Friday, August 22, 2008
How does Korea do it?
And the lessons (in broad strokes and bands) South Africa can learn
“We … will further strive to become the world’s most advanced IT power. To realize this goal, we will push ahead with our e-government initiative, develop the software and content industries, and educate the public to make them the most computer literate citizens in the world.” – Minister of Information and Communication, Dr. Seung-taik Yang, 2001
If South Korea was an actor, the country would be someone like Philip Seymour Hoffman. A lot of people wouldn’t know that they know this talented performer, but they would have seen him in everything from Mission Impossible III (opposite Tom Cruise) to Charlie Wilson’s War opposite big hitter Tom Hanks). Why this obscure reference to South Korea? Simply because in terms of brand, South Korea is so obscure for a country so small and successful, it beggars belief.
To test this theory, try to answer these three simple questions:
1) Where exactly is South Korea?
2) What shape is the country (have you ever seen the country on a map?)
3) What is the capital of South Korea?
See? How did a nebulous country half the size of California, one tenth the size of South Africa, become part of the trillion dollar club? In 2005, South Korea’s economy was 11th, but was overtaken by Russia in 2006 and by India in 2007. How has a country with as many people as South Africa, hopped to just outside the top 10 most successful world economies? And how come South Korea - a country that remains only half of its whole true self - is projected to be the second wealthiest company per capita by 2050? How is all this possible for a small peninsula that pokes delicately out of the Chinese bubble somewhere above the islands of Japan?
Korea’s WWW Story
One of the factors underpinning South Korea’s meteoric rise is that South Korea is the world leader in terms of broadband internet penetration in the world. How did South Korea become the most wired nation on Earth?
The Internet story starts with telephone penetration. South Korea’s telephone penetration in 1960 was less than 10% of the world average, at .36 per 100 inhabitants. 21 years later Korea reached and exceeded the world average, and 21 years after that (2002) they achieved a teledensity of 48.8 (three times the world average). Currently Korean households with fixed line telephones have reached 92%, 79% have mobile phones (double South Africa’s figure of 40% mobile phone penetration, and exceeding the USA’s estimated 75% penetration).
As recently as 13 years ago, Korea’s internet penetration levels were less than 1 per 100 inhabitants. In 1999 South Korea overtook the average (for Developed Nations), helped to some extent by the release of the Baek Ji Young sex video in the same year. 7 years ago Korea emerged as the world’s fifth largest internet market with 26 million users (South Africa has less than 5 million) and at the same time South Korea reached number one for Digital Subscriber Line (DSL) and cable modem Internet access. Today Korea is the world leader in broadband internet access penetration. Less than 10 percent of Americans have high-bandwidth connections compared to over 50% of Korean households. Korea is currently piloting and rolling out connections at 1,000Mbps (the UK averages 4.6Mbps). South Korea also aims to boost wireless data speeds (to mobile handsets) with WiBro, also known as WiMAX. Of all the OECD countries, South Koreans pay the lowest rates for broadband connections capable of downloading movies in minutes.
How to explain Korea’s exceptional internet penetration?
High levels of Internet penetration are not strongly correlated to Korea’s income level, however the high penetration levels have stimulated Korea’s income capacity. For a country not particularly well suited demographically to high internet penetration, what then explains Korea’s unique preponderance of internet users? The answers to this question are both simple and astounding:
First: Koreans have their own language, so there is very little ‘recycling’ and ‘lifting’ of content from outside sources. While the Korean alphabet is not ideally suited to computerization it remains a simple, scientific language.
Second: The Koreans love to read. This is evident in the fact that newspapers continue to grow unabated despite the growth of online news sites. Korea’s literacy level is 97.6, the highest among the Asian Tigers.
Third: The Koreans are compulsive, hard working and attentive students. Tertiary level enrolment is just under 70%. Discipline is high partly because parents can watch and evaluate classroom activities through streaming video sessions on their home computers.
Fourth: Population density helps. Seventy percent of Koreans live in the seven largest cities.
South Africa can follow Korea’s leading example of a country’s rise from a low level of Information and Communication Technology (ICT) access to one of the highest in the world.
1) Local is lekker. All of the top 10 web sites accessed by Korean users are Korean. Local content differentiates and puts together local communities.
2) LAN. Korea’s internet resembles one gigantic Intranet (or local area network) where most users only access local sites. An aggressive investment needs to be made in internet infrastructures in South Africa’s urban centres.
