South Korea Repositions Public Procurement as Industrial Strategy Tool
South Korea's Public Procurement Service is redirecting how the government spends roughly 225 trillion won ($160 billion) annually - about 9 percent of GDP - away from simple cost-cutting toward deliberate support for AI, robotics and climate technologies. The shift reflects a broader recognition that government purchasing power can shape which industries survive and which ones scale.
Baek Seung-bo, the agency's chief, said the change is necessary because markets have changed. "Public procurement must evolve with the economy," he said. "It is no longer just about buying goods efficiently - it is about using government purchasing power to support innovation, strengthen supply chains and create new markets."
From purchasing to policy
Procurement has traditionally focused on getting goods and services at the lowest price while maintaining fairness. That remains true, but the mandate is expanding. Supply chain disruptions and geopolitical tension have made procurement a visible policy lever.
The agency now uses what it calls "strategic procurement" - deliberately buying products to support national priorities like carbon neutrality and industrial competitiveness. The shift is particularly visible in how the government now acts as a first buyer for unproven technologies.
How innovation procurement works
Under "innovation procurement," the government purchases early-stage products and lets public institutions test them in real conditions. Companies get performance data and feedback to refine their technology and build credibility before entering the broader market.
Public purchases of innovative products grew from about 400 billion won in 2020 to more than 1 trillion won in 2024. One example: floor-mounted pedestrian signals, once designated as innovative, reduced accidents by 40 percent within five years and created a market worth more than 700 billion won.
"It creates a virtuous circle," Baek said. "Companies improve their technology, build credibility and then expand into the broader market."
AI becomes the priority
The government plans to make AI the centerpiece of its next procurement push. Officials see AI adoption across public services as both a way to improve government operations and to support domestic AI developers against global competition.
The agency will introduce a dedicated evaluation track for AI products that accounts for reliability, model performance and risk management - categories that don't fit traditional procurement scoring. It's also lowering barriers for AI firms by simplifying registration on the government's procurement platform and offering preferential bidding treatment.
Separately, the agency is using AI tools within procurement itself - analyzing prices, evaluating bids, managing contracts and monitoring supply chains. The goal is to make decisions faster in complex environments, not just to cut staff costs.
Rules are being rewritten
Under a program called "Procurement Reboot," the agency is reviewing dozens of rules that have governed the sector for years. Many have become outdated.
One significant change gives local governments more autonomy. Until now, they were required to buy many goods through centrally managed contracts. The reform lets them choose between centralized and independent procurement based on what offers better value.
The change is expected to increase competition and efficiency, but officials acknowledge risks: excessive price-cutting and reduced opportunities for small businesses. The agency plans to roll out the reform in phases with safeguards including stricter oversight and transparency requirements.
Balancing multiple goals
Despite the push toward strategy and innovation, officials say fairness, transparency and quality remain non-negotiable. Baek said trust is the foundation of the system.
At the same time, procurement is being used to support carbon reduction, job creation and assistance for small and disadvantaged businesses. The challenge is meeting these multiple objectives without sacrificing efficiency.
For government professionals managing procurement decisions, understanding how these shifts affect your operations is increasingly important. AI Learning Path for Procurement Specialists covers how AI tools are changing the procurement process itself, while AI for Government addresses broader applications across public sector work.
Your membership also unlocks:
