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Australia-Korea Foundation

icon - Australia-Korea:Strengthened Economic Partnership Australia-Korea: Strengthened Economic Partnership

Industry Sectoral Issues

This chapter discusses the Australia / Korea relationship in various industry sectors. The emphasis is on how these relationships can be developed in the future. The emerging areas are in technology sectors (e.g. information and communications technology, biotechnology, environmental technology), education and training, and infrastructure and utilities.

4.1.  Agriculture and Food/Minerals and Energy

Australian exports to Korea have been dominated by minerals and energy products (particularly coal and iron ore and petroleum) followed by agricultural and food products (particularly sugar, wheat, beef and dairy products).

The challenges for Australia are:

(i)  to maintain and ideally increase its share of Korea’s imports of minerals and energy in the face of increasing competition from countries such as China, Brazil and India;

(ii)  to increase its share of agricultural products; and

(iii)  to diversify further the range of products supplied from Australia such as processed food.

In the minerals and energy sector, the role of the Australian Government is relatively limited in maintaining and expanding trade - other than to support Australian firms in their efforts to open up new markets such as LNG and to ensure that non-economic factors are not allowed to influence the purchasing decisions of major Korean buyers.

In the agriculture and food sectors, there is a much more important role for the Government because of the protectionist approach by Korea to its domestic industry, which is not internationally competitive. The role of the Government is to maintain the pressure on Korea to continue the liberalisation of its market, including the detailed rules that will apply to the beef market as well as the higher tariffs that apply to more highly processed food, and to ensure that pressure from other countries such as the USA does not lead to decisions being taken on sourcing that deliberately favour the USA at the expense of Australia. A Free Trade Agreement between Australia and Korea that included agriculture and food would be of significant benefit to Australia, but it is difficult to envisage Korea agreeing to such an agreement in the near to medium term.

A feature of the global processed food industry is the consolidation of the number of major participants on the supply side and on the retail side. This consolidation provides an opportunity for Australia, particularly because of the presence of major global food processors in Australia. However, capturing the opportunities available will depend not only on Australia being price competitive but also being a source of new and innovative products that satisfy food safety issues. That is, Australia needs to be regarded as a centre of excellence for food and so develop the "Made in Australia brand".

The adoption of e-commerce (business-to-business) in the minerals and energy and agriculture and food sectors opens up possibilities to improve the competitiveness of Australian suppliers. This opportunity involves close cooperation between Australian suppliers and Korean purchasers. E-commerce that allows a more integrated relationship between buyers and sellers of the products can reduce the stocks that need to be held, particularly by the buyer, as well as speed up the transmission of documents and payments between the parties. Adoption of e-commerce of this nature implies that the buyer may want to deal with fewer suppliers, thereby making it necessary for Australian suppliers to ensure that they are the most attractive participants on the selling side. The other aspect of e-commerce is the initiative by some companies in the Korean meat trade to set up internet auction websites for the import, sale and distribution of beef (Interview on 22 February 2001 with Meat and Livestock Australia.).

Other approaches to strengthening relationships between Korea and Australia in this area are:

Conclusion

Initiatives could be taken by the Government to promote closer linkages between Korean and Australian participants in the minerals and energy and agriculture and food sectors by way of e-commerce, closer investment linkages, training in Australian food standards and conformance systems, and person to person contacts.

4.2.  Manufactures

4.2.1.  Simply Transformed Manufactures (STMs)

Australian exports of STMs are dominated by gold bullion and aluminium. Other products such as unwrought zinc are also important.

The challenge for Australia is the same as that for minerals and energy products, namely, to maintain and ideally increase its share of Korea’s imports. The role of the Australian Government is probably even more limited in STMs than in the case of minerals and energy.

As in the previous section, e-commerce and closer investment links are possible initiatives. Korea Zinc is already an example in the STMs sector. A future possibility could be encouraging POSCO to establish a position in Australia’s iron and steel industry, e.g. through taking up an interest in the iron and steel manufacturing facilities to be disposed of by BHP as part of its merger with Billiton.

4.2.2.  Elaborately Transformed Manufactures (ETMs)

Australian exports of ETMs are dominated by automotive components — the major item is the engines exported by Holden to Daewoo Motors. There may be prospects in other ETMs (e.g. communications equipment) where trade is possibly hindered by perceptions about barriers, real or imagined, facing Australian exports to the Korean market. The automotive industry is one where the knowledge-based activities are very important, e.g. in design and engineering and in cooperation between assemblers and component suppliers so as to keep track of supplies and inventories.

The challenge for Australia is to find niche areas where closer ties can be developed between Australian and Korean manufacturing industry sectors, for example, by investment linkages based in many cases on Australian technological strengths and by initiatives on a sector by sector basis to remove the real or perceived barriers.

As discussed in a previous section, there is a strong interest by Korean automotive manufacturers in widening the trade in automotive components. This interest is particularly related to Australian competitive strengths (quality, technology and price). This interest is reciprocated by Australian companies investing in Korean component manufacturers using Australian skills and technologies and using Korea as a base for manufacturing and marketing to Korea and other countries. These are activities that are in the private sector realm.

One other area of ETMs that came to notice where there is an interest in exporting to Korea is in communications equipment, particularly products that have a high intellectual property content. However, Australian businesses perceive the Korean market to be difficult to enter because of the relatively complicated regulatory process. Intellectual property was also perceived as a concern (See also the section on Intellectual Property in Cross Sectoral Issues.). Addressing these issues is an area where the Government can have an important role.

Conclusion

Initiatives can be taken by the Government to facilitate stronger linkages between Australia and Korea in ETMs, for example —

(i)  Examining the possibility of a bilateral arrangement between Australia and Korea where the Governments would undertake to try and harmonise their approach to the implementation of intellectual property protection. The implementation could include a Code of Practice and possibly a joint forum that would consider tangible issues raised by Australian and Korean firms about infringements of their intellectual property rights.

(ii)  While there were mixed views among Australian industry about the benefits of Mutual Recognition Agreements (MRAs), there is support for mechanisms to be put in place that are similar to MRAs. These can be addressed on an industry-by-industry basis rather than across the board. In the communications equipment area, there is support for a bilateral arrangement between Australia and Korea that harmonises or at least moves towards a more common compliance regime for obtaining approvals for equipment in this industry sector.

4.3.  Technology

A key element of the Korean Government’s economic policy is the development of a strong knowledge-based economy (KBE) — along with the major reforms of the financial, corporate, labour and government sectors (President Kim Dae-jung’s New Year news conference, 11 January 2001.). Examples of knowledge-based industries are information and communications technology (ICT), biotechnology, nanotechnology, space technology, alternative energy technology, and environmental technologies (What tends to distinguish knowledge-based industries from other industries is the relatively high level of innovation and human capital involved as well as a reliance on information and communications infrastructure.) . Some of these "industries" overlap, e.g. some of the environmental technologies use biotechnology. The term technology in the context of this report is not just the technology per se but includes the goods and services that may accompany the implementation of the technology (e.g. equipment and consulting services on the use of the technology and equipment). The areas targeted for foreign investment in Korea are those that incorporate advanced technologies.

Major elements of Korea’s development plan for the KBE are: the development of ICT, upgrading the R&D/innovation system, and improving the education/human resources development system.

