Nation: Techno-revolution in the making

By Michael Kanellos
Staff Writer, CNET News.com
June 23, 2004 4:00AM PT

SEOUL, South Korea--This country has a singular asset when it comes to creating consumer products. It's called snooping.

With 13 million of the country's 48 million citizens living in the high-rise forests of this dense metropolis, people are constantly spying on what their neighbors or fellow subway commuters are buying. As a result, South Korea has become something of an open-air focus group for technology manufacturers, accelerating replacement cycles and a plethora of new product uses.

"If you leave home without your phone, you feel like you left an organ or a limb," said Moon Suh Park, vice president of Qualcomm Internet Services Korea. "I think the only untapped market is the kindergarten or first-grade segment."

The local embrace of technology along with an active national government, export-driven local industries, and extensive use of broadband are the key factors permitting the country to wedge its way toward the forefront of the digital revolution. While other national economies rose and fell with the personal computer industry, South Korea is shaping up as a technology powerhouse through consumer electronics.

“If you leave home without your phone, you feel like you left an organ or a limb.” Moon Suh Park, vice president, Qualcomm

Samsung has transformed itself from being a component supplier and contract manufacturer to a name-brand company in home electronics. Rivals LG Electronics and Pantech, which was formed from elements of Hyundai's electronics divisions, are expected to follow.

Beyond commerce, South Korea's techno-revolution has had profound social consequences on issues ranging from political and corporate corruption to school punishment. As evidenced by the popularity of the leading Web log service, Cyworld--which counts about an eighth of the country's population as registered users--online communication and free speech are growing despite a long history of controlled media throughout much of Asia.

The adoption of new technologies has been pushed further by a national broadband infrastructure that provided about 71 percent of the country with high-speed Internet access. That, in turn, has helped the expansion of such diverse digital phenomena as online gaming and futuristic networked homes that connect refrigerators, ovens and other household appliances to the Internet.

KT Telecom already has the largest Wi-Fi network in the world, with 13,000 public access points, or "hot spots." Won-Sic Hahn, assistant vice president at KT, said the company plans to double that number by the end of the year.

Old meets new at the Changgyeonggung Palace, where skyscrapers loom in the background.
Photo: Michael Kanellos

"Wireless for (South Korea) is the same as the space mission to the moon was for the U.S.," independent analyst John Yunker said. "Everyone is behind it--government, industry."

South Korea's surge in cutting-edge technology and branded products can be credited, ironically, to one of the worst domestic disasters in recent memory: the Asian financial meltdown. The 1997 crisis hurled the country into economic chaos, devaluing the stock market by 75 percent and raising unemployment to 6.8 percent.

What's more, computer and electronics manufacturers were faced with the emergence of China as a manufacturing powerhouse, where factory workers could be hired for $1 an hour. Russia and Japan have since become more competitive as well.

The situation was so serious that, even today, many South Koreans stiffen and speak in dire tones when the subject comes up in conversation. But the daunting odds served as a source of inspiration for the country, which has a long history of overcoming political and economic adversity.

It is not uncommon for ordinary citizens to save gold in South Korea, and many pulled the precious metal from underneath their mattresses to donate it to the government. Many in this fervently patriotic country cited the Netherlands, a European dynamo that has thrived despite its small size, as a role model to maintain some semblance of optimism.

The South Korean government has outlined ambitious goals for eight services, three infrastructure technologies and nine product categories.

Under this so-called 8-3-9 initiative, the country's Ministry of Information and Communication has identified specific technologies that it will encourage by funding research or providing other incentives.

Ultimately, the goal is to raise the sagging per capita gross domestic product from around $11,000 (11,595,042 won) to $20,000 by 2010.

One 8-3-9 focus is digital multimedia broadcasting, which allows people to get broadband Internet and entertainment channels remotely. It is still primarily in development in the United States, but it powers flat-screen televisions in upscale Hyundais and Acuras stuck in Seoul's relentless traffic jams.

Some other goals are:

Services:
Digital homes: 500,000 networked households by 2004; 10 million by 2007
RFID: tiniest and cheapest radio frequency technology by 2007
W-CDMA: countrywide network based on the Wideband Code Division Multiple Access standard by 2006
Digital TV: national network set up by 2005
VoIP: 4 million users of voice over Internet Protocol by 2006

Infrastructure:
Broadband convergence network: 20 million users by 2010 Sensor networks: commonplace by 2010 IPv6: convert to Internet Protocol version 6 by 2010

Products:
System on a chip: become one of top three countries in this market by 2007
Next-generation PC: introduce wearable PC by 2007
Embedded software: become second-largest producer of embedded software by 2007
Robots: global presence by 2007

Source: Korea's Ministry of Information and Communication

--Compiled by Mike Sim, ZDNet Korea

South Korea then embarked on a brazenly ambitious project to create a massive broadband system. It would provide high-speed Internet connections throughout the country, creating new domestic markets for technology while creating a national testing ground for exports. The national network accounted for 13.5 percent of the country's economy during construction.

"Korea is only 4 percent the size of China, but it has a leading IT infrastructure," said M.C. Kim, general manager for Intel Korea. "It is a good place for a test bed. Once it is developed, it can go easily outside."

