together for joint development.

POSCO is continuing its efforts to advance its competitiveness by providing material and technical solutions to its partners, and along the way, fostering the growth of SMEs in various industries to ensure a more stable and robust economy.

As many as 700 people attended the forum including POSCO Group affiliate employees, as well as those of POSCO’s major suppliers, outsourcing partners and AI-related professors. Notably, employees from Nastech and Korinox, where POSCO is carrying out smart factory support projects, participated as well.

POSCO CEO Ohjoon Kwon watching a presentation at the forum

“POSCO must continue to take up the challenge of implementing a smart POSCO in preparation for the dawning of the 4th Industrial Revolution. We will apply smart technologies to all processes of the steel mills, as well as to management areas such as finance, HR and purchasing to realize the concept of smart management,” stated POSCO CEO Ohjoon Kwon. “We will actively share the results of POSCO’s smartization process with our group affiliates and customers.”

Mi-hwa Park, head of the POSCO Information Planning Department added, “To realize a smart POSCO, we started the Smart Solution Council headed by our CEO last year, and identified 141 smart projects which applied Big Data and AI to solve practical problems. Approximately 600 employees participated in the projects and reduced costs by KRW 15.7 billion.” She added, “We will develop a POSCO-style SME smart factory model to support innovations for the manufacturing sites of our SME customers and suppliers. Furthermore, we will contribute to fostering SMEs and creating jobs by providing a lighter version of the PosFrame, developed by POSCO, as a customized smart platform for SMEs.”

POSCO CEO Ohjoon Kwon with the excellence award recipients

POSCO also recognized projects that applied Big Data and AI, for excellence in the steel production category. Out of the four, one improved the flatness of steel sheets and another provided improved technology for slab production. The “3D-based design/construction quality improvement” project that uses POSCO E&C’s Virtual Construction to predict risks, and the “power generation output through condenser performance diagnostics” project that can accurately detect errors in POSCO Energy’s power plants were also among those selected.

Forum participants were given an opportunity to experience POSCO’s smart solution platform PosFrame firsthand. PosFrame combines operational insights and IT technology to collect Big Data as well as process and monitor data in a way that allows participants to experience the reality of “Smart POSCO.” It was one of the most popular features of the forum among participants.

POSCO CEO Ohjoon Kwon looking at a PosFrame platform

POSCO also announced its plan to standardize the technologies and processes developed through smart projects, turn them into a technical package and actively incorporate them into its “Smart Solution” business to create added value.

Ki-won Na, CEO of Shinheung Automotive Co., Ltd., an automotive parts maker, said, “We received a lot of ideas applicable to our operations from the case studies presented today, and if we learn about POSCO’s Big Data analysis and utilization techniques in more detail and apply them, I expect it will greatly contribute to improving our productivity.”

POSCO joined hands with POSTECH to launch an advanced AI course earlier this year and is currently training 25 internal AI experts so that they can apply their AI knowledge in their field to solve problems and thus lead the way for a smart POSCO.

Also, POSCO has begun providing free AI education to young, underprivileged jobseekers in July and is now training 100 youths per year on both theoretical and practical knowledge. POSCO is also planning to support the customized SME smart talent development project, including practical education on AI and Big Data skills, for its customers and suppliers.

POSCO is actively planning to complete its smartization, meaning it will apply its “Smart Factory” to all processes of the steel mills, and carry out its “Smart Solution” business, which combines POSCO’s product technologies and services with smart technologies.

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On June 30, NCCP Chairman Ahn Chung Young announced the evaluation results for 2014 at its 35^th general meeting at Seoul Palace Hotel.

The evaluation is divided into four grades; best, excellent, satisfactory and fair. One hundred twelve major companies which have great economic influence, according to business type and of impact of shared growth among the top 450 major companies in terms of sales, were assessed. The value of shared growth indexes is quantified by evaluating the shared growth levels of major companies in order to create fair trade and a culture of shared growth among major companies and SMEs.

Only 19 companies, including POSCO, were awarded the highest grade, 37 companies were awarded an excellent grade, 42 companies, including POSCO E&C, received a satisfactory grade and the remaining 14 companies received a fair grade.

Companies who achieve the highest grade receive benefits for one year with the Fair Trade Commission, Ministry of Trade, Industry and Energy, Public Procurement Service and National Tax Service.

