Tag Archive | "technology"

Why Is There No UberX in Seoul?

By Hayeon Carol Park

On September 21st, Uber Technologies, Inc. launched UberSHARE, a car pool service in South Korea, just a month after it launched the restaurant delivery app UberEATS. The successful launch of these services raise an important question: why is UberX still not offered in South Korea? The answer is simple – the South Korean government has banned UberX from operating in Seoul. However, there are market based incentives that should help convince Seoul to allow UberX to operate.

Uber has been attempting to enter the Seoul market since as early as 2013, but it was outlawed by the South Korean government in 2014. After a series of lawsuits and trials, the Seoul Central District Court ruled that Uber was violating Korea’s Passenger Transport Service Act by illegally using non-licensed private vehicles for commercial purpose. Uber was fined 10 million won ($8,840) for running an illegal business and was forced to stop operating. While looking for an opportunity to resume the UberX business in Seoul, Uber launched its premium taxi service, UberBLACK, last year. Once again, the Seoul government stepped in to limit UberBlack’s service through unusual regulations that allow UberX services to be provided only to foreigners, the disabled, or government officials.

Although Uber Technologies faced serious legal setbacks within the U.S., the opposition from South Korea, and many other foreign countries for that matter, reveals protectionist attitudes against foreign competitors. In London, Uber was recently banned by the local governing body, Transport for London, for not following local laws, which raises suspicions that the ban was a move to protect the existing local taxi apps such as Gett and Mytaxi. Similar suspicions can be raised for Korea – South Korea’s development paradigm during the 1960’s and 1970’s was founded on tight cooperation between industry and government, wherein the Korean government provided an appropriate incubation environment for the Korean companies by limiting foreign competitors from entering the market.

As such, the South Korean government outlawing Uber in Korea can only be discussed in the context of supporting KakaoTaxi. Daum Kakao, the maker of South Korea’s most popular messaging app, launched KakaoTaxi in Korea in March 2015, but it is not as innovative as Uber. Uber is a real-time ride-sharing technology, while KakaoTaxi is simply an app used to order regular taxis. KakaoTaxi has not only signed an agreement with the mostly government-owned subway card maker Korea Smart Card Corp., but it also partnered with the Korean National Joint Conference of Taxi Association, the Seoul Taxi Association, and the Federation of Korean Taxi Workers’ Union.

When Uber was trying to expand its services in Seoul, the Seoul government was faced with immense pressure from the taxi unions, known to have huge lobbying power in Korea. In response, the Korean government began cracking down on Uber drivers by even offering a reward of 1 million won to Koreans that notified them if they ever saw an Uber driver. “I cannot see how this ordinance serves the interests of Seoul citizens. It leads us to question that the City’s officials are bowing to pressure from taxi associations, which have declared war on competitors,” said Allen Penn, head of Asia operations for Uber. By the time UberBLACK launched in Seoul, the government had already ensured that KakaoTaxi had cemented its market dominance.

Korean taxi drivers feel threatened by Uber and perhaps understand that customers are unhappy with traditional taxi services. Taxi drivers around the world are shielded from competition and therefore become lax enough to offer poor service at inflated prices. On the other hand, Uber operates efficiently without traditional barriers for entry. While the Uber drivers do have to pass basic background checks, they do not have to obtain $1 million dollar medallions as in New York City, for example, to operate.

Allowing Uber to compete with KakaoTaxi will not only improve people’s lives with more consumer choice, but also improve the quality of the existing taxi services in Seoul. If UberX was in Seoul, regular taxi drivers would have no choice but to innovate and improve their services in order avoid becoming outdated and losing market share. In my experience, Korean taxi drivers tend to drive recklessly, swear in bad traffic, and provide bad service. On the other hand, Uber drivers have an incentive to drive safely and provide quality service, as they need to maintain high rating in order to stay in the market. Regular Korean taxi drivers would have no choice but to emulate this behavior in the marketplace.

The government’s decision to ban Uber may have particularly significant consequences if it harmed Korea’s reputation as a capital of futuristic high tech business. Seoul mayor Park Won-soon has claimed he wants to make South Korea’s capital a global role model for the sharing economy, but he is opposing a company that helped launched this global phenomena. If South Korea continues to push back against the concept of the sharing economy while the rest of the world is gradually becoming Uberized, it will only be a matter of time before Seoul is no longer a leader in digital technology.

Rather than yielding to the demands of the taxi drivers, the Korean government should remove onerous restrictions and allow Uber to operate in Korea while competing fairly with KakaoTaxi. Fortunately, the successful launch of the UberEats and UberPOOL signals that consumer demands are often strong enough to offset the regulatory forces. Despite this, more can be done to provide greater consumer freedom and flexibility for international businesses.

Hayeon Carol Park graduated from Yale University with a Master’s degree in International and Development Economics. The views expressed here are the author’s alone.

Photo from Automobile Italia’s photostream on flickr Creative Commons.

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Korean AI Market Competition Heats Up

By Hwan Kang

Elon Musk tweeted last August that AI (Artificial Intelligence) has “vastly more risk than North Korea.” So it may seem ironic to him that South Korean companies from different industries are so eager to apply AI into their services amid the ongoing missile fiasco in the North.

Major IT companies such as Naver and Kakao have announced throughout the year that the next main focal point in their businesses would be developing their own AI that can process deep learning and provide better services to the users. Naver has boasted about its devotion to AI development by acquiring Xerox Research Center Europe (now Naver Labs Europe), a leading lab in intelligence research, and aggressively investing in startups that can develop different facets of the deep learning process. On the other hand, Kakao has announced that its new subsidiary for AI research, Kakao Brain, will be personally spearheaded by Kim Beom-Soo, the visionary billionaire who founded KakaoTalk. Its plan is to catch up to the level of other leading research centers by actively recruiting developers with specialties in search patterns and natural spoken Korean.

The first tangible result from the competition in the Korean AI market is the AI speaker. Koreans are excited about the upcoming launch of AI speakers from both tech companies, who promise intelligent assistance that will integrate deeply into customers’ daily lives. These AI speakers will provide easy access to the makers’ various services through voice commands that support spoken Korean and English.

