October 2015 - BusinessKorea

FOCUS
NATIONAL
INDUSTRY
SSD WAR
China’s Tsinghua Unigroup to Take Over
SanDisk through Western Digital
TRANS-PACIFIC THREAT
‘Accession to TPP Instead of
Participation Will Bring Disadvantages’
TIMES ARE TOUGH
Less Demand and Chinese Rivals
Depressing Korean Display Makers
150-010 서울시 영등포구 여의도동 12-1 삼도빌딩 301호 Tel. (02)578-3220 Fax. (02)578-3224 (월간) 통권 362호
OCTOBER 2015 / VOL. 32 NO. 366
www.businesskorea.co.kr
Policy Financing
Changing Economic Environment
Requires New Approaches
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ISSN 1016-5304
Contents
October 2015 / Vol.32 No.366
FOCUS
NATIONAL
INDUSTRY
SSD WAR
China’s Tsinghua Unigroup to Take Over
SanDisk through Western Digital
TRANS-PACIFIC THREAT
‘Accession to TPP Instead of
Participation Will Bring Disadvantages’
TIMES ARE TOUGH
Less Demand and Chinese Rivals
Depressing Korean Display Makers
FOCUS
08 China’s Tsinghua Unigroup to Take Over SanDisk through Western Digital
150-010 서울시 영등포구 여의도동 12-1 삼도빌딩 301호 Tel. (02)578-3220 Fax. (02)578-3224 (월간) 통권 362호
www.businesskorea.co.kr
SEPTEMBER 2015 / VOL. 32 NO. 366
Policy Financing
Changing Economic Environment
Requires New Approaches
COvER STORY
20 Tasks Ahead of Government-sponsored Corporate Finance
22 Policy Finance Producing Zombie Firms to Go Through Reform
25 Capital Market Must Needs be Used for Policy Financing
SpECIAL REpORT
36
38
39
40
Doubts about Policy Impact of Wage Peak System in Korea
Necessities for Successful Implementation of Wage Peak System
Positive Implications of Wage PeakSystem in Korea
Building Consensus between Labor, Management
12,000 won
10
ISSN 1016-5304
NATIONAL
10 National Defense Committee Members Calling for KFX Project Budget Reduction
KAI CEO Ha Sung-yong Says 3 Out of 4 KF-X Parts Can be Domestically Produced
11 IDS-K in Daejeon Designated Korea’s First Service Foreign Investment Zone
12 Korea Needs to Foster International Lawsuit Specialists to Tackle ISD Cases
13 ‘Accession to TPP Instead of Participation Will Bring Disadvantages’
14 Uzbekistan Invites Korean Investors to Investment Forum
Explore the Past, Present, and Future of the Arctic in Seoul
15 New Zealand Festival Launches with Hangi Feast
Danish Jewellery Box Opens for Koreans
16 Filipino Embassy Hosted Free Encore Performances
Embassy of South Africa Screens Movie in Seoul about Racial Issues
17 World Science Summit Opens in Daejeon
18 Incheon Free Economic Zone Authority Celebrates 12th Anniversary of Inauguration
10
MONEY
26 FDI in Korea Showing Recovery
FDI Favors Seoul Metropolitan Area
27 Internet Bank Consortia Have Deeper Pockets
28 Financial Regulators Inspect Foreign Banks, Accounting Firms
29 Korean Companies' Ofshore Fund Balances Tripled over Last 4 Years
30 US Treasury Bond Rate Exceeds Korean Counterpart More Frequently than Before
Korea’s CDS Premium on the Rise
31 Korea’s Exports, Imports Declined Alike in September
32 Total Added Value of Top 30 Korean Business Groups Decreased Last Year
33 Samsung Group Accumulating Cash for Proactive Crisis Management
34 10% of Top 500 Korean Firms are ‘Zombies’
35 Financial Authority Tells DSME ‘God Helps Those Who Help Themselves’
IR & MANAGEMENT
42 Samsung C&T to Construct Tallest Building in Southeast Asia
04
26
46
Cheong Kwan Jang Decorated with
Illustrations of Famous Korean
Tourist Destinations
CJ E&M Selects 50 SMEs to Participate
in 2015 MAMA in Hong Kong
43 KT to Run World’s Largest Submarine
Cable Network
Daewoo E&C First in Industry to Receive
ISO 22301 Certiication
44 KOGAS Expands Global Market Power
with LNG Project in Mexico
Mirae Asset Financial Group to Establish
Foreign Corporations in Australia, America
45 Lotte E&C to Mount ‘Diagrid’ Structure
on Top of Skyscraper
LG Display Strengthens ‘Global Patent
Management’
ICT
46 Foreign Capital Eyes Korean Fintech Startups
47 Will Samsung’s Tizen Beat Android and iOS?
48 Pantech’s Revival to Depend on IoT,
Indonesian Market
49 Success of O2O Service Depends on
Human Touch
50 Which Company is the Most Innovative
IoT Company in the World?
‘Telecommunication Companies Taking Lead
in Smart Home Markets at Home and Abroad’
51 Qualcomm, KISA to Jointly Nurture IoT
Small Businesses
LG U+ to Foster IoT Small Firms in
Partnership with Qualcomm
LG U+ Launches IoT Service for Pets
52 Korean Gov’t to Establish ‘Hyperconnectivity Intelligent Network’ by 2020
53 Global IT Giants Wage Mobile News War
Mobile Ad Market Expected to Hit 1
Trillion Won This Year
54 Samsung’s Next Smart Watch Will Come
with Samsung Pay
Number of Samsung Pay Users in Korea
Breaks One Million Mark
55 Samsung, Google Compete for AR-based
Smart Glasses
56 Foldable Displays Will Be Watershed
Moment in Smartphone History
60 Micron to Make Massive Investment in
Japan to Catch Up with Samsung
61 Sales of OLED TVs Grew 317% in First Half
Increasing Number of Flagship
Smartphones Adopt OLED Panels
62 Less Demand and Chinese Rivals
Depressing Korean Display Makers
64 POSCO Accelerates Technology Export
65 Restructuring Deadlock in Korean
Shipbuilding Industry
Major Korean Shipbuilders Agree to Run
Joint Manpower Training Program
66 Samsung SDI Develops Wire Battery, LG
Chem Develops Hexagonal Battery
Samsung SDI’s EV Battery Factory in Xi’an
Begins Operations
67 The War of Hybrid EVs is Getting Fierce
68 Korean Carmakers Fared Well in Sept.
Import Car Sales Rose in Sept., Except for
Volkswagen
69 Rigging Scandal Puts VW Dealerships in
Korea at Greatest-ever Risk
70 Local Builders Sign US$4.5 Billion Formal
Contract for Kuwait’s Al Zour NPR Project
71 Korea Aims to Localize Skyscraper Design
Technology
SME & STARTUp
72 GCA Helps Province’s Startups Enter
European Market
Toy Smith Wins Grand Prize in ‘K-Global
Startup 2015’
LG Electronics to Foster In-house Venture
Business Market
73 Korean Big 3 Mobile Carriers Raise 1.7
Trillion Won to Promote ICT Venture Firms
Lotte Group Establishes ‘Lotte Accelerator’
to Support Startups
NHN Entertainment Invests 6 Billion Won
in 3 Mobile Gaming Startups
MICE
74 Largest Christmas-themed FAIR in ASIA
Opens at KINTEX
SCIENCE
76 Tech Developed to Make 3D AI Semiconductors
Nano Complex Film to Make 4X Eicient
Organic Solar Cells
77 60x More Stretchable, 470x More Durable
Organic Solar Cell
78 New Nano-cellulose Battery Foldedinto a
Paper Crane
Flexible Solar Cells 1/20 as Thick of a
Human Hair
CULTURE
80 Pay Special Attention to IMAX, 4DX
Theaters to Enjoy ‘The Martian’
Burberry’s First Flagship Store Fuels
Competition among Import Brands
81 Have a Romantic Autumn Night at Park
Hyatt Busan
LG Household & Healthcare Selects Coco
Rocha as Global Model of VDL
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INDUSTRY
58 How Much do Hyundai Motor and VW
Difer in Brand Value?
59 Korea’s Electronic Parts Industry Likely
to See Dismal Q4 Performance
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06
To our readers
Three Northeast Asian
Leaders Meet Soon
A summit meeting of Korea, China and
Japan is scheduled to be held on November 1
for the first time since May 2012. The hottest
issue of the meeting is likely to be history as
in the summit talks between Korea and Japan
scheduled for November 2.
On October 27, the Chinese Ministry of Foreign Affairs urged Japan
to change its historical recognition and attitude before the opening of the
three-way meeting. Minister Wang Yi mentioned the same thing during the
meeting of the three countries’ foreign affairs ministers in March as a prerequisite for trilateral cooperation.
A series of the summit talks to take place soon can be a litmus test of
Korea’s diplomatic capabilities amid the rising tension between Washington
and Beijing surrounding the South China Sea to say nothing of the Senkaku
Islands. At the Korea-U.S. summit talks on October 16, President Barack
Obama asked Korea to raise its voice when China fails to follow international rules and standards. The same issue is likely to be put on the table during
the meeting between President Park Geun-hye and Chinese Prime Minister
Li Keqiang on October 31.
Korea is expected to be sticking to the principle, that is, compliance with
international rules and problem solving based on peaceful dialogues, instead
of taking sides. This can be a wise move in that Korea is not a directlyinvolved party in the dispute between Beijing and Washington, and the
United States and China are also maintaining a neutral stance in the Dokdo
issue between Korea and Japan.
In particular, President Park Geun-hye and Prime Minister Shinzo Abe
have their first official summit meeting since the inauguration of the present
governments. Even though apology and compensation have been mentioned
for a while, the two sides have never reached an agreement with regard to
the comfort women issue. The upcoming meeting should be an opportunity
for restarting the discussions based on a consensus on the urgency of the
matter.
Korea can keep a diplomatic balance by renewing its relations with
Japan. Korea’s economic development has been closely associated with
Japan while the bilateral relations between the two countries have deteriorated at a rapid pace during the past three and half years to result in a significant reduction in economic and cultural exchanges and an increasing level
of antagonism between the peoples of the two. Even if the trilateral summit
talks handle the history issue, the main ones should be economy and the
North Korean nuclear threat.
