ICT




      KOREAN MARKET RESEARCH REPORT;

                          ICT
.




    PREPARED BY SPIRE RESEARCH & CONSULT...
ICT

TABLE OF CONTENTS:


TABLE OF CONTENTS:............................................................................2
...
ICT
11.Appendix ........................................................................................32
11.1 Major Indu...
ICT


1. Executive Summary

Korea is a global leader in the areas of semiconductors, display devices, telecom
services, mo...
ICT

As an OECD country, Korea presents a fairly favorable regulatory environment for
foreign technology and products or s...
ICT

2. Industry Overview

2.1    Introduction

The Korean ICT industry, usually called the IT industry, is broadly divide...
ICT

Number of IT Players by Sub-sectors Unit: Per firm
           Category              2001            2002             ...
ICT

growth rate, the software sector is likely to experience the highest growth rate in
coming years.

FDI in Korean IT I...
ICT




3.    Market Sectors


3.1           Internet banking

Korea leads the world for broadband networking. Internet ba...
ICT

significantly from the rest of the world. Interested WA players should note this security
approach in Internet bankin...
ICT



3.3       Broadband subscribers

With over 12,549,000 broadband subscribers, Korea is a mature broadband market tha...
ICT




Source: OECD(WWW.OECD.ORG/site/telecom)
Graph : Courtesy of OECD.




3.4     Wireless Internet subscribers

Gener...
ICT

the latest HSDPA, the fastest wireless Internet connection, 3G+. Samsung and other
mobile phone manufacturers are pro...
ICT

payments, Internet shopping malls do not use Giro at all. Likewise, COD is rarely
practiced either.

Internet Shoppin...
ICT

Internet Shopping Mall Volume & Percentage by Products – 2005 (Unit : US$ thousand, %)
                              ...
ICT

sectors saw significant increases in growth with office software growing fastest at 97.2%,
followed by enterprise sof...
ICT

Market size of computer related services (Unit: US$ thousand, %)
               Category                        2004 ...
ICT

computers and notebook computers. This decline is expected to continue as Taiwan
and China offers much cheaper comput...
ICT

IT Industry contribution to real GDP (Unit: %)
        Category                 2001              2002           2003...
ICT


5. Market Opportunities

WA players should look for opportunities in conventional areas where WA has a
competitive e...
ICT

breed offshore technologies and is quite open to reliable foreign suppliers. WA
companies should particularly note th...
ICT

5.7       Strengths and weaknesses


Korean industry’s strengths, weaknesses, opportunities and threats
             ...
ICT


6. Market Barriers

The Good Software (GS) certificate issued by the Ministry of Information and
Communication (MIC)...
ICT

7. Import Penetration and Growth

Foreign participation in Korea’s IT industry has always been substantial and Korea ...
ICT


Korean IT Import Statistics (Unit: US$ million)

          Category                 2001           2002        2003 ...
ICT


8. Key Market Players

Telecom market players are limited as SK Telecom, KTF and LG Telecom are the
dominant players...
ICT

About four mobile phone manufactures control the vast majority of both local demand
and the export markets as well. A...
ICT




9. Future Directions

9.1       3G+ Telecom and Wireless Internet

This sector is highly competitive but has poten...
ICT

monitor and explore. Equally important is security software for mobile phone users, who
have been recently proved to ...
ICT




10.Bibliography

   IT Statistics Information Centre, 2005, Korea Association of Information &
    Telecommunicat...
ICT

   Consumer Price Index, May 2006, National Statistics Office

   Digital Times, IT Newspaper

   The Electronics ...
ICT




11.Appendix

11.1          Major Industry Links



Institute of Information Technology Assessment
http://iita57.ii...
ICT

Korea IT Industry Promotion Agency
http://www.software.or.kr/kipahome/kipaweb/english/index.html
webmaster@software.o...
ICT

Number of IT Players by Sub Sector (Unit: Firm)
           Category              2001              2002              ...
ICT

Broadband Internet Subscribers (End April 2006)
    Category              xDSL             CATV                 LAN  ...
ICT