3) No place like home. Home-based portals like Korea’s Daum portal (a local version of Google or Yahoo) attracts 450 million page impressions and is a world leader in pages per user and session time. Daum offers news, e-mail, instant messaging, shopping, music, videos, etc and earns revenues e-commerce transactions, advertising and site segments dedicated to members-only. It is able to earn money because it holds a captive market that it is Korean, and does not risk ‘diluting’ its content from outside sources. News24 is South Africa’s Daum, but we need more home-grown portals based on our local parlance.
4) Culture. Korea has an internet culture. Korea has over 26 000 internet cafes, a lively gaming industry (65% of visitors to internet cafes are gamers). Almost half - 43% of South Korea's population –have a blog, while almost every Korean twentysomething uses a social network on a daily basis. Internet culture can be inculcated at school, home and business level,and access can be developed by rolling out internet stations and cafes at airports, shopping malls and other public spaces.
5) Lifestyle. The internet is part of the Korean lifestyle, and part of family commerce: Brits spend 4 hours a week on average on the net, Americans spend 10. Koreans average 16 hours a week on the Internet (internet addiction is a common problem. Housewives generate 45% of domestic traffic shopping, buying and selling shares, taking classes and surfing online. Online banking, and other forms of technology adoption needs to be encouraged in South Africa.
Understanding Korea’s Portals
Naver and Daum are default community sites that enable the web savvy and very gregarious (and at times nationalistic) Korean people to engage in everything from dating to chatting to gaming. “Advanced" web applications (for example programs using Flash) don't hinder functionality since broadband is ubiquitous. Google is not considered a portal in Korea; traffic to Naver and Daum is also not related to just a search function. Naver and Daum customers use on site search as a "value added" feature; for them there is no point going to a foreign non-community search engine that has virtually none of the features that they already have in their online community.
So now we know how Korea wired itself. What are the implications?
An increase of 7 percent broadband adoption would mean $134 billion for the US economy -Connected Nation (a non-profit group)
South Korea’s largest conglomerate, Samsung (2006 revenue totalled $158.9 billion), is the global market leader in more than 60 products. Is it a coincidence that the country with the world’s highest internet penetration levels is also a world leader in electronics?
In April this year while visiting Samsung’s offices in Seoul I had a conversation with a Business Reporter (Kim Yoo-chul), I had an epiphany. The main difference between the USA and South Korea, I realised, is that the USA makes software, whereas South Korea builds things: Semiconductors such as DRAM, SDRAM, Flash Memory, Hard Drives, LCD Displays, Plasma Displays, OLED Displays, Blu-Ray players, Home Cinema Systems, Set-Top Boxes, Projectors, Mobile Phones, MP3 Players, Digital Cameras, Camcorders, Monitors, Laptops, UMPCs, CD and DVD Drives, Laser Printers, Fax Machines, Refrigerators, Washing Machines, Microwaves, Ovens, Vacuum Cleaners, Air Conditioners…Samsung even builds ships.
Interbrand rates Samsung as the number one consumer electronics brand in the world, a position it overtook from Sony almost 3 years ago Samsung is behind Nokia as the world's second largest mobile phone maker. Koreans replace their handsets more often than American consumers, once again reflecting this oh-so Korean characteristic: exceptionally rapid adoption of new technologies. The downloading of video clips and music on one’s mobile phone is already a common practice in Korea.
A Country of Early Adopters
In a world where each country is aiming to be an Information Technology society (this the information age after all), South Korea has already (and uniquely) achieved this. They have much greater access and utility of internet technologies than anyone else. As such, the Koreans are always the first to develop a slew of homegrown gadgets to enable their domestic users. This makes the country one of early adopters, a trait that in itself is revolutionary for the fast paced world of managed information flow. Korea’s ‘hit’ products are identified, rolled out and modified for world markets that are always behind Korea, because their level of internet utility is always less than South Koreas. South Korean products flow out into world markets already tried and tested, and gather tremendous momentum (and of course, revenues). In this way South Korea is able to stay ahead on the crest of the technology wave (as it applies to developing the latest and most functional electronics hardware).
Like the pharmaceuticals industry, initial Research and Development costs are staggeringly high, but ‘hit’ products earn Billions. Korea’s pre-emptive massive investments into internet infrastructure have paid off handsomely. E-commerce in Korea is already 1/5 of the entire economy, worth an estimated $200 billion. The country with cutting edge hardware is now seeking to extend its competitive advantage to a domain that has long belonged to the USA: software. 4G cellular technologies based on high speed downlink packet access (HSDPA) will see deployment in Korea in 2010.