Last August, Naver got a head start on its competition when it unveiled its brand new AI speaker, “WAVE”. The speaker was met with great enthusiasm, selling its entire stock in Korea in just 35 minutes and closing pre-orders in Japan after just 5 days. WAVE uses “Clova,” Naver’s AI platform, as its operating system, and provides convenient services with smart responses. Notable functions include English speaking mode for English learners and Japanese/Chinese translation.

Kakao is also looking forward to launching its own brand of AI speakers called “Kakao Mini” later this year. Not much has been revealed about the product yet, with the website only providing a sneak peek. However, people are anticipating the speaker’s release because it’s AI program, “I”, is expected to be connected to popular Kakao services such as KakaoTalk messenger and Melon’s music app.

More intangible AI results have also been revealed to the public throughout 2017. One example is “Naver Smart Lens”, a visual AI service that can recognize letters, QR codes, and various other images. The “AiTems” system in Naver’s mobile shopping app can analyze preferences from the users’ search history and suggest certain items, even if they have not used the service before. Naver Labs has also participated in the Seoul Motor Show and announced its plans to use deep learning for autonomous cars that can use the system to learn how to detect and avoid traffic. Kakao has similarly announced its bold plan to create a “Smart Home” and apply its AI into new apartments that are under construction. It is collaborating with major construction companies such as GS and Posco to initiate its plan.

The two companies are not the only major players in the Korean AI market, though. Banks and credit card companies have emerged as participants in the market as well. Banks such as KEBHana and Woori have collaborated with telecommunication companies SKT and KT respectively to develop ChatBots. ChatBots will be able to do banking transactions and provide necessary information based on consumers’ behavior patterns. They are expected to advance non-face-to-face banking services even further. Similarly, Hyundai Card has created its own ChatBot, “Buddy,” based on IBM Watson’s natural language processing system. Jung Tae-Young, the CEO of the company, has shown his high expectations for the AI on his Facebook account, saying it will grow up and show different attitudes.

South Korea Ministry of National Defense is also considering applying AI into the country’s defense system, according to its New Year resolution for 2017. It has announced it will consider integrating AI into its cyber defenses against North Korea. In fact, the South Korean military already has something similar to AI in place. The South Korean Army has so-called “killer robots” deployed in the DMZ that work as unblinking eyes on the 38th parallel. The robots are called SGR-A1, developed by Samsung Techwin (now Hanhwa Techwin). They are considered one of the earliest autonomous robot defense systems, along with Israel’s system. Its specifications list a machine gun and grenade launcher as the robot’s primary weapons, and it is equipped with heat and motion detectors that can track down enemies without assistance from humans. They can also use a security clearance procedure with an instant shoot to kill process, but is not activated due to concerns of confusing civilians from enemies. Instead, the bots send signals back to the central base and wait for further command.

Such efforts in Korea to develop and integrate AI into various areas have many economic implications. Korean companies still lack capabilities to compete in the global market. Developing AI is therefore the smart thing to do during the so-called 4th industrial revolution, especially ones that can understand naturally spoken Korean better than their foreign counterparts.

However, Korean companies may not have the advantage of “fast followers.” According to a report from IBK Economic Institute, Korean AI products have nothing to gain from market leaders’ trial and error process because AI is so complicated and inherently closed to outside competitors. Also, since the leaders had the advantage of cornering the market on AI technology, they have had more time to reach the necessary customer base for the system to develop enough sentience, which means the market followers will have to work with the leftover margins. As a result, the major developers with more resources will have continued dominance over the AI market, which is already evident as in the cases of Apple (Siri), Amazon (Alexa) and IBM (Watson). IBM Korea has recently announced that Watson can now understand spoken Korean, so time for Korean AIs is running out fast.

Another implication has to do with an AI’s moral compass. AI programs do not have moral obligations to work for the collective good of society, but they can work to maximize a company’s profits. This means that AIs can become tools to subtly but efficiently empower companies in the market. There are already cases where pricing algorithms have been used to develop a perfect price differentiation scheme or form an indirect price cartel. The case of Dutch gas stations is an important example – different gas stations constantly changing prices in accordance with customer’s predictive needs for gas under different conditions. This was possible thanks to a “dynamic pricing” program that refreshes prices based on real time market data. What was worse was that because different gas stations used the same algorithm, it was impossible for the customers to avoid the price differentiation wherever they went, effectively forming a price cartel that maximized the company’s interest. There is no guarantee that this will not happen in Korea once AIs are set in place everywhere people go.

The vast opportunities for AI both in Korea and around the world, along with the concerns that go along with those opportunities, show clearly that we may be reaching a turning point where many conventional economic norms could change, especially for tech-savvy South Koreans.

Hwan Kang is currently an Intern at the Korea Economic Institute of America as part of the Asan Academy Fellowship Program. He is also a student of Seoul National University in South Korea. The views expressed here are the author’s alone.

Image created by Jenna Gibson, Communications Director, at the Korea Economic Institute of America from a photo by Nick Amoscato on flickr Creative Commons.

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Korea’s New Craving for Kakao Bank

By Hwan Kang

Kakao Bank launched its internet-only banking service on Thursday, July 27, meeting unprecedented enthusiasm from Korean users. Within first 8 hours of its unveiling, customers created more than 100,000 bank accounts. After only five days, the number of accounts surpassed the one million mark and then further broke the record by reaching two million thirteen days after the launch. That is approximately 6,400 new accounts per hour. The bank’s cute Kakao Friends debit cards are also said to be out of stock, with one million users applying for their favorite character cards.

The bank’s popularity naturally led to massive active transactions, with 653 billion won ($579 million) being deposited and 497 billion won ($441 million) being loaned to users in just one week. Kakao Bank’s power as a new challenger in Korea’s financial market is so strong that other major banks are quickly rectifying their services to keep up.

