Korea is one of the new developed countries in terms of Information and Telecommunication. Current IT landscape in Korea indicated various factors that can enhance Korea's competitive advantages. The detailed analysis below is based on Michael E. Porter's Diamond Framework for Competitive Advantage of Nations (1)
1. National IT Strengths in Korea
Korea's Competitive Advantages
1.1 Factor Endowments
Korea is one of the most advanced countries in terms of Telecommunication Infrastructure and its usage of it. The continuous effort by Korean government to improve Information Technology infrastructure has been a major driver of IT development in Korea. Over 90% of nation area is wired with broadband internet network and Internet penetration rates is 51.6 % as well as one for computing, at 77%. This well-established infrastructure plays positive role in attracting foreign investment in Korea and also facilitate the development of domestic IT industry. (Telecommunication Infrastructure Computing & Internet Diffusion)
The total number of IT workforce in Korea accounted for 447,000 (2.1% of total national workforce). The overall level of education in Korea is relatively high and especially there are many skilled IT professionals and labor forces. Korean government has planned to support educational institutions such as colleges and private institutes related to IT skills and The number of programs containing higher education in computer science is increasing. Therefore the supply and the quality of Korea's IT workforce is expected increased. In addition, since there are social perceptions that IT skills is most important and demanding in Knowledge-based society and that it is hard to survive without proper knowledge or skill related to IT, Koreans has adapted state of the art technology relatively rapidly. (IT Workforce)
Korean IT policies has focused on improvement in IT infrastructure, facilitating the usage of information technology, enhancing favorable environment for development of IT industry and on educating citizen under "Cyber Korea 21", visionary national IT industry development plan. This continuous and somehow aggressive government effort for IT plays a significant role in development of IT industry combined with huge investment from private sectors and also in attracting foreign investment. (National IT policies)
DaeDeok Valley is an important IT cluster that provides technological Know-how to small, medium-size firms, share information between R&D units to facilitate the development of technology. The IT cluster in Korea also has attracted foreign investment in IT industry in Korea and furthermore several joint research and development projects with well-known foreign companies and universities. These activities will enhance the national IT competitiveness for sure. (IT Geographic)
In addition, the geographical location of Korea can be regarded another factor for IT advantages. Close to Central China in which newly has developed Information and Telecommunication industry, Korean IT professionals and companies have entered into their IT market. Through export of CDMA technology, Korea also has planned to establish solid network among the south Asia nations.
1.2 Demand Conditions
Korea has shown the high computing and Internet penetration rate since 1998. This also indicates the large user base of Internet and creates sophisticated internet usage pattern. The adoption rate of Internet by gender, by age indicated the widespread of internet usage in Korean people. This is attributed that the government efforts to balance the technological development among region and among age groups through government investment and several education program is effective. (Commuting & Internet Diffusion Internet Usage by Sectors) The large, balanced Internet user base and demand for better service, higher quality through technological development will encourage the further development of IT technology and commercialization which are the important factors in national competitiveness.
Information Technology has been actively used both in business and in government sectors, as well as in individual level. The total size of e-commerce has already surpassed 45 billion USD and expected to grow at the rate of around 9% per year. The competitive market situation in online shopping malls and rapid, expansive development in wireless internet service offerings may force market players to provide higher quality service at cheaper to users. (Internet Usage by Sectors Electronic Commerce)
High adoption rate in Wireless Internet (Mobile Internet) and its application are also expected to encourage development of related Technology from business sectors with support from Korean government and possibly to facilitate market participation from foreign companies (Commuting & Internet Diffusion)
As part of Korean government effort to develop IT industry, Privatization and Market Deregulation in Telecommunication market has achieved throughout 90' These activities encouraged fair market competition resulting in lower price for telecommunication and better service and created favorable business environments for business. (National IT policies Telecommunication Infrastructure)
1.3 Related/Supporting Industry
Korea has secured leading position in semiconductor market especially for DRAM. In addition, Korea ranks itself in top manufacture in LCD and Mobile phone. With continuous efforts to develop new technology and to reach niche market abroad, Korea can keep the leading position in IT related production. The proactive effort to make foreign company to participate in term of R&D and market expansion, as well as government support are expected. (Domestic Production)
There are thousands of R&D facilities and institution from business, government sectors, as well as educational units in Korea. By pursue of establishing knowledge-based society, Korean government plans to extend its financial support for R&D especially in 10 core technology and initiated several huge project with private sectors (National IT policies) These solid base for new technology development and efforts will pay off.
1.4 Firm Strategy and Structure
Korea have tried to create favorable business environments especially for venture firm through fasten registration process, lower entry barriers in IT industry, lower cost using telecommunication infrastructure, diverse capital resources and government supports. These activities result in huge number of small, medium-sized venture company in IT industry and severe market competition. Only the firm that possess competitiveness and distinct technology or know-how, can survive in these competitive market condition. In other words, it encourages the continuous development of technology and improvement of business models in business sectors. The severe domestic market competition also hearten firms to seek for new business opportunity abroad or in niche market.
2. National IT Weakness in Korea
Despite of all advantages in IT industry, Korea still possess the weaknesses.
First of all, there is an forecast of continuous shortage in IT human resources. Although Korean government tries to facilitate the supply of human capital through education programs, without the migration of foreign workforce and encouragement for Korean professionals abroad to come back to Korea, it seems that the amount of shortage will grow. Addition to shortage in supply, the level of cost for IT workforce seems little bit higher than other Asian nations. This may result in relocation of manufactories.
Secondly, despites of all the efforts to prevent software piracy in Korea, the piracy level is still around 50%. This figure discourage the development of domestic software and foreign investment on the industry. Combined stronger enforcement with education of that intellectual property right should be protected and this will enhance nation's competency in the future, should be implemented.
Thirdly, Foreign Direct Investment into Korea is still in minimal account. Despites of all the favorable business environment for IT industry, foreign companies seems to hesitate to put their money in Korea. It is attributed that the economic crisis in between 1997 and 1998 still give them an impression of instability of Korean economics.
Finally, although the exports of domestic production and services are growing, domestic firms still face difficulties in expanding their market abroad because of lack of core competency, higher entry-barriers in some international markets or high production cost. The government should consider supports to overcome these difficulties.
(1) "Competitive Advantage of Nations" Michael E. Porter, March~April, 1990 HBR
Download available at http://online.sfsu.edu/~yywong/Porter1990HBR.pdf
Other useful information :
- "Global Information Technology Report 2001~2002" from World Economic Forum at
www.weforum.org/site/homepublic.nsf/Content/Global+Information+Technology+Report+2001-2002
- "Asia's New Tech Competitors" at www.nsf.gov/sbe/srs/s4495/conten3d.htm
- "National Competitiveness Analysis " from the Institute of Industrial Policy Studies http://www.ips.or.kr/ncr/index.asp
This site was developed for the class,
"Impact of National Information Technology Environments on Business"
at Kogod School of Business, American University, Washington DC
Created by Jung Im Won & Hyun Sang Park
Last updated : December 18, 2002