CAD business Korea, Japan, Taiwan

Disclaimer: This document was created in 2000 and the data is therefore provided 'as-is' with no warranty implied or otherwise.

i. General Economy

South Korea, created by the division of Korea at the end of WWII, is the lower half of the Korean peninsular, just 125 miles west of Japan, with a land area about three-quarters that of Colorado. 85% of South Korea's 46 million population live in the major urban areas; over 10 million in the capital city of Seoul. South Korea's economy was badly affected by the "Asian flu" financial crisis in 1997 but has recovered to sustain a 10.5% per annum increase in GDP in 1999 with even stronger growth predicted in 2000. The first-half 2000 export growth figures show a record 25.7% year-on-year increase.

South Korea's industry traditionally tended toward heavy engineering (notably shipbuilding), petrochemical and automotive/transportation markets. The domestic market is dominated by four huge super-conglomerates the "chaebol", Samsung, Hyundai, LG and Daewoo, which together account for more than 40% of South Korea's GNP. Unlike Japan or Taiwan, South Korea dominates few markets but performs exceptionally well in most, providing 30% of the world's ships (2^nd after Japan), 40% of the global supply of DRAM chips (3^rd after Japan and the USA) and #5 in the global automotive/transportation market.

20% of South Korea's GNP derives from its information and telecommunications industry: the one industry where South Korea is the global #1 is mobile phones: it exported $2bn of them in 1999. The financial crisis of 1997 proved the short-term vulnerability of the South Korean economy to over-dependence on the superconglomerates and, since that time, the government has aggressively accelerated support programs for high-tech SMEs. More than 220 SMEs have been directly funded by the government in the past three years.

South Korea probably has the most extensive venture capital and startup funding industry of any Asian country and a very active small cap high-tech OTC market, the KOSDAQ. The major Korea Stock Exchange has recently (June 2000) relaxed its listing requirements to further promote high growth high-tech SMEs.

The major political event on South Korea's horizon is the possibility of the peaceful reunification of North and South, an analysis of the effects of such reunification are outside the scope of this report. *2004 note - of course the recent events in North Korea show how very over-optimistic any hope of reunification were!

ii. Manufacturing Market

25% of South Korea's GNP derives from manufacturing industry which has recently broadened its scope to become very successful in high-tech precision manufacturing in the consumer electronics, multimedia computers/notebooks, aerospace and defense markets.

South Korean manufacturing industry breaks down into two distinct groups: i) the four superconglomerates plus the handful of conglomerates, and, ii) 91,000 SMEs each typically employing 5 - 300 people. The SME group is very dynamic and accounts for over 40% of South Korea's manufacturing exports, mainly in electronic goods, textiles and machinery/transportation equipment.

South Korea tends to be a net exporter of assembled products and a net consumer of components (both domestic and imported from other Asian manufacturers). The overwhelming size of the four superconglomerates, directly employing over 500,000 people, combined with the handful of smaller conglomerates, has the effect of controlling more than 50% of the industry and allows them to drive significant change through their subsidiary component supplier chains. The SME sector has similar dynamics to the Taiwanese market, with aggressive competition for domestic conglomerate component supply and overseas export business forcing continual improvement in manufacturing efficiency. These two distinct sectors give the South Korean manufacturing market very unique dynamics.

South Korean manufacturers are generally very aware of the Internet and most have sleek Web presences designed primarily for marketing and PR as opposed to direct sales. There is surprisingly little evidence of significant manufacturing B2B e-commerce; certainly less than the numerous manufacturing trading meta-exchanges of the Taiwanese Internet. This may be a natural reflection of the fundamental difference in the number of export oriented component suppliers in the two economies and a reflection of the dominance of the South Korean conglomerates. Many suppliers may be locked into exclusive long-term contracts with a single conglomerate customer and not need direct channels.

Key point: A manufacturing market dominated by large "superconglomerates" may tend to respond more slowly to radical change but, if adopted as a "corporate SCM standard" by a major corporation, proliferation of new technology, such as an ASP CAD CAM platform, through the SME supplier community is likely to be rapid. The supplier-chain sales strategy successfully adopted by Parametric Technology Corp. in Japan (create a distributor internal to the conglomerate) is likely to be very effective in South Korea.

Key point: Many South Korean supplier SMEs may tend to be focused exclusively on a single conglomerate customer and their Internet usage may well evolve primarily as a vehicle to access that customer's extranet (virtual supplier private network "VSPN"). This may require an "extranet" version of an ASP CAD CAM platform to be developed for this market.

Key point: Fierce competition between component suppliers is likely to generate strong demand for an "XSManufacturing" version of an ASP CAD CAM system as initially recommended for the Taiwanese market.

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