I remember that when some Japanese prime minister made an arrogant comment that Japan is a nation of gods, I reacted by writing a column arguing that Korea is an IT nation.
Yet there has been a series of events that make IT powerhouse Korea lose face. Korea's IT shares recently took a plunge, dragging down the entire stock market.
Korea's top three IT industries - LCDs, semiconductors and mobile phones - spiraled into an absurd chaos that was as preposterous as the picture below.
For a start, the LCD industry saw its stock prices halve, owing to excessive supply and a long-term recession. Then, the world's no. 2 company posted a deficit. Determined to unearth new markets, the world's no. 2 company lobbied hard and went to great lengths to build a production line in China. Thanks to the Senkaku Islands dispute between China and Japan, it earned permission to build a production line, but oversupply prevented the company from making any moves to go about building a factory on the ground. What is the purpose of producing goods on a large scale in a situation where they can't sell them The semiconductor industry truly got into big trouble. The unfounded rumor that the world's largest semiconductor purveyor Samsung was outwitted by some Japanese company sent Samsung shares falling for a long time. A glut in supply of memory semiconductors that are inserted into TVs, computers and mobile phones left semiconductor prices nose-diving far faster than the US dollar's decline. As the world's no. 2 semiconductor maker saw its share prices cut in half, it raised the sell-off card. But as the companies' shares plunged along with deteriorating performance, two prospective buyers got cold feet.
The mobile phone market has been monopolized by Apple products for over two years, and Korean products rolling off the assembly line a step behind Apple's models always ended up defeated by Apple models. A company staffed with young fresh blood, whose management team is aged 30-40, blindsided companies run by 50- and 60-something CEOs who are now at a loss as to what to do. I am talking about Google's acquisition of a floundering Motorola. How can this happen Is Korea's proud IT industry following in the footsteps of Japanese companies in the late 1980s Japan's two lost decades are similar to the Japanese IT industry's two lost decades. How Japan's IT industry did business was the same way as Samsung and LG are doing now. If it had not been for partnerships with Japanese companies and technology transfer, Samsung and LG would not be household names around the world. Japan, once the god of IT hardware, started to falter after 1998 and was squeezed out of the picture in the 2000s. The Japanese IT industry's fall was a boon for Korea's IT industry: it has strutted in the global market, claiming that Korea is the world's no.1 in terms of IT.
First of all, the finance industry that feeds on new technologies sensed changes in technological paradigms. Looking back on the past 250 years of capitalism, horses were replaced by steam engines that were again supplanted by cars. Cars then were overtaken by IT, which changed the pecking order of the global economy. Whenever the technological hegemony changed hands, the financial market ironically took a tumble. There were many reasons why.
Though the recent global financial crisis was caused by the US subprime mortgage meltdown, I have a different opinion. The history of capitalism has been filled with constant marriages and divorces between technology and finance. The recent situation was triggered by the financial industry that was fed up with IT and started to look at something else. If IT is replaced with a new technology, there will be a severe blow to the stock market. If electricity-based IT makes way for solar-powered GT, stock market vagaries created by the history of finance and technology make sense.
Data on the technological hegemony and stock markets will give you some clues. The first part of my book titled "The Birth of Finance Powerhouse China" covers what I am saying now.
When seawater temperature changes, even whales cannot survive without making a change to the direction. IT hardware technologies, best represented by semiconductors, are the ones that IBM developed in 1970. Considering the theory that the industrial cycles change every 30 years, the technology for semiconductors is already 40 years old. It is quite old although Korea is gushing about its state-of-the-art technology. This is funny.
The US reigned supreme from 1970 to 1985, Japan from 1985 to 1995, and Korea from 1995 to 2011. However, as I said, when seawater temperature changes, even whales will die unless they change direction. The emergence of IT ushered in the era of informatization, but IT's unfortunate rendezvous with Wall Street's avaricious finance sent the global economy sinking into a quagmire. We are not living in an era where things feed on light and move at the velocity of light. Small but smart mobile phones in our hands connect us to the rest of the world at the velocity of light, bringing in the era of smart revolution.