Kakao Bank Graphic

Why the sudden popularity? After all, Koreans are probably the most IT-accustomed people in the world. Another internet-only bank, K-Bank, launched earlier this year and it took 100 days for them to gather 400,000 account users. It also took four months for the bank to achieve similar amount of deposits and loans as Kakao Bank. Convenience is the key to the bank’s runaway success – Kakao Bank focuses mostly on providing user friendly mobile services by reducing the hassle of having to go through rigorous procedures to open an account or borrow money. To create your first account, all you need to do is log in with your Kakaotalk ID and confirm your identification with your phone number via text message. Considering that about 84 percent of the population in Korea uses Kakaotalk daily, almost anyone with a smartphone can create an account without additional effort.

This process eliminates the painful procedure of dealing with Active X, an outdated way of installing security programs that only Windows users can download, and then having to get a special financial certificate issued, which takes another half-hour. It is also much easier to get immediate cash if you have an account with Kakao Bank. The bank boasts that it takes only 60 seconds to borrow up to 3 million won ($2,655) without any paperwork. The cash will be available on your debit card with daily interest of up to 273 won, less than a quarter a day in U.S. dollars. All of these services are something that internet banking services like K-Bank could not provide before in Korea.

However, that does not mean that the bank is giving up on price competition. It currently offers a higher interest rate for deposit accounts (2.0 percent per year), which is 0.2~0.9 percent more than other major banks. Its loan interest is relatively lower than other competitors as well with a 2.84~9.80 percent rate and no prepayment penalty, which is 0.5 to 2.7 percent lower than other major competitors. In terms of fees, they do not charge anything to send money regardless of the bank, and wiring fees are cheaper than other similar services (5,000 won, or $4.40). Kakao Bank also decided not to charge any withdrawal fees from all ATM machines until the end of the year as a promotional event.

Kakao Corporation’s recent efforts to expand into the fintech area mirror similar moves by Tencent and Alibaba in China. Both companies are pioneers in the mobile payment system in China, implementing QR codes to make daily transactions with smart phones easier and ironically driving the communist society to develop the most advanced electronic monetary system. The two companies competitively increased their market dominance almost to the point that QR code payment is quickly replacing conventional methods of payment such as cash or credit cards.

In the case of Tencent’s WeChat Pay, WeChat messenger was the catalyst for increasing its user base in China, while its internet-only bank WeBank supported users with easier access to bank accounts. The two Chinese fintech giants are now turning their eyes toward other countries, investing in Southeast Asia and the U.S. while striving to support other currencies and expand their services.

It is safe to say their ventures have now reached Korea. Tencent and Alibaba each has major shares in Kakao Bank and Kakao Pay, Kakao Corporation’s payment service. It is no coincidence that both companies are backing Korea’s biggest mobile platform as it launches Kakao’s equivalent of WeBank and Alipay. This way, Tencent and Alibaba can recreate their success in China and perhaps connect China and Korea in a ubiquitous QR code system. With such support, Kakao Bank will have great power in the consumer market, maybe even more so than in than China considering that Korea has a denser population that is already familiar with smartphones.

Of course, behind Kakao Bank’s success is skepticism that the hype will only be temporary. One of the most critical shortcomings that the bank has to overcome is its lack of verification system for foreigners living domestically and abroad. Foreigners usually use alien registration cards or passports for identification in Korea, but Kakao Bank, along with other banking services, does not provide means to confirm it online. While it is hard to confirm whether the problem lies in the bank itself or with government regulation, it will definitely raise questions for the bank, whose strongest appeal is its ease and convenience. This obstacle is particularly unfortunate given that it can ease transactions for foreigners who are not yet accustomed to spoken Korean.

Another shortcoming that is causing doubt is the bank’s financial stability. Because it is so convenient to borrow money, users are actively getting loans from the Kakao Bank up to the point that its loan-to-deposit ratio has reached 94 percent. If people decide to borrow more money than they have deposited, the bank might face a shortage in capital. A report from the Korea Institute of Finance noted the reason some other internet-only banks failed was because of riskiness in managing their assets. They may have had the advantage in attracting customers, but poor investments and unreliable deposits ultimately undermined their long-term profitability. Kakao Bank claims that it has no plans to stop their loan services, but they have set new limitations on the total amount of money customers can borrow. Meanwhile, Kakao Bank is also trying to avoid this kind of situation by raising more capital through new shares.

Although it is still unclear whether Kakao Bank will remain a major contender against Korea’s conventional banks, Koreans are no doubt drawn to it because of Kakao Corporation’s reputation of going against the norm. It has already proven other banks wrong by providing better service and accessibility with reasonable interest rates. It has in turn driven its competitors to follow Kakao’s example and reminded them that tech complacency will not be an option in the future.

Hwan Kang is currently an Intern at the Korea Economic Institute of America as part of the Asan Academy Fellowship Program. He is also a student of Seoul National University in South Korea. The views expressed here are the author’s alone.

Photo from badtaste64’s photostream on flickr Creative Commons.

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Netflix’s Korean Premiere Met with Controversy

By James Do

With the success of Korean popular culture reaching many countries around the world, especially Europe, South America, the Middle East, and Southeast Asia, video streaming service Netflix is trying to capitalize on the success of Korean entertainment. By riding on the popularity of its original content (House of Cards, Orange is the New Black) and incorporating Korean media into their library, Netflix is now in a prime position gain a market share in the entertainment industry in Korea.

Since Netflix expanded its service globally, the company began to offer more Korean movies and television shows onto its streaming library. Many of its programs tend to be more recent releases such as the movie Tunnel or Train to Busan, which both premiered in Korean cinemas in 2016. The company has also picked up several Korean television shows including The Sound of your Heart and My Only Love Song. In addition, many older famous Korean movies and television shows such as Assassination, Old Boy, and Descendants of the Sun are currently available to watch. In fact, Netflix now offers more Korean movies or television shows than Japanese or Chinese content.

