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).

Korea Continues to Dominate the Global Television Industry

Exports of television sets continue to thrive in the information age, and South Korean companies are a dominant force in the world market.   According to The Korea Herald, about a third of all television sets sold around the world in the first quarter of 2011 were manufactured by Korean companies.  (See the accompanying graphic---click to see full size version.)  Furthermore, Samsung and LG both saw year-on-year markets share increases, while the shares of their Japanese competitors decreased slightly.

Korea's Export and ICT-Led Economy

It is January 2, but this is my first blog post of 2011.  As an industry colleague noted in a recent e-mail message to me, the world is changing fast, and IT is at the center of things.
The news about South Korea's all-time record trade surplus during 2010 is a significant piece of information about its ICT sector.  As reported by international media including Singapore's Straits Times, the nation logged a $41.7 billion trade surplus in 2010.  This raised Korea's global export ranking to seventh.
The ICT sector was at the center of this development.  The Ministry of Knowledge Economy noted that the record figures indicate the country had solid performances in many sectors including semi-conductors, automobiles, mobile communications and general machinery equipment, despite the appreciation of the Korean currency as well as the tension on the peninsula.  In addition to semiconductors and mobile communications, the display and television industries did their share to contribute to Korea's trade surplus.
There are many interesting aspects, including risks, to Korea's export-led economic growth, and this is a general topic that this blog will continue to follow in 2011.   However, at this point in time, South Korea is surfing a wave of change in the semiconductor, mobile and display industries worldwide.  The Japan Times carried an interesting article yesterday entitled "Digital age leaves myopic Japan facing manufacturing crisis."   The article noted that, in the past, Japan was able to gain market share because its products had a technological edge and their companies drew strength from vertical integration and testing in Japan's domestic market.  However, from the 1990s, the core technologies for many electronics products, including computers, TVs and DVD players went digital and with modular components.
In this new digital, modular age, Korean companies, led by Samsung and LG, but also including many SMEs and parts manufacturers, seem to be off to a very good start.

Korea's Booming IT Exports

As noted by a report in the Joongang Daily, Korea's IT exports continue to flourish, led by semiconductors, flat screens and smart phones.  As shown in the accompanying graphic (click to see a full-size version) November marked the sixth consecutive month that IT exports exceeded $13 billion.   The information presented in this article, based on reports from the Knowledge Economy Ministry, make it clear that the worldwide boom in smartphones and other mobile devices is perhaps the major factor behind the export growth.  After all, as discussed in earlier posts here, many of the key components in Apple's iPhone and iPad are manufactured in Korea.  So, in addition to the export of Korean smart phones per se, we must consider how many of the semiconductors and screens manufactured here are sold in order to provide hardware for the transition to mobile broadband around the globe.
It is equally apparent that the new finger-slim LED television sets are selling well around the world.  In addition to the export categories already mentioned, television components was among Korea's top ten exports in November.

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.

Korea's First Half IT Exports Set a New Record

The Joongang Ilbo reports today that Korea's IT exports are at record-setting levels.  The graphic accompanying this post shows the recent pattern (click to see a full-size version).  Not surprisingly, semiconductors and flat panel displays are leading the export surge.   Exports of mobile handsets, a traditional Korean export strength during the feature-phone era, dropped 20.8 percent during the first six months of this year, due to a decline in export unit prices and a delay in smartphone production by Korean firms.
The regional pattern is also interesting.  Korea exported the most IT products to China, selling $33.1 billion worth of items in the country, followed by the European Union with $8.99 billion, and the United States at $8.49 billion.

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.

Korea Joins Top Ten Exporting Countries, Led by ICT Sector

There has been a great deal of commentary in the local media lately about the performance and goals of South Korean exports. The country has broken into the ranks of the top ten exporting nations in the world, with total exports valued at about U.S. $260 billion. and it has done so during a global economic crisis and with ICT-sector exports leading the way. As reported in the Korea IT Times and other media, it appears that three of the four top spots in Korea's exports this year will be IT products. These are cell phones, semiconductors and display products including digital LCD televisions, which rank, which rank second, third and fourth on the list of Korean exports, following vessels (the shipping industry). The last year that three out of the top four exports came from the ICT sector was 2004.

Perhaps more important than the ranking of these major product categories is their total value, which this year will account for almost 25 percent of all Korean exports. Also, display exports showed a greater percentage increase relative to cell phones and semiconductors. The reasons for the increase in ICT exports are different for each of the sub categories. For example, exports of displays (including television sets) skyrocketed after the introduction early this year of the new LED backlit models. They represented a breakthrough from the older models, being much thinner, lighter weight and lower in energy consumption. In other words, they were a breakthrough technology in the marketplace that made all of the competing products seem old fashioned. On the other hand, the increase in cell phone handsets, while reflecting consumer preferences for Samsung and LG products around the world, was not based on significant increases in the rapidly emerging "smart-phone" segment. This has been the subject of other posts and should be of great concern to Korean exporters. Especially since the worldwide transition in mobile communications is clearly toward hand-held computing and internet devices. It is a transition that will perhaps be more important than the arrival of personal computers three decades ago.