Korea's IT hardware can be depicted as a duck that swallowed a giant frog. Judging from the fact that Apple purchases Samsung's semiconductors and liquid crystal displays, the giant frog is currently choking the duck. The duck can either get suffocated to death or down the frog and let its digestive system skillfully break down the frog. However, if the frog is not a real frog but a hedgehog disguised as a frog, the duck's stomach will ache very badly. What is really important to Korea's IT industry that has been constantly outshined by Apple in the smart revolution Speedy changes in direction, building an ecosystem that can beat the almighty Apple, and precisely aiming at markets are the key.
The Internet has made the world flat. Making extra profits by monopolizing information is a thing of the past. In this flat world where there is no place to hide, speed distinguished one company from the rest. But in this light-speed information era where circling the globe seven and a half times takes only a second, speed is no longer what makes you competitive. The information revolution brought on by smartphones signals that the most important thing is a change of direction, not speed. If you run at the speed of light in the wrong direction, there is no doubt that you will become down-and-out.
Finnish mobile phone maker Nokia, once the dominant power of the mobile phone industry, collapsed overnight, and IT titan Samsung is painstakingly playing catch-up with Apple. If Samsung moves in the wrong direction at this moment, it can be wiped out overnight. This is the cruelty of the smart revolution. It is said that no other insect can fly as fast as summer flies. Their takeoff takes 0.2 seconds and they flap their wings 200 times per second. When male flies find likable female flies, they change direction within 0.03 seconds and chase after them. Summer flies are speed maniacs. To kill fast-moving flies, you need to predict their next move rather than identifying where they are now. Then, you have to swing a fly swatter hard enough. Nokia, who was madly in love with the sweetness of feature phones, failed to join the bandwagon of the smart revolution, and went downhill.
In the era of information revolution, No.1 and No.2 are determined by the strength of their ecosystems. It all depends on the outcome of a fight among ecosystems. Korea's IT industry is fighting an uphill battle with Apple in the smartphone market. On top of that, Google also dealt a blow to its rivals. Apple's ecosystem, which allows application suppliers to post and sell their applications freely on Apple's App market, beat Korea's IT manufacturing ecosystem where production costs are dragged down by pressuring suppliers and only certain levels of profits are guaranteed. The Korean government is calling for shared growth between large companies and SMEs, but the deep-rooted ecosystem cannot change overnight.
What is the bigger problem
The real problem of Korea's IT industry lies wth CEOs. Apple has Steve Jobs who was put up for adoption by his biological mother within a week of birth and had an unhappy childhood. He is a strict vegetarian who recruited Sculley (who was vice-president and president of PepsiCo (1977-1983) until he became CEO of Apple in 1983) by saying this "Are you going to sell that sugary water for the rest of your life" But his annual salary is one dollar. Oddly enough, he is the founder of Apple, but he was kicked out of the company and then later reinstated. He likened desktop PCs to farm trucks of the past, foretelling the end of the desktop PC era. He was behind the mega successes of the iPod, iPhone and iPad, emerging as an IT industry god.
What is the secret of the iPhone It is Apple's business roadmap that foresees future changes in the world. For a decade, Apple released the iPod, the iPhone, and the iPad that emcompass content, communications and computers, creating the i-series ecosystem. Why doesn't Korea have products like the iPhone The answer is simple.
Look around and see whether or not there are IT company CEOs who have been in the position for over a decade. Korea's IT industry sacks CEOs whenever the downturn of the 2-year or 4-year business cycles of semiconductors and LCD panels comes. Whenever there are troughs in the business cycles, group chairmen, seasoned but old, come up and deliver their mantra. Then, everybody repeats after them, praising how accurate their judgment is.
In this environment, there are no CEOs that can plan for and push for the development of hit products that guarantee a 50% margin. On the ground that group owners take full responsibility, they are deeply involved in corporate management and what they say startles the entire company into altering the entire strategy. Thus, CEOs who can assume the position for a maximum of four years, simply say yes to the owners and are unable to make products that can take the global market by storm. Check whether or not CEOs of global IT companies in other nations are aged 60-70.
Do you think elderly CEOs can catch up with the information revolution that changes per second Muscular companies are fodder for cellular companies for good. The problem begins now.
Though this story is still controversial, the smart revolution that was triggered by the iPhone is highly likely to widen the gap between "muscular companies" that emerged by resorting to economies of scale and cellular companies powered by creative ideas. If the current trend persists, muscular hardware companies will be eaten by soft, cellular companies with excellent DNA.