In the initial stages of Korea’s economic development, it sought to commercialise R&D through the transfer, assimilation and improvement of technology from more advanced countries. Korea has acknowledged that this approach failed to secure core and fundamental technologies and so it was not able to keep pace with more advanced countries in terms of economic development. The future plans indicate an approach that is less reliant on other countries and more reliant on the development of its own technologies (Vision 2025: Korea’s Long-term Plan for Science and Technology Development.). This is described in the Ministry of Science and Technology’s website as a policy shift "from imitation to innovation". As part of this new approach, Korea is looking to widen its international cooperation in science and technology away from USA, Europe and Japan to other countries, both bilaterally and multilaterally.

The goals of Vision 2025 are:

The challenge for Australia is to become an important ally for Korea in achieving its science and technology objectives. While Korea will want to use many technologies developed within Korea, Australia could play an essential complementary role. Working towards such an objective will considerably strengthen the economic partnership between the two countries. It will have advantages for both countries.

In many ways Australia and Korea are complementary in the technology area. Australia is relatively stronger in basic R&D and in the services sector, including education and training, that underpins the science and technology sector. Korea is relatively stronger in large-scale industrial application of technology and in marketing. Korea is also relatively stronger in the successful commercialisation of R&D. While Australia benefits from the widespread use of English and in its innovative education system.

Australia could become the source of much of Korea’s R&D capability (with the added role of assisting Korea to improve its own R&D capabilities through the education and training sector) and Korea could become the source of the financial and commercial skills needed to develop Australian R&D successfully on a large scale.

Such a vision does not need to be restricted to any particular technologies, but the more obvious possibilities would appear to be in ICT, biotechnology, and environmental technology (Vision 2025 (pages 78-79) identifies the six major promising technologies of the future as information technology, biotechnology, environmental technology, energy technology, mechatronics and systems technology, and materials and processing technology.). These are in addition to manufacturing technologies such as automotive components where there is already a strong Korean interest in Australian capabilities.

There is emerging a new paradigm of comparative advantage between Australia and Korea. Australia has a comparative advantage in basic R&D, science and technology and human resources development. Korea has a comparative advantage in the commercialisation and industrialisation of technologies. By working together Australia and Korea can develop technologies, products and services for marketing to third countries: high technologies to countries such as Japan and USA and medium technologies to countries such as China.

The major barriers confronting the achievement of such a vision are:

4.3.1.  Information and Communications Technologies

Information and communications technology (ICT) is at the core of the change in Korea’s development paradigm. The previous paradigm was underpinned by strong capital accumulation and growth in labour inputs with the Government assuming the major role as a nationwide mobiliser of resources and overall manager. The new paradigm is the KBE, in which ICT is the principal enabler. ICT has two roles: it provides the infrastructure for the KBE and, at the same time, its own output is a large part of the KBE.

The ICT industry in Korea is composed of information and communication services, information and communications equipment, and software and computer-related services. The industry is dominated by the manufacturing of information and communications equipment (75%) (More than one-half of which is components manufacturing with other large contributors being communications equipment and information equipment plus some broadcasting equipment) followed by 20% for information and communication services and 5% for software and computer-related services (Ministry of Information and Communication, Information Technology Overview of Korea: Statistical Profiles (January 2001).

CASE STUDY: Financial Network Services - Korean Branch Operations

Financial Network Services (FNS) is an Australian based Banking System software supplier providing software, installation, support, outsourcing, facilities management and consultancy services to Banks and other financial institutions in Asia, Middle East, Africa and Europe. FNS has representative offices in the United Kingdom, Malaysia, Hong Kong, Korea, Taiwan, Philippines, Indonesia, UAE and South Africa. FNS also has a range of active distributors spread throughout Asia, the Middle East and Europe.

FNS has a client base of over 100 Banks in 32 countries around the world. FNS’ growth has seen employee numbers rise to 297 at June 2001 with export revenues of approximately $45 million. The company is continuing to demonstrate its capacity to achieve strong international growth in Asia Pacific, the Middle East and Europe and will shortly enter the Japanese and US markets.

FNS originally began operations in Korea in the late 1980s. At that time the Korean banking market was highly regulated and there were some 38 banks in the country along with approximately 600 "credit union" type organisations and a small number of ancillary financial intermediaries. Due to the Korean regulatory restrictions in force at that time, FNS registered a branch through its Hong Kong subsidiary, and began operations with domestic management and staff augmented by naturalised Koreans from Australia. Over time FNS was able to register a branch directly owned by the Australian parent organisation.

Over the years FNS has built the business to the point where the company is the most successful foreign supplier of banking systems in Korea and holds a dominant position in the commercial banking market, having sold six systems into the country. The Korean branch now employs 22 staff with no expatriates. The branch generates approximately $5 million in revenues annually with a margin of between 7% - 11% annually.

In the mid 90’s the Government of Korea realised it needed to rationalise and deregulate its finance sector as Korea was coming under severe pressure to open up its markets in line with Korea’s desire to join the OECD, WTO and other international trading organisations. As a result Korea embarked on a deregulation process, which together with the "Asian Currency Crisis" saw the domestic banking market drastically shrink in size in a very short period of time. Today the market stands at about fourteen commercial banks and the Government is intent on reducing this number further to approximately eight domestic banks, two or three of which will be foreign owned.

Over the years FNS has learnt a number of lessons on how to run a successful "foreign" operation in Asia including:

(i)         The necessity to have "local" management and staff whilst still maintaining western management and control principles.

(ii)        The necessity to understand "local" business customs and to modify western practices to suit local cultural and business conditions.

(iii)       The requirement to be more flexible in transfer pricing, accounting conventions, negotiations and contract conditions than would otherwise be the case in western style negotiations.

(iv)       The requirement to set up "tax effective" operations in each foreign domain.

(v)        The absolute necessity for personal relationships and an understanding that a contract is only a milestone on the negotiation path, and not the end of that path.

(vi)       The necessity of interacting with local regulators, decision makers and "power" cells and contributing positively to the local content aspirations of each country.

(vii)      The requirement for Australian management to comprehensively understand the local business culture, business rules and economic drivers for the country in question.

Source: Mr Tony Ward, Managing Director, Financial Network Services Pty Ltd

 

While Korea has advanced-level technologies in some areas of ICT, it is said that the overall level of technology is 60-70% of that in advanced countries. Major technology lags occur in some areas of the internet (e.g. security), optical communications, digital broadcasting, and computer software. Another issue for Korea is insufficient professional manpower (Korea Development Institute, draft (January 2001) of a paper on IT in Korea: Current Situation and Policy Direction at pages 11 and 12.).

The Korean Government has released Cyber Korea 21, a plan to boost information technology (IT) at the school level, through the provision of around 160,000 personal computers to schools, construction of local area networks for 2,500 high schools, and comprehensive IT training for over 85,000 teachers.

A second goal of Cyber Korea 21 is to boost industrial competitiveness - primarily in the steel and shipbuilding sectors - through e-commerce. Government departments, too, are to be made more internet-capable, with a plan to introduce electronic document distribution.

As indicated above, there is, however, a problem with the government’s ambitious plans — namely, a skilled manpower shortage in the IT sector. The Ministry of Information and Communication has conceded that there is likely to be a shortage of around 200,000 highly trained skilled personnel by the end of the year 2004. To counteract the problem, the government has recognised the need for remedial measures, including increasing its funding to IT colleges.

Part of the KBE development plan involves promotion of the Korean software industry. This includes providing financial support for foreign language programs for software specialists and for high quality workers who wish to study overseas. It also involves promotion of the culture industries, which includes the animation and game industries (including support for a Game Academy, an Animation Academy and a Film Venture Support Centre) and traditional culture industry.