Korea's Dependence on Foreign Trade

One reads a great deal about South Korea's export-led economic growth and its dependence on foreign trade.  Nonetheless, I was struck by today's article in The Korea Times that graphically quantified Korea's dependence on exports.  Last year, imports and exports made up 92.3 percent of the Korean economy, breaching the 90 percent level for the first time.  Exports accounted for 45.4 percent of the national income, while imports made up 46.9 percent.
Such dependence on foreign trade is inevitable for an economy like Korea.  Other Asian economies depend even more heavily on trade.  Last year Singapore saw its ratio record 361.7 percent followed by Hong Kong with 348.4 percent.   Malaysia, Thailand and Taiwan also had ratios higher than South Korea.
I would only add that ICT exports and imports play a very important role in this overall picture.  It would be nice to break out the ICT sector to see just how things stand.

Digital Multimedia Broadcasting (DMB) Developments of Late

My wife and I just recently traded in our Kia Sportage and purchased a new Hyundai Tucson.  In the process, we chose several options, including the built-in navigation system.  The navigation options on the system are quite nice and highly programmable.   In addition, the system includes a DVD player, FM, and DMB (Digital Multimedia Broadcasting), among other things.  One day, a couple of weekends ago, I was checking out the system and when I pressed the DMB button on the left of the console and found myself watching a Korean drama via terrestrial DMB, it occurred to me what a convenient and natural option this was.  I imagined being caught in traffic, arriving at an appointment or simply being out in the mountains on a Fall afternoon, when it might be nice to watch a bit of television.  I also thought of the fact that most countries in the world don't yet enjoy the convenience of free DMB television, so this is an update on two earlier posts (the first here and the second here.)   Several things are happening in the DMB industry.
First, according to reports in Korea's electronics newspaper (전자신문), several of the terrestrial DMB broadcasting companies are starting to specialize, in an effort to attract a more targeted audience, and advertisers.  For example, U1 is specializing in online and offline sports, and Korea DMB was changing its name and plans a focus on the economy.
Second, also according to the Electronics Newspaper, three big mobile carriers in Korea are experimenting with two-way data broadcasting services using DMB.  Using such services, users can do search, shopping or communications while watching DMB programming.   This is similar to the sort of services that are incorporated in the IPTV offerings for which more than one million Koreans have subscribed to date.
Second, the export market for Korea's DMB technology, although in its infance, is still alive.  The technology is being used in such nations as Germany, China, Ghana, and France.
Like wireless broadband (WiBro), Korea's DMB technology faces competitors in the global market.  However, there may well be an important market niche for Korean technology.  This is a sector to watch closely.

President Obama's Eloquent Reference to South Korea

"From South Korea to Singapore,history shows that countries thrive when they invest in their people and in their infrastructure; when they promote multiple export industries, develop a skilled workforce, and create space for small and medium-sized businesses that create jobs"--- U.S. President Barack Obama, Speech to the Ghanaian Parliament,Accra Ghana July 11, 2009 With the above comment in his speech to the Parliament in Accra Ghana, President Obama demonstrated that he "gets it," regarding the underlying changes needed for any country to thrive in the emerging information age. Koreans should be rightfully proud.

Samsung Enters U.S. Notebook Market

Having personally used Samsung notebooks for many years now, I welcomed the news that this company is going to enter the U.S. notebook computer market.  It can only help competitiveness in the market and make available some high quality products to American consumers.  A little over a year ago I gave my Samsung X-10, a multimedia notebook with which I was very happy, to my wife.  For my own use, I purchased a Samsung Sens Q35, a bit more compact, but powerful notebook that is handy for weekend and occasional overseas traveling.  While in my office during the week, I plug into a larger monitor and regular keyboard.
One could almost say this Samsung move was inevitable, given that it manufactures most of the key components that go into a notebook computer these days --display, hard drive, and memory chips, to name the main ones.

Korean IT Firms Benefit from the Won's Decline

Korea's leading IT exporters are benefiting from the recent decline in the value of the Korean Won.  According to an article in today's Korea Times, the Won this week fell to as low as 1,062.6 per dollar, the weakest since December 2004.  A source at Samsung Electronics estimated that "if the exchange rate drops 10 won, we expect won-denominated sales to rise 300 billion won."  Exports account for 80 percent of Samsung's sales. In the second quarter, the electronics giant reaped an additional 300 billion won in sales thanks to the weakening won, sources say. LG Electronics benefits in a similar fashion.  "When the won-dollar rate drops 10 won, then we expect to gain some 70 billion in won-denominated sales," an LG spokesman said. 

However, the changing value of the won is a double-edged sword.  South Korea's airlines, steel makers and oil refiners, are suffering from the weaker won in the wake of surging prices for imported raw materials.

Korea's Growth Engines: Robotics

South Korea's robotics industry may be set to take off and could become an important growth engine for the nation's economy. On February 26, the Ministry of Commerce, Industry and Energy announced that a law intended to encourage the development and distribution of intelligent robots had passed the National Assembly. In a 2006 article, the New York Times noted that If all goes according to plan, robots will be in every South Korean household between 2015 and 2020. That is the prediction, at least, of the Ministry of Information and Communication, which has grouped more than 30 companies, as well as 1,000 scientists from universities and research institutes, under its wing. Some want to move even faster. In December of last year the Ministry of Information and Communication (MIC) announced that it concluded a contract with International Telecommunication Union (ITU) in order to promote the international standardization of network robot. To do so, they plan to organize a specialist group and jointly hold workshops. Although South Korea's current market share in the robotics industry worldwide is small, it appears to have great potential. As Korea.com noted, "Korea’s potential in the robot industry is among the best in the world, armed with highly developed associated industries, such as consumer electronics, automobiles and communication equipment. The country’s superior IT infrastructure and rapid acceptance of new technologies will help boost growth, too." More on this industry in future posts.