In the end, success in new markets comes from destructive innovation. Stars are created by the painful process of innovation. Those in the top position are faced with the winner's dilemma and unable to destroy their existing success models, thereby being blindsided by innovative forces. Korea's IT industry being in a rut is because they are on the horn of the winner's dilemma.
Though IT seems a cutting-edge industry, IT is the art of the 3-3-3 timing. Unless development, production and sales are refreshed for every three months, the company will be put out of business. Therefore, CEOs of IT companies should excel in reading future trends to put their companies on a winning streak over the long run, but it is not as easy as it sounds.
The world is characterized by social networks like Twitter and Facebook that are powered by smartphones. Having failed in globalizing Korea's social network services and developing applications, Korea's IT industry is beset by the iPhone tsunami that is just as powerful as the 2011 Tōhoku earthquake. Though Korea was the frontrunner who built a social networks such as iloveschool and Cyword, it failed to globalize its social network services, consequently losing out to the US.
Successful businesspeople have their own traits. Unless you are engrossed in something, you cannot seize the top position. Business people who have successfully entered uncharted territory do not either borrow or copy others' work. They don't simply follow suit. Creative CEOs are focused on developing their own things. Thus, we first need foster wacky CEOs like Steve Jobs before we develop new products.
Only sequential innovations have been witnessed in Korea's IT industry and a slight hint of creative innovation that can help Korean companies overcome the winner's dilemma seems nonexistent. All the Korean companies are clamoring for innovation, but genuine innovations are actually simple. Innovations that can raise a company's market capitalization 10-fold are genuine.
To that end, wolf-like management teams and advisors like Zhuge Liang in "The Romance of the Three Kingdoms" (a Chinese historical novel) are needed. Making family-oriented management a usual practice saying that group owners take full responsibility, and the key criteria for selecting CEOs being their loyalty rather than their creativity, will make Korean companies go backwards in this era of a smart revolution. Are there Korean companies that are run by creative CEOs When can we see smart CEOs who jack up the company's market capitalization 10-fold though creative innovations
Korea's IT industry should learn from autistic young people
Today we are encouraged to shift from the so-called "muscular" production that is strong in mass production to "cellular" industries that do business with their squeaky clean hands. But Korea's IT industry is still eager to build mass production lines and develop the world's first hardware. This truly reminds me of the very beginning of Japan's lost decade.
There are two types of top winners. One is the last survivor who beat everyone else and the other is the one who is always a step ahead of the others. Korea's IT industry has strived to build up its production volume and lower prices to shake off latecomers and come out on top in the global market. However, the problem is what happened after it snatched the top position. There emerged a company that does not produce a single product in its nation, but takes the No. 1 spot thanks solely to its unrivalled creativity.
Not a single unit of Apple's iconic iPhone is produced in the US. All of the production is taking place in China, but Apple is making money hand-over-fist. Since the parts of the iPhone are Korean-made, the price of the iPhone is lower than its rivals. As a result, Korean IT companies get dumbfounded, but if Google does the same thing to Korea later on, it would be a horrible nightmare. Korean IT shares have already reflected the gloomy prospects.
Korea needs to modify its business model
Korean IT companies have become accustomed to speed management, which has helped them survive in the race to the bottom on production costs for 30 years. Yet Korea's IT companies have never experienced a bloodless war where completely new products that rivals do not have determine the winner.
So it will not make any difference for large companies to summon up directors and reprimand them for slow sales.
Questions should be asked of Markets
Now, the world is mesmerized by Steve Jobs's i-phonomics. Apple has become the top-grossing IT company that boasts the world's largest profit and market capitalization. Signing a contract with Apple would be regarded as hitting a jackpot for an electronics company that produces semiconductors and liquid crystal displays. Mobile carriers are vying to get their hands first on the iPhone and the iPad. Excited by the iPhone's remarkable performance, the older generation is having great fun investing in Apple's shares while young people are obsessed with the enjoyment of the iPhone world, fidgeting with the iPhone while on the move or at home.
