KT to Nuture the Software Industry

As reported in The Korea Times, KT has announced new measures to support the growth and development of South Korea's software industry.  The article also summarizes some of the key changes in corporate culture within KT under the leadership of Chairman Lee Suk-chae.   It is well worth reading.

The Smartphone Race a Hardware Battle? Samsung's Future

The Financial Times carried an interesting article today entitled "Samsung needs to hit reset button." .

It referred to the company's strength in hardware, notably memory chips, in which it invested  Won11,000bn last year.  Also, its bright and power-efficient Amoled (or active matrix organic light-emitting diode) mobile screens are increasingly the industry standard.

But the long term worry for Samsung is software, which is crucial to its increased focus on high-end consumer electronics such as smartphones and tablets. Falling prices for chips – which constituted about half of second-quarter operating profit – have pushed Samsung to prioritise its Galaxy devices, which are big challengers to Apple’s iPhone and iPad.

The article goes on to quote Chang Sea-jin, professor at Singapore National University who says Samsung was fortunate to produce such devices just as Google’s Android was becoming a standard operating system. He argues this reduced the smartphone race to a “hardware battle, where Samsung is strong”.

However, especially since Google's acquisition of Motorola, Korean government sources have expressed concerns about Samsung's weakness in software. Kim Young-Chan, an analyst at Shinhan Securities is quoted as saying that “Samsung cannot easily build up software in a short time and it is hard to expect major changes from Korean engineers with fixed ways of thinking,” said Mr Kim. “But Samsung will not be marginalised, given its strength in hardware.”

Korea's Hardware Success and Software Challenge

A great deal has been written over the years about the strength of Korea's IT manufacturing and export sector in comparison to its relative weakness in software and content industries. The Joongang Daily has a lengthy article on the topic today, with supporting data and an effort to explain why Korea remains relatively week in the software area.

According to the article, as Korean companies take a hard look at their software vulnerabilities, they say they see a vicious cycle at work.

First, students shun software-related majors at universities. The quality of Korean software manpower falls behind that of other advanced countries. Companies don’t pay and treat their software engineers right. And that goes back to students shunning software majors at universities.

The accompanying graphic shows average salaries by certain occupational groups (click on the graphic to see a full size version).

According to a recent report by the Samsung Economic Research Institute, the number of places in IT-related departments at about 100 major universities in Korea have been declining for four years straight since 2006.

Admission quotas, or places, in computer engineering departments plunged at the fastest rate. The figure stood at 80 in 2006, but decreased to 73 in 2009. That compares to the figure for electric and electronic engineering, which inched down from 87 in 2006 to 85 in 2009.

“As the IT environment undergoes rapid changes, it’s crucial for Korea to secure software capability fast,” the report pointed out. “But universities appear to have succeeded in neither attracting top-tier software talent nor providing high-quality education programs.”

“The morale of Korea’s software talent is at its lowest,” said Daniel Lee, 41, CEO of Inspirit, a local company that makes software for mobile communication networks. “The importance of software is growing day by day, but if things don’t change, Korea’s software industry has no future.”

Some cite an even broader problem in the Korean technology industry: An under-appreciation of the value of start-ups and their innovative ideas, except by foreign tech firms.

Nexon Positioned for Success in Global Market

For some time, analysts of South Korea's dynamic ICT sector have noted that its success was largely based on the manufacture and export of hardware, prominently including semiconductors, screens, television sets, and mobile handsets.  Korea has been viewed as relatively weak in the production and export of software, content and services.   That situation may be changing, and one reason is the potential of Korea's online games in the global market.

A recent article in TechCrunch uses the Korean company Nexon as an example of Asian innovation in the world of free-to-play games and virtual goods.  The article is well worth reading.  I would only add, as noted in earlier posts, that the world of online games has business implications and future applications that extend far beyond the game industry itself.  These include education and the process of admission to colleges and universities, both areas of interest to our new Asia Center to Advance Educational Exchange (ACAEE).

LG to Increase Patent Experts for "Patent War"

As reported by Displaybank, LG Electronics has announced that it will increase the number of its patent professionals by 30% over the current number of 200 by 2013.  It is doing so in order to protect intellectual property in the U.S., China and Europe.   The article contains some interesting detail on LG's strategy.

