e-Commerce in Korea

Strategies, Policies and Best Practices

With typical Korean farsightedness; e-Commerce featured in the Korean administration’s thinking since the late 90’s, no doubt prompted by Korea’s 1997 economic crisis.

In 1999 the Korean government established the ‘Basic Act on Electronic Commerce’. This was followed by ‘Comprehensive Policies for e-Commerce’ in 2000 and ‘e-Business Initiative in Korea’ in 2001.

The government’s stated aim was to:

As such, Korea’s e-commerce strategy is deeply embedded within its broader vision for the knowledge and information based economy as a whole, although unlike most countries (KSA excepted), the e-commerce lead in Korea was in B2C which was well underway in the late 90’s.

Business to Consumer B2C

B2C began to surge a good 3-4 years ahead of the state initiated surge in B2B (although the value of sales has always been significantly higher) and was to surge some 252.5% in just one year alone.

The take-off of e-commerce in Korea was due in the main to Korea’s world lead in providing high-speed broadband ‘always on’ access which by 2000 had already reached some 8 million households (over 50%) across the country (many countries still aspire to this level of access today – some 10 years later).

This ease of access coupled with heavy government promotion and an avid (almost addictive) interest by the Korean consumers (particularly female) saw some 1,896 Internet shopping malls in already in operation by 2000. Another uniquely Korean phenomenon also contributed to the surge of B2C consumerism – the Korean penchant for gaming and the commensurate rise in ‘PC Bangs’ or gaming rooms.

Despite broadband access from home the PC Bang provided a place for Koreans to bridge the social gap between the online world and the offline world and has been a significant factor in the development of the gaming industry in Korea, a not insignificant e-commerce industry.

As an indicator of the strength of the e-commerce market in Korea and its influence across Asia e-Bay announced in 2008 that it would take over Inter Park’s stake in Korea’s G Market and in 2009 raised its stake to take-over a majority share of G Market for $1.2bn.

Business to Business B2B and Business to Government B2G

Despite the early popularity of B2C, the Korean government’s main focus for e-commerce was predictably B2B – a MOCIE report in 2001 stated that ‘In order to compete in a unified global market, businesses all over the world are in a life-or-death rivalry … engaged in a fierce contest in a bid to take the lead in e-commerce’.

As with other e-strategies the aim is global domination using the domestic market as a showcase.

After a series of policy directives from 2000 onwards five key policy directives were re-established in 2002:

1. Prepare Regulatory Framework, e.g. preparing and streamlining the regulatory framework for e-trade, e-finance trade, e-notarization, consumer protection and the resolution of international disputes, etc.
2. Expand Operational Base for e-Commerce, e.g. expand e-commerce standardization, expand logistical infrastructure, network enhancement and access, establish a graduate school for e-business and a cyber academy for women, support technology development for e-business, etc.
3. Promote e-Commerce in the Public Sector, e.g. build an integrated e-procurement system for government, link different e-procurement systems, introduce e-business to insolvent companies receiving public funds.
4. Building an e-Business Network for all Industries, e.g. support B2B network implementation, support IT implementation of 30,000 SMEs, digitalization of major industrial complexes, support e-commerce of agriculture, fishery and livestock products, build CALS/EC base for the construction industry.
5. Globalization of e-Commerce, e.g. focusing on international e-trade networks with Japan and other Asian countries as well as Europe (the Silk Road).

In doings so, the government has been keen to increase the level of collaboration between the Chaebols who were too busy competing after the financial crash of 1997 to be collaborating – the government seeing this as a major impediment to progress in e-business.

Whilst the power of the Chaebol in the minds of Koreans had been diminished post 1997 which led to greater entrepreneurship and the establishment of e-commerce related SMEs e.g. content production, etc., the government was keen to remove the obstacles to investment by SMEs by providing tax deductions, funding and access to international markets.

By 2003 B2B had doubled from a base of $90.99bn in 2001 to $180.1bn with a commensurate rise in B2G from $5.86bn to $18.84bn in the same period. In the same year total e-commerce representing 16.5% of total trade the government set an objective of reaching 30% by 2007.

Imaginative projects involving heavy research and development funding and tax incentives, a push to be the de-facto standard for both regulatory and technical developments, ubiquitous access, public and private sector engagement and using the domestic market as a test area and showcase proceeded apace with the state as the agent of change.

Over the course of a decade 1995 – 2005 the state provided $1.5bn of direct funding for infrastructure, $1bn in ‘soft loans’ to the private sector, $700m for R&D. Regulatory innovation such as the ‘Cyber Building Certificate’ that encouraged builders of new apartments and buildings to enhance the broadband access with the aim of achieving 80% coverage at 20Mbps by 2005.

From 2000, the government has been intent on emulating its earlier success with developing and expanding Korea’s industrial base to world prominence, e.g. shipbuilding, chip manufacture and telecommunications into what it saw as the ‘new economy’ with the aim to become business hub for the region and e-traders to the world – a modern e-commerce equivalent of the so called silk road between Asia and Europe or e-trade silk road.

Having developed Korea’s ICT industry from scratch into a global leader in just two decades and aiming to repeat the ICT ‘virtuous cycle’ that had given rise to this astronomical growth; Korea’s MIC introduced its IT839 strategy.