The future of Korea's IT industry hinges on these young, tech-savvy people who are crazy about the iPhone. Companies have to ask these young people questions about the market rather than asking 50- or 60-something CEOs who can only type with two fingers. Persistently asking people what they do not know can be torture. Of KRW 10 trillion in profit, KRW 3 trillion is paid in dividends, a bonus of KRW 3 trillion is paid to employees and KRW 4 trillion is poured into developing 400 applications that can rival Apple's applications. The result would be Samsung Electronics' share instantly jumping to KRW 1 million.
Through the shares of some Korean research institutes and online game makers are bullish, this is just silly. Globally-speaking, they do not have the technology that can feed the Korean economy. In other words, they are just bubbles waiting to burst.
Stop badmouthing the iPhone
Selling off our nation to others is the biggest sin we can commit to future generations. The next biggest sin is to hand down debt to the next generation. However, the worst of all is providing education that does not teach students creativity. Offering such an education will make our future generations slaves of creative goods made by foreign companies. We are living in a world where Bill Gates and Steve Jobs, both of whom have no university diplomas, are raking in tremendous amounts of money, but Korea keeps curtailing its kids' competitiveness by offering education that was designed for the 20th century's manufacturing era.
If you make an attempt at filling out Korea's university application forms, you will get the urge to bomb the Ministry of Education. How come a nation's education, deemed as a plan which spans a hundred years, revolves around selling university application forms and private tutoring at private cram schools. Filling out each university's application form is as difficult as a bar exam. This situation is completely insane. High school students go the extra mile to get into a prestigious university, but half of the college graduates are jobless today. Public officials who don't contemplate ways to fix this situation and only worry about their livelihood after their retirement and policy makers swayed by these public officials may deserve smacks in the face.
Superintendents of education, mayors, and politicians are all united to talk about free lunches for kids and free college education fees. But is Korea's education, especially its university education, competitive Free lunches and lowered college tuition fees do not guarantee raised international competitiveness and growing jobs numbers. They should think about sinking that money into creating companies for the sake of Korea's future. With the money, thousands of venture capital companies will be established, creating many, many jobs. Is this my miscalculation Though Warren Buffett upholds the idea of noblesse oblige, those who do not have the discerning eyes of Warren Buffett are taking care of this nation's education. Are they even considering nurturing creativity through education
The value of the information industry lies with the number of its subscribers. Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system. As of now, the number of China's mobile subscribers is 900 million, the same as the combined populations of the US and the EU. Judging from the history of technology, the birthplace of new technologies and where the new technologies made a smashing hit have not been the same. Backed by steam engines, the industrial revolution started in the UK, but it travelled across the Atlantic Ocean to blossom in the form of the auto industry in the US. Once 900 million people use smartphones, the global smartphone revolution will inevitably flourish at full throttle in China.
In the IT industry, the competitive structure of the US and China is 900 million vs. 8.1 billion. (According to Metcalfe's law, 300 million times 300 million is 900 million, 900 million subscribers squared equal 8.1 billion). China already has Baidu.com, China's answer for Google, Renrenwang with 160 million subscribers (the Chinese version of Facebook) and messenging company QQ with 1 billion members. Indeed, no one rivals China when it comes to numbers.
Where there is a huge market, high-end luxury goods are produced to turn a profit. The market capitalization of China's mobile and Internet companies listed on the US stock market is the evidence. Korea should wage a war against Apple by manufacturing smart c(hina)-Phones designed to take on China's 900 million mobile subscribers rather than arduously playing catch-up with Apple's iPhone that has already been far ahead of Korean products.
Money does not accompany patriotism
Ways to get out of IT shocks is to seek refuge somewhere. For the time being, Korean consumers buy products made by Apple and Google, turning away from Samsung and LG mobile phones. You call them unpatriotic As a matter of fact, there is no patriotism when it comes to money. If people get paid, they are willing to sell their nations. It is what it is. People buy shares of Apple and Google and receive hefty dividends thanks to their rising stock prices. If they are generous enough, they can buy shares of Samsung or LG with the dividends.
If you are not patient enough to wait for the revival of Korea's IT industry, why don't you read my article titled "The most dangerous three wrap items" I do not intend to rub salt into investors' wounds made by wrap accounts and IT shocks, I just feel so sad about what is going on in Korea's IT industry.
