ICT Investment Environment And Strategies in Korea September 13, 2007
Overview 1. Korea's status in the global ICT market 2. Foreign investment in Korean ICT industry 3. Korea’s ICT investment environment 4. Purchasing strategies of key players 5. ICT investment strategies of foreign investors
1. Korea's status in the global ICT market
1. Korea's status in the global ICT market ICT producer and exporter Korea accounted for 7.8% of global ICT production in 2006 -World's 4th largest producer following China, the United States and Japan The export volume of Korea's ICT industry reached USD 100 billion in 2005 -Korea became the forth nation to achieve accumulated export volume of USD 100 billion in ICT following China, the United States and Japan < World ICT market share > < Korea's ICT export > (in millions of USD) 114,705 China 20.0% Others 35.3% 102,704 96,651 74,661 61,171 United States 19.4% Germany 4.5% Korea 7.8% Japan 13.0% 2002 2003 2004 2005 2006
1. Korea's status in the global ICT market World best competitiveness Korea has secured a large market share in such cutting-edge sectors as semiconductor, display and mobile handset - Korean companies such as Samsung, LG, and Hynix are rapidly growing - Nine Korean IT companies are among the 1,000 largest companies in the world(United States 43, Japan 36, France 2, Canada2, China2, Germany 1) < Export volume and global market share > Semiconductor ($100 million) Global M/S in 2006 374 Mobile handset Display (PDP) 40.7% (56.0%) World 1st (World 1st) 300 Display 191 Mobile handset (CDMA) 18.7% (42.0%) World 3rd (World 1st) 168 123 47 Semiconductor (Memory) 10.2% (49.5%) World 3rd (World 1st) 2005 2006 2005 2006 2005 2006
2. Foreign investment in Korea's ICT industry
2. Foreign investment in Korean ICT industry Foreign Investment to Korea In 2006, the Korean ICT industry recorded 239 cases of foreign investment totaling USD 1.8 million - Investment into semiconductor and LCD is growing - Japan is the largest foreign investor, occupying 68.0% out of the total, followed by the European Union with 10.1% and the United States with 9.3% < Foreign investment → Korea> < Foreign investment composition> (case) (in millions of USD) 300 3,000 2,949 252 239 Others 12.6% 240 274 2,400 EU 10.1% Japan 68.0% 194 188 1,041 180 1,800 1,799 120 1,200 US 9.3% 60 517 600 299 (as of 2006) 2002 2003 2004 2005 2006
3. Korea’s ICT investment environment
3. Korea’s ICT Investment Environment Both the government and companies are progressively establishing cutting-edge industry clusters - Medical equipment, fiber-optic businesses, LCD, raw material & components - The government has secured and supports residental areas dedicated to foreign investors and businessmen Cluster (Materials & components) Banwol/Siwha Industrial Complex (Medical instruments) Wonju Industrial Complex (LPL) Paju LCD Industrial Complex (Samsung) Semiconductor/Digital Valley (Samsung) Tangjeong Crystal Valley (Digital electronics) Gumi Industrial Complex (Fiber-optics) Gwangju High Tech Industrial Complex Private Government
3. Korea’s ICT investment environment There is a rapid increase in the number of ICT employees and graduates - Government is actively supporting the training and nurturing of these skilled workers * Industry/education partnerships, human resources development, field training, and recurrent education Human resources < ICT worker education level> <Korea worker composition> 66,564 77,689 68,662 IT industry 1,446 57,018 IT 10.8% 9,546 9,027 (in thousands) Overall 13,386 (person) Total BA MADoctorate IT workers account for 10.8% as of 2003 - Korea 11.0%, Japan 6.8%, United States 6.3% As of 2006 - IT graduates increased by 16.7% compared to 2005 - They make up 19.1% of all college graduates
3. Korea’s ICT investment environment Korea-US FTA will change the IT industry trade environment - Korean companies will secure price competitiveness in the US market and raw materials at reasonable prices * Exports of appliances, communications devices and wafers to the United States are expected to grow Korea-US FTA < Korea-US FTA > Korea United States 96.1% Immediate tariff elimination 95.9% Medical equipments Concession item Color TV, white goods Import Items 17,652 (95.9%) 732 10,676 (96.1%) 959 Immediate elimination 391 (2.1%) 20 (0.1%) 342 (1.9%) 8 10 27 United States 84 (0.7%) 41 (0.4%) 308 (2.8%) 5 58 Korea Within 10 years Within 5 years Within 3 years Category
4. Purchasing strategies of key players