Australian companies are already active in Korea in ICT, many of the companies being in the computer software industry (e.g. software for the financial services industry, multimedia content, search engines/web development and industry specific software). There is also an interest by some Australian companies in supplying communications equipment.

Australia has not been a leading performer in terms of ICT industry production. Australia accounts for a very small part of the total world ICT production and exports. However, Australia has been a rapid adopter of ICT products. The outcome has meant that Australia has developed a large and growing trade deficit in ICT products. The potential is far more positive in terms of international trade in software, services and content where Australia is better placed to compete.

One of the main problems that Australia has to continually face is the small size of its economy as well as its remoteness from world markets, which has meant that the leading world ICT companies have not seen Australia as a place to locate globally scaled manufacturing facilities. Until recently, a further weakness has been the relatively poor track record in terms of commercialising research coming out of the universities and publicly funded research organisations.

While the personal computer is predicted to maintain its role in the short term, as the principal access device for the Internet, smart handheld portable devices such as mobile telephones are also becoming another important market segment. Current predictions are that the mobile phone will become the primary product in terms of future usage to funnel users onto the Internet.

Third Generation Mobile Communication - 3G.

Australia on a per capita basis is one of the largest users of mobile technology in the world and it is expected that the 3G wireless services will also be quickly adopted. Telecommunications have normally been based on voice transmission through wire. Recently there have been interesting developments as the telecommunications service has been gravitating towards transmission of data through wireless communication. The Asian region has emerged as the most dynamic wireless market in the world and is likely to remain the dominant player in the medium-term. In the next three years, Asia is expected to have approximately half of the world’s wireless Internet subscribers, while the USA will probably have around one third.

Korea is the regional leader in Asia in internet access rates and has the highest ownership level of personal computers. While most of the world is still catching up with 2.5G technology, Japan until recently was expected to adopt 3G (third generation) technology by late 2001, with Korea following in 2002. However, recent announcements by NTT DoCoMo, the top-tier Japanese mobile operator, that it would delay the launch of 3G services until October 2001, has caused some speculation in the industry. The delay has also started to make a dent on Korea’s mobile-phone business and will probably impact the schedule of IMT 2000 services, Korea’s ambitious 3G project. Putting aside the current impediments, there is no doubt that there will be many applications that can take advantage of this technology, utilising high speed and portability that 3G will provide, including: e-mail; making hotel reservations; booking airline/transport; entertainment; games; movies; financing - stock market, exchange rates; video conferencing.

3G is expected to revolutionise mobile communications, and will fundamentally change the way people communicate. The benefits expected from 3G are more robust data capability, including Internet access, and multimedia services. These new services will assist users to conduct ordinary voice communication and use the broadband Internet service through wire for domestic applications at home. While outside the home, it will provide users with the ability to enjoy mobile Internet service access around the clock, with ease of access and new dimensions in portability.

The internet is spearheading a massive change in Korea with the country emerging as one of the world’s most "wired" economies. Internet penetration is about 49% of the population at around 21 million as at March 2001, while PC home penetration has been quoted at around 71%.(Source: Korean Ministry of Information and Communication.). What is even more significant is the Koreans’ determination and success rate in the introduction and implementation of broadband Internet, which is at around 6.25 million users as at the end of June 2001. Accordingly, Korea is by far the leading user of broadband technology in the world. Korea Telecom has the major share of the Internet market at 50%, followed by Hanaro Telecommunications with 25% and Thrunet with 17%.

The Korean Government has been single minded in its approach to build a knowledge-based economy as it realised that the future survival and prosperity of Korea depended on its ability to adapt itself to the digital revolution. Through this desire to change, a national vision of an "e-Korea" to become one of the ten leading nations in knowledge and information was fostered and implemented.

As the Korean internet population increased, a wide range of bandwidth intensive applications such as multimedia video, multimedia games, music etc were becoming available. Internet users became aware of the limitations of using the slow 64Kbps dial up modems and started to voice their discontent with the slow downloading speed, the heavy tariffs, difficulties in searching for information, poor connectivity, and the additional financial burden as increasing usage led to higher service fees. This was the background to an amazing turnaround. In three years Korea has become the "pilot-site" for the world in the utilisation and implementation of broadband technology.

Broadband lines per 100 inhabitants in OECD countries (Source: DCITA State of Play – Broadband Services in Australia, May 2001)
2000 Year-end installed lines
Country DSL Cable Modem Total
1. Korea 5.88 3.32 9.20
2. Canada                    1.29 2.62 3.91
3. United States                           0.89 1.36 2.25
4. Austria                                0.48 1.22 1.70
5. Netherlands             0.09 1.58 1.68 

6. Belgium

0.42 1.00 1.42
7. Sweden (+ 0.14 subs to the B2)24 0.45 0.62 1.21
8. Denmark                 0.49 0.56 1.05
9. Iceland                                    0.70 0.00 0.70
10. Finland                  0.29 0.29 0.58
11. Japan                                 0.01 0.49 0.50
12. Switzerland            0.06 0.38 0.43
13. Australia                    0.05 0.34 0.39
14. Norway                0.01 0.34  0.34

24. B2 is a Swedish broadband provider that provides broadband access to urban areas using technology that bypasses the local loop.

The above table illustrates the broadband penetration in OECD countries as at 1 January 2001. At this time, commercial DSL services were available in 22 out of the 30 OECD countries, but it is interesting to note that, just three countries, Korea, USA, and Canada accounted for 91% of all DSL subscribers and 81% of all cable modem subscribers.

There are a number of factors that have helped Korea achieve their leading status in first internet, then broadband penetration. First, the unique Internet PC cafes that have sprouted up all over Korea since 1999. By mid 2001 there were over 20,000 Internet PC cafes offering broadband Internet services. This has developed a unique entertainment culture for the youth of Korea. They are exposed to the fascinating speed of the broadband Internet through a wide range of multimedia games and multi-user games where they are playing in teams of twenty or more, breaking the mould of the usual concept of the solitary "nerd" addicted to computer games — these games are now able to be joined by team mates even from remote locations, and technology permiting international locations. In addition, the lack of available space for outdoor games makes Korea an ideal location for these high speed dependent virtual reality games as a substitute.

Second, Korea’s unique domestic housing environment has been a major contributor. As over 70% of the total population of Korea live in the seven largest cities including Seoul (10 million), the Internet service providers are able to focus on huge installation possibilities through hundreds of high-rise apartment complexes. The initial network deployment was thus achieved at a fraction of the cost in Australia.

Third, the usage cost of broadband (55% ADSL) is also a critical factor in the high utilisation in Korea. The average user pays around 40,000 won or around US$28.00 per month for a continuous connection service (no dial up) that provides between 1Mbps to 5 Mbps access speeds. This compares with around A$24.00 per month in Australia for a dial up "narrow band" 28.8Kbps - 56Kbps connection that usually also has a time related and or download cost as well. Broadband ADSL connections through Australian service providers vary from A$84.00 per month for home consumption at around 512Kbps download, to faster options available for business connections at around A$116.00 per month with up to 1.5Mbps download. In Australia, the user base is demanding faster access rates and a more reliable service delivery.

The low cost of internet usage in Korea is conducive to heavy use. The average monthly broadband subscription is US$28 with unlimited access time, and the average ISP connection through a telephone line is only US$8 per month with unlimited access time.

Koreans have also become major users of shopping online. Internet sales rose almost 40% to 665.7 billion won (US$532.5 million) in the last quarter of 2000, according to a survey by the National Statistics Office.