POSCO won additional accolades and was selected as one of “The Most Honorable Company” recipients. It has secured this title for three consecutive years along with Samsung Electronics, Hyundai Mipo Dockyard, SK Global Chemicals and SK Telecom. This honor means being recognized as having earned the highest grade and be given the same incentives as the highest grade for an additional year, even in the case of receiving an excellent grade next year.

POSCO will develop “Creating Shared Value” (CSV) programs and policies which promote ways to achieve sustainable partnerships with cooperating companies and plans to continue operating as an exemplary company of shared growth by actively promoting these programs.

On October 15, OECD and the Ministry of Employment and Labor co-hosted a conference on ‘Employment and Skills Strategies’ in Korea. At the conference, POSCO announced a report on its management result and the best practice cases of POSCO’s National Human Resource Development (HRD) Business, under the title of ‘Mutual Growth Through Talents Cultivation for Small and Medium-sized Enterprises (SMEs)’. As POSCO continues its history of being nominated as the Best Consortium Education Institution and the chair of the Council for Shared Growth Human Resources Training for seven consecutive years, we would like to introduce you today about what POSCO is offering for the National HRD Consortium Business.

National Human Resource Development (HRD) Consortium Business
As a crucial company that has been influencing the national economy since the 1960s, POSCO has been conducting its social responsibility by responding to the government’ request on Korea’s human resource development and SME cultivation with HRD Consortium department starting from 2005. The National HRD Consortium Business is a platform that major companies with excellent education infrastructure supply free trainings for employees of SMEs that are relatively short in learning opportunities. As an exchange, the government provides partial expenses to the major companies that operate the National HRD Consortium Business. With outstanding education content, the latest facilities and the 40 years of know-how, POSCO has been leading the nationwide consortium business.

Training Curriculum: From Recruitment to Retirement
Currently, POSCO is providing total 130 courses under the categories of technology, safety, IT, and ethics. Customized for each trainee companies, the courses provide a wide range of lectures from technical education for newcomers to E-MBA curriculum for executive members and even ‘Green Life Design’ program for prospective retirees.

Methodical Development of Talents for SMEs
Not only are the education trainings provided but also education consulting, systematic on-the-job training, learning systematization and many more programs are offered in order to implement appropriate solutions to reinforce the trainee company’s competence. The ‘S-On-the-Job Training’ is a program that supports systematic skill development, especially the program focuses on each corporation’s own necessity at the site. Also, the learning systematization is a business model that is designed to share the practical knowledge and know-hows that only the on-site workers could possess. Through these training programs, POSCO supports its hundreds of trainees to learn essential techniques and progress autonomously as they return to their work fields.

Cultivating Professional Talents and Field Oriented Skills

The ‘Corporation University’ and ‘Work·Study Parallel System’ have been operating since their launch this year. A long-term curriculum for prospective hires or current employees, the ‘Corporation University’ curriculum even supports those without undergraduate degrees in order to nurture them as highly skilled professionals through intensive technique trainings. The ‘Work·Study Parallel System’ is a government program created in 2013 for corporations to hire job applicants as learning employees in order to systematically train the requisite talents for the corporation. After completing 1~4 years of the training programs and assessment process, the learning employees are translated into full-time employees. With current registrations from 112 people of 21 partner companies, POSCO will develop curricular that are apt to each company’s demand and initiate the curricular starting next year.

Donghoo: The Best Practice Case of POSCO’s Human Resource Development (HRD) Business
Established in 2010, Donghoo was a start-up company that provides advanced steels for energy to POSCO. To produce these steel products, craftsmanship and technical skills are essential qualities for employees. However, due to the fact that 80% of their total employees are considered novice, stabilized operation of its factory seemed somewhat difficult. In order to amend the condition, Donghoo participated in the POSCO’s HRD Consortium Business. Their newcomers started with POSCO’s 3 months program and continued to receive organized education to advance as professionals. Donghoo’s consistent endeavor on education evidently appeared as an apparent growth in their management index. In addition, the training programs have granted faith and confidence, which are much more valuable asset to Donghoo. According to Kim Yong-soo, the CEO of Donghoo, they will continue to actively utilize the curriculums of the HRD Consortium in the future for further progress.

Since POSCO is fulfilling its social responsibility and SMEs are learning beneficial trainings without any cost, the HRD Consortium is truly an innovative and productive system that seems to be critical to building national competence in the future. As the Best Practice organization of the National HRD Consortium, POSCO will continue its role as an educational infrastructure that contributes to consistent and shared growth of the 21^st century.