          Category                   2001             2002       2003           2004         2005
          IT Export...
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  1. 1. ICT KOREAN MARKET RESEARCH REPORT; ICT . PREPARED BY SPIRE RESEARCH & CONSULTING CO., LTD. June. 2006. Spire Research and Consulting Co Ltd, Website: www.spireresearch.com Email: Justin@spireresearch.com Tel: 82-31-908-7630 Fax: 82-31-908-7632
  2. 2. ICT TABLE OF CONTENTS: TABLE OF CONTENTS:............................................................................2 1.Executive Summary ............................................................................4 2.Industry Overview ...............................................................................6 2.1 Introduction..............................................................................................................6 2.1 Korean IT industry players........................................................................................6 2.2 IT Production ...........................................................................................................7 2.3 Foreign Direct Investment in IT Industry..................................................................7 3.Market Sectors ....................................................................................9 3.1 Internet banking.......................................................................................................9 3.2 All Telecom Subscribers..........................................................................................10 3.3 Broadband subscribers.............................................................................................11 3.4 Wireless Internet subscribers...................................................................................12 3.5 E-commerce............................................................................................................13 3.6 Software..................................................................................................................15 3.7 Computer Related Services......................................................................................16 3.8 Digital Content Sector.............................................................................................17 3.9 Computers..............................................................................................................17 4.Market Growth ..................................................................................18 5.Market Opportunities ........................................................................20 5.1 Internet banking ....................................................................................................20 5.2 E-commerce – Internet shopping malls....................................................................20 5.3 Innovative software solutions and digital content for the mobile phone sector. .....20 5.4 Broadband market sector........................................................................................20 5.5 Software..................................................................................................................21 5.6 Computer Services..................................................................................................21 5.6 Digital Content........................................................................................................21 5.7 Strengths and weaknesses.......................................................................................22 6.Market Barriers .................................................................................23 7.Import Penetration and Growth .........................................................24 8.Key Market Players ............................................................................26 9.Future Directions ..............................................................................28 9.1 3G+ Telecom and Wireless Internet.........................................................................28 9.2 Security Software and Computer Services...............................................................28 9.3 Digital Content and Applications.............................................................................29 10.Bibliography ....................................................................................30 Page 2 of 36
  3. 3. ICT 11.Appendix ........................................................................................32 11.1 Major Industry Links.............................................................................................32 11.2 Statistics Table.....................................................................................................33 Page 3 of 36
  4. 4. ICT 1. Executive Summary Korea is a global leader in the areas of semiconductors, display devices, telecom services, mobile phones, Digital Media Bandwidth (DMB), High-Speed Downlink Packet Access (HSDPA), broadband internet infrastructure, networked internet games, ship building, automobile, and other areas related to these market sectors. All WA ICT players offering innovative goods/services in these sectors are encouraged to explore Korea’s market opportunities as the country is considerably open to offshore technologies across its economy, particularly in the ICT sector. Korea underwent dramatic shifts in its industry structures, moving from labor-intensive industries of 1950s, such as steel and textiles, towards technology-intensive industries. In 2002, Korea ranked the third in world IT production, accounting for 6.38% of world ICT output after the US and Japan. Traditional labor-intensive industries like textiles remain important but with slower recent growth. WA ICT players can explore the Korean market from the WA’s strengths in industry sectors such as software, spatial data and imaging, and Australian-developed unique technologies in mobile and remote communications. Although very few WA ICT players are well known in the Korean market, a number of other Australian software firms are already active in Korea’s banking and finance marketplace. One of areas WA players should note is English language edutainment materials for Korean students. Leveraging on Korea’s broadband network, delivering such content materials would position WA with a competitive edge compared with other sectors in the broadband market. Internet shopping mall related players should note that the monthly transaction volume of Auction’s open markets alone is estimated at US$1 billion in Korea. This presents sizable market opportunities to qualified WA players with innovative solutions for the sector. Nevertheless, entering the Korean market requires more than a short-term effort with only a few visits to explore the market. Without well-planned strategies, patience and a long-term commitment, breaking into Korean markets will be challenging for WA ICT players. The Korean market is quite open to and willing to adapt foreign technologies. A good example is the CDMA technology that was developed by a U.S. company Qualcomm and generated US$2.628 billion in licensing fees from 1995 to 2005 in Korea, the first country to commercialize CDMA technology-based mobile phone. The typical market entry formula is to work with the most appropriate local agent or distributor partner to start off with and then establish a subsidiary for full operations in due time. Depending upon the type of goods or services, the market entry time will vary. However, the minimum time will be at least one year to successfully enter and start operations. Page 4 of 36
  5. 5. ICT As an OECD country, Korea presents a fairly favorable regulatory environment for foreign technology and products or services with more and more regulations being liberalized. As with other countries, all electronic equipment needs to obtain EMI (electro-magnetic interference) approval before importing. Software and most ICT parts have zero duty rates, and most IT products bear a duty tax of under 8%. There are negligible legal market entry barriers. In terms of intellectual property protection, Korea is one of the leading IP protection advocates in the world. However, foreign companies’ lack of awareness of local Korean business practices and specific market characteristics can be a considerable entry barrier. Korea’s outward FDI is not R&D directed but strategic for market opportunities and competitive advantages. Australia is perceived in Korea as a low-priority FDI destination. In terms of Korean FDI in WA, WA should promote the region as resource- rich for Korean industries to control and utilize. Further studies are needed to identify the key strategic sectors. The Korean ICT industry output in 2005 was US$233.2 billion by 15,733 firms employing about 1,389,000 employees. ICT firms only make up 0.5% of the total number of businesses in Korea but produced about 15% of the GDP in 2005, up from 10.1% in 2000. Korea’s ICT exports reached US$102 billion compared to imports of US$54 billion in 2005. The ICT growth rate showed double digit increases from 2001 to 2005 with a compound annual growth rate of 14.7%. In particular Korea leads the global ICT markets in semiconductors, display devices, telecom, mobile phones, network games, and broadband infrastructures including the latest 3G and wireless Internet technologies. Furthermore, among public companies, foreign ownership grew to 36.7% in 2002, up from 16.7% in 1997. In 2004, the ICT industries’ FDI was US$3.2 billion from the total investment of US$12.8 billion. The investment ratio in the IT industry rose to about 25.1% up from 15.6% from the previous year. Overall, 2005 saw a decrease in FDI in Korea’s ICT industry to US$2.6 billion but its share of total FDI in Korea was still 22.6%. Korea’s outward FDI in ICT sectors is largely in Asia, with 510 countries out of 842 companies making Asian investments at 13% of the total FDI. 109 companies invested the same amount, 13% of FDI, and 91 companies invested 11% of FDI in Europe. China was the leading country with 320 Korean firms indicating offshore production facilities, rather than R&D, including software. The most preferred FDI form, at 85.7% of the firms was through a subsidiary entity, focusing on ICT equipment manufacturing, then software and other services. Large enterprises made up 22% of the FDI enterprises. Page 5 of 36