In Australia the situation is vastly different. Of an estimated 3.9 million internet accounts in December 2000, 97% were still with "narrowband" dial-up providers (Source: Australian Bureau of Statistics.). High-speed internet/broadband is still a long way from becoming anywhere near as widely used as in Korea. Although there are numerous service providers now rolling out broadband around Australia, the uptake by Australian customers is very low, due in part to the comparatively high costs, restricted availability, and relative instability. The total national figures are estimated at around 120,000 users.

Connection through the dial up telephone line has been quite effective for sending and receiving email and for text based information such as newsletters, but it starts to show its limitations even with simple photographs, which can take up to a minute to download. The initial utilisation of the internet in Australia was impressive but once the novelty of the technology had worn off and the users became aware of the potential possibilities, they became frustrated at the limitations that the infrastructure was imposing on the use of this technology.

This also impacts on Australian software developers, especially in the Games and Video and Audio markets, who are inhibited from testing the products that they are developing on the very medium that they are developing it for, the Internet. Demonstrations to potential overseas customers at times have to be delivered by other means, such as CD’s while some promising developments in Cyber Education (with Korea) have had to be shelved due to the inability of Australia’s Internet system to cope with the high speed requirements. The concept of convergence, where video, audio, the internet and various other entertainment media are accessed from a single device, requires higher access speeds. The problem for Australia’s software developers is that the solution, high-speed broadband technology, which provides connections at least 10 times faster than the standard phone line, is available and already utilised, but in Australia only on a limited basis, especially when compared to Korea.

Despite these obstacles there would still appear to be opportunities in terms of Australian value-added services provision. The potential for Australian products, including education and training, software development, hardware integration and services provision appear to present mutual opportunities for Australia and Korea.

CASE STUDY: PowerSource Software Pty. Ltd.

PowerSource’s principals have successfully developed innovative software technology and licensed it to leading Australian and overseas firms. The company has been working successfully with leading Korean IT organisations continuously since 1997. These have included the Korea Racing Association (KRA), Daewoo Information Systems Co. Ltd. (DISC), Korea Electronics Technology Institute (KETI), and Samsung SDS.

The principal of PowerSource Software is Mr Arnold Kopff. In 1975, he joined Amalgamated Wireless Australasia Limited (AWA) and helped build the world’s first sell-pay totalisator system. He left AWA in 1978 to become a founding member of RT Real Time Systems (RT). From 1978 through to 1985 RT developed the betting systems used by the TABs in Victoria, Tasmania and South Australia. In addition, tote systems designed by Mr Kopff were installed at over 30 racetracks in Australia and at two tracks in the Philippines.

In 1986 he co-founded Advanced Wagering Systems (AWS). In 1988, AWS supplied a totalisator system to the British bookmaking conglomerate William-Hill Mecca for installation in Botswana. In 1991, AWS and another Australian company, M&B Electronics, jointly developed the ARION wagering terminal and several hundred of these were subsequently sold to Australian racing clubs and casinos. In 1992, AWS designed and implemented a pilot on and off-track betting system for Greenwood Racing Inc. in Philadelphia.

In late 1992 and early 1993, he was retained by Concurrent Computer Corporation and Stratus Computer Inc. to assist each company with the design of their benchmark systems needed for the Victorian TAB’s RFP for a new betting system.

In 1993, UNIX-based software developed by Mr Kopff was licensed to Video Lottery Technologies Inc. the world’s second largest supplier of on-line lottery systems. After returning to Australia at the end of 1994, AWS licensed similar software to Tattersalls Sweep Consultation. In 1996, a UNIX-based betting system designed by Mr Kopff was adopted by Jupiters Limited as the foundation for their statewide keno system in Queensland.

In late 1997, he was retained by Daewoo Information Systems Co. Ltd. to assist them and the Korea Racing Association with the detailed design study for a new on and off-track betting system for deployment throughout Korea. In early 1999, PowerSource was retained by the Korean Electronics Technology Institute (KETI) to devise an architecture and implementation plan for a national Korean sports lottery. In January 2000, PowerSource was retained by the Korea Racing Association and Samsung SDS, Korea’s largest systems integrator, to provide technical consulting services for the duration of the four year project. Specifically, PowerSource is assisting both groups with the architecture, detailed design, implementation and testing of the new Korea-wide totalisator system.

During the second half of 2000, PowerSource developed a number of new technical innovations. These included advances in state-of-the-art Internet-based wagering, and the development of the JetStream Dynamic Content Engine, a high performance dynamic content accelerator. JetStream uses innovative technology devised by PowerSource that the company is presently patenting.

Source: Mr Arnold Kopff, Managing Director — PowerSource Software

 

CASE STUDY: Korea-Australia Photonics Association (KAPA).

The Korea-Australia Photonics Association was founded in 2000 with a mission to foster and enhance academic and commercial collaboration between Korea and Australia in the Science and Technology of Photonics for the mutual benefit of both countries. An inaugural Workshop was held in Cheju, Korea on 8 November 2000 and a second Workshop was held in Sydney on 6 July 2001. The scope of the Workshops covered research in both the academic and commercial spheres, as well as education and training. The Association has grown out of an increasing number of collaborative links in photonics between Australian and Korean researchers in both academia and industry.

The Photonics industry is booming worldwide and by 2013 the industry is expected to be worth over $A900 billion. The Australian photonics industry currently employs a workforce of around 4,000. A recent survey has estimated that some 20,000 trained personnel will be required over the next 10 years to meet the requirements of the Australian photonics industry.

To meet this challenge, both university and technical training institutions across the country are introducing a range of new degrees and courses. In addition to national requirements, there will be scope to attract international students, particularly from south-east Asia, and to develop cooperative teaching links. For example, a joint Australia-Korea Photonics School is expected to be held in Korea in July 2002 under the auspices of the Korea-Australia Photonics Association.

Source: Professor John Love, Australian Co-operative Research Centre, Australian National University.

4.3.2.  Biotechnology

Biotechnology covers human and animal health, agriculture and food, industrial biotechnology, bioinformatics, materials science and bioengineering (e.g. some environmental technologies). There are more than 2,500 companies worldwide dedicated to researching, developing and supplying biotechnology products and applications and many more with substantial involvement in the technology. Venture capital exceeding $1.5 billion and overall equity finance of more than $6 billion are flowing into biotechnology-based firms each year (DFAT, Australia’s Trade: Influences into the New Millennium (2001) at pages 74-75.).

Australian Governments are supporting the development of the biotechnology industry in Australia, e.g. the Commonwealth Government’s National Biotechnology Strategy and the Victorian Government’s financial support of the $400 million Bio21 Australia project to create a cluster of research institutes and corporations in Melbourne. There are also specific Innovation Funds aimed at the biotechnology industry (The Australian Financial Review, 2 April 2001 at page 28.).

According to the Korean Ministry for Science and Technology, the Korean Government’s R&D budget for this year includes $US250 million for biotechnology. The Government has declared the year 2001 the "Year of Biotechnology" and plans to put available science and technology resources together to build "B-Korea".

There is scope for substantial cooperation between Korea and Australia in biotechnology. There has already been a collaborative research project for the development of anti-viral drugs carried out by Biomolecular Research Institute (BRI) of Melbourne and the Korean Hepatitis Consortium. Funding and research proceeded for four years but work ceased towards the end of 2000 (It is understood that the first meeting of the Australia-Korea Joint Committee on Science and Technology held on 29 March 2001 discussed the progress of the collaborative research project, but no decision has been taken on its future. Advice received in Korea in March 2001 was that the Korean interests are presently considering how the work done may be taken forward. That advice indicated that the Korean Minister for Science and Technology was arranging for the data developed under the project to be put into a Korean venture company (i.e. a start- up company) with the information providing the basis for the capital of the company and that a CEO for the venture company was being sought.).