In the meantime, the Korean government would be well advised to
restore the three-party summit into a regular meeting as the chair of the
gathering. At the same time, it should lead the establishment of a negotiation
channel among Seoul, Washington and Beijing so that the nation
could take initiatives for some diplomatic wiggle room.
Park Jung-hwan,
Publisher & editor-in-Chief
focus
SSD War
China’s Tsinghua Unigroup to Take Over
SanDisk through Western Digital
by Marie Kim
T
here have been visible signs of
China entering the memory
semiconductor industry. Chinese stateowned corporation, Tsinghua Unigroup,
became a major shareholder in Western
Digital, a hard disk drive (HDD) manufacturer in the U.S., last month. Through
the company, the group is set to take over
SanDisk, a NAND flash memory maker
in the U.S. When China takes control of
SanDisk even indirectly, Korea will be
pursued by China in both the display and
memory sectors.
Bloomberg News reported on Oct. 20
that Western Digital is currently negotiating to take over SanDisk, and will reach
an agreement soon. The news agency
said, “If agreed on, it will be the largest
M&A in the semiconductor industry this
year.”
The largest shareholder of Western
Digital is Unisplendour, a subsidiary
of Tsinghua Unigroup. The company
acquired a 15 percent stake in Western
Digital for US$3.8 billion (4.3 trillion
won) on Sept. 30. It shows a considerable gap with Vanguard, the second larg-
08
est shareholder, of 6 percent.
It means that China, which has been
aggressively seeking to tap into the
memory industry, has entered the bidding
battle for SanDisk right after acquiring
Western Digital.
SanDisk is a storage manufacturer
for mobile devices. The company has
not only a strong position in the American market but also a lot of intellectual
property related to NAND flash memory
chips. Samsung Electronics pays about
400 billion won (US$353.36 million) to
the company every year for royalties. In
addition, in 2005 SanDisk joined hands
with Japan’s Toshiba, which ranks second in the NAND flash market to operate three NAND flash production lines
with joint investment. Through this, the
company ranked fourth in terms of global NAND flash market share with 14.8
percent in the second quarter.
Moreover, SanDisk is a pain in the
neck for Korea’s memory industry. At
the beginning of its establishment, the
company bought NAND products from
Samsung Electronics, processed them,
and sold them. From 2005, however,
it started using Toshiba products, turning its back on Korean firms. Samsung
Electronics tried to take over SanDisk
for US$5.8 billion (6.57 trillion won) in
2008, but failed to do so due to strong
opposition from SanDisk’s board of
directors.
The reason why China is seeking to enter the memory industry is that
the country is importing semiconductor
products worth US$230 billion (260.36
trillion won) every year. Semiconductors
have become the nation’s number one
import item in 2013, surpassing crude
oil. Accordingly, the Chinese government has promoted the semiconductor
company as one of the “top seven strategic emerging industries” from 2010.
Industry watchers express concerns
over China tapping into the memory
market through Western Digital. Western
Digital, which is to acquire SanDisk, is a
HDD maker. Sales of personal computers
are decreasing, and the HDD market is
becoming smaller, as storage devices are
converted into solid state drives (SSD).
Western Digital is highly likely to make
inroads into the SSD market by combining its controller technology and SanDisk’s NAND products. Samsung is the
leading company in the SSD market with
a 40 percent market share.
Also, the financial situation of both
Western Digital and SanDisk is not good,
due to the recent poor performance.
Accordingly, China can increase capital. If SanDisk increases the investment
based on Chinese capital, the game of
chicken in the NAND flash market might
emerge in earnest. In the DRAM industry, there are only three companies left
focus
after Japan’s Elpida Memory went bankrupt in 2012. In the NAND flash market,
however, there are six companies that
have more than 6 percent market share –
Samsung Electronics, Toshiba, SanDisk,
SK Hynix, Micron, and Intel.
SSD Market Fluctuation
As Tsinghua Unigroup, a new rising
star in the global semiconductor industry by indirectly taking over SanDisk,
is targeting the solid state drive (SSD)
market where Samsung is enjoying an
overwhelming market share. According to a Market View report by D-RMA
Exchange, a semiconductor industry
market survey organization on Oct. 25,
Western Digital, a U.S. storage company
is making a foray into the SSD market
after taking over SanDisk, a NAND flash
company. Tsinghua Unigroup became the
largest shareholder of Western Digital
by taking over a 15 percent stake in the
companies.
Analysis shows that Tsinghua Unigroup, , made a big investment after taking into consideration potential demand
for SSDs, a hot future item in the storage market. The Chinese government
announced the promotion of its semiconductor industry by raising a fund of 120
billion yuan (US$18.9 billion). Industry
experts analyze that China aims to raise
its own supply rate as the world’s biggest
consumer of SSDs. China accounts for
30 percent of global SSD demand.
The SSD market is estimated at
US$13 billion. In 2019, the market will
outgrow the HDD market by breaking
through US$20 billion in 2019. According to HIS, a market survey organization,
Samsung Electronics took up 42 percent
of the SSD market, 2.6 times the market share of Intel (16 percent), in the second quarter of this year. SanDisk came
in third with nine percent, followed by
Micron and Toshiba, both of which inked
a six percent market share, respectively.
Samsung Electronics beat Intel in
market shares last year as the former
chalked up 34 percent while the latter
only got 17 percent. This year, the gap
has widened. This means that Samsung
Electronics has market control in the
SSD market, which is as strong as its
market share in the DRAM market. But
SanDisk shares Fab lines with Toshiba, and has maintained a partnership
with Toshiba, the original developer of
NAND flash memory. This fact indicates
that Western Digital now has great potential to chase Samsung Electronics.
Tsinghua Unigroup took over technological companies such as STEC,
Velobit, and Skyera to reinforce its flash
storage technologies before acquiring
SanDisk. SanDisk received technology
from companies such as FlashSoft and
Smart Storage. “Samsung is enjoying a
comfortable lead in terms of 3D NAND
technologies and prices. Thus, other
companies will need a lot of investments
to catch up with Samsung,” the report
says.
SK Hynix Returns to
SSD Market
SK Hynix has returned to the consumer solid state drives market again,
three years after the company disappeared in the market in 2012. Recently,
it has released a new SSD product, which
is based on triple level cell (TLC) flash
technology and its own controller technology, in Japan, seeking to extend the
share of the consumer market as well.
According to industry sources on
Oct. 21, SK Hynix has recently put a
new consumer SSD product, the “Canvas SL300,” on the Japanese market, and
will soon enter the European market too.
Previously, the company launched the
SC300 series on a small scale from Aug.
and carefully tried to open the consumer market. The new model is a product
based on 16 nm TLC NAND, which has
high productivity and a degree of integration.
Accordingly, SK Hynix is the third
company to release the TLC-based consumer SSD product among large NAND
flash memory manufacturers, following
Samsung Electronics and Toshiba. Samsung Electronics has been selling SSD
products using TLC NAND flash memory from last year, and Toshiba has also
started selling TLC-based SSD products
from this year.
Meanwhile, SK Hynix is making
every effort to diversify its sales portfolio, which is concentrated on the DRAM
industry. In addition to the DRAM business that accounts for 80 percent of the
total sales, the company is working on
new businesses on a small scale, including SSDs, system semiconductors, and a
foundry. For the NAND business, in particular, the price is decreasing rapidly so
that profitability is not guaranteed anymore as a single business.
Therefore, SK Hynix is planning to
diversify its business portfolio through
SSDs, which are a major source of the
demand for NAND flash memory.
The SL300, a new SSD product
manufactured by SK Hynix.
09
national
Congress Action
National Defense Committee
Members Calling for KFX Project
Budget Reduction
by Jung Suk-yee
An artist's depiction of the KF-X fighter when it is completed.
T
he Korean Fighter Experimental (KFX) project has come to
a critical juncture, as some members of
the National Defense Committee of the
National Assembly are mentioning the
possibility of a budget cut.
Still, a halt of the project by the
National Assembly is rather unlikely,
because it can entail a very heavy political
burden. At the committee meeting scheduled for Oct. 27, discussions are predicted to revolve around the development of
AESA radar, one of the technologies that
the U.S. is refusing to transfer, and the satisfaction of requirements for the development before the finalization of the budget.
The key is the Defense Acquisition
Program Administration’s report to President Park Geun-hye scheduled for the
near future. The direction of the project
is expected to be clarified once the report
is made on the current status and details
of the domestic development of the technology in question. At present, the presidential office is not expected to stop the
project, despite the current lack of alternatives to U.S. technology, in view of the
gravity and significance of the national
defense project with JooChul-ki, former
senior presidential secretary for foreign
relations and national security, having
resigned to answer for misjudgments and
omissions in reports.
KF-X Lives?
KAI CEO Ha Sung-yong Says 3 Out of 4
KF-X Parts Can be Domestically Produced
by Marie Kim
A
t the Seoul International Aerospace and Defense Exhibition
(ADEX) 2015 held at Seoul Air Base in
Seongnam, Gyeonggi Province, on Oct.
21, Korea Aerospace Industries Ltd.
(KAI) CEO Ha Sung-yong said, “Giving
up the KF-X project is like giving up the
future of Korea’s aerospace industry. It
doesn’t make sense to do so, as Korea
has 99 percent of the localization.”
He said, “We can carry out the KF-X
project as scheduled. The reconsideration
of the project means giving up the aviation industry, which has positive effects on
job creation and promotion of the aviation
industry.” This shows a strong opposition
to the recent controversy over the project
10
reconsideration.
The KF-X project is a large national
project worth 18 trillion won (US$15.83
billion) that aims to produce and deploy
120 fighter jets by 2026. However, it
caused controversy over the reconsideration of the project, as the U.S. recently
failed to provide four technologies, including long distance detecting radar, which is
more extensive than conventional radar.
Ha added, “There has never been a
fighter jet, which has been perfectly developed from the beginning in the aviation
history. We already have a localization rate
of more than 99 percent.”