  6. 6. ICT 2. Industry Overview 2.1 Introduction The Korean ICT industry, usually called the IT industry, is broadly divided into three sectors, a classification used in government statistics. Traditional Korean industries were agriculturally oriented until the 1950s. After the Korean war in 1950, especially during the 1960’s, the Korean economy grew rapidly, fostering textile, heavy industry, electronics and other labor-intensive industries through to the 1980’s. From late 1980’s Korean economy began to intensively switch over to valued-added high technology industries, including telecom, semiconductors, electronics, display devices, broadband and related industries. Today, according to Reed Electronics Research (2002), Korea ranked third globally in IT industry production volume followed by the USA and Japan for the year 2002, moving to fourth in 2003 with China taking third place. Although the IT output has fluctuated, overall the Korean IT industry has been growing and reached US$233 billion in 2005. The upward trend is expected to continue in the coming years ahead, against competition from China and other emerging markets. The Korean government, as part of its ‘IT839’ ICT promotion plans, places a heavy emphasis on the software industry to compliment the IT manufacturing sector, where Korea is an international leader. The software industry will likely develop further with a particular focus on games, entertainment, mobile phone, broadband-based applications and other web-based software. 2.1 Korean IT industry players The Korean IT industry is an estimated 19,620 IT companies out of the 3,190,000 businesses registered in Korea. IT equipment manufacturers have increased steadily to about 9,691 in 2005 from 5,426 in 2001, the number of IT service providers has been decreased in the past few years. This indicates that the strengths of the Korean IT industry are in IT manufacturing rather than software and services. The IT manufacturing sectors saw increases in participating companies across sectors including telecommunications, general IT, broadcasting, and equipment parts. There is a growing shift to software and other non-manufacturing sectors, and it is likely to see more firms involved and higher output. Measured by IT output, the lion’s share of the IT industry is contributed by the chaebols, including Samsung, LG, Hyundai, SK, Korea Telecom, Hanaro Telecom. Page 6 of 36
  7. 7. ICT Number of IT Players by Sub-sectors Unit: Per firm Category 2001 2002 2003 2004 2005 P Total Firms 3,046,554 3,131,963 3,187,916 3,189,890 NA IT Firms 16,652 18,199 17,110 15,733 19,620 - IT services 5,784 5,477 3,347 2,422 3,021 - IT equipment 5,426 7,121 8,693 8,436 9,691 - Software related 5,442 5,601 5,070 4,875 6,908 Source: National Statistics Office (NSO), Federation of Korean Information Industries (FKII) Based on 5 or more employees for a firm 2005p is the projected figures for year 2005 2.2 IT Production The ICT industry saw increases across all sectors, with IT equipment contributing the largest proportion at 71% of ICT production. This includes mobile phones, flat panel displays and semiconductor equipment. The expected growth in 2005 did not materialize, recording instead just 1.6% growth. This was due to both internal and external economic factors such as high oil prices, unexpected exchange rate fluctuations, a decrease in IT investments and other factors. IT Production Volume (Unit: US$ billion, %) Category 2001 2002 2003 2004 2005 P IT production 150.1 188.9 201.6 229.6 233.2 (Growth) (1.3) (25.9) (6.7) (13.9) (1.6) IT Services 36.3 43.0 41.6 46.0 46.7 IT Equipment 99.1 127.7 141.6 164.9 165.9 Software related 14.7 18.2 18.4 18.7 20.6 Source: National Statistics Office (NSO) 2005p is the projected figures for 2005 2.3 Foreign Direct Investment in IT Industry Foreign direct investment in Korea experienced significant growth recently, peaking in 2004 with US$12,786 million in FDI, up 97.7% from the previous year of US$6,469 million. The FDI in the ICT sector accounted for 25% of the all investments in Korea. However, 2005’s FDI was US$11,562 million, a decline from the previous year. The largest portion of the FDI was in the IT Equipment sectors, including the world’s largest display panel production facility, a semiconductor facility and wireless equipment manufacturing. At present, the proportion of FDI in the software sector is insignificant, but in terms of Page 7 of 36
  8. 8. ICT growth rate, the software sector is likely to experience the highest growth rate in coming years. FDI in Korean IT Industry (Unit: US$ million, %) Category 2001 2002 2003 2004 2005 All Industry 11,286 9,093 6,469 12,786 11,562 (Growth) (-25.8) (-19.4) (-28.9) (97.7) (-9.6) IT Industry 2,065 630 1,010 3,203 2,616 (% to all industry) (18.3 (6.9) (15.6) (25.1) (22.6) IT Equipment 1,603 403 296 2,812 1,010 IT Services 298 124 513 51 920 Software 164 103 201 339 686 Source: Ministry of Commerce, Industry and Energy (MOCIE) FDI is significant across the Korean ICT industry, including the telecommunications sector. Korea Telecom, the leading telecom company, has 46.16% of foreign ownership as of 2005. Hanaro Telecom, the next in the market, has a 48.75% foreign ownership. These two telecom operators dominate the vast majority of the Korean telecom market including the fixed and wireless Internet markets. Foreign investments surged immediately after the 1997 financial crisis and continued until recently, fully leveraging the under-valued Korean IT industry. As a result, foreign ownership today exists in almost all IT companies in Korea. Foreign Ownership in Telecom Companies 2003 2004 2005   Foreign Foreign Foreign Ownership ownership (%) ownership (%) (%) KT 45.52 48.84 46.16 Hanaro 51.35 48.98 48.75 Dacom 3 3.4 6.84 SKT 47 48.22 48.74 KTF 8.79 17.7 22.53 LGT 18.31 26.56 27.03 Source: Bank of Korea (BOK) Page 8 of 36
  9. 9. ICT 3. Market Sectors 3.1 Internet banking Korea leads the world for broadband networking. Internet banking is one of the most widely used technologies with over 32,055,000 Internet banking users registered at 20 banking and financial institutions as of the end of March 2006. About 1.5 million are corporate accounts, with the rest individual accounts. Internet banking saw on average 12 million transactions daily during Q1 2006. In comparison, mobile banking saw 394,000 transactions daily. However, transaction volume over mobile devices is expected to grow steadily with the advent of new technologies including HSDPA and Wireless Broadband (WiBro) mobile devices. Internet banking is estimated to account for close to a third of all transactions, against over the counter, CD/ATM, and tele- banking, a trend expected to continue in the future. Internet banking users (Unit: '000 person, '000 company, % growth over last period) 2004 2005 2006   End Dec 1) End Mar 1) End Jun End Sept End Dec End Mar 23,094 21,157 21,374 24,074 25,303 30,521 Individual (–6.1% (-8.4%) (1.0%) (12.6%) (5.1%) (20.6%) 1,177 1,418 1,524 1,351 1,434 1,534 Company (-2.5%) (20.5%) (7.4%) (-11.3%) (6.1%) (7.0%) 24,271 22,575 22,898 25,426 26,737 32,055 Total (-6.0%) (-7.0%) -1.4% (11%) (5.2%) (19.9%) 1) Decrease due to the deletion of long-term inactive users Source: Bank of Korea (BOK) All banks and financial institutions encourage Internet banking, lowering transaction service fee and offering other benefits. In both urban and suburban areas, Internet banking is commonly practiced. The most common transaction is money transfers, with over 2 million transfers daily. The vast majority of Internet banking is by computer at 96.7% and about 3.3% by mobile phone, PDA or other mobile devices. Mobile phones are expected to take on a more active role in the Internet banking sector. Internet banking providers in Korea generally have the same security features and processing structures. Users are required to register and obtain a public key (an electronic signature) issued by six related institutions, including banks, before starting Internet banking. Users also need to install security patches in the form of Active X programs and are also required to enter several different passwords including their OTP (one time password) for maximum Internet banking security. Korea’s wide use of security practices like public key systems and security patch installations differs Page 9 of 36