Interviews in Korea indicated there was potential for further Korea/Australia collaboration in areas such as biotechnology (For example, interviews in early March 2001 with the Korea Rural Economic Institute and Korean Venture Business Association.). One Korean comment was that there was scope for Korean investment in the commercialisation of Australian biotechnologies, which could short-circuit the wait for the results of Korean investment in biotechnology.

The Bioindustry Association of Korea (The Association has over 60 companies as members plus over 150 associate members (individuals and organisations) presently has relationships with USA, Japan, France and Germany and is starting to build relationships with Israel and Canada. The Association organises large Korean delegations to international conferences such as the BIO conference in San Diego as well as bilateral conferences such as the Korea — USA/USA — Korea Biotechnology Industry Investment and Cooperation Conference held in Seoul in March 2001. The Association is also organising the Bio Korea 2001 International Exhibition and Conference to be held in Korea in November 2001.

Discussions in Korea in June 2001 indicated a strong desire by the Association to link with similar associations in Australia. Similarly, Korean biotechnology businesses, including those of the large Korean conglomerates are looking for opportunities in the biotechnology sector in which to invest; there is a desire to know about biotechnology developments and opportunities in Australia, which will enable the Korean businesses to spread their interests beyond Korea and USA.

4.3.3.  Environmental Technology

Korea acknowledges that its environmental technology lags behind that of more advanced nations by four to five years. The level of overall environmental technology is about 30-60% of that of developed countries. Core post treatment and pollution prevention technologies are especially underdeveloped (Ministry of Environment, Green Korea 2001 at page 70.). The major environmental policy issues include: water conservation; the supply of clean water; the management of water supply (e.g. there is a high water leakage rate in the water pipeline network); sewage and wastewater treatment, management and reuse; air quality (the major pollutant is diesel fuelled motor vehicles); and landfill site management.

In January 2001 the Ministry of Environment formulated the Environmental Technology Development Strategy to nurture Korea’s environmental technology industry into a highly competitive strategic export oriented industry. The strategy is being funded with about two trillion won (about $A3.33 billion) over three years and involves eight government agencies. The strategy aims to lay the foundation for the Korean environmental technology industry to reach the level of advanced countries by 2010 (Korea’s long-term plan for science and technology development also calls for the development of technologies for alternative energy sources (including solar and hydrogen technology) and energy efficiency.).

The strategy includes —

In addition, the Government will invest 5.5 trillion won (about $A9.16 billion) in building environmental infrastructure, including wastewater treatment plants and waste incinerators, to help create market demand for environment technology.

The Korean Ministry of Environment has estimated the Korean market in 2000 for the environmental technology industry at 11 trillion won (about $A18.33 billion) and expected to grow at about 15% per annum through 2005. The Ministry has established the Korea Environmental Technology Information Centre, which has a website which has a database on technologies; apparently, there are no Australian technologies on this site. There is a biannual trade exhibition, ENVEX (June and November), where technologies can be introduced to Korea (While the organisers are Korean, there are two special organisers: the European Union Chamber of Commerce in Korea and the US-Asia Environmental Partnership)..

There are no restrictions on the import of environmental technologies into Korea. As part of the Eco-technopia 21 program, Korean companies can cooperate with foreign research centres in developing environmental technologies. Korea could provide a basis for Australian businesses to work with their Korean counterparts in China.

The major opportunities for Australia would be in water, wastewater and marine technologies, including sensors (There may also be opportunities in site remediation as these technologies are not well developed in Korea and USA companies are offering these types of technology.). The private sector is able to become involved in the environment sector such as water and incineration. There are already examples of French water companies becoming involved in the water sector. However, the number of Korean and overseas private companies involved is small. Most water related plants are owned by provincial and local governments; many would like to change but each government is adopting a "wait and see" approach — once there is a good example, others will follow.

Some linkages between Korea and Australia are already being established. The Korea-Australia Science and Technology Exchange Centre (KASTEC), which is based at the Pusan National University and at the CRC for Waste Management and Pollution Control in Sydney, is promoting the exchange of environmental technologies between Australia and Korea with a view to developing demonstration projects and commercial linkages. Individual companies are also pursuing environmental protection business in Korea.

Conclusion

Some initiatives to overcome the barriers in the way of a stronger economic partnership between Australia and Korea in technology sectors are mentioned elsewhere (e.g. a Code of Practice in relation to intellectual property).  (Korea’s long-term plan for science and technology development calls for the strengthening of the laws to protect intellectual property rights. Vision 2025 alsostates at page 147: “(A)s an active response to the growing international trend of protecting intellectual property rights, public awareness about intellectual property rights must be strengthened over the long-term.”)

In addition to those suggestions, the broader solution is to develop linkages throughout the industrial/commercial chain. There are some linkages through the Australia-Korea Business Council and its Korean counterpart, but these linkages are mainly in the traditional trade areas of minerals and agriculture. What is needed are effective linkages in the newly emerging technology intensive sectors, but should be closely linked with the education and training sector because of the role of that sector in assisting the development of the Australian profile.

What is needed initially is a mechanism to promote a greater understanding among Koreans of Australia’s strengths and among Australians of Korea’s strengths. Most of the cooperation to date has been in the R&D field; many Koreans working at the R&D level in ICT, biotechnology and environmental technology are aware of Australia’s capabilities. This awareness does not extend in any meaningful way beyond researchers. Discussions in Korea indicate that many people in businesses in these technology areas were not aware of or did not understand the depth of the Australian strengths.

There have been symposia involving Australian and Korean researchers. These should continue. However, what is really needed are workshops in particular technology segments that also include those who are responsible for the commercialisation, including marketing, of newly developed technologies. These types of workshops can improve awareness above and beyond researchers. The workshops can discuss issues such as —

It may be desirable to have separate workshops in Australia and Korea before coming together in joint workshops.

If the workshops in particular segments are successful, they could lead to the creation of a Korean/Australian "cluster" in particular technology segments that would include in each cluster:

Initially, such clusters do not need to be created on a very formal basis. The major task is to get the participants talking together on an ongoing basis and to be linked by some form of Intranet. Some seed funding may be needed to promote the clusters, for example, the Australian-Korea Foundation could expand its current activities in the technology sectors to include the sponsoring of the workshops and clusters. If they are successful, they could be developed into more formalised fora where the Governments of Korea and Australia could also participate; this would allow joint industry/government discussion of issues affecting the particular sector.

4.4.  Education and Training

Education and training has two roles in strengthening the economic partnership between Australia and Korea. The first is as a services export that not only earns income for Australia but also augments Korean education and technology. The second is as a means to change Korean perceptions of Australia.

As indicated in the previous sections on technologies, there is an awareness among some Koreans about Australia’s strengths in R&D and science and technology. However, this awareness is limited to scientists working in particular fields. This awareness does not extend to education and training. Most Koreans when they consider overseas education think about the USA (About 40,000 Koreans went to universities in USA in 1999/2000.).

The major challenge for Australia is to get across the message that Australia is both a centre of excellence for education and a source of technically or intellectually advanced inputs to assist Korean development. Increasing the number of Korean students participating in Australian university and vocational education will be a means, albeit medium to long term, of meeting this challenge.

