1 tamara froese wendy palmer ramprasad suribhotla john lang lesley cook it investments in south...

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Tamara FroeseWendy Palmer

Ramprasad SuribhotlaJohn Lang

Lesley Cook

IT Investments in South KoreaIT Investments in South Korea

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South KoreaSouth Korea

AgendaAgendaOverviewOverviewHistoryHistoryGeographyGeographySouth Korea vs. Hong KongSouth Korea vs. Hong KongCulture and BusinessCulture and BusinessGovernmentGovernmentIT IndustryIT IndustryEconomyEconomyIT FinancingIT FinancingSWOT AnalysisSWOT AnalysisRecommendationRecommendation

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Grown to become one of the developing Grown to become one of the developing world’s biggest success stories from a world’s biggest success stories from a devastated, agrarian economy in the 1950’sdevastated, agrarian economy in the 1950’s

Exports are strong along with recovery Exports are strong along with recovery from the recent Asian crisisfrom the recent Asian crisis

Business environment is dominated by Business environment is dominated by chaebolchaebol – large conglomerates that set the – large conglomerates that set the tone nationwidetone nationwide

Chaebol seems to be in decline – example Chaebol seems to be in decline – example is crisis at Daewoois crisis at Daewoo

OverviewOverview

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History of protectionism in business, History of protectionism in business, favoring domestic competitors at the favoring domestic competitors at the expense of outsidersexpense of outsiders

Rising standard of living is erasing the Rising standard of living is erasing the low-wage advantage that enabled it to rapidly low-wage advantage that enabled it to rapidly developdevelop

Seeking to focus on higher value products Seeking to focus on higher value products in order to compete in the global economyin order to compete in the global economy

OverviewOverview

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Modern history begins with annexation by Modern history begins with annexation by Japan in 1910.Japan in 1910.

Korea was treated as a de facto colony of Korea was treated as a de facto colony of Japan – creation of basic infrastructure.Japan – creation of basic infrastructure.

Korean population was basically Korean population was basically subservient to the Japanese, who occupied subservient to the Japanese, who occupied the top technical and government positions.the top technical and government positions.

HistoryHistory

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American confiscation and re-distribution American confiscation and re-distribution of Japanese holdings back to Koreans after of Japanese holdings back to Koreans after WW II.WW II.

Influx of refugees from North Korea and Influx of refugees from North Korea and ChinaChina

Emergence of the military as an important Emergence of the military as an important element of South Korean society.element of South Korean society.

HistoryHistory

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Korean peninsula extends Korean peninsula extends 1000km from Asian peninsula – 1000km from Asian peninsula – roughly the size of Minnesotaroughly the size of Minnesota

Bounded by Yellow Sea and Bounded by Yellow Sea and Sea of JapanSea of Japan

South Korea is approximately South Korea is approximately the size of Indianathe size of Indiana

Border with North Korea is the Border with North Korea is the Demilitarized Zone – 38Demilitarized Zone – 38thth parallel parallel

A narrow, heavily guarded A narrow, heavily guarded strip of land that marks a cease strip of land that marks a cease – fire line– fire line

GeographyGeography

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IT GeographicsIT Geographics

Geographic concentrations of companies, Geographic concentrations of companies, colleges, research labscolleges, research labs

Goal is to achieve synergy by sharing Goal is to achieve synergy by sharing technologies, human resources and technologies, human resources and informationinformation

Types:Types:

Academia – ledAcademia – led Company-ledCompany-led

Local CommunityLocal Community Silicon ValleySilicon Valley

Industrial ClustersIndustrial Clusters

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IT GeographicsIT GeographicsLocations of Industrial Clusters in South KoreaLocations 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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Began in 1973 as an R&D town, renamed to Began in 1973 as an R&D town, renamed to resemble Silicon Valley in 1998resemble Silicon Valley in 1998

String of industrial complexes has become String of industrial complexes has become Korea’s foremost incubator of venture firmsKorea’s foremost incubator of venture firms

Korean-American IT Forum established to Korean-American IT Forum established to share information on IT technology and share information on IT technology and market trendsmarket trends