  10. 10. ICT significantly from the rest of the world. Interested WA players should note this security approach in Internet banking so they can offer an appropriate value proposition in this sector. 3.2 All Telecom Subscribers The total number of subscribers of fixed, mobile, wireless, TRS, and wireless data in Korea is 62,530,803 as of the end of April 2006, according to the Ministry of Information and Communication (MIC). About 38,996,000 mobile phone subscribers emerged as the key consumer purchase group, in particular the age group of 10–30 year olds. For this sector, WA players for mobile phone products and services should leverage on current period. Korean mobile phones are the most complex in the world, with multiple features such as FM radio, smart card payments, MP3 players, digital cameras offering up to 7MB pixel quality, digital camcorder, digital mobile TV, movable storage devices and more. A mobile phone payment system called Moneta, available at many retail outlets, enables payments by simply scanning the mobile phone with the charge added to the next phone bill statement. Bus and subway fares can also be paid by mobile phone and credit cards. All Telecom Subscribers (Unit: persons) Category Mar-06 Apr-06 % (April) Fixed 23,013,486 23,051,283 36.9% Mobile 38,916,793 38,996,184 62.4% Pager 42,790 42,421 0.1% TRS 329,466 332,926 0.5% Wireless Data 108,659 107,990 0.2% Total 62,411,194 62,530,804 100.0% Source: Ministry of Information and Communications (MIC) The CDMA-based mobile phone system used in Korea differs from Australia’s GSM- based mobile phone system. The benefits of CDMA include higher speed Internet connection for digital data transaction that can deliver rich multimedia content like movies and pictures. Currently, CMDA-based mobiles dominate the market place. However, the recent launch of HSDPA (High Speed Download Packet Access) offers high speed wireless internet connection up to 14Mbps with an average actual speed of 2~3Mbps over the HSDPA mobile phone. This so-called ‘3G+ generation’ was first commercialized in Korea and offers great opportunities for content designed for mobile phone devices. One example of promising new applications is true video calls over mobile phones. WA players should take note of and explore possible opportunities in the 3G+ niche market. Page 10 of 36
  11. 11. ICT 3.3 Broadband subscribers With over 12,549,000 broadband subscribers, Korea is a mature broadband market that offers the world’s best broadband infrastructure for xDSL, fiber optic and wireless broadband connections. Practically almost all homes are connected with broadband, with about 51% at 6,419,000 users using xDSL. Korea Telecom (KT) is the leading provider with 5,415,000 users because of its nationwide fixed phone line infrastructure. The next infrastructure medium cable TV (CATV) holds a 33.2% share with 4,171,000 users, followed by 1,956,000 LAN users making up 15.6%, and a negligible satellite sector of just 2,272 users. KT and Hanaro dominate the broadband market. Recently, another round of competition sparked off in this mature market with limited growth opportunities when Hanaro began offering unmetered 100Mbps services, mostly to home users in apartment buildings using the fiber optic network. KT and Hanaro are direct competitors in the market and are looking for value added services for consumers. In this market, WA players offering value-added services to broadband subscribers are encouraged to explore market opportunities. Broadband Internet Subscribers (End April 2006) Category xDSL CATV LAN Satellite Total % KT 5,415,646   842,531 2,272 6,260,449 49.9% Hanaro 897,485 2,098,088 582,133   3,577,706 28.5% Onse   279,019 37,524   316,543 2.5% Dreamline 39,876 47,788 11,328   98,992 0.8% Dacom 17,006 70,990 90,964   178,960 1.4% Powercom   351,117 200,883   552,000 4.4% Value Added 11,720 1,294,790 19,559 1,326,069 10.6% Auxiliary+ 37,359 29,805 171,683   238,847 1.9% Total 6,419,092 4,171,597 1,956,605 2,272 12,549,566 100.0% % Share 51.1% 33.2% 15.6% 0.0% 100.0%   Source: Ministry of Information and Communications (MIC) Auxiliary+: Very small reselling operators The table following shows the overall rate of broadband subscribers among the world’s leading countries as of June 2003. Korea’s mature market offers an excellent test bed market for innovative technologies and the Korean market is open to foreign technology suppliers. As in other industries, the local Internet sector also works closely with offshore technology innovators, mostly from Europe and North America. Broadband Internet Subscribers per 100 People (June 2003) Page 11 of 36
  12. 12. ICT Source: OECD(WWW.OECD.ORG/site/telecom) Graph : Courtesy of OECD. 3.4 Wireless Internet subscribers Generally the wireless Internet environment of Australia and Korea differ greatly in terms of technology, applications, and the broadband delivery medium. Korea relies on CDMA and, more recently, WiBro and HSDPA to deliver comparatively richer multimedia content from simple SMS, email, web browsing, instant messenger, music, movie, digital TV, Internet banking, and so on. Another big difference is the wide use of Internet banking and Internet stock trading using wireless Internet connections. PDAs are widely used but not at the rate expected by PDA producers. Most phones offer wireless Internet as part of the service range offered by the mobile phone operators. Wireless Internet subscribers (Unit: persons) Growth Mar-06 to Apr-06 (persons, % Category Mar-06 Apr-06 %) Share SKT 19,014,100 154,678 0.8% 19,168,778 50.6% KTF 12,414,386 21,630 0.2% 12,436,016 32.8% LGT 6,117,121 164,475 2.7% 6,281,596 16.6% 100.0 Total 37,545,607 340,783 0.9% 37,886,390 % Source: Ministry of Information and Communications (MIC) The mobile phone is the primary device in Korea. More and more wireless broadband is being used, ranging from Bluetooth, wireless LANs, hotspots, mobile phone WiBro, and Page 12 of 36
  13. 13. ICT the latest HSDPA, the fastest wireless Internet connection, 3G+. Samsung and other mobile phone manufacturers are producing HSDPA compatible phones allowing users to talk with video with average speeds of 2~3Mbps, although in theory speeds can go as high as 14Mbps. 3.5 E-commerce Internet shopping is the third largest distribution channel in Korea after discount stores and department stores. Internet shopping has overtaken TV home shopping and multi- level distribution channels, and now has a 15% share of distribution channels. From only 79 Korean Internet shopping websites in 1997, there are now over 4,400 shops as of March 2006. Open market sites like auctions and classifieds, which provide a place for vendors and buyers rather than direct sales, are leading among Internet shopping sites, a trend expected to continue in the future. According to the National Internet Development Agency of Korea (NIDA), over 17 million people in Korea now purchase goods and services from Internet shopping malls per year. Korea is looking to leverage on its broadband Internet infrastructure, large e- commerce consumer groups and well-developed mature Internet shopping market. The market has recorded growth in B2B, B2G, and B2C sectors since 2001. Payments used are mostly credit cards (70%) followed by e-banking, mobile phone, and other forms. Korea’s credit card use for online shopping payments probably ranks highest in the world. The small decrease in credit payment in 2004 is due to the rise of instant e- banking. Payment Systems By Major Methods (Unit: %) Category 2003 2004 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Credit Card 73.9 73.6 74.6 73.2 70.7 69.0 68.2 Online Bank Transfer 22.4 23.1 22.3 23.1 25.9 27.4 27.9 Electronic Money 2.0 1.6 1.5 1.6 1.2 1.2 1.2 Others 1.8 1.7 1.6 2.1 2.3 2.4 2.7 Total 100 100 100 100 100 100 100 Source: Cyber Shopping Mall Stats Survey, National Statistical Office (NSO) 2003 & 2004. Approximately 100 payment gateway companies provide payment services to the Internet shopping malls. However, it is estimated that the top 10 service providers dominate the majority of the market. By law, all purchases exceeding approximately US$300 are required to use public key digital signatures that are stored in USB, HDD or other removable storage devices. For small amounts, mobile phone payments are also used. Although utilities, telcos, the government and some institutions still use Giro Page 13 of 36
