Though Korea might not be as popular an IT hub as China, it does manage to hold its own. The country’s domestic software services market has an impressive growth rate of 28-30 percent while computer related services are projected to grow at over 26 percent. Korea’s expertise in electronics, hardware and telecom and India’s expertise in software and services could blend into a perfect synergy between the two countries, say Punita Jasrotia and Shipra Arora

Sunil Mehta says Indian companies should focus more on forming alliances with Korean companies and on hiring local talent

While the Chinese dragon has been attracting India IT Inc, which has been on the lookout for an alternative to US shores for a sustainable recovery, one market, which is slowly making its presence felt is South Korea. According to industry experts, while China is a good bet for companies looking to make a fast buck, it is Korea that is expected to emerge as the stable plank for those looking to establish a stronger presence in the APAC region. The reason being that China has already set itself the goal of becoming a major IT hub in the next few years. Once this goal is achieved, China would hardly remain the preferred choice for Indian IT companies. On the other hand, the Korean market is more of a sustained business opportunity due to its lack of expertise in the software and services sector, especially in the high-end segment. According to the Electronics & Computer Software Export Council (ESC), software exports from India to South Korea in 2001-02 were $27.53 million compared to $8.67 million in 2000-2001, a three-times growth in a one-year period.

The tempting Korean pie
Korea has emerged as one of the key leaders in driving the APAC market out of recession. With Korea’s expertise in electronics, hardware and telecom, and India’s expertise in software and services, a perfect synergy can be built between the two countries. Realising this opportunity, Indian companies are starting to turn their attention to Korea.

According to the Confeder-ation of Indian Industry (CII), IT is being seen as the major source of Korea’s future economic growth with its government planning to invest around 1.2 trillion Won ($1=1,250 won) till 2004. Sunil Mehta, vice president of research at Nasscom says, “The size of the Korean market can be judged by the software production figure in that country; it stood at $9.7 billion in 2001 and is expected to grow at 0.3 percent annually.” As per the ESC study, the average annual growth rate of the IT industry in Korea is 16.4 percent, and constitutes 13 percent of the GDP ($422.2 billion in 2001). Korea’s IT exports at $150.4 billion constitute 26 percent of its total exports. In addition, CII points out that domestic software activity in Korea is about 1.15 percent of the global market size, which is expected to increase to 1.57 percent by 2005. P Rajendran, chairman of the IT sub-committee of CII (northern region) points out that despite the global slowdown, Korea’s domestic software services market is expected to remain robust with an impressive growth rate of 28-30 percent from 2000 to 2005. The packaged software market is projected to grow at over 37 percent during the same period, while computer related services are projected to grow at over 26 percent.

PC penetration till December 2001 was 21 million, mobile subscribers stood at 31 million till March 2002, and e-commerce was to the extent of 89 trillion KRW till September 2001. According to the yearbook of statistics published by the International Telecommunication Union, Korea also ranks fifth in the world in the number of Internet users.

Opportunities for Indian companies
Contrary to the common perception of Korea being just a gateway to other APAC countries like China and Japan, it is slowly emerging as a big market in itself. Says Kishore Kapoor head of i-flex Solutions Pte, “Korea went through a period of restructuring over the last year and they are now in a position to create new technology infrastructure. Japan has not yet completed its restructuring process and is lagging behind Korea.” Though traditionally Korea has followed a more self-sustaining policy, the growing demand from its domestic market is leading the country to look out for outsourcing opportunities—and this is where India can score.

Ramesh Emani says India’s opportunity lies in the area of developing software applications around hardware products manufactured in Korea

Sensing the opportunity, companies like TCS, Wipro, Kale Consultants, Aptech and NIIT have already marked Korea as a significant territory in their future growth roadmap. For instance, Wipro is providing high-end solutions in areas of set top boxes, multimedia and licensing of its intellectual properties in residential gateways. And Mistral Software, which has been working in the Korean market for the last two years, plans to up its stake from 5 percent to 10 percent in the next three years.

Meanwhile, ESC has identified the following opportunity areas in Korea: relocation of manufacturing units, contract manufacturing, embedded technology, software and IT-enabled services (especially in sectors like telecom), high-speed public network and related services, public sector automation (e-governance), R&D and training of IT human resources.

According to a Nasscom study, given Korea’s manufacturing know-how with embedded software and its strong focus on developing world-class information and communication infrastructure, opportunities for Indian companies exist in the area of chip design, broadband networking solutions, telecom solutions and digital content development. Other areas of possible co-operation include training of knowledge workers, software development outsourcing, software engineering, e-commerce, Web-based applications and bioinformatics.