We can see this trend continuing with Netflix’s investment into its upcoming film, Okja. Directed by the renowned Korean director Bong Joon-ho (The Host, Snow-piercer), Okja serves as Netflix’s official entry into the Korean entertainment market. Okja is a movie about a young country girl, Mija, (Ahn Seo-hyun) who stops at nothing to defend her newfound friend, Okja, a pig-like animal genetically created to be used for human consumption. During her adventure to save her beloved friend, she takes on an evil corporation led by a powerful CEO (Tilda Swinton) who seeks nothing but to profit from Okja and her species. Mija befriends animal rights activists (Paul Dano, Steven Yeun, and Lily Collins) who assist her in her quest to save Okja.

While the plot of the movie evokes a sense of adventure, the film itself is without controversy. Netflix recently announced that the film would be released both in theaters and online in Korea, a first for the company, which has never pushed to have their own content released through cinema or television broadcasting. After the announcement, major Korean theater chains opposed Netflix’s plan to release the movie simultaneously, as movies there are typically screened in theaters and made available online after a few weeks. CGV, Korea’s largest cinema chain, refused to screen the film, while Megabox and Lotte Cinema are still debating.

Bong Joon-ho, Okja’s director, explained that while trying to cater to its subscription base, Netflix went against the existing norms and systems of the existing Korean film industry. However, although the film remained controversial to big theater outlets, many independent theaters agreed to premier Okja.

In addition to Netflix’s controversial role in the Korean film industry, the film also garnered attention at the Cannes Film Festival. While the film was invited to be premiered at the festival, it was omitted from award consideration, since the movie was not planned for theatrical released in France – a rule that was introduced after the lineup for this year’s festival was settled. Bong stated “[The festival] invited us and then caused a stir, making us embarrassed. They should have put the rules in place and then invited us. How can I as a filmmaker study local French laws while making films?”

With all the controversies over Okja, what will the future of Netflix and the Korean film industry be? The popularity of Korean entertainment globally has influenced Netflix to ride the Korean wave by entering a market that continues to grow immensely not just in Korea but abroad. As Netflix hopes to increase its user base, it’s possible the company will seek to invest in other films and television programs in countries where online streaming remains popular.

 With streaming becoming ubiquitous among younger generations, film industries must change their business model to incorporate more recent trends. The way we watch and engage in film and televisions has already immensely changed from the previous decade. To meet the needs of contemporary times, companies and organizations need to develop an environment where filmmakers are motivated but also given more recent standards of support. With its innovative model of simultaneous physical and online premieres, Netflix is at the forefront of these changing times. Now it is up to the film industry and its community to change their policies to reflect current digital trends.

James Do is a graduate student at the Fletcher School of Law and Diplomacy focusing on International Security Studies and Pacific Asia and an intern at the Korea Economic Institute. The views expressed here are the author’s alone.

Photo from TFurban’s photostream on flickr Creative Commons.

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China, Korea, and the AI Program that Could Bring Them Together

By Nathaniel Curran

When Google’s AlphaGo computer program beat South Korea’s top Go (baduk) player Lee Sedol last March, it didn’t take long for AI experts to hail the event as a milestone in artificial intelligence and machine learning. Nor did it take long for China’s top player, Ke Jie, to issue his own challenge to the AlphaGo team, which culminated in a match two weeks ago. Ke’s claim was especially bold considering that Korea’s Lee had been handily defeated four games to one. In fact, it may have been a matter of national pride that prompted Ke to issue the challenge, considering that the game originated in China thousands of years ago.

With China and Korea both playing high-profile matches against AlphaGo this year, might now be the moment for a resurgence of Go diplomacy? Go is certainly enjoying an unprecedented degree of interest worldwide following the two AlphaGo matches, and China-Korea relations are in need of a boost after the last year of tension over THAAD.

Considering China and Korea’s shared appreciation for the game, as well as the massive press AlphaGo has received, might Go serve as a way of improving the currently frayed relations between China and Korea?

Go Diplomacy

This wouldn’t be the first time Go has been called upon to smooth relations; the game was used to help pave the way for the normalization of Sino-Japanese relations in 1972. Nor is mixing Go and politics unprecedented in the contemporary era, either; Barack Obama gave a Go set to China’s former President, Hu Jintao, on Obama’s first state visit to China.

Now, Go could present a new opportunity to strengthen the relationship between Korea and China. The relationship, currently under severe strain from the backlash against the THAAD deployment, is in quick need of repair, considering Korea’s reliance on China, its largest trading partner.

One reason that Go might be helpful in promoting better dialogue is that although the game is originally from China, it is something of an East Asian cultural bricolage, influenced by the innovations of both countries. The fact that both China and Korea have assisted in the game’s development increases its attractiveness as a tool of diplomacy in the region.

While few know the game outside of East Asia, millions play Go across China, Korea, and Japan, and each country has fostered a unique Go culture and playing style. During most of the 20th century, Japan was the undisputed global center of Go, drawing players from all over the world, including a few Westerners. But for the past thirty years, the top players have been from either China or Korea. More recently, in the 2000s, Chinese players have started to dominate the top ranks of the Go world, mirroring China’s rise on the international stage. However, Google chose to challenge Korea’s Lee Sedol in last year’s highly publicized $1,000,000 match rather than Ke Jie, or any of the other top Chinese players.

Although many associate Go with a vanishing cultural past, its continued popularity is evident; in South Korea there is a 24-hour television channel devoted to the game and Lee Sedol’s match with AlphaGo was front-page news in all the major South Korean newspapers. In China, 60 million internet users watched the match.

Go Graphic

While it’s hard to envision the exact direction Go diplomacy make take, there are a number of possible avenues. China and Korea could work together to form a new, jointly-funded Go federation to promote the game at home and abroad. Simply holding some highly publicized friendship-matches between the two countries would be one way to use the game to increase diplomatic dialogue. Another possibility is AI vs. AI matches, which might also pay dividends to each country’s tech industry.

