Home Asia-Pacific II 2003 The Government’s Role in the Development of the IT Industry in Korea

The Government’s Role in the Development of the IT Industry in Korea

by david.nunes
Dr Kang Bong-KyunIssue:Asia-Pacific II 2003
Article no.:1
Topic:The Government’s Role in the Development of the IT Industry in Korea
Author:Dr Kang Bong-Kyun
Organisation:National Assembly, the Republic of Korea
PDF size:208KB

About author

Dr Kang Bong-Kyun is currently Member of the National Assembly, The Republic of Korea. Dr Kang has served as Senior Secretary to the President for Economic Affairs and Policy Planning, and thus has been closely involved in Korea’s economic reforms since the 1997 Asian financial crisis. Dr Kang has also held the posts of President of the Korea Development Institute (KDI), Minister of Finance and Economy, Minister of Information and Communications, Prime Minister’s Chief Assistant for Government Policy Coordination, Vice Minister of the Economic Planning Board, and Vice Minister of Labour. Dr Kang has a PhD. in Economics from Hanyang University, Korea, an MA in Development Economics from Williams College, Massachusetts, the US, and a BA in Economics from Seoul National University.

Article abstract

Korea is a world leader in IT and Internet connectivity. Today, 100 per cent of its schools are connected to the Internet and it has the greatest Internet penetration in the world. Twenty years ago, Korea still had a relatively poor ITC infrastructure. A concerted push by the government, with direct presidential involvement, and heavy direct investment created conditions for Korea’s growth as a technological powerhouse that now manufactures 53 per cent of the world’s CDMA handsets and is number one in digital TV production.