In a broader context, some industry estimates are that as much as 80 percent of the global ICT market consists of software and content, with the other 20 percent consisting of hardware.   Despite the remarkable developments in hardware, including electronic devices of all sorts and more powerful digital networks, the information content and communication between human beings is still the most salient aspect of the emerging information age.  This means that intellectual property in general, a subset of which consists of patents, will become more and more important.

Hardware vs. Software: Korea's Growing Dependence on Manufacturing

The Joongang Daily and other media are reporting today on a new Bank of Korea report that shows Korea's increasing dependence on its manufacturing sector over the past nine years.  (Click on the accompanying graphic to see a full size version)  Last year the manufacturing industry created total value worth $257.4 billion, or 30.6 percent of the country's total.  This represented the first time that the percentage from manufacturing exceeded 30 percent and it was also a significant increase over earlier years.

In terms of the focus of this blog, it is significant that Korea's manufacturing industries are led by electronics.  In other words, these figures reflect a heavy reliance on the manufacture of semiconductors, mobile handsets, flat screen television sets and computer monitors and other electronic components.  This compares with relatively small production of software and content, which comprises by far the bulk of the global ICT industry.  The Bank of Korea also reported that last year's exports tied to the manufacturing sector were 5.6 times greater than exports by the service sector.

According to an official from the Knowledge Economy Ministry, “There is a need to develop high-value service sectors such as medical, information technology, finance and insurance in addition to low-value service sectors such as retail and lodging.”

Employment Effects of Mobile Broadband Boom in Korea

An article in The Korea Times caught my eye this morning.  Entitled "Mobile boom proving as economic catalyst?" it offered some details about the impact of the current mobile broadband boom and "smartphone shock," on employment patterns in South Korea.  In particular, government figures show that the number of creative one-person enterprises in the country increased sharply last year on the strength of the explosion in internet devices and content.  According to the Small and Medium Business Administration (SMBA), the nation's one-man enterprises reached 235,000 in 2010, up 15.7 percent from the preceding year, and the number accounts for about 1 percent of the economically active population.

The number of people who want to develop applications has been on the increase, said an instructor at a local information technology educational institution, which offers an education service on applications. Reportedly, those who are familiar with computer programming can develop an application after a one-month course.

The government report also said that more than 60 percent of those who established one-man creative enterprises had earned bachelor's degrees or higher academic qualifications.

Another Chapter in Korea's Relationship with Qualcomm

Way back in 1993 the Korean government made a difficulty and bold decision to adopt CDMA (Code Division Multiple Access) technology as its mobile communications standard.  Although holding much promise for the future, at that time it was an untested technology to which a small U.S. company, Qualcomm, held most of the patents.  The Korean government decision made it the first nation in the world to commercialize CDMA.

For many years, Korean companies paid handsome royalties to Qualcomm as they manufactured CDMA devices not only for the Korean market, but for export to the U.S. and other countries.   Last year, the Korea Fair Trade Commission fined Qualcomm a record $236 million for discriminatory acts that included charging higher royalties to some customers.  Now Qualcomm, as part of the agreement that followed that fine, will start disclosing information that will allow South Korean companies to develop software for its chips.  As reported in the Joongang Ilbo,  Qualcomm intends to open an application digital signal processor (ADSP) interface so that third parties can develop mobile multimedia software that can be used on its modem chip, for which it has exclusive rights. The interface helps to compress and convert computer files into moving images, making it possible to receive video and other types of content on a cell phone.

This is an interesting development that may give a boost to Korea's efforts to move from its manufacturing emphasis into software and services.

Korea to Develop "Software Maestros"

In an effort to boost the nation’s lagging software industry, the Ministry of Knowledge Economy selected 100 young trainees to be part of its first “Software Maestro” nurturing program.The ministry’s move comes amid concerns that the country’s industrial focus has been on hardware industries such as semiconductors and liquid crystal displays at the expense of its software industry.

In 2009, Korea’s market share of the global software market was just 1.8 percent, or $17.8 billion, according to recent government figures.

The share of software exports was even lower, taking up only 0.8 percent of the total global pie.