Efforts to expand American investment in Efforts to expand American investment in the Valley and marketing opportunities for its the Valley and marketing opportunities for its products in the USproducts in the US

DaeDeok ValleyDaeDeok Valley

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Central location makes it easily accessible, Central location makes it easily accessible, with access to airports, highways, and railwith access to airports, highways, and rail

Over 200 startups in 2001Over 200 startups in 2001

Over 700 companies by mid-2004Over 700 companies by mid-2004

IBM Supercomputing Technology Support IBM Supercomputing Technology Support Center in the areaCenter in the area

DaeDeok ValleyDaeDeok Valley

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Comparison South Korea with Hong Kong Comparison South Korea with Hong Kong

South Korea Hong KongPopulation 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 KongComparison South Korea with Hong Kong

South Korea Hong KongGDP 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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Level of EconomicGrowth

Political System

Culture

Key MIS Management

Issues

MultinationalBusiness andIT Strategy

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Homogenous population with a common Homogenous population with a common cultural and ethnic heritagecultural and ethnic heritage

Strong nationalism and sense of discipline Strong nationalism and sense of discipline reflects years of subordination to foreign reflects years of subordination to foreign nationsnations

South Koreans view themselves as a South Koreans view themselves as a tightly knit national community with a tightly knit national community with a common destinycommon destiny

Group cohesion is very importantGroup cohesion is very important

Culture and BusinessCulture and Business

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While Americans are looked up to, Korean While Americans are looked up to, Korean management style is quite differentmanagement style is quite different

More highly formal – not always as More highly formal – not always as competentcompetent

Korean managers are usually hesitant Korean managers are usually hesitant about reporting upwardabout reporting upward

Decision making power is guardedDecision making power is guarded

Smaller organizations usually have only Smaller organizations usually have only one decision makerone decision maker


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Koreans are extremely polite, friendly, and Koreans are extremely polite, friendly, and formal in their business dealingsformal in their business dealings

Losing Face, a measure of dignity, is Losing Face, a measure of dignity, is crucial to Koreans, as in other Asian culturescrucial to Koreans, as in other Asian cultures

This can instantly destroy business This can instantly destroy business relationships. Avoidance of criticism in the relationships. Avoidance of criticism in the presence of others is crucialpresence of others is crucial

Koreans bow to each other, shake hands Koreans bow to each other, shake hands with foreignerswith foreigners

Business cards are important!Business cards are important!


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National IT PoliciesNational IT Policies

Privatization and deregulation of Privatization and deregulation of telecommunication industry resulted in telecommunication industry resulted in structural changes throughout technologystructural changes throughout technology

Establishment of the broadband Establishment of the broadband communication network caused widespread communication network caused widespread information throughout public sectorinformation throughout public sector

Government emphasis of the importance Government emphasis of the importance of R&D and IT training programsof R&D and IT training programs

Active nurturing of IT venture companiesActive nurturing of IT venture companies

Government EmphasisGovernment Emphasis

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IT IndustryIT 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 IndustryTelecommunications 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 DiffusionComputing 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 computer-related 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.)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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An impressive level of growth and An impressive level of growth and integration into the high-tech modern integration into the high-tech modern economyeconomy

GDP in early 1960’s was roughly equal to GDP in early 1960’s was roughly equal to poorer countries such as those in Asia or poorer countries such as those in Asia or AfricaAfrica

Today it is nearly equal to lesser Today it is nearly equal to lesser economies of the EU in GDP per capitaeconomies of the EU in GDP per capita

Near the top ten of the world’s largest Near the top ten of the world’s largest economieseconomies

Economy OverviewEconomy Overview

EconomyEconomy

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EconomyEconomy

Automotive – parts and service equipmentAutomotive – parts and service equipment

Computer – hardware, software and Computer – hardware, software and peripheralsperipherals

Electronic and Telecom equipmentElectronic and Telecom equipment

Machine tools and metalworkingMachine tools and metalworking

Medical and laboratory equipmentMedical and laboratory equipment

Food processing and packagingFood processing and packaging

Steel and ShipbuildingSteel and Shipbuilding

Business OpportunitiesBusiness Opportunities

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EconomyEconomy

Major Economic IndicatorsMajor 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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EconomyEconomy