Regarding to the refusal of transferring core technologies, Ha said, “There are
Ha Sung-yong, CEO of Korea Aerospace Industries (KAI).
reports that we already can domestically
produce three out of four parts, which are
currently controversial. In the KF-X project, we also can localize three parts.”
He said that it is possible to purchase
the remaining component in the process
of force integration, insisting, “Some, who
insist to reconsider the project, say that it
will be hard to integrate forces because of
the difficulty even in purchasing the components themselves. However, that is not
true. It is possible to buy the component,
and we can also push ahead with localization even after force integration.”
national
Foreign Service
IDS-K in Daejeon Designated Korea’s
First Service Foreign Investment Zone
by Michael Herh
A
ccording to Daejeon City representatives on Oct. 12, the Ministry of Industry, Trade and Resources
recently designated IDS-K, which moved
into the Global R&D Center of Daejeon
City, as the first Service-Type Foreign
Investment Zone. The designation will
take off 50 percent of the company’s rent
for up to five years thanks to support
from the central government and Daejeon City.
That is to say, the central government and Daejeon City will pay 60 percent and 40 percent of the 50 percent
of the IDS-K’s rent, each. IDS-K is the
Korean corporation of Ingegneria Dei
SistemiS.p.A. (IDS), a global military
hardware producer with which Kwon
Seon-taek, mayor of Daejeon, signed an
investment agreement with when Kwon
paid a visit to its headquarters in Pisa,
Italy in March.
Last month, the Italian company
opened an office in the Global R&D
Center. Now they are preparing for their
full-scale business. IDS-K is planning to
build a model test center for the stealth
engineering business, the RCS, EMI,
EMC measurement business, research
on antenna radome, and new materials
by 2017. The company is also planning
to employ 22 specialists with master’s or
doctorate degrees.
At the moment, foreign investment
zones are classified into three kinds –
complex, individual, and service types.
ISD-K became the first company designated as a service-type foreign investment zone. That is to say, the place designated as a foreign investment zone this
time means a space for IDS-K in the center.
A service-type foreign investment
zone is a system that designates a foreign
investment zone in areas and buildings
in and out of industrial complexes. As
Daejeon City misses any complex-type
foreign investment zones, the city has
had difficulties enticing foreign research
organizations and centers, even though
Daejeon, Korea’s biggest R&D region,
is home to 30 government-run research
bodies and about 400 research centers of
companies.
Daejeon City predicts that the designation will lay the foundation for
attracting high-value-added research and
development and foreign R&D centers
that can contribute to the local economy.
“The designation of IDS-K as a servicetype foreign investment zone is quite
meaningful in that the designation is the
first case to utilize an incentive program
of the central government for foreign
investment inducement,” mayor Kwon
said. “We are planning to actively utilize
service-type foreign investment zones for
the purpose of attracting foreign research
organizations and research center com
panies into the Global Science Business
Belt, along with a planned complex-type
foreign investment zone.”
On the other hand, it was known that
IDS-K is preparing to hold the opening
ceremony of the Daejeon office with
the participation of the president of IDS
and the Italian vice minister of national defense in Nov. Moreover, Daejeon
is discussing tax breaks for the company with the Ministry of Planning and
Finance.
11
national
ISD Handling
Korea Needs to Foster
International Lawsuit Specialists
to Tackle ISD Cases
by Michael Herh
L
ast month, Mohammed Diyani,
the owner of Entekhab, an Iranian home electronics company, filed an
ISD lawsuit against the Korean government. So now, the Korean government is
involved in a total of three IDS lawsuits.
Of late, a rumor is going around that
U.S.-based private equity fund Elliott
Management will sue the National Pension Corp. for an ISD case, since the latter spoke out for a proposal as an institutional investor during the merger between
Samsung C&T and Cheil Industries.
An ISD case is an international lawsuit between an investor and a nation.
Losing the lawsuit necessitates spending
taxpayer money. Some people are insisting that Korea needs to nurture international legal specialists with the increase
in international lawsuits thanks to new
FTA deals.
According to the legal service industry and financial industry, Korea has
signed international investment guarantee agreements since the 1960s. Last
year, Lone Star filed an ISD lawsuit for
the first time in Korea based on this fact.
General opinions among specialists are
that active international exchanges inevitably entail international disputes and
lawsuits.
But an ISD lawsuit against the Korean government causes the Korean government to cope with the lawsuit with
Korean taxpayer money. Furthermore,
if Lone Star wins, the victory may make
the Korean government an easy target of
international lawsuits.
The three current IDS cases facing
the Korean government are all different.
12
So it is quite a big challenge to predict
who will file what kind of lawsuit in the
future. Lone Star is a U.S.-based private
equity fund, but filed the lawsuit based
on the Korea-Belgium Investment Agreement by using its paper company based
in Belgium. The agreement document is
missing the clause that a paper company
shall be excluded from a list of entities
for investment protection.
Hanocal, a U.A.E. oil company,
lost cases in Korean courts twice, and
appealed the case to the Supreme Court
of Korea. At the end of April, they filed a
ISD lawsuit on the case. The ISD lawsuit
was filed by Entekhab last month, even
after the case was closed in the Korean
court.
Recent ISD lawsuits against Korea
not only involve damages from changes
in laws and systems, but have strong elements of civil cases. Hundreds of millions of U.S. dollars for international lawsuits are a big headache. Another vexing
fact is that Korea suffers from a severe
shortage of international lawsuit specialists. Up to now, tackling the lawsuit
by Lone Star has cost the Korean government about 35 billion won (US$31
million). A budget of 3.8 billion won
(US$3.4 million) was apportioned to the
Hanocal case.
“At the moment, foreign law firms
are nearly monopolizing the international lawsuit market in Korea,” said a law
school professor in Seoul. “This situation
calls for nurturing international lawsuit
specialists who can cover international
and domestic laws and trade and investment laws.”
national
Trans-Pacific Threat
‘Accession to TPP Instead of
Participation Will Bring
Disadvantages’
by Jung Suk-yee
I
t has been found that the Korean government disregarded the
advice of the Korea Institute for International Economic Policy (KIEP) in that
the institute said that Korea’s accession
to the Trans-Pacific Partnership (TPP)
could entail bigger economic losses than
its participation in the scheme.
Justice Party lawmaker Kim Je-nam,
who is a member of the Trade, Industry & Energy Committee of the National
Assembly, made public a report on Oct.
19 that said that the time difference
resulting from opting for the accession
instead of the participation is likely to
lead to significant economic losses. The
report was drawn up by the KIEP in
Aug. 2013, entrusted by the Ministry of
Trade, Industry & Energy.
“There is a big difference between
the participation in and accession to the
TPP,” the report read, adding, “Korea’s
national interests can be reflected in
the negotiations in the case of the former whereas the latter compels Korea to
comply with fixed rules, which results in
more opportunity costs and more resistance on the domestic side.”
The report continued that Korea’s
real GDP is estimated to decrease by
US$2.8 billion, or 0.1 percent, while
Japan’s increases by US$104.6 billion,
or 2.0 percent, in 2025 on the condition that Japan participates in the TPP
in 2013 and Korea does not. It also mentioned that Korea’s participation in the
TPP in 2014 would increase its GDP by
US$45.8 billion, or 2.2 percent, while
impeding the opening of key agricultural
markets and providing more opportuni-
ties for Korean manufacturers’ overseas
business.
In the meantime, Japan’s accession
to the Trans-Pacific Partnership (TPP)
is predicted to intensify the competition
between Korean and Japanese companies in the United States, with the latter
already getting the inside track with the
ongoing weak yen.
According to the Ministry of Trade,
Industry & Energy, tariffs on 67.4 percent of the industrial products exported from Japan to the United States are
expected to be immediately eliminated
once the TPP becomes effective, and
the percentage goes up to 99.9 percent
for 30 years to come. “According to the
KORUS FTA, 96.9 percent of the products exported from Korea to the United
States become tariff-free as of Jan. 1
next year, which means the economic
effects following Japan’s accession to
the TPP are nothing to worry about,” the
ministry explained.
Still, not a few experts are saying
the other way around, in that Korea and
Japan have similar export structures and
have continued to vie with each other
for a long while in the U.S. market.
For both Korea and Japan, the top three
export items regarding the U.S. market
are automobiles & auto parts, electrical
& electronics equipment, and consumer
electronics & machinery. For Korea and
Japan, the exports of these items account
for 66.8 percent and 69.8 percent of
the total exports to the United States,
respectively.
The two countries have an export
similarity index of more than 50 percent
when it comes to transportation machinery, auto parts, machinery, optical &
medical equipment, and electrical devices, and Japan has a comparative advantage as far as the four of them excluding
auto parts are concerned.
13
national
Investing in Central Asia
Uzbekistan Invites Korean
Investors to Investment
Forum
by Sara Rai
T
he Government of the Republic of Uzbekistan is holding an International Investment Forum on Nov. 5-6,
2015 in Tashkent, according to a press release from the MFA of
the Republic of Uzbekistan.
The main objective of the event is to present the leading
enterprises of the Republic of Uzbekistan included in the state
program of privatization, and to sell them to strategic foreign
investors capable of ensuring modernization and the technological renewal of production, manufacturing of goods competitive in both domestic and external markets, and introduction of
modem corporate governance practices.
The depiction
Forumofwill
befighter
attended
bycompleted.
members of the governAn artist's
the KF-X
when it is
ment, heads of ministries and departments of Uzbekistan,
official foreign delegations, executives of major foreign companies, investment funds and banks, and international financial institutions such as the World Bank, the International
Finance Corporation, the Asian Development Bank and others.
The agenda of the event includes plenary sessions, presentations by major foreign investors on their experience in doing
business in Uzbekistan, panel sessions on various economic
sectors with presentations of specific privatization objects, visits
to enterprises, and cultural programs with trips to ancient cities
including Samarkand, Bukhara and Khiva, which will complement the business part of the event. To participate in the event,
submit a registration form at www.investuzbekistan.uz. Detailed
information about the Forum and documents about enterprises
of the Republic of Uzbekistan offered to strategic foreign investors are also available at website.