However, in spite of its potential to improve Sino-Korean relations, the game might hypothetically lead to further division. China must feel snubbed to some degree that Google originally challenged Lee, rather than Ke Jie. Some have even suggested that China’s support for the event was a reaction to the media coverage that the AlphaGo game received. It’s also possible that the countries might struggle over who holds a legitimate claim to the game, and also its narrative. China can make the case that Go originated in China, while Korea’s claim is bolstered by the fact it has received the lion’s share of the Western press’s recent infatuation with Go. Korea also has Lee, who notched one victory against AlphaGo along the way to his eventual 4-1 defeat. Considering that AlphaGo has continued to improve since last year, Lee’s one win probably marks the last time a human will ever manage to win a game against a top Go AI, and Koreans must feel some pride in Lee’s achievement.

Whatever happens next, it’s undeniable that Go has made something of a comeback; a rarity for a game with a twenty-five-century history. Whether the ancient game will serve to exacerbate tensions in East Asia or relieve them remains to be seen.

Nathaniel Curran is a PhD student at USC’s Annenberg School of Communication and a 2017 COMPASS Summer Fellow. The views expressed here are the author’s alone.

Photo from Prachatai’s photostream on flickr Creative Commons.

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Prospects for U.S.-Korea Economic Relations under New Administrations in Seoul and Washington

By Phil Eskeland

In 2017, both the Republic of Korea (ROK) and the United States face various challenges and opportunities in the growing economic relationship.  Korea is now America’s 6th largest trading partner, ahead of the United Kingdom and France.  As a nation that once was a major recipient of U.S. foreign aid, South Korea has rapidly advanced to become the world’s 13th largest economy, ahead of Canada and Spain.  However, these achievements are not locked in forever.  As the new ROK and U.S. administrations interact and deal with each other, both sides must avoid “unforced errors” and cooperate with each other as much as possible to confront domestic and international trends that place impediments on both economies, such as stagnant wage growth, aging population, mismatched workforce, and the siren song of trade protectionism.

The first major challenge is establishing an accurate analysis of the Korea-U.S. Free Trade Agreement (KORUS FTA).  The agreement’s success or failure should not be measured by just a single metric of the merchandise trade deficit, which parenthetically decreased in 2016, but on a comprehensive review of all of its effects.

  1. Total trade volume (imports and exports) between the two countries has increased since pre-KORUS levels (2011).  In fact, the most recent data from the Commerce Department shows that the U.S. exported a record level of manufactured goods and agricultural products to Korea for the month of March 2017 at $4.36 billion, the highest level since March 2014.
  2. The United States continues to break records in the export of services to Korea, producing the highest trade surplus ever for the U.S. in 2016.  This trade surplus reduced the overall goods and services trade deficit between the two countries to $17 billion.  As a result, Korea’s bilateral trade deficit with the U.S. is ranked well below other nations, including China, Germany, Mexico, Japan, and even Italy.
  3. According to the Commerce Department, U.S. exports to Korea have led to an increase of 87,000 jobs in the United States between 2009 and 2015, including 55,000 jobs in the goods sector, which pay 16 percent more on average than other employment.
  4. Korea now represents the 5th fastest-growing source of Foreign Direct Investment (FDI) into the United States, employing over 45,000 workers in the U.S. earning an average compensation package of $92,000 a year.
  5. Because U.S. exports of items covered by KORUS have increased by 18 percent since 2011, the agreement has helped to reduce the merchandise trade deficit by nearly $16 billion.

Thus, the KORUS FTA meets every metric of a successful trade agreement as outlined by the Trump Administration.  In fact, if reducing the trade deficit is the main concern, then the Trump Administration should focus their attention on other countries first before Korea.

Nonetheless, there is always room for improvement.  The KORUS FTA has a binational committee process to iron out differences in implementing the agreement.  This has greatly helped resolve numerous thorny issues without having to go through the difficult process of amending KORUS.  For example, clarifying the rules of origin on orange juice helped to dramatically increase sales to Korea, giving a boost to Florida citrus growers and producers at a critical moment when the U.S. market is declining.  In addition, Donald Trump won the Sunshine State – a key “swing” state with the most Electoral College votes – in the last presidential election.  However, both sides should avoid unforced errors by either scrapping the agreement or refusing to negotiate.  If KORUS is scrapped, hard-won gains for many U.S. exporters, including Florida orange juice producers, would vanish.  While KORUS is relatively new, it could be updated in a few areas, such as in intellectual property and e-commerce, though preferably through supplemental side agreements to avoid re-opening up the entire text.  The Trump Administration could lift the relevant IP and e-commerce sections from the now defunct Trans Pacific Partnership (TPP) agreement and offer to add these provisions to KORUS.

Second, international monetary policy could be another challenge to the U.S.-Korea relationship.  Every six months, the U.S. Treasury produces a report that identifies potential currency manipulators if three conditions are met:  (1) if there is a significant bilateral trade surplus with the United States; (2) if there is a material current account surplus; and (3) if the nation has engaged in persistent one-sided intervention in the foreign exchange market.  While Treasury did not identify any trading partner as a currency manipulator in its most recent report, the department included six countries, including Korea, on its monitoring list.  Some in the U.S. advocate adding provisions to prevent currency manipulation by other nations into trade agreements.  However, this challenge could represent an opportunity for Korea to be pro-active in responding to critics by being fully transparent in any governmental actions in foreign exchange operations.

Third, U.S. “fair trade” laws could also represent a challenge and opportunity in U.S.-Korea economic relations.  As with most U.S. administrations, the emphasis on trade during the first year in office usually focuses on enforcing existing agreements, not enacting new ones.  The Trump Administration is no different, but the prominence of trade enforcement has been amplified, particularly with the announcements of a series of reviews and investigations.  Both sides should take a step back to insure that enforcement actions do not lead misperceptions and unforced errors.  Korean companies should be extremely vigilant to make sure that they do not sell their product in the U.S. at a loss.  On the flip side, the Commerce Department should also be diligent to make sure it is not biased towards U.S. industry regarding allegations of unfair trade.  For example, the U.S. should implement the World Trade Organization (WTO) decision that disallows the use of “zeroing” (i.e., disregarding allegedly “non-dumped” sales in order to inflate dumping margins) to estimate higher tariff penalties.  Commerce should also consider the ramifications of a trade case for the entire U.S. economy because, ultimately, increased tariffs are another form of taxation that gets passed along to consumers in terms of higher prices.  As learned during the 2002/2003 steel tariff debate, many more American jobs at manufacturing facilities that used steel were at risk than in the steel industry as their final products were priced out of the marketplace.

