Is Korea Missing the Threat to Its IT Industry?

      April 13, 2010 13:03

      Cho Hyung-rae

      The introduction of the iPhone has brought enormous change to Korean society. Sales of the new device reached over 500,000 units in four months since it hit the local market late November last year, the fastest in the world. The smartphone has caused wireless internet usage to explode, growing more than 10-fold. It has also made it possible for small, unknown game and software developers to make millions of dollars overnight by selling programs for the App Store, a cybermarket for iPhone applications. And new services for smartphones like mobile banking and mobile office are pouring into the market. It seems that the iPhone is serving as a catalyst for Korea's stagnating content industry.

      These are just some of the noteworthy developments. In these fast-moving times, mobility has become key to productivity and corporate competitiveness. One of Korea's top companies, Samsung, used microblogging service Twitter to announce the news that former chairman Lee Kun-hee has returned to the company.

      But the changes have not all been positive. First, the iPhone's popularity has hurt the Korean mobile phone industry, one of the country's big five exporters. According to recent statistics from the Ministry of Knowledge Economy, Korea's total exports of mobile phones had fallen for two consecutive years by March. Except during the global economic crisis last year, it was also the first time since Korea began exporting mobile phones in 1997 that mobile phone exports decreased by more than 10 percent.

      The target market for iPhones overlaps with the premium market where Korean phones have been competitive. In addition, overseas mobile operators, who exert huge influence on cell phone sales, favor iPhones with heavier subsidies because smartphones incur higher charges for customers for use of wireless data. All this is playing against Korean handsets in the global market.

      The reality is that Samsung and LG failed to read the signs of the times that the focus of the IT market would shift from hardware to software and content. Yet Sony, which had anticipated the coming changes and adjusted for them earlier, has been hit even harder. After the big global success of the Walkman, Sony entered the content industry in the early 1980s, investing billions of dollars in record labels and film companies and increasing its presence in the game industry.

      But when Apple launched iTunes in 2001, Sony's 10-years' worth of endeavors were instantly vaporized. To make matters worse, Korean competitors were catching up with Sony in areas such as television manufacturing, where it had been invincible for years. Sony lost its key assets by pursuing a mirage in the content industry. Top executives at Sony pointed out that key figures who had been behind the company's most successful technologies had left.

      In his keynote address at the Cellular Telecommunications Industry Association Wireless Show last month, CTIA chairman Ralph de la Vega proudly stated that America would lead the world in wireless Internet and smartphones. Just as the U.S. was able to outshine Japan, the global power of manufacturing, by becoming the global center of the financial business, it would dominate the wireless market with leading smartphone technologies. Seeing such serious resolve from the U.S. raises concerns about how huge the challenge ahead is for Korea's manufacturing industry, which has been fundamental to the nation's competitiveness, and whether the country is missing the warning signs.

      By Cho Hyung-rae from the Chosun Ilbo's News Desk

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