The strategy defined 8 key services, 3 high technology infrastructures, and 9 ICT related growth engines designed to propel Korea towards the next phase of development – the broad application of ultra-advanced ICT across all aspects of the ‘new economy’ and establishing Korea’s dominance in this new marketplace. Subsequently modified to u-839 (to reflect an even more holistic vision).

The Korean vision finally evolved into the MIC’s 2006 two phase u-Korea Master Plan:

to achieve the world’s first truly ubiquitous information and knowledge society based on the development of a truly convergent and integrated u-society infrastructure – the de-facto standard for the world and a new information based economy for Korea.

The vision is all embracing and is divided into two aspects – Five areas of advancement and four optimized engines to drive advancement in the following areas:

1. Advanced Government – participatory Gov 2.0
2. Advanced Land – provide ‘built-in’ intelligence into the national infrastructure – building, roads transport, etc., via the ubiquitous sensor network using RFID, LBS and GIS.
3. Advanced Economy – by developing a new (blue ocean ) ubiquitous ICT market and making existing industry ultra-competitive, e.g. integrated e-business hubs
4. Advanced Society - Secure and Safe Social Environment
5. Advanced Life, - service robots, telematics, wearable computers, etc.

The phased approach being taken is as follows:

Phase 1: Establishment 2006 to 2010

Phase 2: Stabilization 2011 to 2015

The Korean e-commerce strategy is the virtuous cycle that is inextricably interwoven into the master plan and embraces both traditional industrial giants (Chaebols) and the fostering of SMEs, ‘new economy’ start-ups and anticipated new industries, e.g. home robotics, etc. Underpinning this is the mechanism (trading platforms) for trading on a global scale.

As a result, total e-commerce transaction value in Korea continues to increase and had exceeded $400bn by 2008 dominated by B2B which reached $110bn in Q3 (2008) alone.

B2G increased in 2008 due to construction projects and B2C has risen by about 7.9% of the total in the first half of 2009. Korea is now the 6th. largest e-commerce market in the world.

Challenges

One of the biggest challenges faced by Korea is brand acceptance.

Despite all of its undoubted achievements Korea has failed to establish itself in the eyes of the world in the same way as Singapore or Japan for example.

Its ‘blue ocean’ strategies are based on an inherently Korean view of the world and Korean culture.

It remains to be seen whether the Korean’s can sell this to the developed world.

It is clear that the Korean government is well aware of this aspect of their global strategy, and they are learning from their earlier (often unsuccessful) attempts to establish home-grown technologies as global standards.

The response of the Korean government has been to deepen its engagement with nations, e.g. Finland, UK, EU and USA etc., and organizations, e.g. APEC, ITU, etc., that it sees as influential in establishing standards, products and services. In addition, Korea is putting in considerable effort in less developed countries in Asia and Africa – where it may prove more successful.

In addition, the Korean government has come under some criticism for its coordination of such an all embracing strategy. In recognition of this and the increasingly convergent nature of the strategy itself; the new administration has moved to converge responsibility for the u-knowledge economy and hence global e-commerce domination to a single Ministry – the Ministry of Knowledge Economy MKE.

Findings Analysis

Strengths

Korea’s holistic and inspired planning and strategic development has as its goal commercial success on a global scale. Korea’s e-commerce strategy is deeply embedded within it and its success will depend on its ability to create the ‘virtuous cycle’ in a ‘blue ocean’.

To do this effectively will require close public private sector collaboration, something that Korea has been very successful with in the past (more so with large Chaebols) in established markets, e.g. ship building, automobiles, etc.

Korea has an exceptionally strong and well integrated research and development base with large successful and technically competent industry players (Chaebols) that are well able to develop the large scale ‘engines’ that underpin its e-commerce/business strategy.

Weaknesses

Korea has manifold weaknesses, namely:

In addition, Korea appears to fall short when it comes to adjusting its traditional ‘red ocean’ strategy (successful) to the needs of its new ‘blue ocean’ strategy:

Opportunities

Becoming the e-business hub of Asia and developing the modern equivalent of the Silk Road to Europe is the opportunity for Korea.

Without doubt Korea is by far and away the most forward thinking of any major economy in the world and its vision the most advanced.

Developing the virtuous cycle of new products and services associated with Korea’s vision of a ubiquitous information based society utopia in u-health, u-education, u-home, u-cities, etc., in a non-competitive ‘blue ocean’ market strategy (tested and showcased in its domestic markets), building and influencing the development of world trading platforms (the infrastructure of tomorrows global marketplaces) and the enhancement of its already advanced manufacturing capability puts the goal of global dominance in the ‘new economy’ within reach.

The exponential growth in Korea’s e-commerce and business in its domestic and with the rest of the world is a natural corollary.

Threats

One of the major threats to Korean aspirations for world e-trade is late developing competition from countries with a greater marketing capability.

Although Korea’s close juxtaposition to major markets of China, Japan and the newly developing countries of Asia – countries like China and Singapore are also aggressive competitors for the same blue ocean markets too.

The more traditional developed economies of the west – Europe and USA , may also prove to be obstacles to Korea’s success – preferring to develop and control (often through their still considerable influence on standardization) the major infrastructure of trade.

Korea will however retain an advantage in low cost production (although this advantage is rapidly being eroded by other Asian nations) for what will ultimately prove to be the need for advanced technology and much reduced costs, e.g. advanced, reliable medical instrumentation that can be deployed in the home.

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