IT Production GrowthIT 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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EconomyEconomy

The Korean e-commerce market is The Korean e-commerce market is approximately $44 billion USDapproximately $44 billion USD

South Koreans spent more than $1.6 South Koreans spent more than $1.6 billion shopping online in the first qtr 2004billion shopping online in the first qtr 2004

This is twice the per capita online spend of This is twice the per capita online spend of US residentsUS residents

E-CommerceE-Commerce

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EconomyEconomy

The South Korean B2B market is 89.8% of The South Korean B2B market is 89.8% of total E-Commerce transactionstotal E-Commerce transactions

The US B2B market is 93% of the total E-The US B2B market is 93% of the total E-commerce transactions in the UScommerce transactions in the US

E-CommerceE-Commerce

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EconomyEconomy

Total number of workers in IT industry is Total number of workers in IT industry is 1,163,000 (5.4% of total workforce)1,163,000 (5.4% of total workforce)

Compared to Hong Kong/USCompared to Hong Kong/US

Government expects a continuous growth Government expects a continuous growth of 4.4% to reach a total of 1.4 million by 2006 of 4.4% to reach a total of 1.4 million by 2006 (6.3% of total workforce)(6.3% of total workforce)

IT WorkforceIT Workforce

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EconomyEconomy

Highest rate of growth is in computer Highest rate of growth is in computer professionals, electronic and telecommunication professionals, electronic and telecommunication technicians, and other IT administrative jobstechnicians, and other IT administrative jobs

IT WorkforceIT Workforce

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EconomyEconomy

Effect of IT on Foreign TradeEffect of IT on Foreign TradeKorean 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 FinancingIT Financing

•KOSDAQ benchmarking NASDAQ in U.SKOSDAQ benchmarking NASDAQ in U.S

•Used for initial public offering of high tech startup companiesUsed for initial public offering of high tech startup companies

•Less restrictions and lower entry/exit barriers than standard Less restrictions and lower entry/exit barriers than standard Korean Stock Exchange MarketKorean Stock Exchange Market

•Financial Resources for IT Companies - KOSDAQFinancial Resources for IT Companies - KOSDAQ

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•Venture Capital Industry formed in early 1980sVenture Capital Industry formed in early 1980s

•KOSDAQ opened up new opportunity for investmentsKOSDAQ opened up new opportunity for investments


•Financial Resources for IT Companies – Venture CapitalFinancial Resources for IT Companies – Venture Capital

•After 1997 financial crisis, the Korean government initiated tax After 1997 financial crisis, the Korean government initiated tax reduction measures for high-tech and service business to cope reduction measures for high-tech and service business to cope with economic recessionwith economic recession•Rent reduction policy also underway in industrial complexRent reduction policy also underway in industrial complex

•Financial Resources for IT Companies – FDIFinancial Resources for IT Companies – FDI

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•Currently, there is no limitation on foreign ownership and Currently, there is no limitation on foreign ownership and value-added telecommunication service providervalue-added telecommunication service provider

•No foreign ownership limitation on IT equipment and software No foreign ownership limitation on IT equipment and software businessbusiness

•Financial Resources for IT Companies – FDIFinancial Resources for IT Companies – FDI

Direct Foreign Investment from 1997 - 2000

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IT Strengths -Competitive AdvantageIT Strengths -Competitive Advantage


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South Korea IT WeaknessesSouth Korea IT Weaknesses

Continuous shortage of IT human resourcesContinuous shortage of IT human resources

Level of IT workforce little bit higher than other Asian Level of IT workforce little bit higher than other Asian nations – result in relocation of manufactoriesnations – result in relocation of manufactories

Software piracy is around 50%, compared to 24% in Software piracy is around 50%, compared to 24% in U.S (2002) - discourage the development of domestic U.S (2002) - discourage the development of domestic software and foreign investment on the industrysoftware and foreign investment on the industry

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South Korea IT WeaknessesSouth Korea IT Weaknesses