For more information please contact Uzinfoinvest Agency
by phone from Korea at 001+998-71-238-5222, 001+998-71238-5137, or send an e-mail to uzinfoinvest@mfer.uz.
Arctic Seoul
Explore the Past, Present, and Future of the Arctic in Seoul
by Sara Rai
Fridtjof Nansen (right) and Axel Krefting stand next to two polar bears that they shot
during a sealing exhibition on the Greenland Sea in June or July, 1882. Their ship, the
"Viking," can be seen behind them.
T
he Royal Norwegian Embassy in Seoul and the Fram
Museum in Oslo invite Koreans to see the ever-changing face of the high arctic through poster and video shows.
14
“Explore The Arctic - Past, Present and Future” is going to be
held at the gallery of the Korea Foundation from Oct. 29 to Nov.
12. The exhibition aims to break the common perception of the
Arctic as being a vast, desolate ice-clad region populated almost
exclusively by polar bears.
Visitors will see how Norwegian explorers Fridtjof Nansen
and Roald Amundsen not only learned how to live and travel in
the hostile arctic climate, but also enjoy the stark beauty of the
frozen icy deserts and the spectacular northern lights.
Norway is an arctic nation where more than 40 percent of
its territory lies north of the Arctic Circle. The changing arctic
landscape gives rise to new opportunities and new challenges.
“Explore the Arctic” guides us on a journey from the hardships
of the early polar explorers up to the modern high-tech arctic
research of today, which inspires visitors to imagine new and
sustainable solutions for a thriving arctic in the future.
Visitors will see 57 posters and 2 videos. For those who are
interested to learn more, two special lectures will be held at the
Korea Foundation Gallery on Thursday, Oct. 29 at 19:00.
To register for the lecture, please click here. For further inquiries, call the Norwegian Embassy at 02-727-7156 or 7100.
national
Month-long Celebration
New Zealand Festival
Launches with Hangi Feast
by Matthew Weigand
T
he New Zealand Embassy in Korea threw a traditional
Maori feast called a “hangi” at the Grand Hyatt Hotel
on Sunday, Oct. 4, 2015 to launch a month-long New Zealand
Festival in Korea to celebrate the two countries' new FTA.
Clare Fearnley, New Zealand's ambassador to Korea, was
in attendance, along with Ha Ji-won, the New Zealand cultural
ambassador for Korea. Ambassador Fearnley thanked the guests
and said, “The New Zealand Festival in Korea is a celebration of the strong and vibrant ties that already exist between
the people of Korea and New Zealand, and will expand further
under the Korea-New Zealand FTA.” Ha Ji-won also spoke a
few words, saying, “New Zealand has a special place in my
heart after the wonderful time I have spent there. I welcome
the Embassy’s efforts to promote New Zealand within Korea
through this month’s exciting New Zealand Festival.”
Accompanying the traditional hangi feast was a traditional
Maori song and dance performance by a 12-strong kapahaka
Ha Ji-won (right), the New Zealand cultural ambassador for Korea, touches noses with
a member of a Maori kapahaka group wearing traditional dress, a traditional Maori welcome greeting gesture, at the Grand Hyatt on Oct. 4, 2015.
group, who had traveled from Christchurch, New Zealand, for
the Festival.
The month-long New Zealand Festival in Korea will highlight the business, investment, education, tourism, and cultural
and sporting connections between the two countries. Information about these events and all the other scheduled events for
this month can be found on the New Zealand Embassy's Facebook page at www.facebook.com/nzembassykorea/.
Sparkling Denmark in Seoul
Danish Jewellery Box
Opens for Koreans
by Sara Rai
T
he Embassy of Denmark in Seoul and Seoul National
University Museum of Art (MoA) jointly invites all art
enthusiasts to see 200 crafted jewellery pieces made by some of
the most recognized and experimental Danish jewellery designers at the Core Gallery of the Seoul National University Museum of Art.
Poster for the “Danish Jewllery Box: Danish Arts Foundation’s Jewellery Collection” exhibition that is running at the
Seoul National University Museum of Art. The exhibition will
run until Nov. 22.
“The Danish Jewellery Box: Danish Arts Foundation’s Jewellery Collection” is the first exhibition of its kind in Asia and
features crafted jewellery pieces collected by the Danish Arts
Foundation for over half a century.
During the opening ceremony held on Oct. 13, Danish
Ambassador Thomas Lehmann said, “We are proud and happy
to share this treasure of Denmark with you all throughout next
month. The Danish Jewellery Box is not only about showing
jewellery, it showcases Denmark’s contemporary culture in art,
Armbånd by AnetteKræn at the “Danish Jewellery Box: Danish Arts Foundation’s
Jewellery Collection” exhibition at the Seoul National University Museum of Art.
craft, and design, and how it’s developed over time. I hope you
will enjoy the exhibition and take home with you the Danish
experience that comprises it.”
The Danish Jewellery Box opened at the Seoul National
University Museum of Art on Oct. 13 and will be on display
until Nov. 22, 2015. It is open to the public with an entrance fee
of 3,000 won. For more information, visit the MoA website here
(Korean) to see more information about the exhibition and visiting details.
15
national
national
Bravo Filipino
Filipino Embassy Hosted
Free Encore Performances
by Sara Rai
T
he Embassy of the Philippines held “Bravo Filipino!,”
a free performance of Filipino folk dances by the
renowned Far Eastern University (FEU) Dance Company at the
Embassy Chancery's Multipurpose Hall on Kyungridan street on
Tuesday, Oct. 13, 2015.
With a history spanning almost 60 years, the FEU Dance
Company (FDC) recently won the right to represent the Philippines at the Cheonan World Dance Festival, the largest event
of its kind in Korea, by beating the best dance troupes in the
country at the 2014 Folk Dance Competition sponsored by the
Bayanihan National Folk Dance Company in the Cultural Center
of the Philippines.
Philippine Ambassador to Korea Raul S. Hernandez said, “It
is a tremendous opportunity for the Embassy to get a chance to
present the FEU Dance Company to the Korean public for free,”
about the storied group, which placed third in the recently concluded Cheonan World Dance Festival on Oct. 11, 2015.
Dancers perform Maranaw Suite, a muslim inspired dance of the southern tribe from
the island of Mindanao.
The FDC's program at the Embassy presented the rich culture and traditions of the Philippine archipelago, its strategic
location between the South China Sea and the Pacific Ocean
bringing first Polynesian and Austronesian, followed by Arab,
Indian, Chinese, and Japanese seafarers to the islands even
before the arrival of the first Europeans in the early 16th century.
Since arriving in Korea last week, the FEUDC has given
several public performances: in Bucheon for the opening parade
of the 2015 Cheonan World Dance Festival on Oct.3 and in Asan
on Oct. 4, twice in Seoul (Wangsimni and Myeongdong) before
the festival itself opened formally on the 7th.
Cultural Understanding
Embassy of South Africa
Screens Movie in Seoul
about Racial Issues
by Sara Rai
T
he Embassy of South Africa and the Korean Culture
Association held a screening ceremony for “SKIN” at
the Seoul Museum of History on Oct. 15. About 150 spectators, mostly members of diplomatic corps and members of the
Korean Culture Association, attended the screening.
SKIN is a 2008 biographical film based on the book, “When
She Was White” by Judith Stone, which portrays a true story
of a family divided by race at the peak of the apartheid era in
South Africa.
On the occasion, Ambassador Bam stated, “Only by learning
from each other, the culture of each country can make its own
advancement. South African cinema is an important medium
in promoting those common values, notably in fighting against
prejudice, intolerance and discrimination, in provoking individual and collective aspirations for more freedom and emancipation, and uniting people of all origins, creeds, and beliefs while
16
Ambassador of South Africa H.E. Nozuko Gloria Bam and President of the Korean
Culture Association Jeong Jae-min at the screening of SKIN, a South African film held
on Oct. 15 at the auditorium of the Seoul National Museum of History.
celebrating their diversity.”
The screening was organized to expose South African perspectives on socially relevant issues presented in the film. It
was directed by Anthony Fabian, and is perceived as one of the
most moving stories to emerge from apartheid South Africa. It
is based on a true story that follows Sandra’s thirty-year journey
from rejection to acceptance, betrayal to reconciliation, as she
struggles to define her place in a changing world - and triumphs
against all odds. The film finds a way of dramatizing race, class,
and society in apartheid-era South Africa. It boasts fine performances by Sophie Okonedo, Sam Neill, and Alice Krige as a
family whose refusal to conform was either heroic, tragi-comic,
or merely dysfunctional.
national
Jeremy Rifkin deliveres the keynote speech at the World Science Summit 2015 on Oct. 19.
Scientific Meeting
World Science Summit
Opens in Daejeon
by Cho Jin-young
T
he World Science Summit kicked
off in Daejeon City on Oct. 19
with about 3,000 policymakers, scholars, and Nobel Prize winners from 57
countries around the world, as well as
the heads of 12 international organizations sought various solutions to pending issues such as climate change, wealth
divide, and infectious diseases.
The World Science & Technology Forum took place on the first day of
the five-day conference. Foundation on
Economic Trends founder and director
Jeremy Rifkin, who is the author of the
End of Work and the Zero Marginal Cost
Society, delivered the keynote speech.
“A decline in productivity and
inequality are becoming more and more
severe across the world, but science and
technological innovation can be a solution to the matters,” he remarked, adding, “Throughout history, industrial
paradigms changed when telecommunications, energy and transportation
underwent individual or comprehensive
changes, and the upcoming third industrial revolution, characterized by digitalization, close-to-zero marginal cost, and an
economy based on sharing will be led by
the Internet of Things, alternative energy,
and self-driving vehicles.”
He also spoke highly of Korea’s
potential in the digital sharing economy.
“Korea can get the inside track in terms
of the creation of industrial and business
models, because it is specialized in various manufacturing sectors such as electronics and ICT-based transportation,” he
explained, continuing, “Korea is already
showing positive signs relating to the
sharing economy in the form of car sharing and home sharing.”
