Transcript IT Investments in South Korea Tamara Froese Wendy Palmer Ramprasad Suribhotla

IT Investments in South Korea
Tamara Froese
Wendy Palmer
Ramprasad Suribhotla
John Lang
Lesley Cook
1
South Korea
Agenda
Overview
History
Geography
South Korea vs. Hong Kong
Culture and Business
Government
IT Industry
Economy
IT Financing
SWOT Analysis
Recommendation
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South Korea
Overview
 Grown to become one of the developing
world’s biggest success stories from a
devastated, agrarian economy in the 1950’s
 Exports are strong along with recovery
from the recent Asian crisis
 Business environment is dominated by
chaebol – large conglomerates that set the
tone nationwide
 Chaebol seems to be in decline – example
is crisis at Daewoo
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South Korea
Overview
 History of protectionism in business,
favoring domestic competitors at the
expense of outsiders
 Rising standard of living is erasing the
low-wage advantage that enabled it to rapidly
develop
 Seeking to focus on higher value products
in order to compete in the global economy
4
South Korea
History
 Modern history begins with annexation by
Japan in 1910.
 Korea was treated as a de facto colony of
Japan – creation of basic infrastructure.
 Korean population was basically
subservient to the Japanese, who occupied
the top technical and government positions.
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South Korea
History
 American confiscation and re-distribution
of Japanese holdings back to Koreans after
WW II.
 Influx of refugees from North Korea and
China
 Emergence of the military as an important
element of South Korean society.
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South Korea
Geography
 Korean peninsula extends
1000km from Asian peninsula –
roughly the size of Minnesota
 Bounded by Yellow Sea and
Sea of Japan
 South Korea is approximately
the size of Indiana
 Border with North Korea is the
Demilitarized Zone – 38th parallel
 A narrow, heavily guarded
strip of land that marks a cease
– fire line
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IT Geographics
Industrial Clusters
 Geographic concentrations of companies,
colleges, research labs
 Goal is to achieve synergy by sharing
technologies, human resources and
information
Types:
Academia – led
Company-led
Local Community
Silicon Valley
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IT Geographics
Locations of Industrial Clusters in South Korea
Ulsan – Automobile (Hyundai)
DaeDeok Valley- Academia
Inchon/Seoul –Community
DaeDeok 21st Century – The New
Silicon Valley
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IT Geographics
DaeDeok Valley
 Began in 1973 as an R&D town, renamed to
resemble Silicon Valley in 1998
 String of industrial complexes has become
Korea’s foremost incubator of venture firms
 Korean-American IT Forum established to
share information on IT technology and
market trends
 Efforts to expand American investment in
the Valley and marketing opportunities for its
products in the US
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IT Geographics
DaeDeok Valley
 Central location makes it easily accessible,
with access to airports, highways, and rail
 Over 200 startups in 2001
 Over 700 companies by mid-2004
 IBM Supercomputing Technology Support
Center in the area
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Comparison South Korea with Hong Kong
South Korea
Hong Kong
Population
48.5 Mil(2004)
6.85 Mil (2004)
Median Age
Male – 32.8 yrs
Female – 34.7 yrs
Male – 39.3 yrs
Female – 39.6 yrs
Languages
Korean, English – widely taught in
school
Chinese (Cantonese), English – both
are official
Ethnicity
Homogeneous (except 20,000
Chinese)
Chinese – 95%, Others – 5%
Religion
Christian – 26%, Buddhist – 26%,
Confucianism – 1%, Other – 1%
and No Affiliation – 46%
Mixture of Local religion – 90%,
Christian – 10%
Literacy
97.9%
93.5%
Government Type
Republic
Limited Democracy
Legal System
European Civil Law Systems,
Anglo-American Law and Chinese
Classical Thought
Based on English Common Law
Nationality
Korean
Chinese (Chinese 95%, other -5%
GDP (Purchasing Power Parity)
USD 857.8 Billion (2003)
USD 213 Billion (2003)
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Comparison South Korea with Hong Kong
South Korea
Hong Kong
GDP per capita
USD 17,800
USD 28,800
Gini Index
31.6 (1993)
NA
Unemployment Rate
3.4% (2003)
7.9% (2003)
Industries
Electronics, telecommunication,
automobiles, chemical, ship
building and steel
Textile, clothing, tourism, banking,
shipping, electronics, plastics,
watches, toys and clocks
Industrial Production Growth Rate
5.1% (2003)
-9.2% (2003)
Currency
South Korean Won (KRW)
I USD = 1,191.6 KRW (2003)
Hong Kong Dollar
1 USD = 7.7868 HKD (2003)
Telephones – Main Lines
Mobile Cellular
22.87 Mil (2003)
33.6 Mil 92003)
3.81 Mil (2003)
7.25 Mil (2003)
Internet Users
Internet Hosts
29.22 Mil (2003)
0.69 Mil (2001)
3.21 Mil (2003)
0.59 Mil (2003)
Airports
102 (2003)
4 (2003)
GDP- Real Growth Rate
5.8%
0.0%
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South Korea
Level of
Economic
Growth
Political
System
Key MIS
Management
Issues
Multinational
Business and
IT Strategy
Culture
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South Korea
Culture and Business
 Homogenous population with a common
cultural and ethnic heritage
 Strong nationalism and sense of discipline
reflects years of subordination to foreign
nations
 South Koreans view themselves as a
tightly knit national community with a
common destiny
 Group cohesion is very important
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South Korea
Culture and Business
 While Americans are looked up to, Korean
management style is quite different
 More highly formal – not always as
competent
 Korean managers are usually hesitant
about reporting upward
 Decision making power is guarded
 Smaller organizations usually have only
one decision maker
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South Korea
Culture and Business
 Koreans are extremely polite, friendly, and
formal in their business dealings
 Losing Face, a measure of dignity, is
crucial to Koreans, as in other Asian cultures
 This can instantly destroy business
relationships. Avoidance of criticism in the
presence of others is crucial
 Koreans bow to each other, shake hands
with foreigners
 Business cards are important!