FDI into Korea is still minimal FDI into Korea is still minimal

Despite favorable business environment of IT industry, Despite favorable business environment of IT industry, foreign companies hesitate due to economic crisis in foreign companies hesitate due to economic crisis in 1997 and 19981997 and 1998

Lack of core competency, higher entry barriers or high Lack of core competency, higher entry barriers or high production cost for market expansionproduction cost for market expansion

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South Korea IT OpportunitiesSouth Korea IT Opportunities

IT Clusters / IT EducationIT Clusters / IT Education

Increased Demand for High Level TechnologyIncreased Demand for High Level Technology

E-Business Development PointersE-Business Development Pointers

IT Service Companies and Software DevelopmentIT Service Companies and Software Development

IT Equipment ManufacturingIT Equipment Manufacturing

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South Korea IT ThreatsSouth Korea IT Threats

Korean government procurement law favors domestic Korean government procurement law favors domestic over foreign suppliersover foreign suppliers

Foreign access to real estate controlled through the Foreign access to real estate controlled through the Alien Land Acquisition ActAlien Land Acquisition Act

Korean regulatory environment is difficult for domestic Korean regulatory environment is difficult for domestic firms to work and even greater to foreign firmsfirms to work and even greater to foreign firms

Chaebols insistent on operating a joint venture in Chaebols insistent on operating a joint venture in accordance with the overall policies and business accordance with the overall policies and business culture of the groupculture of the group

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SWOT Impact on IT IndustrySWOT Impact on IT Industry

Impact on Telecommunication/e-commerce industryImpact on Telecommunication/e-commerce industry

Korean telecommunication market is fully de-regulated and Korean telecommunication market is fully de-regulated and privatized, will encourage market players to offer better product privatized, will encourage market players to offer better product at lower prices through technology and re-engineering of at lower prices through technology and re-engineering of business modelbusiness model

Internet usage expands to shopping, entertainments through Internet usage expands to shopping, entertainments through multimedia or gaming.multimedia or gaming.

Privacy protection and protection from fraud should be Privacy protection and protection from fraud should be strengthened for e-Commerce industry, increase the usage in strengthened for e-Commerce industry, increase the usage in B2C and B2B marketB2C and B2B market

The enforced policies and government efforts to protect The enforced policies and government efforts to protect intellectual property right will have impact on overall content intellectual property right will have impact on overall content provider marketprovider market

Contd..

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Impact on Hardware IndustryImpact on Hardware Industry

Korea positioned itself as leading nation in terms Korea positioned itself as leading nation in terms of semiconductor, mobile phones and LCD marketsof semiconductor, mobile phones and LCD markets

Shortage of IT human resource and higher cost of Shortage of IT human resource and higher cost of labor force may force hardware manufacturers to labor force may force hardware manufacturers to move other nations like China and Malaysiamove other nations like China and Malaysia

Contd..

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Impact on Software IndustryImpact on Software Industry

IT professionals with IT cluster to share knowledge IT professionals with IT cluster to share knowledge and information and commercialize eventually, will and information and commercialize eventually, will facilitate the development of softwarefacilitate the development of software

Foreign Investment through either IT cluster or Foreign Investment through either IT cluster or joint venture with domestic firms may pull the joint venture with domestic firms may pull the software industry to global levelsoftware industry to global level

The enforced policies and government efforts to The enforced policies and government efforts to protect Intellectual Property Right will encourage protect Intellectual Property Right will encourage domestic development of software and foreign domestic development of software and foreign investmentinvestment

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IT Investment RecommendationIT Investment Recommendation

Is Investment in the IT Industry in South Korea Is Investment in the IT Industry in South Korea Recommended?Recommended?

IT Industry IT Investment RecommendedTelecommunication/e-commerce industry YesHardware Industry YesSoftware Industry YesComponent Industry Yes

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Framework of IT led DevelopmentFramework of IT led Development

EconomicPayoffs

Employment, Productivity and

Economic Growth

IT Diffusion

IT Production and Use

EnvironmentalFactors

IndustrialPolicy

Industry Structure

Education & SkillsTechnology Policy

Infrastructure

Political, Social and Economic Environment

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Back-Up MaterialBack-Up Material


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SourcesSources 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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