  14. 14. ICT payments, Internet shopping malls do not use Giro at all. Likewise, COD is rarely practiced either. Internet Shopping Payment Methods Category Major Players Credit Cards KFTC, Inicis, KCP, KSNET, TGCorp, PayGate, etc. Bank Transfers (online) KFTC, Banktown, Dacom Small Amounts Danal, Mobilians, InfoHub, etc. Source: Payment Gateway Market Trends, June 2004, Korea Financial Telecommunications & Clearings (KFTC) http://www.kftc.or.kr/english/about/overview The products sold online vary widely and include most products and services, such as books, digital goods, foods, electronics, cars, tickets, insurance polices, pensions, or travel packages. A recent trend is adopting a ‘mall’ structure. This is when very niche market players join another well-known shopping mall to differentiate their premium services and add to their quality product portfolio. For example, Enjoy New York, a shopping mall operated by KT Mall, has now joined Hmall, Hyundai’s mall. Unlike the U.S.’s e-commerce markets, Korean e-commerce solutions have sophisticated built-in features like reporting, payment histories, reviews, automatic SMSes, and more. Because of the excellent broadband infrastructure, almost all Internet shops have rich multimedia, including heavy graphics, video and e-catalogues. Consequently, Korean consumers have higher expectations than other markets for both features and aesthetics. WA players looking to expand in this sector should keep this consumer expectation in mind. Page 14 of 36
  15. 15. ICT Internet Shopping Mall Volume & Percentage by Products – 2005 (Unit : US$ thousand, %)       Category 2004 2005 Growth % % % TOTAL 7,768,105 100.0 10,675,595 100.0 2,907,490 37.4 Computers & Peripherals 909,294 11.7 1,026,997 9.6 117,703 12.9 Software (Including 69,359 0.9 98,472 0.9 29,113 42 Games) Electronics, Appliance, Communications 1,441,761 18.6 1,785,916 16.7 344,155 23.9 Equipment Books 374,319 4.8 495,666 4.6 121,347 32.4 Records, Video, Musical 103,319 1.3 94,752 0.9 -8,567 -8.3 Instruments Travel, Reservation Services 751,592 9.7 1,603,830 15 852,238 113.4 Children/Infant Products 271,740 3.5 406,365 3.8 134,625 49.5 Foods, Beverage, Health 371,166 4.8 531,085 5.0 159,919 43.1 Foods Flowers 37,423 0.5 40,680 0.4 3,257 8.7 Sports/ Leisure 321,065 4.1 395,651 3.7 74,586 23.2 Living/Automobile 819,993 10.6 1,056,216 9.9 236,223 28.8 Clothes, Fashion, Related 933,803 12.0 1,583,101 14.8 649,298 69.5 Cosmetics/Perfume 514,628 6.6 587,167 5.5 72,539 14.1 Office/Stationary 71,939 0.9 106,116 1.0 34,177 47.5 Agriculture/Fisheries 280,273 3.6 284,659 2.7 4,386 1.6 Services 153,771 2.0 100,970 0.9 -52,801 -34.3 Others 342,658 4.4 477,952 4.5 135,294 39.5 Source: Korea National Statistical Office (NSO), 2005 Internet Shopping Mall Statistics The leading shopping mall players are Auction, Gmarket, Daum Onket, Samsung mall and Hmall. They all offer a wide selection of products to consumers. In the open market space, Auction is estimated to hold about 51% of the market followed by Gmarket with 33%. Auction handles about 1 trillion Won (US$1 billion) in transactions per month. Internet shopping malls are now seeing fierce competition between existing and emerging operators. Gmarket has been growing the fastest, thanks to a low 1% service fee and innovative marketing campaigns such as celebrity marketing. 3.6 Software The Korean software and related services industry produced US$2,064 million in 2005, a 10% increase over the previous year. As shown in the following table, all the software Page 15 of 36
  16. 16. ICT sectors saw significant increases in growth with office software growing fastest at 97.2%, followed by enterprise software at 53.1%. The software sector has seen recent growth, although traditionally it has been less competitive in the world market. As stated in IT839, Korea’s government IT action plan, software sectors are expected to grow steadily as more and more IT players see the importance of software industry. Enterprise solutions including banking & finance, telecom, automobile, semiconductors, etc. now use software solutions from overseas suppliers. Korea software market by year and segments (Unit: US$ thousand, %) Category 2004 2005 Growth Package S/W 3,842,502 5,093,622 32.6 Application S/W 1,945,446 2,591,877 33.2 Office S/W 219,211 432,293 97.2   Enterprise S/W 800,849 1,226,004 53.1   Industrial S/W 570,336 540,433 -5.2   Other S/W 355,050 393,147 10.8 Source: Korea Association of Information and Telecommunications (KAIT) and other industry associations 3.7 Computer Related Services The chaebol companies dominate almost all of this market sector. Each chaebol company has its own system integration subsidiary that serves as the primary service provider for the chaebol’s companies. This relationship tends dictate which company will win projects in most cases. All sectors showed slight increases over 2004, except for the information security sector that experienced markedly higher growth of 82.4%. This market sector is expected to grow significantly in the coming years as more and more companies pay attention to information security. Security software, services and related goods and services are expected to expand to desktop computers, mobile phone and other mobile devices as well. Page 16 of 36
  17. 17. ICT Market size of computer related services (Unit: US$ thousand, %) Category 2004 2005 Growth Computer services 13,477,516 13,758,338 2.1   System integration 8,858,750 8,753,678 △1.2   System maintenance 3,921,887 4,212,960 7.4   Information security 54,455 99,322 82.4   Other services 642,424 692,378 7.8 Source: KAIT and other industry associations 3.8 Digital Content Sector The Korean government recognizes the importance of digital content as a growing market. In 2005, digital content sector grew 36.8% from the previous year, with informational content seeing a 282.9% increase to reach US$567,984. This is due in part to an active push in content development by the government and industry associations. Today, many profit and non-profit organizations, in particular educational ones, use digital content to deliver training and other educational material. All Korean schools have computers with Internet connection and digital content such as flash, video and text, is used in classrooms. Market size of digital content by year (Unit: US$ thousand, %) Category 2004 2005 Growth Digital Contents 1,105,513 1,512,172 36.8   Informative 148,343 567,984 282.9   Entertainment, Games 639,483 624,742 △2.3   Others 317,687 319,446 0.6 Source: KAIT and other industry associations 3.9 Computers This sector has few opportunities for WA players. Korea’s personal computer production has declined, largely because of offshore production. Tough competition has pushed major computer manufacturers to move production facilities to China and other markets with lower labor costs. As a result, most desktop and notebook computers are now imported to meet local demand. However, locally produced computers still had sales of 1,716 billion Won in 2005, a 14.6% decrease from the year before. Locally produced desktops declined 13% and notebooks by 1.8%. In 2005, computer exports fell to US$293.11 million, a sharp decline of 50.7% from the previous year. Exports to the U.S. were about 21.1% followed by Japan, China, and Australia, a US$27.95 million market. The significant drop in export was seen in desktop Page 17 of 36
  18. 18. ICT computers and notebook computers. This decline is expected to continue as Taiwan and China offers much cheaper computers. Chinese computer manufacturers such as Haier have been aggressive in their overseas market expansion, which is likely to undermine Korea’s computer export capabilities in overseas markets. 4. Market Growth The overall Korean ICT market has been growing over the last decade in all competitive industry sectors including semiconductor, flat panel display, telecom equipment, mobile phone, and Internet products and services. For statistical purposes, Korea divides the ICT industry into three main sectors; IT services, IT equipment and software. All of these sectors saw increases in the last few years, although the 2005 growth rate was just 1.6% over 2004. In terms of IT production output, Korea ranked third in 2002 and fourth in 2003 after the U.S., Japan and China according to Reed Research. IT Production Volume (Unit: US$ billion, %) Category 2001 2002 2003 2004 2005 P IT production 150.1 188.9 201.6 229.6 233.2 (Growth) (1.3) (25.9) (6.7) (13.9) (1.6) IT Services 36.3 43.0 41.6 46.0 46.7 IT Equipment 99.1 127.7 141.6 164.9 165.9 Software related 14.7 18.2 18.4 18.7 20.6 Source: National Statistics Office (NSO) 2005p: Projected figures for 2005. Today, Korea’s economy is far from the traditional agricultural industry it used to be. It has shifted to high-tech industries that produce wealth for the nation. As shown in the table below, the IT industry contributes substantially to the GDP in value-added output. In 2005, the 1.9% share of the real GDP growth rate in turn contributes 46.5% of the total real GDP growth, sharing a total 15% of the real GDP. The IT industry has been the key factor in Korea’s GDP growth for the last five years, a trend is expected to continue for years to come. Page 18 of 36