Additional information on the new "World Best Software" Program are contained in an article in the Joongang Daily.

North Korea's Software Industry

Although the digital divide between North and South Korea may be the largest in the world by many measures.  However, as with most generalizations, there are exceptions to the rule.  In the case of North Korea, one of these may be found, somewhat surprisingly, in the are of software and programming.  Bloomberg reports that programmers for North Korea's General Federation of Science and Technology developed a 2007 mobile phone bowling game based on the 1998 film "The Big Lebowski," starring Jeff Bridges, as well as "Men in Black: Alien Assault."

North Korea's growing software industry is championed by Kim Jong Il and contracting with North Korean companies is legal under United Nations sanctions unless they are linked to the arms trade.  Volker Eloesser, a founder of Pyongyang-based Nosotek, notes that the technological education of graduates from North Korean universities has become significantly better.  North Korea’s information technology push began in the 1980s as the government sought to bolster the faltering economy.

Today Nosotek advertises itself as "the first western IT venture in DPRK (North Korea).  Its web site expands upon this as follows:

• In DPRK, software engineers are selected from the mathematics elite and learn programming from the ground-up, such as assembler to C#, but also Linux kernel and Visual Basic macros. 


• Among them, Nosotek has attracted the cream of local talent as the only company in Pyongyang offering western working conditions and Internet access. 


• In addition to the accessible skill level Nosotek was set-up in DPRK because IP secrecy and minimum employee churn rate are structurally guaranteed.<
  Nosotek sells direct access to its 50+ programmers jointly managed by western and local managers. 


• Services can be invoiced through a Hong Kong or Chinese company. 


• Benefit from North Korea's opening, outsource to Nosotek.

From the government's point of view, the activities of such companies as Nosotek is no doubt appreciated since they generate foreign exchange.  However, as noted by Andrei Lankov, a North Korean expert based in Seoul, "These activities help to fund the regime, but at the same time they bring knowledge of the outside world to people who could affect change."  The dilemma facing North Korea, a subject of earlier posts (and also this one), seems to be growing and not diminishing.

Korea's Response to Google and Apple

To readers of this blog, please know that I'm still alive and well.  It is just that I've been a bit busy with other things at work and at home and have not been able to post much in the last several weeks.  However, I have been following the press and the trade publications that cover South Korea's IT sector and cannot help but comment on the overall response to the popularity, worldwide and in Korea, of products being sold by Google and Apple.

Today, for example, The Korea Times carried a report that LG was about to unveil the "1st Smart TV."  This would be a television set equipped with "Netcast 2.0" for web-connected televisions.  This move by LG was clearly a response to moves by Apple and Google, along with its Korean arch-rival Samsung.

The situation is somewhat similar with smart-phones and notepad sized devices.  Samsung and LG are scrambling to come out with their own devices that might compete with Apple's iPhone and Android-based digital devices.

What is the common denominator in all of the reports I'm reading? It is simply that South Korea is still heavily reliant on the manufacture of communications hardware, rather than content or software.  It is the latter that not only makes up the bulk of the global ICT market, but also represents the major hurdle for Korea to continue its remarkable advance as an "IT Powerhouse" or a knowledge economy.  The transition to greater emphasis on software and content in Korea has begun, but it will be a long-term challenge for the country to succeed.  This challenge will be the subject of future posts.

Korea's "IT Powerhouse" Paradox

I've been puzzling a great deal these past several months over the paradoxical situation that exists in South Korea.   On the one hand, this country has the most advanced and extensive digital networks in the world, yet it managed to lag behind much of the world (80 or more other countries) by two and a half years in adopting  mobile broadband, as symbolized here by the Apple iPhone.  How could a country that invests so much in education, R&D and infrastructure, find itself in this situation?  The following are some thoughts I have.  They are only initial attempts to find an answer, and I'd love to receive some incisive comments on this post.

• The information and communications technology (ICT) and telecommunications sectors in Korea are dominated by large companies, including the chaebol groups.  Inside these large companies the workers and the labor unions exert a great deal of influence, making it difficult for them to adapt quickly to technological change.