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National IT Policies
Government Emphasis
 Privatization and deregulation of
telecommunication industry resulted in
structural changes throughout technology
 Establishment of the broadband
communication network caused widespread
information throughout public sector
 Government emphasis of the importance
of R&D and IT training programs
 Active nurturing of IT venture companies
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IT Industry
 Since the 1990’s government concentrating on 3
areas to increase South Korea’s technological
competitiveness:
• Fostering of research in basic sciences
• Securing efficient distribution and use of R&D resources
• Expanding international cooperation
 In 1999 South Korea envisioned itself to become
one of Top 7 technologically advanced nations by
Q1 21st century
 End of 2002 total R&D investment accounted for
3% of GDP
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Telecommunications Industry
 Developed in the 1980’s
 Throughout 1990’s full-blown competition in the
voice services market
 New millennium brought emergence of data
services
 Industry is significantly liberalized already
• Cost of telecommuting decreasing
 As of 2003, nearly 23 million telephone main lines
in use
• Nearly every household has a telephone
 33 million+ mobile phone subscribers
• Provide data, wireless internet, and video streaming
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Computing and Internet Diffusion
 IT industry has developed rapidly with
supervision of a proactive government
 Approximately half of population is connected to
the Internet
• Majority enjoy high-speed access at relatively low costs
 Increasing number of Koreans using computerrelated communications, on-line services, and the
Internet
1995
2002
On-line service
subscribers
718,000
17,000,000
Internet users
366,000
26,300,000
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IT Industry (cont.)
 Government recognized need for a networked society
 Launched a plan to build an information super-highway in
1995
• Stage 1 - 1997
• Stage 2 - 2000
 South Korea now possesses a high-speed network
infrastructure that offers high-quality data services
nationwide
 Positioned as one of the world’s “10 Most Advanced
Countries” in terms of information networks
 Number one country worldwide in terms of broadband
Internet penetration and utilization
• 10 million+ subscribers
 Broadband Internet use and expansion will enhance the
quality of life for people.
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Economy
Economy Overview
 An impressive level of growth and
integration into the high-tech modern
economy
 GDP in early 1960’s was roughly equal to
poorer countries such as those in Asia or
Africa
 Today it is nearly equal to lesser
economies of the EU in GDP per capita
 Near the top ten of the world’s largest
economies
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Economy
Business Opportunities
 Automotive – parts and service equipment
 Computer – hardware, software and
peripherals
 Electronic and Telecom equipment
 Machine tools and metalworking
 Medical and laboratory equipment
 Food processing and packaging
 Steel and Shipbuilding
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Economy
Major Economic Indicators
South Korea’s GDP growth in 2003 was 6.0%
compared to Hong Kong’s 4.8% growth rate
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Economy
IT Production Growth
IT Production has increased from 76 trillion won in
1997 to 189 trillion won in 2002
IT Production share of GDP has also increased from
8.6% in 1997 to 14.9% in 2002
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Economy
E-Commerce
The Korean e-commerce market is
approximately $44 billion USD
 South Koreans spent more than $1.6
billion shopping online in the first qtr 2004
 This is twice the per capita online spend of
US residents
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Economy
E-Commerce
 The South Korean B2B market is 89.8% of
total E-Commerce transactions
 The US B2B market is 93% of the total Ecommerce transactions in the US
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Economy
IT Workforce
 Total number of workers in IT industry is
1,163,000 (5.4% of total workforce)
 Compared to Hong Kong/US
 Government expects a continuous growth
of 4.4% to reach a total of 1.4 million by 2006
(6.3% of total workforce)
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Economy
IT Workforce
 Highest rate of growth is in computer
professionals, electronic and telecommunication
technicians, and other IT administrative jobs
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Economy
Effect of IT on Foreign Trade
Korean IT Industry's Imports/Exports
IT industry exports have increased from $313
billion USD in 1997 to $463 billion USD in 2002
This is almost 30% of total exports for South Korea
Major IT exports include semiconductors, mobile
handsets, and LCD panels
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IT Financing
•Financial Resources for IT Companies - KOSDAQ
•KOSDAQ benchmarking NASDAQ in U.S
•Used for initial public offering of high tech startup companies
•Less restrictions and lower entry/exit barriers than standard