  19. 19. ICT IT Industry contribution to real GDP (Unit: %) Category 2001 2002 2003 2004 2005 p Real GDP growth 3.8 7 3.1 4.7 4 IT Industry Growth 10.5 17.6 14.2 17.5 13.6 - IT share in real GDP 1 1.8 1.6 2.2 1.9 growth rate. - IT contribution in real 25.2 26.3 51.3 42.6 46.5 GDP growth IT share in real GDP 10.1 11.1 12.3 13.8 15 Source: Bank of Korea (BOK) and KISDI 2005p: Projected figures for 2005. Korea enjoyed a trade surplus of US$48,382 million in 2005, accounting for about 36% of all industries’ exports. Korean IT exports and imports have grown with some fluctuations, due to the fundamental reliance of Korea’s IT industry on overseas export and import markets. Among exports, the most significant products are wireless mobile equipment, semiconductors, digital TV, and display panels. Wireless equipment, including CDMA and GSM mobile phones, reached US$16,737 million in 2005 up from US$8,850 million in 2001. Digital TV also showed significant export growth accounting for US$6,151 million in 2005 up from US$1,615 million in 2001. Korea has a very strong competitive edge in these sectors internationally, and Korean dominance is expected to continue in the future. Although Korea is a leading IT export country, it also is a leading IT import country across almost all IT industry sectors. In particular, the semiconductor sector alone imports for US$26,575 million worth of IT parts in 2005, followed by US$7,051 million of general electronic parts, and US$4,414 million worth of display panel part imports. Reliance on foreign technology and parts to manufacture finished IT products means Korea must heavily import general IT parts and semiconductors. Japan and the U.S. are the two most significant import and export countries. IT Exports and Imports (Unit: US$ Million, %) Category 2001 2002 2003 2004 2005 IT Export 48,426 57,126 70,549 93,681 102,333 (Growth) (-23.2 (18) (23.5) (32.8) (9.2) %/ All Industry 32.2 35.2 36.4 36.9 36 IT Import 32,888 35,898 42,438 49,755 53,950 (Growth) (-20.8) (9.2) (18.2) (17.3) (8.4) % /All Industry 23.3 23.6 23.7 22.2 20.7 Trade Balance 15,539 21,228 28,111 43,926 48,382 Source: Korea Customs, KISDI Page 19 of 36
  20. 20. ICT 5. Market Opportunities WA players should look for opportunities in conventional areas where WA has a competitive edge, and in the newly developed market sectors. From the viewpoint of WA players, opportunities in the sectors below appear hopeful, provided further studies are made. 5.1 Internet banking Market opportunities for ICT security in Internet banking, mobile banking, or banking via TV are excellent for WA ICT players. However, unless the solutions offered by WA players are innovative, unique, and have a proven value proposition, the market reception is likely to be passive. In the short to mid-term, besides ICT security, Linux Internet banking looks promising as more banks are expected to offer Internet banking over the Linux based operation system. Open source software is also strongly advocated by the Korean government. The Korea Open Source Software Association (OSSKOREA) plays an active role in this sector. 5.2 E-commerce – Internet shopping malls For WA suppliers, e-commerce is an area that offers challenges and opportunities. One example is credit card fraud protection system that may see demand as more and more Korean shopping mall operators are expanding overseas. However, currently, the vast majority of shopping malls are focused on the local market using local currencies only. 5.3 Innovative software solutions and digital content for the mobile phone sector. Anything that provides an innovative technological edge over the existing products and services should explore the Korean market, such as a recent Australian of development acoustic technology that significantly enhanced the intelligent hearing experience for the mobile phone users. Other important market opportunities are digital content, particularly in edutainment. WA content providers for mobile phone streaming and downloads will find significant market growth and opportunities in Korea due to its leading high-speed Internet connections. 5.4 Broadband market sector WA players should explore opportunities in content, security, and look for any innovative technology used in this sector. The Korean telecom industry uses best of Page 20 of 36
  21. 21. ICT breed offshore technologies and is quite open to reliable foreign suppliers. WA companies should particularly note the WiBro (wireless broadband, like an expanded version of wireless LAN) and HSDPA (High Speed Download Packet Access) wireless broadband sectors. The leading players are Korea Telecom (KT), the equivalent of Australia’s Telstra, and Hanaro. The hardware device market holds few opportunities for WA ICT players. Instead, innovative software and content providers should be encouraged to explore entering the Korean market. Edutainment and health related services are two promising examples to consider. 5.5 Software Innovative WA software providers are strongly encouraged to explore Korea. The best strategy would be to set up a one or two person office under the vendor’s brand initially, with basic technical support done locally and supported by the vendor. WA ICT players will likely to find the software sector quite rewarding as Korea’s software sector is not as highly advanced as its other telecom and IT industry sectors. 5.6 Computer Services WA ICT players will find this sector hard to enter, especially compared with better opportunities in other sectors. However, there is some demand for security related services providers. Prospective entrants must note that other foreign players are already active in the security service market, making it tough to enter. Choosing the right local partner is vital for market success. 5.6 Digital Content Digital content experienced exponential growth over the past few years by fully leveraging on the nationwide broadband Internet connection. This sector is likely to provide opportunities for WA players in joint content development and marketing projects. Edutainment and games have the most potential for possible joint initiatives. Using a WA partner’s games scenario backed by Korean game programming skills may well provide excellent opportunities for both local and overseas markets. Australia is better known as a creative skills provider of scenarios for digital content creation. More specifically, Australia’s Curriculum Corporation (CC) under the Australian Education Ministry and related WA players could find opportunities in providing Australian digital content to Korean schools, private schools, etc. Another strategy would be to work with related Korean companies in digital content. Page 21 of 36
  22. 22. ICT 5.7 Strengths and weaknesses Korean industry’s strengths, weaknesses, opportunities and threats Strengths Weakness  Production and export capability is  Manufacturing-oriented industrial high structure  Excellent hardware, communications  Software and IT service areas are devices and services weak  Heavy government and private sector  Qualitative level of technological investment in R&D innovation low  Low human resource  Quantitative performance of development and labor market technological innovations high efficiency  Difficult accessibility of venture  High level of venture capital investment capital and environment for business start-up  Low utilization of information  Strong communications and internet Infrastructure and weak infrastructure protection of intellectual property rights Opportunities Threats  Continuation of world economic  Market expansion through competition downturn  Technological advancement through  Bursting of IT "bubble" and heightened R&D investment decreases in investor sentiment  Emergence of China and other  Enhanced globalization and cheap-labor countries as IT strengthened international cooperation manufacturing bases  Lack of human resources due to  More efficient means of financing and low interest in sciences and access to venture capital engineering  Greater utilization of super-high speed  Persistence of large company- internet oriented manufacturing structure Page 22 of 36