Korean Students in Australia

Korea had become an important source of overseas students for Australia with some 20,231 students in 1996. The numbers dropped substantially after 1997 to a trough of 9,547 in 1999 and have since risen to 11,556 in 2000. However, the largest component of these figures has been Koreans studying English Language in Australia and it has been the fluctuations in those numbers that have accounted for the variations in the total numbers. While there has also been a decline in the number of Korean students at schools and vocational education institutions, there has been a steady increase, albeit relatively small numbers, in Korean students at Australian universities: increasing from 1,157 in 1996 to 2,050 in 2000.

  1995 1996 1997 1998 1999 2000
Schools   1,791 1,881 1,552  1,174 1,010
English Language*   13,032 10,682 4,912 4,197 6,228
VET Total   4,251 4,251 3,091 2,413  2,268
TAFE          541  
Private         1,872  
University Total   1,157 1,477 1,598 1,763 2,050
Undergraduate        1,174 1,297   
Postgraduate       424 466  
TOTAL 13,854 20,231 18,291 11,153 9,547 11,556

Source: Overseas Student Statistics 1998 and 1999. 2000 figures from Table 3 attached to <www.aei.detya.gov.au/industry/news/psnumbers/psn2000.htm>

* Table 48 of Overseas Student Statistics 1999 states that in addition to the 10,682 and 4,912 South Korean students in the English Language sector on student visas in 1997 and 1998, there were an additional 4,150 in 1997 and 3,250 in 1998 on non-student visas.

Korea is one of the largest sources of international students in Australia for English Language along with Japan and China. However, Korea has been a minor source of university students compared with Malaysia, Singapore, Indonesia and Hong Kong. Although the Korean numbers are in general small compared with overall international university students, Korea is usually ranked about equal third with Japan as a source of vocational education students and school students.

Korean Education and Training System

The Korean education system served Korea well though to the 1990s in providing a general education for most Koreans who sought education and in supporting Korea’s industrialisation policies from the 1960s to the 1990s. The Korean education system tended to focus on teaching students subject matter content ("know-what" knowledge) rather than teaching or coaching them on how to apply or utilise knowledge ("know-how" knowledge).

This type of education system is not well suited to the change in Korean industrial policy where the emphasis is now on becoming an advanced knowledge based economy. The education system now needs to be based around overall human resources development where there is a need for education and training that promotes quality, creativity and lifelong learning as well as education that is relevant to the needs of industry (and which prepares students to be more productive on entry to employment). Areas of reform that have been identified by the OECD/World Bank (OECD/World Bank, Korea and the Knowledge-based Economy: Making the Transition (2000) pages 57 to 77.) as critical for Korea’s knowledge based economy are:

Korea is moving to meet these challenges and there are some examples of where new initiatives are taking place such as cyber universities and colleges. Nevertheless, there is a realisation among decision-makers that much more needs to be done. A working group of Korean Government officials and advisers are currently developing a comprehensive human resources development plan (The Korean recognition of the importance of human resources development can be seen in the changing of the name of the Ministry of Education to the Ministry of Education and Human Resources Development and in the promotion of the Minister to hold concurrently the position of Deputy Prime Minister so as to oversee all Ministries with responsibilities that impact on human resources development.). This plan, a national framework for human resources development, could be finalised by September/October 2001. Discussions in Korea in June 2001 indicate that Korea is looking for new ideas and initiatives and that proposals by Australia to support Korea’s new human resources development directions would be welcomed. There is a window of opportunity for Australia to become a strategic partner for Korea’s education and training sector.

Conclusions

(i)  A coordinated program by the Australian education sectors to the Korean market is necessary. While it is possible for individual institutions to go it alone in Korea, such an approach will not fully capture the emerging opportunities. A coordinated, long-term strategy involving the Australian Government and educational institutions is needed to capture the attention of Korean Government and educational decision makers as to the quality and relevance of the Australian education and training system and products to the human resources development needs of Korea. Such an approach can also emphasise Australian strengths in R&D and science and technology and so broaden Australia’s high technology profile.

(ii)  The first step should be to develop a Government to Government cooperative agreement whereby Australia agrees to provide advice to Korean authorities and institutions on developing the new Korean human resources development system and introducing Australian institutions that can provide the particular systems and courses that meet Korea’s needs.

(iii)  The most immediate needs of Korea that have so far been identified are:

(iv)  The changing nature of the Korean economy should create a demand for vocational courses which can be delivered in a variety of modes — by studying in Australia, by off-campus (distance education) or by an offshore campus. An offshore campus would need to be a joint venture with a Korean institution where some (or all) of the courses are delivered in Korea with articulation (and English language studies) to vocational education and/or university courses in Australia. Different types of delivery could also apply to university courses, particularly specialised courses such as business and computer studies, health care, etc.

(v)  The use of scholarships and work placements for Korean postgraduate students in Australia as a longer-term means to raise the general profile of Australian education and training among younger Koreans and to build a counterweight to the usual attraction of postgraduate students to the USA. This longer-term strategy should also involve the building of Australian alumni groups in Korea.

(vi)  The education sector should work closely with other sectors, especially those in the high technology sectors (e.g. information and communications technology, biotechnology, environmental technology) (Such cooperation with other industry sectors is also pertinent to other sectors, e.g. in providing training to Korean food and agriculture officials on Australian food standards and conformance systems) to ensure consistent messages are delivered to Korea. Such cooperative efforts may lead to Government/business sponsoring scholarships/work placements for Korean students in Australia.

4.5  Infrastructure and Utilities

4.5.1.  Utilities

Korea has embarked on a large-scale program of privatisation. It covers telecommunications, electricity, gas, water, pipelines etc. (Meeting on 20 April 2001 with Professor Chang-hyun Cho, Chairman of the Presidential Commission on Government Innovation).  For example, Korea is working towards making the electricity market more competitive, based on the Victorian model. KEPCO is being restructured into six generating companies, including one for nuclear power. The five non-nuclear generating companies will be open to foreign investment as well as having a requirement for professional services. A similar approach, and therefore opportunities, is expected to be taken to the restructuring of the gas industry (Interview on 8 March 2001 with the Energy Policy Office of the Korean Ministry of Commerce Industry and Energy).

In the water industry, it has been reported (Global Water Report 99, 7 July 2000 at page 10) that the Lyonnaise group of France (now ONDEO) is the preferred bidder for the first international wastewater tender in Korea. The 24-year BOT contract covers the design, construction and management of three sewage plants and an 85-km collecting network. Wastewater services will be supplied to Yangyu county (population 100,000), 60 km from Seoul, in Kyonggi province. The ONDEO group will take a 60% share of the consortium with 40% taken by Hanwha of Korea.

The Australian water industry is going through a reform process driven by the National Competition Policy with improved productivity being the result. The competition principles relevant to the water industry include:

These changes provide a basis for the water businesses themselves to market their services to other countries that are embarking on a similar process of reform as well as providing reference sites for those firms that provide services to water businesses.

CASE STUDY: Macquarie GIF Purchase Korean Tunnel For Global Infrastructure Fund.

Macquarie Global Infrastructure Fund (GIF), managed by Australia’s Macquarie Bank group, recently (25 July 2001) announced it had agreed to purchase the concession interest in one of Korea’s leading road tunnel projects.

The agreement to purchase the concession interest in the Soojungsan Tunnel Project in Pusan City, from the Soojungsan Tunnel Co. for a total acquisition price of 93.7 billion won (A$141 million), follows this year’s successful raising of $263 million in funds by GIF from Australian and international investors. The purchase agreement is subject to the satisfaction of conditions including completion of the tunnel’s construction.