Full Article

World-class ‘IT Korea’ Korea is widely considered as the world leader in IT. The country’s IT, products and services are all considered nothing shorter than first-rate. Foreign experts and media see the enormous progress that Korea has made in IT development over the last two decades as a miracle. In a very short period of time, Korea went from having almost no IT industry to becoming a major presence on the global IT market. Among the country’s many notable achievements, Korea already has the largest Internet user base in the world. In fact, 17 out of every 100 Koreans have broadband connectivity; time spent on the Internet averages 19 hours per week; and 67 per cent of all stock transactions take place over the Internet. These figures clearly illustrate that Korea boasts the highest penetration rate for broadband service in the world. With more than 30 million mobile subscribers at home, Korea is also a leader on the global CDMA market. It was actually the first country to commercialise IMT-2000 service, delivering multimedia mobile Internet service to its users. Based on the technological expertise and vast capital acquired through the commercial launching of CDMA service, Korea saw its IT exports jump from US$ 874 million in 1997 to US$ 11.4 billion by 2002, marking a tremendous annual growth rate of 90 per cent. In addition, Korea is a leading user and global manufacturer of broadband Internet equipment, CDMA, semiconductors and LCD monitors, to name a few IT products. In the realm of broadband Internet, Korea ranks first in the world and in the mobile communications sector, Samsung Electronics has the largest market share worldwide in CDMA cellular phones. The combined market share of Korea’s manufacturers accounts for 53 per cent of the global CDMA handset market. The same holds true for TFT-LCDs and set-top boxes. In Digital TV, Korea is number one in the world in terms of production volume. Up until the early 1980s, Korea’s telecommunication infrastructure was very poor. The tele-density at the time was a mere 7.2 per cent, a much lower rate compared to other countries such as Taiwan (14.7 per cent), Hong Kong (30.2 per cent), Japan (47.6 per cent) and the U.S. (79.1 per cent). In 1981, Korea was barely able to assemble 8-bit computer chips or produce 64K DRAMs. Government’s Aggressive Policy Basis for a Global IT Power A number of factors can be cited to explain the rapid development of Korea’s IT sector. Among these were the favourable environmental background and corporations’ efforts. Korea is one of the most densely populated countries in the world, which is naturally conducive to the development and rapid deployment of IT technology. Dense housing patterns give rise to significant economies of scale for broadband network deployment and the fact that 80 per cent of Koreans live in densely populated urban areas means that Korea has the ideal geography for the cost-effective deployment of broadband. In addition, Korean consumers were increasingly becoming technology savvy consumers and there was already a large installed base of slow speed PSTN modems. The corporate sector’s efforts were another important factor. Corporations aggressively marketed their services to obtain more subscribers, offered low and flat subscription fees and provided a wide range of content and games. The Korean IT market is characterised by strong facilities-based competition. This has created downward pressure on prices, encouraged aggressive roll-outs of IT services and forced IT providers to compete on the quality of their IT products; there were many content and game providers. As important as the general environment and corporate efforts may have been, the most important factor in the remarkable growth of the IT industry was the Korean government’s unswerving commitment to the industry’s development and ultimately, to the increased competitiveness of the industry. The government provided strong leadership and vision, heavy infrastructure investment, Internet training and policy to encourage competition. Government Leadership and Vision – Crucial Factors A consensus had been formed among the Korean people that ‘although we were behind in industrialisation, we should take the lead in informatisation’. Such a national aspiration coupled with strong political leadership led to the establishment of a world-class information infrastructure. In 1994, the Korean government set up the Ministry of Information and Communication, the first government agency anywhere in the world exclusively responsible for IT. It then passed the Informatisation Promotion Act in 1995. In 1996, the Korean government established the Informatisation Promotion Fund to support the construction of networks, IT R&D and IT SMEs. There was especially strong political backing by the president, who chaired the Informatisation Strategy Meeting on a regular basis. With this institutional and legal framework, Korea embarked on a full-scale effort to establish its new high-speed information network. Because of its clear vision and strategy, the government inspired a high degree of confidence and certainty for private sector companies. Although it is difficult to quantify the impact of the government’s involvement, it seems very unlikely that Korea could have become the world’s leading IT nation without it. Heavy Government Inv-estment in IT Infrastruc-ture Undeniably, the Korean government’s investment served as a catalyst for IT development. It had many far-reaching benefits. Among these, it encouraged private companies to enter the market by providing a form of assurance via government commitment. It, thereby, gave the industry confidence and reduced the uncertainty involved in the large investments it would need to make. In the early 1980s, Korea succeeded in developing an electronic switch, TDX, on its own and it later independently developed CDMA technology for mobile communications, even though few believed that Korea would eventually produce them. The pioneers of the Korean IT industry proved that the scepticism was groundless. They overcame all the obstacles with strong commitment and belief towards the ‘building of an IT country’. As part of such efforts, from 1980 to 1987 the Korean government made a huge investment of US$8.2 billion, or 7.5 per cent of the total domestic investment in telecommunications network expansion. After the Korea Information Infra-structure (KII) plan was published in 1995, the government set about building the high-speed backbone and encouraged the private sector to construct the subscriber networks. For this purpose, the government together with telecom operators, spent $9 billion from 1995 through to 2000. By 2000, Korea was able to boast of a high-speed nationwide fibre-optic backbone with speeds of 155 Mbps ~ 5 Gbps. Notably, Korea opted to develop its own cutting-edge technologies, rather than rushing to catch up with other countries. Strengthening Efforts to Expand the Broadband User Base The Korean government recognised early on that it would not be sufficient to focus only on network deployment; it would be necessary to stimulate demand and in addition, provide supply-side incentives. For this purpose, the government took various steps to expand the broadband user base. Among these, it lowered the rate for using the Internet, introduced the broadband IT building certification system and provided broadband Internet service for newly built apartment buildings. These measures were critical towards the rapid expansion of broadband Internet service. Heavy Investment for Internet Training As soon as the infrastructure capacity had been increased, there was an enormous need for IT human resources. The government also played a crucial role in encouraging the training of a vast pool of IT expertise. It promoted the educational benefits of IT training and its message was well received in a society gripped by the ‘education fever’ and was one of the major drivers of consumer demand for broadband service. Korean society has traditionally considered education and knowledge to be extremely important, so the Korean people heartily welcomed the new training opportunities. The government also pursued various policies to create demand for IT. These entailed:  the distribution of low-priced Internet PCs  providing computer literacy education to 10 million Koreans  mandatory computer education at primary and secondary school levels. The government has provided Internet access discounts for elementary, middle and high schools under a special agreement with Korea Telecom (KT). It was recently announced that 100 per cent of schools in Korea have broadband connections. Competition Policy in IT Industry At the heart of Korea’s government competition policy for the IT industry is the maximisation of competition by deregulation and promotion of the market mechanism. This policy traces back to the early 1980s when the government decided to separate the business functions that it had directly operated. KT, DACOM and Korea Mobile Telecommunications (now SK Telecom) were established to provide voice, data and mobile telecommunication services, respectively. However, it was not until the early 1990s that competition policy was introduced in each service area. The government implemented structural reforms in July 1990 in reaction to the rapidly changing environment in telecommunications. Competition was, thereby, allowed in basic telecommunications services incrementally and the market for value-added services was fully opened. In line with the deregulation and competition policies in the telecommunications sector, the Internet market was led by the same principle. There has been little regulation of the entry of Internet service providers. The government’s laissez-faire policy allowed businesses wanting to provide high speed Internet access to enter the market easily and provide a variety of services. The fierce domestic competition that resulted served to strengthen the global competitiveness of the Korean IT industry. IT Korea in the Future and Lessons for Other Developing Nations Korea is now pursuing the construction of a broadband converged network that will enable users to enjoy various kinds of multimedia services with any device, anywhere, anytime at the speed of 50-100 Mbps. Korea will also launch W-CDMA service, as well as new digital multimedia broadcasting service, in the Seoul Metropolitan area within this year. A digital terrestrial TV broadcasting network will completely cover the nation by 2005. With these and other such achievements, Korea has shown what determined people can do in a short space of time. For this reason, I believe that the ‘path of informatisation’ Korea has taken since the early 1980s can serve as a useful roadmap for other countries that are serious about developing their IT industries.

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