OECD Secretary-General Angel Gurría announced the OECD Science, Technology and Industry Scoreboard 2015
during this year's ministerial-level meeting of the OECD Committee for Scientific and Technological Policy in Daejeon,
Korea on Oct. 19.
Korea’s R&D investment-to-GDP
ratio is said to have doubled over the last
20 years, from 2.2 percent in 1995 to 4.15
percent in 2013, which is well over 2.4
percent, an average score between OECD
member countries. During the period of
2010 to 2012, the nation accounted for
14.1 percent of the total patents that were
registered worldwide in the fields of the
Internet of Things (IoT), big data, quantum computing, and telecommunications.
Korea's weight in cutting edge materials
and nanotechnology, such as graphene,
meta materials, and wearable tech grew
to 21 percent during the period.
In particular, the nation is acknowledged to be a dominant player in 11
areas among 20 disruptive technologies,
including data transmission human interface technology, which is the basis of the
IoT. Disruptive technologies refer to radically innovative methods that can disrupt
existing industry, unlike gradual innovative ones that improve the function or
quality of products.
However, it was pointed out that
making an investment in basic research
while leading technological advancement has become the greatest challenge
for Korean companies. Compared to
the nation’s R&D investments, Korea
showed mediocre performance in the
number of papers published scientific
journals, at a level similar to Australia or
Spain. In addition, the nation’s score in
international cooperation in the science
and technology field is lower than the
average score worldwide.
“Korea is ready for next-generation
innovation in production by equipping
them with intensive manufacturing fields,
high performance workforces with technical skills, and some corporations leading global technologies,” said Andrew
W. Wyckoff, the director of the OECD's
Directorate for Science, Technology and
Innovation (STI).
The next-generation innovation in
production was coined by the OECD,
meaning a new industrial revolution that
would fundamentally change the existing production method, resulting from
an advance in cutting-edge convergence
technology such as IoT, 3D printing, bio,
and nanotechnology.
Korea was also recognized as one
of the most innovative countries in the
OECD Innovation Strategy 2015. The
nation’s “creative economy” policy was
introduced as a successful case of strategic access to innovation, along with
Germany's cutting-edge tech strategy and
Finland's R&D innovation strategy.
17
national
12 Years of Freedom
Incheon Free Economic Zone Authority
Celebrates 12th Anniversary
of Inauguration
by Jung Suk-yee
O
ct. 15 marks the 12th anniversary of the opening the Incheon
Free Economic Zone (IFEZ) Authority.
In Aug. 2003, three regions – Songdo,
Yeongjong, and Cheongna – were designated as the first free economic zones
(FEZ) in Korea, with the goal of seeking
a new growth engine and strengthening
national competitiveness.
The share of IFEZ's foreign direct
investment (FDI) among all eight
free economic zones across the nation
reached as high as 94 percent last year.
In particular, international organizations such as the Green Climate Fund
(GCF), the World Bank, the Association
of World Election Bodies and United
Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), all moved to the IFEZ.
In addition, the city hosts several
foreign universities in its Songdo Global
University Campus, including the State
University of New York (SUNY), George
Mason University, and the University of
Utah, attracting the world’s attention as
a “global education city.” Recently, the
IFEZ authorities are seeking to build
branch campuses of China’s Peking University and Tsinghua University.
Songdo has succeeded in attracting
a total of 25 biotechnology companies,
inclduingCelltrion, Samsung BioLogics,
Samsung Bioepis, and DM Bio, emerging as a mecca of the global biotech
industry. It has now secured the world’s
second largest bio-pharmaceutical production capacity for a single city.
Not just Songdo, but other locations
within the IFEZ such as Yeongjong and
Cheongna International City have also
gained a foothold to take the leap. The
18
Incheon Free Economic Zone (IFEZ) Authority
Commissioner Lee Young-geun delivers a congratulatory speech at the ceremony to mark the 12th anniversary of its opening.
Yeongjong district held a groundbreaking ceremony last year for a casino entertainment complex called “Paradise Sega
Sammy,” and is operating smoothly.
Also, LOCZ Korea, a consortium of the
Chinese company Lippo and American
company Caesars Entertainment, is preparing to break ground for a casino in
Yeongjong.
Recently, in particular, the Ministry of Culture, Sports and Tourism have
selected six out of nine region candidates
across the nation in Incheon in the evaluation of request for concepts (RFCs) for
a casino-oriented resort. Accordingly, the
city has high expectations of the review
and final decision for the RFCs, which
will be held at the end of this year.
The Chungna district is also seeking
to become an international hub for financial services and tourism. Starting with
the construction of an integrated data
center, which is part of the first phase of
the project to establish the Hana Financial Town in Cheongna International
City, Hana Financial Group has recently
pursued a plan in earnest. In 2017, when
the integrated data center is completed,
it will integrate all the human and material resources and IT infrastructure of all
affiliates and subsidiaries of Hana Financial Group, including KEB Hana Bank,
Hana Financial Investment Co., Ltd., and
Hana Card.
Moreover, the IFEZ, which aims
to create a Ubiquitous City (U-City),
already established a “U-City-related
strategy” five years before the enactment
of the “Act of Ubiquitous City Construction.” The Hana Financial Town project
in Cheongna International City is also
the first project being attempted by a
domestic financial company, while the
IFEZ development model was exported
to Ecuador, South America, for the first
time in the country.
The FEZ was started in 2003 to be
a hub city in Northeast Asia, and has
shown remarkable growth since. As of
Sept., the IFEZ has attracted 77 foreign investment companies and posted
US$6.78 billion (7.68 trillion won) in
the total FDI. In particular, it achieved
US$1.71 billion (1.94 trillion won)
of FDI last year, with 94 percent of
US$1.82 billion (2.07 trillion won) in
eight free economic zones in Korea.
The Incheon Free Economic Zone
(IFEZ) Authority Commissioner Lee
Young-geun said, “We will keep attracting high-value-added service industries,
such as education, medical care, tourism,
and leisure activities, in the future. Also,
we will make every effort to make the
IFEZ the global business hub city.”
national
Investing in New Zealand
Korea Behind Japan, China in Investment
into New Zealand's Growing Economy
by Matthew Weigand
T
he New Zealand Investment
Seminar was held by New Zealand Trade & Enterprise at The Plaza
Hotel in Seoul with the goal to raise
awareness about New Zealand’s attractiveness for investment, particularly for
Korean investors. The event included a
welcoming speech by Ambassador Clare
Fearnley, and an opening address by
Melissa Lee, a member of the New Zealand parliament.
The most compelling point made
during the day was that Korean investment into New Zealand is far below
Korea’s place as a trading partner with
the country. Korea is New Zealand’s 6th
largest partner for trade, even without the
imminent free trade agreement (FTA),
but the amount of foreign direct investment (FDI) that the Kiwi economy sees
from Korean companies ranks a surprisingly low 16th. In contrast, Japan is New
Zealand’s 5th largest trading partner,
slightly beating out South Korea, and
also its 6th largest foreign direct investor. This is why Melissa Lee said in her
opening speech, “As a Korean New Zealander, I would like to see more investment from Korea.”
The country of New Zealand has
plenty to appeal to any investor. The
industries in New Zealand with the highest growth right now are agriculture,
food and beverage, film and television,
specialized manufacturing, and services
areas. “Tradeable and innovation-related sectors we believe have the greatest
opportunity to provide additional benefits to businesses,” said Ryan Freer, trade
commissioner of New Zealand Trade &
Enterprise.
Some Korean companies are already
taking part in this attractive business
environment, like Ottogi and Hansol.
“Lots of food and beverages companies
get ingredients in New Zealand and do
on-shore manufacturing,” said Ryan
Freer. Products that do not have the taste
and style to appeal to the local Kiwi
population are still manufactured in the
country and then shipped overseas to
Asian markets.
Also, several South Korean movies
have taken advantage of the country’s
burgeoning entertainment industry, like
the 2010 film “The Warrior's Way,” which
tells the story of a warrior and the film
“Pokarekare Ana: Yeon-Ga,” in production now, which tells the story of a traditional Maori song that found its way into
Korean culture during the Korean War.
Foreign Direct Investment is an
important part of New Zealand's economic growth strategy. ANZ is New
Zealand’s largest full-service bank. Paul
Goodwin, head of institutional relationships for ANZ and his colleague and
Stuart McKinnon, executive director of
institutional relationships, showed in
their presentation how FDI from China
increased at a steady, appealing rate after
the FTA between the two countries was
signed. They stated that ANZ is looking
forward to a similar increase in the relationship between South Korea and New
Zealand as well.
All in all, the seminar served to
emphasize that New Zealand and South
Korea were prime potential partners in
investment and business, and that New
Zealand would welcome Korea’s partnership with open arms. “We look forward
to cooperating and developing further the
relationship by means of Korean companies expanding investment into New
Zealand’s food and beverage manufacturing, high value manufacturing and
ICT sectors,” Freer said.
Finally, when asked if he had any
specific advice for Korean companies
wanting to invest in New Zealand, Ryan
Freer said, “Call me. We’re here to support.”
Ryan Freer (4th from left), trade commissioner, New Zealand Trade and Enterprise (NZTE), poses with (left to right) JY
Park, business development manager, NZTE; Koji Hikosaka, investment manager, NZTE; Sun-yul Lee, foreign attorney,
Kim and Chang; Paul Goodwin, head of institutional relationships, ANZ Bank; Stuart McKinnon, executive director institutional relationships, ANZ Bank; and Damian Kwok, chief risk officer, ANZ Bank Korea, at the New Zealand Investment
Seminar on Wednesday, Oct. 21, 2015 at the Plaza Hotel in Seoul. The event was jointly hosted by New Zealand Trade
and Enterprise (NZTE) and ANZ Bank and is part of the New Zealand Festival taking place during the month of October.
19
coVER stoRY
Policy Financing
Tasks Ahead of Government-sponsored
Corporate Finance
by Jung Suk-yee
G
overnment-led corporate finance has played an important role in the development of the Korean economy. In
Korea, it has been in wide use since the 1960s in order to accelerate the growth of key industries and export firms.