The Soojungsan project, under construction since 1997 with completion scheduled for November 2001, is a 2.3km two lane tunnel linking Pusan Seaport and the Kyungby/Namahe expressway in Korea’s south-east.

Macquarie’s GIF is the world first unlisted global infrastructure fund to specialise in unlisted infrastructure investment opportunities. The Soojungsan Tunnel Project compliments GIF’s current investments — which are projected to contribute portfolio returns of 20 per cent.

Macquarie spokesperson Greg Osborne said the Korean purchase agreement highlighted GIF’s ability to tap into Macquarie Bank’s unique access to infrastructure investment opportunities in OECD countries.

"While Australia has led the world in infrastructure privatisation, there is now a recognition that there are also excellent opportunities in infrastructure projects offshore," Mr Osborne said.

Source: Macquarie Bank

4.5.2.  Infrastructure

The Australian Model of Infrastructure Project Finance — Relevance to Korea

The Korean infrastructure market has recently shown that it is following the evolution in lending structures in other more mature western countries, by moving from a corporate finance focus to a project finance emphasis. From a pre Asian economic crisis situation, where all infrastructure borrowing was undertaken on a full recourse basis to the project sponsors, signs are now emerging of the development of international project finance techniques, including non-recourse finance.

Accordingly, Australia’s sophisticated and mature finance industry is well placed to capitalise on developments in this marketplace. Since the early 1980s, Australia has developed its world-leading financial skills and practices in the infrastructure sector, pioneering now established industry practices such as non recourse project funding, inflation linked bonds and the listing of infrastructure investment vehicles. These practices have sought to better link and reward the provision of equity and debt capital to project risks, and have produced an educated, informed market with a highly efficient allocation of project capital.

Australian companies in Korea now have the opportunity to focus on specialist financial activities that range from infrastructure and project finance, structured finance and cross border leasing to the management of specialised infrastructure investment funds.

Korean Infrastructure Developments

Korea’s investment in the transport and infrastructure sector has not kept pace with the growth in transport demand that has accompanied its transformation from an essentially agrarian economy to a sophisticated manufacturing producer and exporter. As a result, traffic congestion has risen rapidly, undermining Korea’s international competitiveness and presenting challenges for policy makers in meeting such a long-term investment shortfall. More than 16% of Korea’s GDP is logistics costs and more than 4% of its GDP is lost through traffic congestion costs.

Since the early 1990s the Korean Government has faced the dilemma of how to meet this investment shortfall, either through massive public works spending the country cannot afford, or by encouraging the private sector to build the nation’s infrastructure.

The Government opted for the latter course, introducing the concept of public/private partnerships through the Private Participation in Infrastructure (PPI) Act, which uses tax and other incentives to encourage domestic and international investors in roads, rail and port facilities to 2011. These investments are assessed against Social Overhead Capital (SOC) requirements, which are designed to take into account non-financial interests such as community needs and considerations.

Already a new international hub airport has been built outside Seoul, and high-speed railways are being built to lower traffic congestion and logistics costs. Subways are being expanded and alternative roads are being added to and around all urban areas in order to alleviate urban transport problems.

The plan is highly centralised and administered by the Ministry of Construction and Transportation, which oversees national development planning, infrastructure, surface transport and civil aviation affairs. The maritime and port functions are the responsibility of the Ministry of Maritime Affairs and Fisheries.

To feed its industrial base, Korea is highly reliant on the supply of natural resources from overseas markets. Consequently, an internationally viable shipping and shipbuilding industry has developed. However productivity delays and port congestion rob the country of almost 0.2 per cent of GNP annually (Ministry of Maritime Affairs and Fisheries). As a result, Korea has embarked on an ambitious $US30 billion port modernisation and building program to 2011.

The last decade has seen an enormous shift in freight traffic, from rail to the road and maritime sectors. While total domestic freight traffic grew more than 250% during the 1990s, rail traffic only rose 11% - representing a 20% decline in its share of the freight market. Notwithstanding this, Korea has an extensive and mature rail system, with the first intercity track linking Seoul and Inch’on in 1899.

Korea’s rising economic prosperity is having profound effects on transport modes. Not only are more Korean commuters using their own vehicles, greater urbanisation has seen a drift away from the public bus system to a subway rail alternative. This has brought with it the need for new networks and more advanced urban public transport solutions.

A high-speed train service, similar to that found in Japan and France, is being constructed to link Seoul with Pusan while a second link to Hanan is being examined. To complement the subway system, an increasingly sophisticated and extensive road network is being constructed around the major cities, particularly Seoul, most of which was constructed to coincide with the 1988 Olympics. It is anticipated that seven north-south road trunk routes and nine east-west trunk routes will operate shortly, linking major city centres.

Policy Co-ordination

In an attempt to introduce a long-term planning culture, the Korean Government follows the Comprehensive National Territorial Plan (CNTP) for the use, development and preservation of land. The CNTP presents policies related to the distribution of population and industries, infrastructure supply, living conditions, the management of natural resources, and environmental conservation. Among the key policy initiatives are:

Regulation and Government incentives

The Private Participation in Infrastructure (PPI) Act indicates the Korean Government’s commitment to reform the way Korean infrastructure projects are financed, managed and owned by engaging the private sector in this task. Introduced in 1995, and amended in 1998 following the Asian financial crisis, the Act seeks to:

The definition of "infrastructure" is broad and includes roads and ancillary facilities, railways, urban railways, harbour and port facilities, airport facilities, fishing harbour facilities, cargo terminals and warehouses, passenger terminals, non-road parking lots and urban parks. Projects qualify for consideration if they involve construction, expansion, renovation or operation of infrastructure facilities.

Projects worth over 200 billion won (about $A333.33 million) are reviewed through a preliminary feasibility study. For a project to be approved, the Act requires the Government and Concessionaire to agree to revenue projections, project costs and an un-geared real project IRR to determine the level of government subsidy for the project. Gearing of the project enables equity returns to be significantly higher than un-geared projects.

Financing can be conducted in a number of ways:

Private sector investors can participate through open bidding in the case of solicited projects or by submission of a proposal in the case of unsolicited projects. The incentives include:

Concurrent with the PPI Act is the concept of Social Overhead Capital (SOC), which is a means of assessing private sector investments against common criteria. Under this process, the Ministry of Construction and Transportation presents a list of projects to a committee of Ministers, including the Ministry of Finance for approval in the Basic Plan. The committee ensures there is no over-investment in any one sector, unlikely given the parlous state of the infrastructure sector overall, and that the Government’s share of investment and the proposed toll charges are reasonable.

The SOC Investment plan extends to 2020 and amounts to investment in roads, power, communication, rail, water, ports and airports totalling 1,004 trillion Won (about $A1.67 trillion). Of this, 747 trillion Won (about $A1.24 trillion) is to be spent between 2002 with a private sector contribution of 389 trillion Won (about $A648 billion).

Conclusion

There are many opportunities in the infrastructure and utilities sectors as Korea modernises its infrastructure.

An Australian financial institution (Macquarie Bank) has won many mandates in Korea in relation to the financial structuring of infrastructure projects in areas such as toll roads, ports, tunnels, power stations, communications, etc. The projects being managed offer many opportunities for Australian firms in the engineering and construction area, especially in the involvement of modern environmental technologies in the construction and operation of the projects. There are no doubt other areas of Australian skills and intellectual property that can participate in these infrastructure developments such as software products for energy and utilities companies.