Fourth, the two new administrations should give an opportunity for Korea to shine by highlighting and publicizing more of its FDI into the United States.  As stated above, Korea is now the 5th fastest growing source of FDI into the United States, which has accelerated since the implementation of the KORUS FTA.  If new investments are forthcoming, Korean companies would do well to let the American people and the Trump Administration know of this news to generate good will.

Finally, both countries would do well to continue its global partnership on numerous fronts:  cybersecurity, space, science, energy, environment, health security, Arctic cooperation, among others, that have enormous economic ramifications for both countries.  These important issues unfortunately do not receive the attention that they deserve because they are non-contentious, apolitical concerns.  Just because these initiatives were started by previous administrations should not mean that they are put to the wayside.  If anything, these issues, such as continuing the work of the U.S.-Korea Joint Committee on Science and Technology, should form the foundation for building further cooperation on economic and trade issues between the U.S. and the Republic of Korea.

 

Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own.

Photo from Saik Kim’s photostream on flickr Creative Commons.        

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Hallyu Immersion: Learning Korean through Pop Culture

By Jenna Gibson

Hallyu fans who have always wanted to be able to understand their favorite stars when they speak in Korean now have a new tool – Viki’s Learn Mode.

Viki, a streaming website dedicated to dramas from around Asia, calls themselves a “video wiki” because they crowdsource the subtitling for many of their shows. Now, with their Learn Mode, Viki has hit on one of the next horizons of Hallyu – fans who have dedicated themselves to learning the Korean language because of their pop culture obsession.

Through Learn Mode, drama watchers can see subtitles in both Korean and English, and can hover over words to see definitions, hear pronunciations, and repeat short segments of the show to practice comprehension.

“At Viki, we appreciate the tremendous passion that our fans have for the shows they watch and how that passion often translates to an enthusiasm for learning new languages,” according to their website.

Viki Image

This is not the first company to capitalize on the Korean language craze’s ties to Hallyu – famous language-learning website Talk to Me in Korean has several k-pop as well as k-drama based lessons.

While it’s hard to say that the increase in people studying Korean around the world is directly caused by the popularity of Korean pop culture, there is some evidence that Hallyu fans tend to spend more time learning the language.

According to a survey of students studying at the Korean government-run King Sejong Institutes around the world, 34.3 percent said they were taking classes because of their interest in Korean pop culture. In fact, the King Sejong Institute Foundation was explicitly founded in part because of the “Rapid increase in the Korean language education thanks to the spread of Hallyu.”

Further, a recent study asked a group of foreigners about learning Korean, they were able to find a statistically significant link between pop culture fandom and the decision to pursue language study. These fans also tended to attain a higher level of fluency than non-fans.

But it’s not just that fandom can pique someone’s interest – it can actually be a more effective way to help them learn a foreign language. According to a study of students who used manga to learn Japanese, this kind of pop culture material “provide an effective means to recruit more new students, to retain more learners, to provide authentic materials to students, and to provide more motivation and more opportunities for self-directed learning.”

With both Hallyu and Korean language study on the rise, it’s interesting to see how organizations like Viki as well as language teachers tie these two interests together.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Cover image from from Alfonso’s photostream on flickr Creative Commons. Internal image screen grab from Viki’s Learn Mode.

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Five Questions for the Future of Samsung

By Troy Stangarone

With the arrest of Lee Jae-yong on charges of bribery, embezzlement, perjury, and the illegal transfer of funds abroad, Samsung faces a period of uncertainty at a critical time for South Korea’s leading chaebol. Last year, Samsung had begun to turn around declining trends in earnings and seemed to turn a corner on product design until the failure of the Galaxy Note 7 damaged Samsung’s image. At the same time Samsung was managing these corporate challenges, it was also undergoing a multiyear transition to the leadership of Lee Jae-yong from his father Lee Kun-hee, who has been incapacitated since a heart attack in 2014. Now, Samsung faces the prospect of being without its new leadership before the transition has been completed.

Lee Jae-yong may ultimately be found to be innocent, but his temporary removal raises questions for Samsung’s near-term future as well as for the impact of a potentially more permanent departure from Samsung’s leadership.

Who Will Run Samsung in the Short-Term?

With Lee Jae-yong expected to be in custody at a minimum for up to 21 days as prosecutors prepare formal charges plus the length of any trial, Samsung will likely be run by a trusted caretaker. In the past, when Lee Kun-hee was unable to run Samsung due to convictions on bribery and tax evasion, lieutenants ran Samsung as caretakers. With Lee Jae-yong at least temporarily removed from the scene we should expect a similar arrangement. As was the bribery and tax evasion case with his father in 2008, multiple executives are also under investigation, meaning that Choi Gee-sung, the number two at Samsung, may not end up serving as the caretaker depending on how the investigation into Samsung’s ties to Choi Soon-sil develop.

While Samsung has delayed conducting its annual management reshuffle and setting business targets for the year in light of the crisis, keeping key people in place might actually add stability to Samsung at an uncertain time. At a division level, Samsung is run by professional managers who should be able to keep things moving forward, limiting the impact of Lee Jae-yong’s absence in the near-term. The real question for Samsung will be whether any caretaker is empowered to make strategic decisions, something which has not been the case in the past.

What Does this Mean for the Succession Plan?

The prospect of Lee Jae-yong spending an extended period of time behind bars raises questions about the viability of completing the succession plan. If he is ultimately exonerated, the succession plans can continue to move forward. At a minimum, the succession plan will slow down, but may have to be rethought if Lee Jae-yong is convicted.