  23. 23. ICT 6. Market Barriers The Good Software (GS) certificate issued by the Ministry of Information and Communication (MIC) is particularly important for WA players who are targeting public sectors. It can be through local business partners. Without the GS certificate, entry into public sector markets is likely to be difficult. There are few barriers to software related goods and services in terms of permission, import duty and other legal requirements, except for certain special vertical markets. Overall, software has a 0% duty. Generally, software products and services with proven track records and reliable references will find it much easier to enter the Korean markets, especially in the banking and finance sectors. The extent of software localization needed will vary depending on the needs of the target market. All electronic goods should obtain EMI (Electron magnetic interference) clearance from Radio Research Laboratory (RRL) under the Ministry of Information and Communication. Other countries’ approval certificates will only serve as reference materials and cannot replace the testing and approval process in Korea. Usually, electronic goods from OECD countries have few problems in obtaining approval provided their existing test reports are added to the submission process and their local business partner is involved in the process. In practice, the local business partner will handle the approval application on behalf of the electronics goods vendor. The lead- time for this varies but is typically under a few months. The process is faster when thorough documentation is supplied by the vendor. Typically, general electronics goods have an import duty of 8% or less. Most parts, such as all semiconductor parts, will have 0% import duty. Certain categories have import duties, such as connectors without pins with an 8% import duty, while connectors with pins have a 0% import duty. In practice, the local business partner should assist the WA partner with all the related approvals and legal process. Online games, movies, videos, PC games and CDs must seek rating approval from the Korea Media Rating Board before they can be imported and sold. Rating approvals are for both local and international products. Apart from legal market entry barriers, the Korean ICT markets prefer European, North American and Japanese suppliers and products. Australia, particularly WA, is not well known in the IT industry sector here. Hardware products are especially unlikely to gain a quick reception from local players because of Australia’s weak hardware brand awareness. This stereotype and low awareness present a challenge that WA players need to be prepared to tackle. However, Australia is viewed by the Korean IT industry as a country with innovative software solutions. This positions WA players favorably for software solutions. Page 23 of 36
  24. 24. ICT 7. Import Penetration and Growth Foreign participation in Korea’s IT industry has always been substantial and Korea has a history of openness to offshore technologies. As shown in the table below, all market sectors have grown in the last few years and the trend is expected to continue. This forecast is based on the structural nature of Korea’s IT economy which relies on offshore technology and parts in multiple aspects. This offshore reliance will lead to more foreign participation as the local IT market grows. In other words, the Korean IT industry needs offshore technologies and parts to produce finished IT products. This is true across almost all industry sectors including mobile phone, semiconductor, automobiles and flat panel displays. Both wired and wireless communications sectors have grown continuously. This includes CDMA parts from US and other parts and equipment used in the telecom industry. A lot of testing equipment also comes from overseas suppliers, another market that is likely to increase as well. The computer sector will see a continuous growth in imports as most of low-end computers are now being imported from China. High-end servers are also being imported, although local players are active in the market place and catching up with their offshore competition. Page 24 of 36
  25. 25. ICT Korean IT Import Statistics (Unit: US$ million) Category 2001 2002 2003 2004 2005 2006 Q1P Communications Equipment 3,362 3,195 3,325 3,721 4,271 1,229 - Wired 1,901 1,571 1,528 1,526 1,843 506 - Wireless 1,461 1,624 1,797 2,195 2,427 724 Information Equipment 6,985 6,819 6,562 7,189 8,596 2,505 - Computer 3,061 2,632 2,698 3,028 3,928 1,125 - Peripherals 3,066 3,236 3,059 3,375 3,734 1,103 - Office Equipment 164 236 192 190 227 77 - Accounting related - Parts 113 76 71 78 79 21 - Package S/W 582 638 541 519 627 179 Broadcasting Equipment 1,945 2,196 2,663 3,172 3,044 707 - Digital TV 173 255 413 553 501 110 - Set-top Box 13 16 20 29 22 1 - Digital Media 1,152 1,283 1,437 1,651 1,530 354 - Broadcasting Equipment 219 179 240 308 266 43 -Acoustic Accessories 388 463 553 632 726 199 Parts 20,596 23,688 29,888 35,673 38,040 9,806 - Semiconductors 15,238 17,256 21,215 25,068 26,575 6,802 - Display Panels 1,302 1,933 3,350 4,201 4,414 1,155 - General Parts 4,056 4,498 5,322 6,404 7,051 1,849 Total 32,888 35,898 42,438 49,755 53,950 14,248 Source: Institute of Information Technology Assessment Page 25 of 36
  26. 26. ICT 8. Key Market Players Telecom market players are limited as SK Telecom, KTF and LG Telecom are the dominant players now. In terms of market share by the number of mobile phone subscribers, SK Telecom has about 50% of the market, followed by KTF and LG telecom. Key Highlights of Korea’s Major Mobile Phone Companies (3rd Quarter 2004) (Unit: US$ million/ %/person) SK Telecom KTF LG Telecom Type of service Cellular PCS Affiliation SK KT LG Sales Amount 6,561 3,992 2,150 Operating Income 1,604 327 62 Net Income 1,041 166 - Total Asset 12,545 7,363 3,363 Debt Ratio 105% 161% 285% Retained Earnings 5,272 852 - Networks 19,596,000 16,470 4,186 Major Shareholder SK Inc 21% KT 48% LG Inc 37% Domestic Demand 95% 100% 100% Ratio Form of Foreign Solution Export, Investment investment in stock Employees 4,060 2,451 1,302 Website sktelecom.com ktf.com lgtelecom.com Service Number 011,017 016 019 Tel 02-2121-2114 02-2010-0114 02-2005-7114 Source: Financial Supervisory Service Domestic Market Share by Mobile Phones Sales 2002 2003 2004 Market Market Market Units Units Units share share share Samsung Electronics 8,580 54.00% 7,385 53.20% 9,356 44.20% LG Electronics 3,670 23.10% 3,099 22.30% 4,626 21.80% Pantech&Curitel 402 2.50% 1,642 11.80% 3,114 14.70% Motorola Korea 1,080 6.80% 500 3.60% 1210 5.70% Others 2,161 13.60% 1,264 9.10% 2,888 13.60% Total 15,893 100 13,890 100 21,194 100 Source: Financial Supervisory Service Page 26 of 36
  27. 27. ICT About four mobile phone manufactures control the vast majority of both local demand and the export markets as well. Although there are smaller players in the market sector, their output is negligible. Page 27 of 36
  28. 28. ICT 9. Future Directions 9.1 3G+ Telecom and Wireless Internet This sector is highly competitive but has potential opportunities for WA players in content, innovative software, and creating new with new products. Mobile phone- based software solutions and content should also be prioritized for the Korea market. The latest trends include DMB (Digital Mobile Broadcasting), WiBro (Wireless Broadband), and HSPDA (High Speed Download Packet Access) for mobile phone Internet connections. Korea’s telecom and broadband sectors are likely to continue to grow, but with new and different technologies and applications. Presently, homes are connected with xDSL and fiber optic which allow consumers to enjoy streaming video and other rich multimedia contents. The content is likely to increase and become richer, and to be targeted at individual market sectors, including edutainment, corporate job training, games, entertainment and more. The new mobile phone connections, DMB, WiBro and HSDPA, mean growth in quantity and quality for digital content for mobile phone subscribers. Already, a significant number of subscribers have digital media broadcasting to their mobile phones. One obstacle to the wide spread of the wireless Internet to mobile phones is higher costs because of CDMA-powered Internet connections. With WiBro and HSDPA, costs will be much lower which will widen the subscriber base. Video calls from home or on the streets is likely to be as simple as using a mobile phone. The existing technology of CDMA and WCDMA will see an unprecedented competition from the rising of HSDPA and WiBro. The goods and services targeting these next generation mobile phone markets have exciting commercial opportunities in the coming years. 9.2 Security Software and Computer Services About US$1.4 billion transaction volume occurs every day on Internet shopping malls in Korea. Over 4,000 shopping malls are in operation and more are expected to join as the market emerges as a new distribution channel. Internet banking, with more than 32 million users now, is another sector that has grown exponentially and shows continued high growth. In these booming market developments, the latest security threats have pushed higher security awareness to the Korean providers. Both hardware and software based security products and services are likely to find opportunities in Korea, and this particular market is recommended for WA players to Page 28 of 36