If Australia can establish a track record in these areas, it opens up potential opportunities in North Korea. North Korea will require substantial rehabilitation of its power and energy (and possibly other infrastructure) sectors. As South Korea is unlikely to be able to afford to do that by itself, it provides an opportunity for Australia/Korean collaboration.

The challenge for Australia is to increase its profile as a source of expertise not only in the financing of infrastructure but also in the construction, operation and maintenance of modern infrastructure and utilities. The role for the Australian Government is primarily one of promoting the capabilities of Australia generally and particular companies in these areas.

Korean Cyber Village

In Korea the concept of the fully automated home has become a reality through a series of Cyber Village apartment complexes (costing around $US215,000 for a 146 sq m unit). There are 16 of these Cyber Villages in Seoul currently and many more currently under construction. These can be bought "off the plan" with a moving-in date of within two years from a purchase deposit being made. There is a high demand for these units — billed as the world’s most technologically advanced. Some of the features include a "webpad" – a portable Internet appliance that is the size of a laptop computer screen with touch control facilities. Shopping is simplified to clicking on grocery items, which are automatically ordered from electronic supermarkets such as, Hanaro Mart, the country’s largest supermarket chain, which then offers free deliveries twice a day. Other options currently available on the web-pad include: on line laundry services, online news and the ability to log on to the internet from anywhere in the apartment.

In Korea, there are already around 10,000 such "smart" apartments, occupied by ordinary families, offering the beginnings of a connected environment, with various levels of automation currently in use.

From August 2001, a high-speed fiber-optic network will make the "Cyber Village" environment even more powerful. Residents will, for example, be able to unlock their doors by mobile phone for their kids returning from school, check the security of their home remotely — room by room via visual security cameras, activate home air-conditioning from the office before leaving work at the end of a hot summer’s day, draw the curtains and so on.

In Korea, the home of the future has indeed arrived and expectations are that networked homes will spread quickly, because most key ingredients are already in place. Perhaps the most significant of these "ingredients" is the hundreds of clustered high-rise apartment complexes that are relatively easy and cost effective to wire with high-capacity "broadband" cables. In addition, there is a large population base of technology and "gadget" appreciating consumers, as well as an abundance of appliance manufacturers such as LG Electronics, & Samsung, eager to build Internet-enabled devices. The Korean Construction Ministry in May 2001 issued a regulation requiring all new apartments to be equipped with speedy Internet access.

Source: Based on article in Asia Week, 22 June, 2001, "Smart Homes Get Real" by Charles S. Lee

4.6.  Other Services

Over the past decades, Korea’s growth-oriented industrial policy rewarded those companies that were both large and able to demonstrate continuing growth and thus an increasing number of jobs for Koreans. However, industrial policies in Korea were not coordinated with its legal structure, which did not allow the creation of holding companies. With hindsight it became obvious that such a policy was holding back the growth of a viable and specialised service sector.

The Korean answer was the creation of business groups or "chaebol"` companies that bought and sold from each other almost exclusively. This system inflated revenues and assets, and ignored the requirement to net out intra-group sales.

Through this system the many chaebol formed their own "in house" divisions/companies specialising in information technology, chemicals, raw materials and construction. However, the rivalry that existed among different chaebol created its own problems. The service companies that were created to provide services to a particular chaebol could not find clients from the other chaebol, because the potential client chaebol would suffer a revenue loss if it did so. This also prevented the service companies from doing their best to reduce costs and increase efficiencies.

Korean business settled for what they could get rather than sought out the best service available. As Korea now transitions to a future in which profit maximisation is accepted as an imperative for Korean industries and companies, the domestic market is deregulated and world-class companies can gradually compete in Korea, businesses will start to seek the best available options in terms of quality and price. In April 1998 the Korean Government implemented a ban on corporate cross — payment guarantees. Consequently, corporations could no longer finance their subsidiaries with credit or payment guarantees. Corporations were thus forced to trim down bloated businesses and had to dispose of their non — essential subsidiaries.

As a result individual companies, banks, and service companies now, no longer tolerate a poor-performing and high cost in-house department, such as the group’s IT business, when lower cost and higher quality options are available and needed to improve the company’s profitability and enhance its ability to service its own customers.

Enterprises now need to determine where they can be distinctive and add unique value in the overall business system, and will outsource those parts of the value chain in which they are less competitive to companies which can provide the service more effectively.

These changes have already impacted and will continue to give rise to the emergence of more specialised and capable service businesses that differentiate themselves from others based on the quality and cost of services provided.

Companies with better skills and capabilities will emerge to provide services that are far more specialised and unique than those of today in areas as diverse as ICT, systems integration, logistics and distribution, catering, property management, insurance, and personal finance/credit card processing. In the course of this study a number of Korean systems integration companies expressed a strong interest in forming joint ventures with Australian systems integration companies with a view to looking at opportunities in third countries — utilising the complementary skills from each country to target markets in Asia and the United States.

Only more specialised and focused businesses will be able to achieve the required scale and build the skills and capabilities required to be successful in this more competitive "winner focused" economy, where even small differences in performance will lead to large differences in economic rewards.

The Korean economy has the potential to create many millions of new services sector jobs in the next five to ten years, and offer substantial investment/joint venture opportunities for Australian companies that can recognise the service sectors magnitude and growth potential in the new, knowledge based Korea.

Many of these new service sector jobs will be high value-added, high skilled professional jobs in areas such as accounting and finance, medical care and the legal profession as well as in education and information technology.

Availability of IT Skills
R Country Survey
1 India 8.92
2 Hungary 8.10
3 Israel 7.61
4 Iceland 7.52
5 Australia 7.29
6 U.S.A 7.23
7 France 7.16
8 Turkey 7.03
28 South Korea 6.40

Measures the extent to which qualified IT personnel are (10) or, are not (1) available in the country. (Source: The World Competitiveness Yearbook 2000, published by International Institute of Management Development)

Tourism: The number of Koreans who travelled abroad reached a new record in 2000, breaking the five million mark for the first time. The numbers of Koreans who came to Australia (12 months to June 2000) were 160,200 or 2.9% of the total outbound travel from Korea. This was a healthy 26.9% increase on the 1999 figures. The growth included sharp increases in the numbers of students, backpackers and those travelling to study abroad. Korean consumers, while remaining largely group travellers, have begun showing interest in special interest itineraries, focusing on activities such as golf.

The primary source market for Australia is Seoul, with secondary markets with promise being Pusan and Taegu. Australia is currently rated the 8th most popular destinations for outbound Korean travellers, behind Japan, China, USA, Thailand, Hong Kong, Singapore, and the Phillipines. Australia is most popular amongst the younger Koreans. In 2000 28% of Korean visitors to Australia were aged in their 20’s, while 21% were in their 30’s. In comparison only 16% of visitors from Korea were in their 40’s and 12% in their 50’s (Source: Korea National Tourist Organisation – 2000 Tourism Statistics).

As indicated in other sections of this report, the Internet is now well established in Korea as a significant marketing tool. Most national tourism organisations have a dedicated Korean language web-site, and there are already over 20 online travel agencies operating in Korea. The Australian Tourism Commission launched its Korean language web-site in March 2001. Deregulation of the telecommunications industry and the expansion of digital media and broadband access is expected to create new, cost effective communication channels for marketing and sales.

Table: Korean Visitors to Australia.  (Source: Bureau of Tourism Research, Australia)
Year Number of Korean Visitors
1995 167,975
1996 227,850
1997 233,815
1998 66,635
1999 108,634
2000 160,200

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