4. Purchasing strategies of key players 1. Korean IT production trend Finished products decreasing, compartment production increasing - Semiconductor, display, wireless communications device parts - Surge in compartment export and increase in compartment segment share < Product share> < Electronic compartment > 55.4 37.4 53.1 31.2 60.5 51.1 58.8 20.7 18.9 15.5 48.9 46.9 10.7 44.6 17.8 41.2 6.1 39.5 12.6 (%) 12.2 (%) 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 finished product compartment export import
4. Purchasing strategies of key players 2. Compartment purchasing plan In 2007, the compartment purchasing of major companies will increase by 5.1% to reach USD 40 billion - STB (66.4%), HDD (36.9%), printer (23.1%) purchasing will rise - DVDP (-68.6%), TV/monitor (-22.0%), ODD/VCR (-15.5%) purchasing will drop (in millions of USD) 5.1 39,983 38,055 Total 3.2 8,306 8,050 Display 12.8 22,436 19,882 ICT 3.5 4,973 4,803 Home appliance -19.7 4,268 5,320 Videosound device Increase/decrease 2007 2006 Category 5.1% (in hundreds of millions of USD) 400 381 2006 2007(E) * including monitor (combined data of the six major companies in Korea)
4. Purchasing strategies of key players So far in 2007, purchasing from domestic sellers accounts for 65%, a 10.5% rise from 2006 - Compartment buying from Europe increased from 7% in 2006 to 9% in 2007 < Purchasing from domestic sellers> < Purchasing from other regions > (in millions of USD) 39,983 38,055 35.0% 38.2% -3.7% 45% 46% China Foreign sellers 23% Southeast Asia 21% 65.0% 10.5% 14% Korean sellers 61.8% United States 16% 11% Japan 8% 2006 2007 (E) 7% 9% Europe 2006 2007 (E)
4. Purchasing strategies of key players 3. Compartment purchasing strategies of Korean companies Strategic compartment purchasing, increases in purchasing from domestic sellers Corporate needs Government policies SPEED (L/T minimization) Develop compartment companies Technology sharing Nurture IT experts Consolidated partnerships Provide support to foreign investors ※Share of domestic vendors 2005 2006 (%) 88 89 80 79 82 69 72 81 61 87 50 42 33 23 PMP Camera module LCD-TV Mobile handset DMB LCD raw material compartment OLED
5. ICT investment strategies of foreign investors
5. ICT investment strategies of foreign investors Advancement of US Companies Korea-US FTA will increase US export in the segments where EU companies have consolidated their position - Elimination of tariffs of non-ITA items EU products will be replaced by US products - Broadcast & communications devices, measuring equipments, and medical equipments Exports of non-ITA items from the United States will rise - Core part & material, and broadcasting & communications devices Communications devices 8% tariff immediate elimination Market share in Korea: United States (22%), European Union (20%), Japan (19%) Measuring device Weak competitiveness in the Korean market, advancement into the Korean market through technology partnership Market share in Korea: United States (36%), European Union (32%), Japan (18%) Medical equipment
5. ICT investment strategies of foreign investors Technology partnership Technology partnership is recommended in the fields where domestic sellers occupy a small market share -Establishing a joint venture makes advancement into the Korean market easier and reduces invesment risk -Foreign companies can secure compartment purchasing competitiveness by consolidating the production base Minimize regulatory process Reduce logistics costs and L/T Company launch Avoid excessive investment in facilities Cost Joint Venture Investment risk Secure customer base Customer Technology competitiveness Production Enhance competitiveness through partnership Consolidate production base
5. ICT investment strategies of foreign investors Semiconductor and display test device production SEIKEN (Japan) established a joint venture in Korea with 70% ownership The joint venture enables domestic companies to buy compartments in the domestic market, freeing them from their dependence on imports Technology transfer/equity investment SEIKEN JAPAN SEIKEN KOREA enhanced price competitiveness rapid delivery raw material purchasing service Investment profit/ Agency sales Enhanced competitiveness Clients in Korea Raw material producer in Japan Compartment purchasing from domestic market Secure market share Rapid delivery Logistics costs reduction Improved customer satisfaction Advancement into Korean market Secure production base in Korea Secure stable transition networks Agency profit (raw material purchasing service)
Thank you!