Given the current uncertainty, the initial default option will likely be to follow the path of his father and leave Samsung in the hands of a caretaker until Lee Jae-yong’s legal situation is resolved and a future Korean president has granted a pardon allowing Lee Jae-yong to resume control. If a conviction requires an alternative plan, one option would be to continue with the succession process, but transition control to another family member such as Lee Boo-jin or Lee Seo-hyun. A third option would be to maintain family ownership, but transition the company to permanent professional management. In this scenario, the family would likely need to make clear that any professional manager was empowered to make strategic decisions for Samsung moving forward.

Will Samsung Continue Internal Reforms?

The charges against Lee Jae-yong may provide insight into whether the internal reforms at Samsung were supported by the entire Lee family or were the sole initiative of Lee Jae-yong. Under his leadership, Lee Jae-yong has sought to modernize and move Samsung’s internal culture to one more akin to a start-up to help spur innovation. Some of the moves included more flexible working hours, reducing management levels, loosening the use of titles, encouraging more discussion, and limiting the pressure to attend after work functions.

While Samsung has been successful with its traditional corporate culture, it also faces a more competitive international environment and change will likely be a key to long-term success. With Lee Jae-yong removed from Samsung’s day-to-day operations, will management begin to slip back into more traditional management styles, or has there been a broader decision made to reform Samsung’s internal culture in a way that would survive Lee Jae-yong’s absence?

How Will this Impact Samsung’s Brand and Growth?

Samsung took a hit to its reputation last year with the Galaxy Note 7’s battery issues. The Galaxy Note 7 aside, as long as Samsung continues to produce quality, innovative products its reputation is unlikely to take much of a hit internationally. Domestically, however, because of the ubiquitous nature of Samsung and the ties of the scandal to the impeachment of President Park Geun-hye, its reputation will face greater challenges.

While the Samsung brand is unlikely to be significantly damaged from the scandal internationally, efforts to reshape Samsung and find new areas of growth may face a more significant challenge. Lee Jae-yong had been trying to reshape Samsung by selling off unprofitable divisions or ones that seemed to have limited growth prospects, such as its printer business, while at the same time move into promising new fields like autonomous driving. Will shareholders of companies such as Harmon International * reconsider selling to Samsung and will other potential acquisition targets in promising areas look to more stable situations for merger partners instead of entertaining an offer from Samsung? Given the potential constraints on Samsung’s leadership, the reshaping of Samsung as a corporate entity is likely to slow.

Should Samsung Take Risks or Be Risk Averse?

The natural instinct of a company in a crisis is to minimize risks. Since the product design for this year’s new Galaxy and Galaxy Note models has already begun, any new features under consideration will likely be included in the Galaxy 8, since it release is expected to be in either March or April. However, in light of last year’s troubles with the Galaxy Note 7, there may be a temptation to play things safe with this year’s Note model and only include tested features that are popular in the Galaxy 8.

Playing it safe on design, though, could be the bigger risk for Samsung. The smartphone industry is quick moving, and if Samsung does little to innovate and differentiate itself from up and coming producers like Xiaomi, while allowing Apple to gain a bigger lead, it could find itself in the same position it was until recently with an increasing challenge from both high end producers and low end producers to its market share. Nokia and Motorola were both once dominate producers and were quickly surpassed by others. Regardless of the duration of Lee Jae-yong’s absence, Samsung will need to avoid becoming risk averse in the smartphone industry to maintain its position.

While South Korea has a complicated relationship with the chaebol, should Lee Jae-yong be convicted it would perhaps be a sad irony that one of South Korea’s most progressive third generation chaebol heirs would be taken down by scandal that represents much of the old Korea – in which there was an expectation that for companies to get along they had to do favors for the government and that the government could do them favors in return.

*Shareholders of Harmon International approved the sale to Samsung after this blog was initially published.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from JCDecaux Creative Solution’s photostream on flickr Creative Commons.

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Pokémon Go and the Potential of Augmented Reality Games In South Korea

By Patrick Niceforo and Gwanghyun Pyun

Pokémon Go is an augmented-reality (AR) mobile game in which users become Pokémon trainers and catch Pokémon outside. The developer, Niantic Labs, launched the game in United States, Australia and New Zealand on July 6th, 2016 and progressively expanded the game’s reach around the world. One of Pokémon Go’s unique features is that it has a social element; the game provides an opportunity to socialize and “catch” Pokémon with friends, which contributed to its explosive popularity.

Pokémon Go was released in the United States and quickly became the most popular augmented reality (AR) game of the year, beating out other titles such as Clash Royale and Candy Crush Saga. At its peak, Pokémon Go had roughly 20 million active users in the United States, and by the end of 2016, the game had garnered over $950 million worldwide. However, due to factors such as market saturation and a declining number of active users, Pokémon Go experienced a tremendous drop in revenue shortly after its launch. One estimate states that revenue dropped from $125 million in July to $15 million in November, with common complaints about the game including battery drain and repetitive gameplay. While the game was able to temporarily boost the number of active users with special events, Pokémon Go’s popularity has been steadily shrinking since its release.

While Niantic Labs launched Pokémon Go in many countries in North America and Europe, it did not fully launch in South Korea until January 23, 2017, despite the popularity of gaming there. At first, people guessed that the delay was because of the map used for the game. The South Korean government has not published a detailed map of the country outside its own borders, citing security concerns. However, on January 23, Niantic Labs suddenly announced the launch of Pokémon Go in South Korea without receiving the use of a detailed map from the government. Dennis Hwang, Chief Art Director at Niantic, explained that the delay was because they needed time to catch their breath after the huge response for Pokémon Go after its initial release. He also said the delayed launch is unrelated to the map issue because they only use publically accessible data sources.

Despite the delay, nearly 7 million people played the game during its first week in South Korea according to WiseApp, an app analytics company. Pokémon Go’s sales came in second place in the game category in both Google Play and the App Store during that period. Niantic Labs launched the game right before the Lunar New Year holiday, when many Koreans have extra free time.

