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Strategic Market Assessment

This chapter examines the overall attractiveness of the Korean market for Australian business and Australia’s competitive position. The major challenge for Australia is a relatively low profile compared with other countries. Australia’s major competitive position has been in mineral and agricultural products. There is an emerging Australian competitiveness in the technology and infrastructure sectors — the sectors where the Australian profile has been lowest.

3.1. Attractiveness of Korean Market for Australian Business

The Korean market is positive for most Australian goods and services (including technology). Except for the special circumstances of 1998, the market has been growing steadily and even the slowdown in 1998 did not affect Australia to any significant extent because of the predominance of mineral and agricultural products in Australia’s export profile. The market will remain attractive for the mineral suppliers, but may not continue to grow as fast as Korea places less emphasis on heavy industry. The ongoing liberalisation of trade in agricultural products should provide expanding opportunities.

In terms of the market characteristics of Korea for the manufacturing and services sectors, businesses consulted during the project were mainly positive:

The competitiveness conditions within Korea are a challenge. In some industries such as electrical and electronics manufacturing, Korea is very competitive and at present there is little Korean interest in importing. Even with the successful companies in the software and professional services industry, there is always the potential of competition from suppliers in third countries such as the USA, Europe or Japan and from within Korea. The successful Australian companies in this area have in most cases developed a niche that is large enough for their purposes but is small enough not to attract major attention from other potential suppliers. Another approach is to have a product that is always ahead of any potential competitor. Nevertheless, competition from these other countries is always present because Australian companies do not have the same general high technology brand recognition as companies from, for example, the USA (Nearly every company consulted in the manufacturing and services sectors commented on the very little understanding that most Koreans had of the manufacturing and technological capabilities of Australia. This was also a theme that was raised by many Koreans). While the distribution system in Korea is sometimes considered to be a challenge (and probably is in some industries such as agricultural products), it has not been raised as an issue by the companies consulted in the manufacturing and services sectors. One comment did indicate a competitive advantage for Australia in the automotive components area in that Korean companies preferred to buy from Australian suppliers rather than Korean subsidiaries of European companies because of: (1) Australian products were cheaper and better quality, (2) access to advanced technology, and (3) the export credits generated under the Automotive Competitiveness and Investment Scheme (ACIS).

An important issue that normally arises in considering a country’s attractiveness is the financial and economic conditions of doing business in that country. This covers items such as pricing and payment terms, tariffs and other barriers to entry, and foreign exchange conditions. While tariffs and non-tariff barriers are an issue in some areas such as agriculture, the manufacturing and services companies consulted have not raised any items in this area as being of particular concern.

However, legislative and socio-political conditions have been raised on a few occasions:

3.2.  Australian Competitiveness

Overall Australian industry is competitive. This is most obvious in the areas of mineral and agricultural products where Australian producers can match most competitors. It is also applicable in many areas of the manufacturing and services sectors, especially where production does not require high volume lower quality products.

In terms of supply expertise of the Australian manufacturing and services sectors:

The issue of management capability (e.g. span of contacts/alliances in Korea, effectiveness of government and other Australian institutional support) has not arisen. Clearly, having a presence in the market is an important key to success as is strong support from Australian Governments. The only comment that has direct relevance was an Australian company that originally had difficulty in raising finance for its investment in Korea — however, the funds were ultimately raised.

CASE STUDY: Semiconductor Technologies Australia Pty Ltd (STA)

STA believes Asia will become an important strategic region in terms of its business operations not only because Asia is the largest consumer and processing centre of downstream semiconductor products, but also because Asia will inevitably emerge as a centre of original and proprietary upstream technologies including design architecture, semiconductor processing and manufacturing. The self-feeding vertical integration in Asia will only intensify as disposable income levels and spending power rise rapidly in other countries in the region. STA’s marketing strategy includes using Korea as a springboard to penetrate into China and Taiwan and then into more sophisticated markets such as Japan.

STA was established in 1997 to create a world-class semiconductor design centre in Melbourne. It is a wholly owned subsidiary of Korean semiconductor company Acqutek and operates as a fabless (non-chip manufacturing) semiconductor design company whose primary business is developing semiconductor IP ("Intellectual Property") in its own state-of-the-art semiconductor ("chip") design technology.

The company also contracts semiconductor design services for third parties, markets EDA tools and related training and third party products and arranges for the fabrication of the chips it designs from competitive, available fabrication companies in Korea, Taiwan and the USA.

STA was one of the initial sponsors of the Victorian Government CHIPSKILLS program, providing semiconductor design skills development programs via training courses and support. The CHIPSKILLS program has been implemented at the RMIT University, Swinburne University of Technology, Victoria University of Technology, Latrobe University, Royal Melbourne Institute of Technology TAFE, Boxhill Institute of TAFE, Western Melbourne Institute of TAFE and Barton Institute of TAFE.

The company’s genesis goes back to the Korean semiconductor packaging group Anam Industries formed in 1965. Anam Industries progressively grew to become the world’s largest contract packager of semiconductors. In 1985 the Group created Anam Semiconductor & Design Co. Ltd (Anam S&D) (later renamed Anam Semiconductor & Technology, Anam S&T and then later again Acqutek Co. Ltd) as Korea’s first semiconductor design house. In 1994 Anam S&T formed a wholly owned subsidiary in Australia, Anam Technology Pty Ltd. In 1995 Anam Technology Pty Ltd created a wholly owned subsidiary ASIC Australia Pty Ltd, later renamed Semiconductor Technologies Australia Pty Ltd in 1997.

STA moved to operational mode in December 1997, with its first staff uptake of six engineers joining in early 1998. The early period of STA principally involved the training of its newly recruited engineers in the use of the complex design tools involved in designing, simulation testing and laying out integrated circuits. Marketing activities then commenced leading to the first contract design and chip supply contracts from the biggest toy manufacturer in Korea.

In late 2000 work commenced on the ‘Combo’ chip for powerline communications. Also in late 2000 Anam Technology Pty Ltd was consolidated into STA and work commenced on the establishment of the SWIP chip IP licensing portal.

Based on the company’s existing depth of expertise in semiconductor design, it is planned to operate a B2B Internet Portal chip design IP licensing service called SWIP which will access semiconductor design IP created by STA and strategic alliance partner organisations in Korea, China, and Taiwan. The IP comprises libraries of reusable functional circuit core designs for integrated circuits ("IC’s"). These reusable cores form the building blocks for systems-on-chip ("SOC") solutions and are licensed to major systems houses, chip makers, design centres and major IC distributors.

The company is building a sound revenue and profit growth potential, moving from its establishment phase to a projected positive cashflow in 2001/2. The initial revenue is generated principally from world wide sales of chips currently in the final stage of development by the company and the licensing of semiconductor IP through SWIP.

Source: Mr Stephen Kim, Managing Director, Semiconductor Technologies of Australia Pty Ltd

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Local Date: Thursday, 04-Dec-2008 19:11:27 EST

This page last modified: Thursday, 15-Jan-2004 14:37:49 EST