Although the excessive leverage that arose during the course
turned into a factor of the financial crisis in late 1997, government-led corporate finance in Korea succeeded in improving
itself as a tool for supporting small and medium enterprises
(SMEs) and technological development, while the Korean econ-
20
omy began to focus on qualitative growth after the turmoil. In
addition, the role of this type of financing has further expanded
to ensure financial market stability both at home and abroad, as
low growth and low interest rates have taken root and the level
of the maturity of the capital market has risen since the global
financial crisis of seven years ago. Meanwhile, it is also true that
this financing means has affected the efficiency and autonomy
of financial management to lower the competitiveness of the
domestic banking industry and enterprises.
coVER stoRY
At present, Korea’s government-led financial institutions
include the Korea Development Bank (KDB), Export-Import
Bank of Korea (Korea Exim Bank), Industrial Bank of Korea
(IBK), Korea Credit Guarantee Fund (KODIT), Korea Technology Finance Corporation (KOTEC), and Korea Trade Insurance
Corporation (KTIC). The balance of loans and guarantees that
they provided increased to 719 trillion won as of the end of
2012, up by 178 trillion won or 33 percent from 541 trillion won
in 2008 when the global financial crisis occurred. The amount
was equivalent to 7.3 percent of Korea’s GDP that year, which
was 2.3 times more than the OECD average of 3.2 percent.
One of their main purposes is to assist in the foundation and
growth of firms. Financial support for these relatively smaller
companies can be roughly divided into lending and guarantees. The KDB and IBK concentrate on lending and investment,
whereas the KODIT and KOTEC focus on loan guarantees.
The KDB and IBK provided about 250 trillion won (US$218.8
billion) for Korean companies last year, and 56 percent of the
amount went to SMEs. About 88 percent of the total amount
was provided in the form of loans, and the rest took the form
of investment. When it comes to assistance for SMEs, the ratio
of lending amounted to 97 percent. The KDB has a higher ratio
of lending to large corporations, and the IBK is the other way
around. The amount of the bank loan guarantees that the KDB
and IBK provide for sole proprietors and SMEs exceeded 60
trillion won (US$52.5 billion) in late 2014. Still, investmentbased financing was limited to 50 billion won (US$44 million)
or so last year.
The financing for SMEs is considered to have two problems
right now. One is the relative lack of assistance for startups and
firms in their initial growth stage, which is attributable to concentration on those in business for 10 to 15 years. The other is
its excessively high reliance on indirect financing. Specifically,
indirect financing accounts for more than 99 percent of the
assistance from those institutions, except for the KDB, and the
bank’s investment-based support for SMEs falls way short of its
support for large corporations. This signifies that the domestic
capital market’s venture capital supply functions and its risk
management efficiency are underutilized in the field of corporate finance based on government policy.
mentioned this issue as well, advising them to avoid potential
over-competition. In fact, the KTIC was spun off from Korea
Exim Bank in 1992.
Under the circumstances, the Korean government divided
the beneficiaries of financing by institutions so that the KODIT
backs up startups in the stage of growth, the KOTEC is responsible for tech-oriented startups, the KDB is in charge of medium
enterprises and the IBK helps innovation-oriented SMEs. In
addition, it decided to cut back on the general lending function
of Korea Exim Bank that can be handled by commercial banks
in stages, while stopping its financial support for large corporations immediately. The KTIC is scheduled to share short-term
export insurance with private financial institutions, while scaling down pre-shipment export credit guarantees.
Furthermore, the KODIT and KOTEC are slated to be fully
responsible for financing for early-stage firms, and the KDB is
to be engaged in that of medium enterprises. The KDB’s corporate bond issue, M&A consulting and private equity fund-related
works are also expected to be reduced in view of the possibility
of friction with the private sector.
“The KDB’s support for medium enterprises should be
expanded in those fields less penetrated by private institutions,
such as package financing and intellectual property financing,
so that the potential friction can be avoided,” the Korea Capital
Market Institute advised, continuing, “If it is to cover early-stage
firms, it should make indirect investment in association with
venture capital firms so its activities do not become redundant.”
It added that the KODIT and KOTEC would be well advised to
refer to the examples of European investment funds in assigning
banks with guarantee requirements and ceilings instead of providing guarantee assistance directly to individual firms.
The Ratio of Policy Financing Amount to GDP
by Country in 2012
12.1
(unit:%)
Source: Data compiled by Oh Jeong-geun
at Konkook University
Overlapping Functions and Friction
with Private Market
More recently, the overlapping functions of the institutions
and friction between them and the market have emerged as new
problems. Experts point out that the KDB should concentrate on
SMEs, and its role as an investment banker should be reduced.
They also claim that the IBK should focus on financial support
for startups and those in their early stage, because the IBK and
private commercial banks have the same functions in substance.
Korea Exim Bank and the KTIC are another pair of the
organizations that are considered to have highly overlapping
functions. The Board of Audits and Inspection of Korea recently
7.3
3.2
1.0
Japan
0.8
0.5
0.03
S. Korea Germany Canada The U.S. Great
Britain
OECD
Average
21
coVER stoRY
Streamlining of Policy Financing
Finance Policy Producing Zombie Firms
to Go Through Reform
Financial Services Commission (FSC)
Chairman Lim Jong-ryong stressed
Oct. 24 at the training center of Korea
Technology Finance Corporation
(KOTEC) that the goal of corporate
restructuring is to select out marginal companies through impartial and
through appraisal to revive the national economy.
E
arlier this year, the government planned to supply a
total of 180 trillion won (US$159.08 billion) of policy
financing for this year. The Korea Development Bank (KDB)
and Industrial Bank of Korea (IBK) decided to raise 63 trillion
won (US$55.68 billion) and 56 trillion won (US$49.49 billion),
respectively, while the Korea Credit Guarantee Fund (KODIT)
and Korea Technology Finance Corporation (KOTEC) would
raise 41 trillion won (US$36.24 billion) and 19 trillion won
(US$16.79 billion). The figure is up 3 trillion won (US$2.65
billion) from 177 trillion won (US$156.43 billion) from last
year.
Accordingly, the policy finance of small and medium-sized
enterprises (SMEs) has improved their financial conditions and
vitalized startups, producing tangible results. However, there
have been comments that the efficiency of finance distribution
needs to be improved so that the policy finance cannot be conservatively managed.
The loans provided to SMEs through its policy financing
accounts for 12 percent of the total loans in banks. The figure is
much higher than the OECD average with 5 percent. According
to the “Efficiency Financial Support Plan for SMEs’” report,
which is recently released by Korean Development Institute
22
(KDI), the efficiency of domestic SMEs is half the U.S. average, and the productivity of added value per person is a third of
domestic conglomerates’ average.
However, only 5 percent of SMEs had benefits from policy
financing. According to the survey “2015 Financial Conditions of SMEs” of 4,500 SMEs conducted by IBK Economic
Research Institute in the first half of this year, 92.7 percent of
the respondents said they couldn’t’ use policy financing last
year, while the remaining 2.1 percent said they don’t know
much about policy financing.
Regarding this, the government said that it will end safe
and repetitive support for existing companies and provide more
adventurous and creative support to startups and companies
in the “valley of death,” which is three to seven years after a
company's founding. Also, it is planning to reorganize the role
assignment system for each supporting organization so that
SMEs can receive customized financial support.
Moreover, the government will set the standard of policy
finance funding limits for each company, and adopt the “funding limit system,” which systemically manages funds through
the integrated business management system, in order to prevent
funds weighting towards certain companies. In a bid to address
coVER stoRY
the problem that private financial companies provide loans
to only stable firms to reduce risks, it will also introduce the
“portfolio guarantee” method on a trial basis, getting out of
the current system to guarantee by company. This is the means
that encourages banks to autonomously include even secondary prospective companies in portfolios within the limits when
guarantee organizations set the guarantee requirement and the
total amount of loans.
In addition, it will streamline the guarantee examination
for companies that have support guarantees by the KODIT and
KOTEC in the long term, and gradually reduce support for
marginal firms. It means that the government will reorganize its
policy financing system to cut support for marginal or “zombie” companies, which barely manage to stay alive with policy
finance, and money goes to where it is needed. More specifically, the examination of companies that are more than 10 years
old will be strengthened, and their long-term guaranteed fees
will rise as well.
According to YooEui-dong of the ruling Saenuri Party,
there are as many as 3,741 companies offered long-term guarantees by KODIT for more than 10 years as of the end of
August this year. Also, the number of companies with longterm guarantees of more than 20 years and 30 years reached
600 and six, respectively. Most of them are marginal SMEs that
use loans in the long run by changing banks through the credit
guarantee system of the KODIT.
As policy funds have been invested in such ailing marginal
companies, there are side effects that disturb the industrial
ecosystem. Industry experts point out that these zombie firms
nibble at the guarantees, which slows down the economy and
delays corporate restructuring. The total amount of guarantees
of KODIT has increased from 29.15 trillion won (US$25.76
billion) in 2005 to 41.5 trillion won (US$36.68 billion) this
year, growing a whopping 42 percent over the past decade. The
dependence on guarantees is rising year by year.
Urgent Policy Financing Management
for Conglomerates
Another problem is that ailing companies survive as the
large amount of policy financing is injected into the market
at a time when they are not properly restructured. Also, funds
repetitively go to some companies, which are accustomed to
win policy financing.
Recently, policy financing organizations’ lax support for
conglomerates, which have met the growth limit, raised criticism as well. In particular, Daewoo Shipbuilding & Marine
Engineering Co. (DSME) and Sungdong Shipbuilding &
Marine Engineering Co. posted 3 trillion won (US$2.65 billion) and 1.5 trillion won (US$1.33 billion), respectively, in
operating profits in the second quarter. The largest respective
shareholders of those companies are KDB Bank and Korea
Eximbank.
The total amount of loans from KDB Bank, which is main-
Guarantee Performances made by KODIT and KOTEC
(unit: billion won)
56.3
57.0
2009
2012
59.5
60.3
50.7
43.0
2008
2013
2014 End of May,
2015
Source: Korea Credit Guarantee Fund (KODIT),
Korea Technology Finance Corporation (KOTEC)
ly in charge of loans for equipment funds, as of the end of last
year, reached 125 trillion won (US$109.22 billion). Among
them, policy financing accounts for 64 percent, or 80 trillion
won (US$69.9 billion). The bank manages 268 companies
and 114 companies, or 43 percent, of them are insolvent firms
which are under restructuring at the end of March this year.