However, many people in South Korea were pessimistic about Pokémon Go’s long-term success. Some predicted that this trend will be maintained only for two weeks as was the case in other countries such as the United States. Other people pointed out that people would not want to go out to catch Pokémon in January due to cold weather. In addition, people have pointed to repetitive game mechanics and the app’s susceptibility to hacking.

On a positive note, a Harvard study suggests that Pokémon Go and similar apps can, at least temporarily, boost levels of outdoor exercise. One of the study’s conclusions was that, on average, active Pokémon Go users walk 11 minutes more per day than non-users. On the other hand, the game has been criticized for increasing the level of trespassing on private property. Moreover, many have reported sustaining injuries such as ankle sprains and broken collarbones while playing the game. Based on a sample of tweets and news reports, one scholar estimated that over 110,000 Pokémon Go related road accidents occurred within a 10-day period in the United States. There is even a live “Death Tracker” with a worldwide list of deaths and injuries sustained due to Pokémon Go-related negligence.

Koreans also have been concerned about accidents related to AR games. The number of reported accidents related to Pokémon Go already have increased in South Korea. South Korean Police caught 36 drivers who enjoyed playing Pokémon Go while they were driving on the road from Jan 24 to Feb 2. Furthermore, there have been reports of safety and privacy issues at locations such as Gyeongju National Museum, a hot spot for catching Pokémon, where many active users have tried to enter flower gardens, run into walls, and trespassed in museum exhibits. On Feb 4, one girl lost her mother while playing Pokémon Go.

Pokémon Go’s popularity opens the doors for a lot of potential in the AR field, and many Korean gaming companies are trying to develop their own AR games. Korean gaming companies such as Mgame and Hanbit Soft have plans to launch their own AR games similar to Pokémon Go. Mgame finished the second closed beta test for its own AR game, ‘Catchmon’ using AR and LBS (Location Based Service). Hanbit Soft also made ‘SoulCatcher AR’ using AR and GPS. They plan to launch their games during the first quarter of 2017.

Pokémon Go carries two major lessons as it enters South Korea’s national stage. First, Pokémon Go’s developers should focus on not only expanding their user-base, but also retaining it. Others have suggested several strategies for user retention including keeping popular features, introducing new features, and maintaining communication with the app’s users. Beyond Pokémon Go, there are other opportunities for apps to expand to different markets. A similar app, Pokemon Duel, is currently ranked number 1 in the United States but is unavailable in South Korea. South Korea has significant market potential for any popular app given that it has the world’s highest smartphone ownership rate– Niantic just has to figure out how to keep Korean Pokémon fanatics engaged with their game. Second, the game’s developers should prioritize safety in order to mitigate injuries sustained from playing the game. In fact, this concern was partially addressed in an earlier update to the game that prohibited gameplay when individuals were moving over a certain speed. South Korean users could take additional precautions by playing the game with friends and sticking to familiar, well-lit areas.

Gwanghyun Pyun is currently an Intern at the Korea Economic Institute of America as part of the Asan Academy Fellowship Program. He is also a student of Sogang University in South Korea. Patrick Niceforo is an intern with the Korea Economic Institute and a graduate student at the Middlebury Institute of International Studies. The views expressed here are the authors’ alone.

Photo from Jill Carlson’s photostream on flickr Creative Commons.

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President Trump Praises Samsung for Plan to Manufacture in the U.S.

By Jenna Gibson

“Thank you, @Samsung! We would love to have you!” Donald Trump wrote on his personal Twitter account, linking to a story about a possible plan for the tech company to build a factory for home appliances in the United States.

The article called the announcement by Samsung “A win-win,” saying that “Companies can grab headlines with news of even considering bringing production to the U.S., and the Trump White House benefits from the ability to take credit. These moves may not add up to significant job growth, but it’s hard to beat the PR.”

Trump’s tweet, which was sent only half an hour after the article was posted, may lend credence to their theory.

Post-inauguration, Trump hasn’t yet turned his attention toward Korea, focusing mainly on domestic issues and trade with neighboring Mexico. But trade with the ROK was a regular component of his campaign addresses.

“We spend a fortune on defending South Korea. Now I order thousands and — thousands of television sets here, they come from South Korea. They make so much.  They’re making a fortune.  They’re a behemoth,” Trump said during the CNN-Telemundo Republican debate last February.

Samsung – which makes some of the televisions Trump may be referring to – already manufactures semiconductors at a plant in Austin, Texas in addition to its facilities in South Korea. Samsung has the largest Korean investment in the United States, and Korea as a whole is the 5th fastest growing source of Foreign Direct Investment into the country.

Trump Tweet

The electronics giant is hardly the only Korean company to consider moving more production to the United States in an effort to head off criticism from the new President – last week, Hyundai Motor Group announced that they plan to increase U.S. investment by 50 percent over the next five years, and may build a new plant to supplement the factory they currently have in Montgomery, Alabama. The company also applied for membership with the American Chamber of Commerce in Korea this year for the first time since 2008.

LG is also considering building a new plant in Tennessee for its TV and home appliances. “This is something that has been under consideration for years at LG, but the current political situation is simply accelerating that timeline for a decision,” according to a source close to the company told Reuters.

On a larger scale, the Korean government has indicated that they will encourage more imports from the United States to balance some of Seoul’s trade surplus. As part of this plan, the finance ministry announced that they will begin importing more U.S. shale gas to meet the country’s energy needs.

Whether Samsung goes through with plans to begin manufacturing appliances in the United States or just wants to stave off the ire of the White House remains to be seen. But the 60,000+ likes Trump’s one tweet got within hours of posting certainly can’t hurt either way.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Michael Newman’s photostream on flickr Creative Commons.

 

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About The Peninsula

The Peninsula blog is a project of the Korea Economic Institute. It is designed to provide a wide ranging forum for discussion of the foreign policy, economic, and social issues that impact the Korean peninsula. The views expressed on The Peninsula are those of the authors alone, and should not be taken to represent the views of either the editors or the Korea Economic Institute. For questions, comments, or to submit a post to The Peninsula, please contact us at ts@keia.org.