Korean Stock Exchange Market
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IT Financing
•Financial Resources for IT Companies – Venture Capital
•Venture Capital Industry formed in early 1980s
•KOSDAQ opened up new opportunity for investments
•Less restrictions and lower entry/exit barriers than standard
Korean Stock Exchange Market
•Financial Resources for IT Companies – FDI
•After 1997 financial crisis, the Korean government initiated tax
reduction measures for high-tech and service business to cope
with economic recession
•Rent reduction policy also underway in industrial complex
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IT Financing
•Financial Resources for IT Companies – FDI
•Less restrictions and lower entry/exit barriers than standard
Korean Stock Exchange Market
•Currently, there is no limitation on foreign ownership and
value-added telecommunication service provider
•No foreign ownership limitation on IT equipment and software
business
Direct Foreign Investment from
1997 - 2000
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IT Strengths -Competitive Advantage
IT Financing
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South Korea IT Weaknesses
 Continuous shortage of IT human resources
 Level of IT workforce little bit higher than other Asian
nations – result in relocation of manufactories
 Software piracy is around 50%, compared to 24% in
U.S (2002) - discourage the development of domestic
software and foreign investment on the industry
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South Korea IT Weaknesses
FDI into Korea is still minimal
Despite favorable business environment of IT industry,
foreign companies hesitate due to economic crisis in
1997 and 1998
 Lack of core competency, higher entry barriers or high
production cost for market expansion
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South Korea IT Opportunities
 IT Clusters / IT Education
Increased Demand for High Level Technology
 E-Business Development Pointers
 IT Service Companies and Software Development
 IT Equipment Manufacturing
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South Korea IT Threats
 Korean government procurement law favors domestic
over foreign suppliers
 Foreign access to real estate controlled through the
Alien Land Acquisition Act
 Korean regulatory environment is difficult for domestic
firms to work and even greater to foreign firms
 Chaebols insistent on operating a joint venture in
accordance with the overall policies and business
culture of the group
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SWOT Impact on IT Industry
Impact on Telecommunication/e-commerce industry
 Korean telecommunication market is fully de-regulated and
privatized, will encourage market players to offer better product
at lower prices through technology and re-engineering of
business model
 Internet usage expands to shopping, entertainments through
multimedia or gaming.
 Privacy protection and protection from fraud should be
strengthened for e-Commerce industry, increase the usage in
B2C and B2B market
 The enforced policies and government efforts to protect
intellectual property right will have impact on overall content
provider market
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Contd..
SWOT Impact on IT Industry
Impact on Hardware Industry
 Korea positioned itself as leading nation in terms
of semiconductor, mobile phones and LCD markets
 Shortage of IT human resource and higher cost of
labor force may force hardware manufacturers to
move other nations like China and Malaysia
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Contd..
SWOT Impact on IT Industry
Impact on Software Industry
 IT professionals with IT cluster to share knowledge
and information and commercialize eventually, will
facilitate the development of software
 Foreign Investment through either IT cluster or
joint venture with domestic firms may pull the
software industry to global level
 The enforced policies and government efforts to
protect Intellectual Property Right will encourage
domestic development of software and foreign
investment
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IT Investment Recommendation
Is Investment in the IT Industry in South Korea
Recommended?
IT Industry
Telecommunication/e-commerce industry
Hardware Industry
Software Industry
Component Industry
IT Investment Recommended
Yes
Yes
Yes
Yes
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Framework of IT led Development
Industrial
Policy
Environmental
Factors
Political, Social
and Economic
Environment
Education & Skills
Technology Policy
Infrastructure
IT Diffusion
Industry
Structure
IT Production
and Use
Economic
Payoffs
Employment,
Productivity and
Economic Growth
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South Korea
Back-Up Material
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Sources
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http://www.cia.gov/cia/publications/factbook
http://www.american.edu/carmel/jw6194a/Korea_files/software.htm
http://www.american.edu/initeb/cc9979a/hongkong.htm
http://geography.about.com/library/cia/blcsouthkorea.htm
http://www.state.gov/www/background_notes/southkorea_0006_bgn.html
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