The Korea Eximbank saw in non-performing loans
increase. According to the Bank for International Settlements
(BIS), its equity capital rate as of the end of June stood at 10.01
percent, the lowest figures among domestic banks. After 2012,
the government funded the bank several times to raise the equity capital rate but it needs to finance around 1 trillion won
(US$873.74 million) again now.
The non-performing loans of firms that filed for court
receivership and that are burdened by two banks alone in the
last five years amounted to 5.5 trillion won (US$4.86 billion).
At the moment, KDB Bank and Korea Eximbank already have
ailing funds of 2 to 3 trillion won (US$1.77 to $2.65 billion)
each. Considering the fact that only 30 percent of the bonds
of companies that filed for court receivership are collectible,
4 trillion won (US$3.54 billion) of bonds owned by the two
banks are just a mere scrap of paper.
Meanwhile, the reserves of 81 listed companies of the
nation’s top 10 business groups reached 343.73 trillion won
(US$303.78 billion) as of the end of 2013. Also, the companies borrowed 25.83 trillion won (US$22.83 billion) from the
nation’s three policy financing organizations – KDB Bank, IBK
Bank and Korea Finance Corporation – in the last four and a half
years for business operations, though they secured 86.77 trillion
won (US$76.68 billion) of liquidity. It showed that the policy
financing organizations led the fund rushing to conglomerates.
23
coVER stoRY
In addition, the 81 listed companies secured 86.77 trillion won (US$76.68 billion) of floating funds, up as much as
48.6 percent from the figure in 2011. However, the nation’s
three policy financing organizations gave out a total of 25.83
trillion won (US$22.83 billion) of loans to large companies,
which have enough money, from January 2010 to June 2014,
accelerating the fund concentrations on conglomerates.
After Choi Kyung-hwan took office as deputy prime minister in July 2014, 44.6 trillion won (US$39.42 billion) of
new loans were added. According to recent data submitted by
the Ministry of Strategy and Finance to the National Assembly, KDB Bank saw the highest increase with 22 trillion won
(US$19.44 billion), followed by Korea Eximbank with 9.6
trillion won (US$8.48 billion), IBK Bank with 7 trillion won
(US$6.19 billion), KODIT with 4 trillion won (US$3.54 billion), KOTEC with 1 trillion won (US$883.78 million), and
the Korea Trade Insurance Corporation with 1 trillion won
(US$883.78 million). The expansion of loans of these organizations came after the economic policy direction and the
budget supplement bill, which were released three times after
Deputy Prime Minister Choi Kyung-hwan’s inauguration.
With policy financing snowballing, there are warning
signs for the financial soundness of policy financing organizations that lend too much money to companies that are sensitive to economic ups and downs, due to the recent economic slump. As Korea Eximbank collected some money from
Keangnam Enterprises, the sub-standard and below loans
(SBL) ratio slightly decreased from 2.02 percent at the end of
last year to 1.94 percent at the end of August this year. However, the bank for international settlements (BIS) capital ratio
dropped to 10.01 percent as of the end of June. Also, Moody’s
downgraded its baseline credit assessment (BCA) from “ba1”
to “ba2” in September of this year.
The SBL ratio of KDB Bank also reached 2.58 percent as
of the end of June this year. As the main creditor bank, moreover, it is in trouble, as the DSME recently posted some 4.33
trillion won (US$3.80 billion) of operating losses for the first
three quarters of this year.
With the trend of low growth in the world, industrial business becomes unclear and the steady support of policy financing organizations will mass-produce zombie companies and
insolvent companies, according to industry experts. Therefore, it is argued that the policy financing functions of KDB
Bank and Korea Eximbank need to be adjusted together.
Accordingly, the KDB Bank is expected to be in charge
of only policy financing in the long term. It will significantly
reduce private businesses such as household loans and investment banking (IB) sectors.
In an interview with a domestic daily newspaper in October, SohnByung-doo, head of the financial policy bureau
at the Financial Services Commission (FSC), said, “Before
2013, privatization was a motto, but not anymore. We will
reduce KDB Bank’s IB function, including M&As, to accomplish the policy purpose.” Sohn stressed that the KDB Bank
24
Corporate Bond Amount Held by KDB
at Companies under Restructuring
(unit: billion won)
Way of Restructuring
Way of Restr
ucturing
Total Debt
Amount
Debt to
KDB
Workout
7,167.9
4,185.9
1,059.3
Court Receivership
6,846.6
7,278.9
3,023.8
Self-regulating
Agreement
13,398.9
17,570.7
5,971.0
Total
27,413.4
29,035.5
10,054.1
Total
Corporate
Asset
Total Debt
Amount
Debt to
KDB
Small Business
(53 irms)
2,150.3
1,568.0
504.9
Medium Business
(I irm)
134.6
98.2
54.0
Large Business
(45 irms)
25,128.5
27,369.3
9,495.2
Total
27,413.4
29,035.5
10,054.1
Company Size
should be a policy financing organization. He defined it as a
“conglomerate-centered main creditor bank.”
KDB Bank served political functions focusing on the
development of finance from the 1970s to 1990s, establishing
its status as a helper for economic development. Since then,
it has expanded its business areas to the IB and corporate
restructuring sectors, including household loans, corporate
bonds, and M&As. At a time when the economy is unstable
like now, however, the publicity of KDB Bank is important.
The bank should strengthen its identity as a policy-financing
organization.
Accordingly, the FSC is planning to sell subsidiaries
owned by KDB Bank. Currently, there are 118 subsidiaries financed by KDB Bank as an investment. About 100 of
them are SMEs and venture companies. They will be the first
one to be sold. The restructuring work is also expected to
be changed. UAMCO, Korea's largest non-performing loan
investment company, will lead corporate restructuring functions, while KDB Bank will be in charge of corporate loans.
Meanwhile, the FSC plans to announce the policy financing
reform plan of KDB Bank and IBK Bank through the “policy
financing role strengthening plan” as early as Oct. 29.
coVER stoRY
New Challenge
Capital Market Must Needs be Used
for Policy Financing
I
n terms of Korea’s policy financing,
the capital market is still considered
out of its boundary. Considering the nature
of corporate financing, particularly SME
financing, and the function of the capital
market, however, there is a greater need to
expand policy financing by making use of
the capital market in the future.
Information asymmetry is the most
important factor to limit funds to SMEs
in particular. Since the provider of funds
knows less about the profit-making ability, financial soundness and growth potential of the companies than the provider
of those funds, it drives to reducing the
opportunities for funding. Such an information asymmetry hinders the money flow
into startups and early-stage companies.
When an indirect financing meets
SME businesses with strong information asymmetry, the efficiency of financing declines further. In the case of indirect
financing, the compensation for the provider of funds is made only through interest. Consequently, when it is difficult to
evaluate risks, the lender is more likely to
avoid giving loans than raising the interest
rate, which twists the flow of policy funds.
For a funding in the way of investment,
there is a risk of losing money when the
invested company shows poor performance.
However, the lender can have high returns
on investment when the company grows
normally. Industry experts say that such an
advantage needs to be actively accepted in
policy financing in a bid to expand the point
of contact between policy financing organizations and the capital market.
Fostering Collection Market
and Reducing Market Friction
In order to expand policy financing for
investment, the maturity of the fund flow
ecosystem should be raised. Korea’s capi-
tal retrieval market, however, is not so
well developed. Accordingly, the government should come up with policy
measures to diversify ways to collect
investment funds by revitalizing over-thecounter transactions of IPO and unlisted
stocks and fostering the M&A market.
Also, policy considerations are needed to reduce market friction areas in a
bid to expand the contact points between
policy financing organizations and the
capital market. Currently, a variety and
specialty of domestic private financial
institutions are improving, so it could
be expected that the policy financing be
expanded by using the capital market. As
theprivate financial organizations’ ability in the areas of corporate bonds, M&A
consultations, PG of private equity funds
(PEF) and project financing is continuously improving, the government could
minimize the possibility of market frictions by reducing the functions of policy
financing organizations.
Some say that the cooperation
between policy financing and the private
capital market is also needed to restructure marginal businesses. A marginal
firm,often called a “zombie company,”
is a company that has an interest coverage ratio (operating profit/interest costs)
less than 100 percent for three years in
a row. According to the Bank of Korea,
the percentage of marginal firms among
the domestic corporations subject to external audit increased from 12.8 percent in
2009 to 15.2 percent at the end of 2014.
By industry, the shipbuilding, transportation, and steel industries show the highest
increase in the figure.
Currently, there is a growing consensus that the demand of post restructuring
should be reduced by carrying out a proactive and preemptive restructuring through
the capital market, which would require
Ratio of Marginal Companies
to Total Companies
(%)
20
15.2
15
10
5
0
2012
2011
2013
2014
Chronic Marginal Companies
as of the End of 2014
(unit: company)
3295
2728
2154
1997
2435
1664
1141
567
771
438
Large
Business
SME
Manufacturing
NonTotal
manufacturing
Number of Marginal Companies
Number of Chronic Marginal Companies
policies for restructuring-related M&As
and PEF promotion.
Policy financing plays a crucial role in
easing the cash-flow imbalance caused by
market failure. In a bid to strengthen support for startups and early stage SMEs,
which are suffering from information
asymmetry, and to restructure marginal
firms, the function of policy financing
should be improved to expand the cooperation with private financial institutions and
the capital market, industry experts said.
25
MonEY
Direct Foreign Investment
FDI in Korea Showing Recovery
by Jung Suk-yee
F
oreign direct investment in Korea
is showing some recovery after
having plummeted by 30 percent from
a year ago in the first quarter of this
year. The amount increased 0.8 percent
between the second quarters of 2014
and 2015, and edged down by 1.8 percent between the third quarters of the two
years.