  29. 29. ICT monitor and explore. Equally important is security software for mobile phone users, who have been recently proved to be vulnerable to virus attacks. A recent trend is the growing use of open source software in both the public and private sectors. The government has encouraged departments and agencies to use open source software. For the last few years, Korea, China and Japan have held three- country open source summit in each country in turn each year. This annual meeting aims to foster open source software in the region and to jointly promote the development and use of such open source software. Samsung recently announced it will produce computers equipped with open source operation system, Linux from Q3 2006. Samsung targets sales of 3,000 units initially to public sectors, then gradually expand to private sectors. This marks the milestone in the personal computer industry and open source software industry in Korea and will stir other players to join the race. The Good Software certificate is one of the initiatives taken by Ministry of Information and Communication. This new certificate system is intended for Government and private software consumers to evaluate and recommend reliable and approved software. In particular software sales to the public sector are difficult without the GS certification. 9.3 Digital Content and Applications More and more Korean players want to expand into offshore markets because of tough competition in Korea’s mature digital content market place. Korean players possess extensive content production experience and skills, one of the driving forces behind Korea’s broadband Internet success. Joint production and digital content marketing with overseas players are expected to perform positively and benefit both participants by leveraging on each other’s skills and expertise. Page 29 of 36
  30. 30. ICT 10.Bibliography  IT Statistics Information Centre, 2005, Korea Association of Information & Telecommunication  2005 Korean IT Industry Statistics, published by Institute of Information Technology Assessment  IT Parts Export & Import Stats, June 2006, Institute of Information Technology Assessment  Korea Wired & Wireless Telecom Subscribers, April 2006, Ministry of Information & Communications  Hacking and Virus Report, April, 2006, Korea Information Security Agency  Korea Internet Statistics, March 2006, National Internet Development of Korea  2006 Q2 Database Industry BSI & CSI, April 2006, Korea Database Promotion Center  Korea’s World Market Share IT Industry, March 2006, Institute of Information Technology Assessment  March 2006 Major IT Stats, March 2006, Ministry of Information and Communications  May 2006 Exports & Imports, May 2006, Ministry of Commerce, Industry and Energy  IT Industry’s Contribution to National Economy – IT & GDP, Dec 2005, Bank of Korea  Korea IT Industry Total Output, March 2006, Korea Association of Information & Telecommunication  Korea Software Export Statistics, March 2006, Korea Software Industry Association  FDI in IT Industry, March 2006, Korea Association of Information & Telecommunication  Korea Package Software Output, March 2006, Korea Association of Information & Telecommunication  Total Telecom Subscribers Report, April 2006, Ministry of Information and Communications  Korea Post Postal Statistics, March 2006, Korea Post  Digital Contents Report, 2005, Korea IT Promotion Agency Page 30 of 36
  31. 31. ICT  Consumer Price Index, May 2006, National Statistics Office  Digital Times, IT Newspaper  The Electronics Times  iNews24, news articles  IT Statistics of Korea, 2006 Report  Korean Foreign Currency Report, June 2006, Bank of Korea Page 31 of 36
  32. 32. ICT 11.Appendix 11.1 Major Industry Links Institute of Information Technology Assessment http://iita57.iita.re.kr iita@iita.re.kr | +82-42-710-1114 Electronics and Telecommunications Research Institute http://www.etri.re.kr/www_05/e_etri webmaster@etri.re.kr | +82-42-862-6114 Korea Information Society Development Institute http://www.kisdi.re.kr/wwbs/eng/main.html kisdi@kisdi.re.kr | +82-2-570-4114 Information Culture Center of Korea http://www.kado.or.kr/engnew/eng_index.asp webmaster@icc.or.kr | +82-2-3660-2500 Telecommunications Technology Association http://www.tta.or.kr/English/new/main/index.htm info@interlink.or.kr | +82-2-2105-1730 National Computerization Agency http://www.nca.or.kr/eng_main.htm webmaster@nca.or.kr | +82-31-260-2114 Korea Information Security Agency http://www.kisa.or.kr/english webmaster@kisa.or.kr | +82-2-3488-4155 Korea Software Industry Association http://english.sw.or.kr/ webmaster@mail.sw.or.kr | +82-2-586-3411 Korea Software Financial Cooperative http://www.ksfc.or.kr/eng/eng_01.jsp webmaster@ksfc.or.kr | +82-2-2141-7800 Page 32 of 36
  33. 33. ICT Korea IT Industry Promotion Agency http://www.software.or.kr/kipahome/kipaweb/english/index.html webmaster@software.or.kr | +82-2-2141-5000 Korea Media Rating Board http://www.kmrb.or.kr/english/greeting.asp info@kmrb.orkr | +82-2-2272-8560 11.2 Statistics Table Telecom Market Share Based on Number of Subscribers (Unit:1,000 persons/ %) 2002 2003 2004 Number Market Number Market Number Market of Users Share of Users Share of Users Share SK Telecom 17,220 53.2 18,313 54.5 18,595 51.3 KTF 10,333 31.9 10,442 31.1 11,946 33 LG Telecom 4,790 14.9 4,837 14.4 5,699 15.7 Shin Se Ki Acquired by SK telecom in 2002 Total 32,342 100 33,592 100 36,241 100 Source: Ministry of Information and Communication) Major Domestic Repeater Companies (2004) (Unit: US$1,000/%) Debt- Domestic Sales of Operating Main Company Sales equity Market repeater/ profit customers ratio share total sales Kisan Telecom 27,285 5,606 25% 95% 77% SKT, KTF Youngwoo 19,124 4,647 20% 83% 56% KTF Communication Eastelsystems (formerly Sungmi 14,800 -966 170% 100% 58% SKT, KTF Electronics) Danam 6,650 2,334 427% 100% 11% KTF Withus 5,427 -1,036 100% 95% 92% KTF Samji Electronics 5,031 689 9% 100% 22% LGT Hantel 2,151 2,071 109% 96% 18% LGT Page 33 of 36
  34. 34. ICT Number of IT Players by Sub Sector (Unit: Firm) Category 2001 2002 2003 2004 2005 P Total Firms 3,046,554 3,131,963 3,187,916 3,189,890 - IT Firms 16,652 18,199 17,110 15,733 19,620 - IT services 5,784 5,477 3,347 2,422 3,021 - IT equipment 5,426 7,121 8,693 8,436 9,691 - Software related 5,442 5,601 5,070 4,875 6,908 Source: NSO, National Statistics Office, FKII, Federation of Korean Information Industries Based on 5 or more employees 2005p: Projected figures for 2005. FDI in Korean IT Industry (Unit: US$ million, %) Category 2001 2002 2003 2004 2005 All Industry 11,286 9,093 6,469 12,786 11,562 (Growth) (△25.8) (△19.4) (△28.9) (97.7) (△9.6) IT Industry 2,065 630 1,010 3,203 2,616 (% to all industry) (18.3 (6.9) (15.6) (25.1) (22.6) IT Equipment 1,603 403 296 2,812 1,010 IT Services 298 124 513 51 920 Software 164 103 201 339 686 Source: MOCIE, Ministry of Commerce, Industry and Energy Foreign Ownership in Telecom Companies 2003 2004 2005   Foreign Foreign Foreign ownership ownership (%) ownership (%) (%) KT 45.52 48.84 46.16 Hanaro 51.35 48.98 48.75 Dacom 3 3.4 6.84 SKT 47 48.22 48.74 KTF 8.79 17.7 22.53 LGT 18.31 26.56 27.03 Source: Bank of Korea Page 34 of 36
  35. 35. ICT Broadband Internet Subscribers (End April 2006) Category xDSL CATV LAN Satellite Total % KT 5,415,646   842,531 2,272 6,260,449 49.9% Hanaro 897,485 2,098,088 582,133   3,577,706 28.5% Onse   279,019 37,524   316,543 2.5% Dreamline 39,876 47,788 11,328   98,992 0.8% Dacom 17,006 70,990 90,964   178,960 1.4% Powercom   351,117 200,883   552,000 4.4% Value Added 11,720 1,294,790 19,559 1,326,069 10.6% Auxiliary+ 37,359 29,805 171,683   238,847 1.9% Total 6,419,092 4,171,597 1,956,605 2,272 12,549,566 100.0% % Share 51.1% 33.2% 15.6% 0.0% 100.0%   Source : MIC, Ministry of Information and Communications Auxiliary+: Very small reselling operators Internet banking users (Unit : '000 person, '000 company, %) 2004 2005 2006   End Dec1) End Mar1) End Jun End Sept End Dec End Mar 23,094 21,157 21,374 24,074 25,303 30,521 Individual (-6.1) (-8.4) (1.0) (12.6) (5.1) (20.6) 1,177 1,418 1,524 1,351 1,434 1,534 Company (-2.5) (20.5) (7.4) (-11.3) (6.1) (7.0) 24,271 22,575 22,898 25,426 26,737 32,055 Total (-6.0) (-7.0) -1.4 (11) (5.2) (19.9) Source: BOK, Bank of Korea 1) Decrease is due to the deletion of long-term inactive users 2) % growth over the previous period Wireless Internet subscribers (Unit: subscriber) April Category Mar-06 Apr-06 % Share Growth % SKT 19,014,100 154,678 0.8% 19,168,778 50.6% KTF 12,414,386 21,630 0.2% 12,436,016 32.8% LGT 6,117,121 164,475 2.7% 6,281,596 16.6% Total 37,545,607 340,783 0.9% 37,886,390 100.0% Source: MIC, Ministry of Information and Communications IT Exports and Imports (Unit: US$ millions, %) Page 35 of 36
  36. 36. ICT Category 2001 2002 2003 2004 2005 IT Exports 48,426 57,126 70,549 93,681 102,333 (growth) (△23.2) (18) (23.5) (32.8) (9.2) %/ All Industry 32.2 35.2 36.4 36.9 36 IT Imports 32,888 35,898 42,438 49,755 53,950 (growth) (△20.8) (9.2) (18.2) (17.3) (8.4) % /All Industry 23.3 23.6 23.7 22.2 20.7 Trade Balance 15,539 21,228 28,111 43,926 48,382 Source: Korea Customs, KISDI IT Industry Contributions to Real GDP (Unit: %) Category 2001 2002 2003 2004 2005 p Real GDP Growth 3.8 7 3.1 4.7 4 IT Industry Growth 10.5 17.6 14.2 17.5 13.6 - IT share in real GDP 1 1.8 1.6 2.2 1.9 growth rate. - IT contribution in real 25.2 26.3 51.3 42.6 46.5 GDP growth IT share in real GDP 10.1 11.1 12.3 13.8 15 Source: BOK, Bank of Korea and KISDI 2005p: Projected figures for 2005. Page 36 of 36

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