The idea of selling more upscale consumer electronics also took root during this time, with a particular focus on the export market.

The South Korean government plays a fairly active role in shaping the direction of industry, though it has begun to resemble Washington in its approach toward business since recovering from its economic crisis. The country invested directly in companies in the 1980s but today mostly encourages development by funding research and creating incentives.

At the same time, South Korean officials often appear more technologically savvy than their Western counterparts. For example, the Seoul government has begun a $7 million pilot for open-source software Linux in its offices--a decision that came directly from the top.

"The president made orders on this himself," said Daeje Chin, the chief minister of the Ministry of Information and Communication and the former president of Samsung Electronics.

The public beta nature of South Korea's technology consumption can be seen most vividly in cell phones. The replacement rate on phones runs an estimated six to 18 months. Competition among manufacturers to bring a new model to market is intense, companies say.

As with all beta testing, some ideas flop. One service that failed was video over cellular networks that cost $260 to watch a 90-minute program. The cell phone as TV remote control and handheld videoconferencing have not fared well either.

The phone itself, however, has become a powerful e-commerce tool for South Korean services that are only in the test stages in Europe and North America. Many people get on the subway or settle bills in restaurants by swiping their phones through payment machines. This summer, a bank will start to let customers transfer money between accounts using their phones.

"In 1995, (Microsoft Chairman) Bill Gates was talking about wearable computers, but I don't think that people realized then that it would be the telephone that would do these functions," Qualcomm's Park said.

The increasing popularity and performance of handheld devices may soon transform the digital camera industry as well. Two-megapixel camera phones will come out this year, followed by 6-megapixel cameras in 2006. But several South Korean and U.S. executives have said the true killer app for cell phones could be video on demand.

Yongsan Electronics Market is where many Seoul citizens buy their PCs, cell phones and gadgets.
Photo: Michael Kanellos

"The cell phone market (in South Korea) is quite advanced. It is six months or a year ahead of the rest of the world, so when you go out to the rest of the world, you have the most advanced products," said Sauk-Hun Song, a principal analyst at research company Gartner. "Koreans, especially young people, adopt services very quickly."

The lifestyle changes that have accompanied South Korea's technology revolution also have helped make the nation a lab for examining the societal impact of the Internet. Historically, South Korean media outlets have skewed the news to fit the views of the government or their owners, a situation that the digitally connected populace is changing.

Earlier this year, the National Election Commission offered bounties to individuals who could provide evidence of campaign bribery, a chronic problem in a country where politicians have been known to pay for support and receive crates full of money from large organizations. (The average apple box can hold 100 million won, or about $85,000, and is reputedly the preferred container for delivering payments.)

Working with cellular carrier KTF and Web portal Naver, the commission began a mobile tipster program that encouraged people to send in photos for immediate publication. Several citizens received $5,000 bounties for pictures of money changing hands in suspicious circumstances.

“Wireless for (South Korea) is the same as the space mission to the moon was for the U.S.” John Yunker, independent analyst

The reforms appear to be working: In the April 15 election, 2,084 people were criminally booked and 508 were prosecuted.

Reports of improprieties have not been confined to politics. One cell phone photographer caught a teacher hitting a student at a time when corporal punishment was embroiled in national controversy.

The country's dominant conglomerates, called chaebols, also are feeling the pressure to change. Politicians are calling for reforms of the chaebol systems, under which subsidiaries have traditionally offered discounts and other advantages to sister companies. While chaebols like Samsung and Hyundai helped build the country, critics say their pervasive influence discourages start-ups and fair competition.

"We're trying to promote clean accounts and stop internal trades," said Sang-kyoo Choi, director of the International Cooperation Bureau of the Ministry of Information and Communication. "The chaebols can't enjoy the same benefits they did a few years back."

The reform-minded attitudes taking hold in the country are not likely to wane anytime soon among younger generations, because technology also is being used to improve South Korea's education system. In April, the country's public TV network began to Webcast free tutorials to help students prepare for the national aptitude test, Korea's version of the SAT.

High school students attend classes and often study past midnight to prepare for the testing season in November, which is a time of national anxiety. In the first Internet trial, 100,000 simultaneous streams were Webcast.

"We opened up a new use for the Internet," the Information Ministry's Chin said. In Korea, private tutoring is a huge financial burden on parents, Chin said.

Younger South Koreans have contributed significantly to the development of commercial broadband services as well, teaching communications companies that network speeds are not the only feature that subscribers look for. Cyworld, for instance, has become popular by offering personal blogs with "avatars," or icons that represent the user.

“Korea is only 4 percent the size of China, but it has a leading IT infrastructure.” M.C. Kim, general manager, Intel Korea

The site, which is part of the SK Telecom empire, had about 3 million visits a day in the third week of May alone, according to Rankey.com, a local tracking service. As of February, it had 6 million registrants, up from 3 million in May 2003.

Basic services are free, but consumers can enhance their avatars with virtual shoes or designer clothes and cars for fees ranging from 50 cents to $5. And nearly everyone does.

"In North America, most of the carriers' attitude is to consider their service as a utility," said Eric Kim, executive vice president in charge of global marketing at Samsung. "They talk about price per minute. They aren't talking about lifestyle." 

Mike Sim of ZDNet Korea contributed to this report from Seoul.