But it is the software and services segment which holds the maximum opportunity for Indian companies. Says Ramesh Emani, chief executive for embedded and access solutions at Wipro Technologies, “Since Korea clearly holds a strong edge in terms of IT manufacturing, India’s opportunity lies in the area of developing software applications around these hardware products.” D K Sareen, executive director of ESC, adds that the demand for software services in Korea ranges from customised software services to high-end solutions. IDC predicts that as far as IT services in the Asia Pacific region are concerned, Korea is set to overtake the Australian IT services market by 2005, growing at a CAGR of 28 percent from 2001-2006.

Outsourcing
Considering the high cost of manpower in Korea, India can effectively leverage its outsourcing capabilities. Indian SMEs can find synergy with their South Korean counterparts by entering into sub-contracting arrangements with large electronic companies over there. Says Neela Bhattacharjee senior vice-president, corporate strategy and marketing at Kale Consultants, “Manpower costs in Korea are very high; India with its cost advantage can have a definite edge which is not possible in the Chinese market because China itself has abundant availability of low-cost IT manpower.” Hot outsourcing applications include telecom software, embedded software and broadband networking solutions, multimedia and systems integration.

P Rajendran points out that despite the global slowdown, Korea's domestic software services market is expected grow at 28-30 percent from 2000 to 2005

Training needs
Korea is projected to have a shortfall of trained knowledge professionals; Indian companies can bridge this gap by providing developers, specialist technicians, system specialists, network managers, data communication engineers and ERP experts. There is currently a shortage of about 40,000 skilled workers in the Korean IT industry, with an expected labour shortage of 1.40 lakh workers by 2005. According to MAIT, to overcome the current and future shortage, the Korean government has invested $272.5 million in IT education. Spotting the market, Indian companies are beginning to respond to this immense training requirement. Aptech, which already has a centre in Korea, has so far trained around 700 Korean students, and currently has alliances with seven Korean universities.

Advantages
Apart from these opportunities, what gives impetus to Indian IT companies is the fact that South Korea has an open economy and has a good political relationship with India. The governments of the two countries have already signed an MoU for co-operation in the IT sector. According to Nasscom, the Korean government has taken a very active role in promoting IT by encouraging technological innovation, venture capital creation and human resource development. Seoul has also encouraged deregulation and liberalisation in the economy, and announced significant tax benefits for IT start-ups. “They are also investing heavily in e-governance initiatives and broadband technology for establishing a comprehensive administrative information system in cities, counties and districts,” says Nasscom’s Mehta.

According to a MAIT report, the Korean government is actively nurturing IT venture companies through the setting up of an investment fund, establishment of support centres for new business enterprises at universities, and setting up of software support centres. For the telecom sector, the government has outlined plans to privatise Korea Telecom and other state-owned firms, increase the limit of foreign ownership in the telecom services sector, and introduce new services like Internet telephony. Furthermore, Kosdaq, which functions on the lines of Nasdaq in the US, imposes less stringent restrictions and lower barriers for entry and exit than the standard Korean stock exchange.

Besides, attention is being given to building a good manpower base. Says Rajendran, “The Korean government is supporting the training of university students by partially funding IT training. The government has also initiated the ‘IT Abroad’ programme, which provides students the opportunity to study English and IT in India (both in universities and at institutions like NIIT). With these initiatives, the Korean government is building an IT workforce to compete in the global marketplace.

Neela Bhattacharjee says as manpower costs in Korea are very high India with its cost advantage can have a definite edge which is not possible in the Chinese market as it has abundant availability of low-cost IT manpower

Challenges & strategies
According to CII, the Korean market holds certain challenges for Indian IT companies. These are mainly issues like the language barrier (since most systems are developed and deployed in the local language), cultural barriers, brand building (media costs are prohibitive) and dissimilarities in the business processes and content management in the two countries.

Mehta says Indian companies should focus more on forming alliances with local players or setting up local offices and hiring local talent. They could also look at training their software professionals to tap this growing market.

Emani observes, “Korean IT companies have a technically competitive product but lack marketing and brand management capabilities and the ability to forge international alliances. Hence there’s a need to strike mutually profitable relationships with entities that act as market catalysts to help foreign businesses make inroads.” His company recently set up its Korean business development centre which analyses the Korean market for growth areas. Wipro is also developing its resources with respect to the Korean industry and leveraging its customer base to guarantee quality solutions to Korean clients.

i-flex has a business partnership with 2ii Technologies which is the distributor of i-flex’s services and products in the Korean market. The company is eyeing the Korean banking industry through its Flexcube product suite.

While as of now it is the Chinese market which holds the largest sway among Indian companies targeting the APAC market, Korea is where future opportunities lie. Its conducive economic environment and democratic traditions are bound to lure more and more companies to Korean shores.