• The established mobile service providers, along with the manufacturers of handsets and network equipment, were making a lot of money with the current arrangments, so why upset the apple cart by introducing the iPhone or Android phones to the Korean market?  If we include the government here, another interpretation could be that, while profitable in the very short term, this was a costly policy mistake for Korea over the medium to long term.


• Finally, I cannot help but observe that language and culture played a role in all of this.  After all, Koreans have not yet widely adopted Google as an internet search engine, preferring Naver to search within a Korean-language walled-garden.  Heavy dependence on Naver and other Korean language portals, along with overly-heavy reliance on Microsoft, undoubtedly contributed to the lag in introducing real mobile broadband via the iPhone and Android phones. 

These are some of my preliminary thoughts.  What is missing in this picture?  I invite your comments.

Hardware versus Software

The Chosun Ilbo carried an opinion piece today that focused on the relative lack of development of South Korea's software industries.  Among other things, it pointed out that

• Last year Korea exported IT products worth U.S.$121 billion, which accounted for a third of the nation's total exports of U.S. $363.5 billion.


• The leading exports were all manufactured products: memory chips, displays and mobile handsets.


• On the other hand, exports of Korean-made software totaled just U.S. $300 million, less than 1 percent of all IT exports.


• Foreign products take up 78 percent of the local software market.

The editorial concluded with reference to the rapidly growing smartphone market, which shows that manufacturing good handsets is no longer enough.

Apple Envy at Samsung Electronics?

An article in Business Week suggests that Apple-envy may have been a major factor in the recent personnel shakeup within the Samsung Group.  The company Choi, Gee Sung, the head of its TV and cellphone business as CEO, replacing Lee Yoon Woo.  It also created a new position, that of chief operating officer, for Lee Jae Yong, the only son of former chairman Lee Kun Hee.

Some Samsung-watchers have a one-word answer for why the company made these changes now:  Apple.    For all of its success in consumer electronics, the company is an also-ran in the battle to win customers away from Apple's iPhone.  Park Kyung Min, chief executive of fund manager Hangaram Investment and a longtime watcher of Samsung noted that "Samsung must have taken a whopping blow from the revolutionary popularity of the iPhone.  To emulate Apple it needs a new start."

Until now, Samsung electronics success has come largely from the development and worldwide sale of electronics hardware, led by semiconductors, flat screen displays and televisions and handsets.  According to Business Week, the new management team will try to refocus the company on total solutions, including creative software.  After all, the Apple iPhone is a beautiful and efficient piece of hardware, but everyone knows that its real worldwide popularity lies in the software applications available through its App store.  The Apple iPhone is really just the first of a whole generation of hand-held computers and internet terminals.  The new Android phones will emulate the best features of the Apple iPhone and eventually these handsets will be come commodities, just as desktop or notebook PCs did.  Perhaps Samsung should envy Apple, but not for its hardware, but rather all of the very useful internet and iPhone based applications that people love to use!

Korea's Microsoft Monoculture: the Downside

There is an excellent article in today's Korea Times about the price South Korea is paying for an almost exclusive reliance upon Microsoft Windows based software and its "Active-X" controls.  As the article notes, some critics would claim that the almost complete reliance on Microsoft software here makes the country's computing experience outdated by about a decade, compared with the rest of the world. As the article notes, ". . . Linux, Firefox, Chrome and Opera users can't bank or purchase products online, and where Mac users buy Windows CDs to prevent their devices being reduced to fashion items."
It is going to be a major challenge to break this heavy reliance on Microsoft and introduce some healthy diversity into the Korean market. However, it is a challenge that must be met for this country to remain competitive and in tune with global developments.

A Call for Greater Integration of IT and Conventional Industries

Reinforcing a point I made in earlier posts, the inaugural meeting of the IT Innovation Forum in Seoul called on Korea to bolster its national competitiveness through greater integration of its information technology sector and conventional industries.  As noted in the Joongang Ilbo, policy makers from the Ministry of Knowledge Economy, the Federation of Korean Industries and academia said that Korea has not taken full advantage of its world-class IT infrastructure.   Participants in the innovation forum noted that efforts must be made in the coming years to push for a paperless business environment that can benefit a wide range of businesses, including logistics, and establish software as a service  into everyday work. "Software as a service,"  is a term for online use of software for a fee, rather than purchase of software products.