The Ministry of Trade, Industry &
Energy announced on Oct. 4 that the FDI
for the first three quarters of this year
decreased 10.5 percent to US$13.27 billion on a report basis and increased 9.0
percent to US$10.82 billion on an arrival
basis compared to the same period last
year. The decrease in cumulative reported amount reached 29.8 percent in the
first quarter of 2015, but fell to 14.2
percent and 10.5 percent in the following quarters. The cumulative amount of
arrival declined 15.0 percent in Q1 and
Direct Foreign Favoritism
FDI Favors Seoul Metropolitan Area
by Oh Se-eun
F
oreign investment is concentrated on the Seoul metropolitan
area. Sixty-five percent of foreign direct
investment (FDI) went to the Seoul
metropolitan area, including Gyeonggi
Province and Incheon, over the past five
26
years. This statistic is based on the status
of foreign investments that KOTRA submitted to Rep. Park Wan-joo of the New
Politics Alliance for Democracy.
“Although the regional imbalance of
FDI continues, it does not excuse other
18.9 percent in Q2, but increased 9.0 percent in the next quarter.
By country, the reported amount
from American investors rose by 4 percent to US$2.98 billion, and that of Middle Eastern and Chinese investors soared
by 1,488.5 percent and 48.1 percent to
US$1.34 billion and US$1.53 billion,
respectively. Meanwhile, that of the E.U.
and Japan decreased 69.6 percent and 27
percent to US$1.8 billion and US$1.2
billion.
Green field investment recorded
an increase of 12.9 percent to US$8.56
billion, whereas M&A investment
decreased 34.9 percent to US$4.71 billion. Investment in the service industry
and the construction sector rose by 3.5
percent and 812.2 percent to US$8.9 billion and US$1.42 billion, respectively.
Still, the manufacturing sector had to settle for US$2.95 billion, about half of the
amount recorded a year ago. In the service industry, an investment of US$4.18
billion, three times that of the preceding
year, was reported in the financial and
insurance segment alone.
regions sticking to the same old systems
to induce FDI,” Rep. Park said. “Korea
needs to make concrete measures such
as harmonizing policies and systems and
developing differentiated PR strategies
by region.”
Out of US$6,130 million in FDI in
the first half of this year, the volume of
investment in the Seoul metropolitan
area reached US$3,482 million (56.8
percent). Last year, 62.3 percent was
concentrated on the area.
The FDI concentration in the Seoul
metropolitan area is turning regional
foreign investment zones into white elephants. The Munmak Foreign Investment
Zone has attracted only two companies
since its birth in 2013. Most regional
foreign investment zones are failing to
attract even 50 percent of investments
in their areas with FDI. The Pohang,
Cheonan, and Iksan Foreign Investment
Zones inked only 40 percent, 45 percent,
and 39 percent as their FDI percentages,
each.
MonEY
Mountains of Cash
Internet Bank Consortia
Have Deeper Pockets
by Michael Herh
K
T, Kakao, and Interpark will vie
for the first new banking license
in Korea in 23 years. The three consortia will run for up to two spots to receive
preliminary approval to open Internet
banks. The 500V Consortium, which
failed to hand in the application this time,
is planning to apply at the second application time scheduled for June of next
year.
According to the Financial Services Commission (FSC) on Oct. 1, the
Kakao Consortium applied for preliminary approval for the first Internet bank,
followed by the KT Consortium and the
Interpark Consortium.
The three Internet bank consortia
were found to have deeper pockets than
expected by many financial experts.
Many thought that the consortia will
have little initial capital, since Internet banks are based on information and
communication technologies. The three
consortia’s strong desire for investment
implies hotter competition to get an
Internet bank business license.
The KT Consortium handed in a
preliminary application form about
the establishment of K Bank (tentative
name) with capital of 250 billion won
(US$221 million) to the government on
Oct. 1. Its capital is 2.5 times more than
suggested by financial regulators and 10
times the amount of capital required for
an Internet bank in a revised draft of the
proposed Banking Business Act.
The KT Consortium will raise capital
in accordance with participating companies’ stakes. The two largest shareholders
– KT and Woori Bank – have an 18 and
16 percent stake each.
The Interpark Consortium set its capital for its Internet bank, I Bank (tentative name) at 300 billion won (US$265
million). The figure is 3 times the
amount suggested by financial regulators and 12 times the required capital in
the revised draft of the proposed Banking
Business Act. The Interpark Group will
deliver one third of the capital itself. The
remaining 200 billion won (US$177 million) is to be funded by SK Telecom, GS
Home Shopping, BGF Retail, IBK, NH
Investment & Securities, and Hyundai
Marine and Fire according to their stakes.
The Kakao Consortium, consisting of
Kakao, KB Kookmin Bank, and Korea
Investment Holdings will also found
Kakao Bank (tentative name) with capital of about 300 billion won too.
The market expected that an Internet
bank will not necessitate big initial capital, since it will not open offline branches, instead providing services based on
information technologies. But it turned
out that the three consortia prepared
more capital.
Financial experts predicted that it
will cost a minimum of 60 billion won
(US$53 million) to build basic infrastructure such as a remote banking system,
automation equipment, and a call center.
In addition, even taking into consideration marketing costs in the beginning
of the Internet bank business, capital
of about 300 billion won is more than
expected, according to them.
According to a representative at
a commercial bank in Seoul, Internet
banks established in the U.S. in the early
2000s spent a huge amount of money on
marketing to attract customers. But the
Internet banks could not last more than
two years due to liquidity crises. Therefore, it is not bad for an Internet bank
to start with a lot of capital, since it can
enhance its business stability and play a
positive part in the preliminary review.
With reference to capital, financial
regulators are planning to lower the capital requirement from the current 100 billion won. They aim to promote competition by easing the entry barriers of the
Internet banking business.
At the moment, the revised draft of
the Banking Act sets capital at 25 billion won (US$22 million). The consortia decided to make a big investment in
capital against the National Assembly’s
and financial regulators’ basic plan to
lighten the burden of capital on Internet
bank business operators. Thus, there will
be hotter competition among Internet
banks.
27
MonEY
Probe Begins
Financial Regulators
Inspect Foreign Banks,
Accounting Firms
by Michael Herh
The front gate of the Financial Supervisory Service building.
T
he Bank of Korea and the
Financial Supervisory Service
(FSS) launched joint inspections of
four branches of leading foreign banks,
including BNP Paribas and JP Morgan,
after joint inspections of five regional
banks such as Daegu Bank. In addition,
they will jointly inspect the governmentrun IBK after Shinhan Bank and Woori
Bank.
According to sources in the financial
industry on Oct. 13, the BOK and FSS
began to probe four branches of leading
foreign banks in Korea on Oct. 11 for four
weeks. The two financial watchdogs will
inspect BNP Paribas and, after that, JP
Morgan Chase, Deutsche Bank, and Credit
Suisse Bank in order.
This joint inspection was decided
because, strangely, derivative trades rose
sharply at these banks, while the volume of
derivative trading by financial companies
decreased overall last year.
“Since last year, the volume of derivative trades such as forward contracts,
futures, options, and swaps fell overall.
But it significantly increased at these four
branches,” said a financial industry source.
28
“I understand that the BOK judged that it
is necessary to inspect the four branches in
connection with monetary policies such as
the effects on the nation’s foreign exchange
reserve in a situation where internal and
external uncertainties such as the tendency
of the U.S.’s interest rate hike, and asked
the FSS for the joint inspection.”
Total derivative trades added up to
43.649 quadrillion won (US$38.002 trillion) last year, according to the status of
derivative trades by financial companies
in 2014 released by financial regulators
at the end of April. The figure is a drop of
16.3 percent from 52.145 quadrillion won
(US$45.398 trillion) in 2013. So the volume has dropped for three straight years
since 2011.
“The FSS will inspect the four branches in partnership with the BOK,” said a
financial official at the FSS. “But we will
check their overall business such as internal control to avoid overlapped inspections
with the BOK.”
The Financial Supervisory Service
(FSS) also announced on Oct. 20 that it
will conduct quality management supervision on 15 big and mid-sized accounting
firms, including Samil PricewaterhouseCoopers, Samjong KPMG, Deloitte Anjin,
and Ernst & Young Korea for two weeks
from the end of this month. In particular,
they will supervise Samil PricewaterhouseCoopers in partnership with the Public Company Accounting Oversight Board
(PCAOB) of the U.S. in Nov.
The Korea Institute of Certified Public Accountants will conduct supervision
on eight accounting firms starting at the
end of this month. The institute picked out
the eight out of 100 small and mid-sized
accounting firms. This supervision aims
to check whether or not accounting firms’
internal control systems about employees’
stock investment are working properly.
At the end of Aug., some young
accountants of big accounting firms were
caught making stock investments with
undisclosed information of companies that
they were auditing. This case prompted the
Financial Supervisory Service, the Financial Supervisory Commission, and the
Korea Institute of Certified Public Accountants to come up with improvement measures against insider trading. This supervision is also part of improvement measures.
The Korea Institute of Certified Public
Accountants computed the classified total
of stock trades of 98 accounting firms that
audit listed companies and the status of the
construction of their internal control systems by the beginning of this month.
The financial watchdogs and the institute are planning to look into whether or
not there are problems at accounting
firms based on the results. On the other
hand, the case compelled each accounting
firm to considerably reinforce the control
and supervision of stock trading, such as
receiving written oaths from employees in
accordance with the governmental measures. Equally important, accounting firms
are conducting various campaigns and education to make drastic changes.
“We recommended accounting firms
to make quality management policies and
procedures related to insider trading,” said
an official at the Financial Supervisory Service. “We will thoroughly check whether
or not accounting firms prepared policies
and procedures and are carrying out supervision and prevention activities.”
MonEY
Hoarding Abroad
Korean Companies' Offshore
Fund Balances Tripled over Last 4 Years
by Michael Herh
I
t has been revealed that funds
in Korean companies’ overseas
accounts have tripled over the past four
years. This year, they added up to 34.247
trillion won (US$29.092 billion), according to data that the Korea Tax Service
turned over to Rep. Park Won-seok of
the Justice Party, who is on the Strategy
and Finance Committee of the National
Assembly.
This figure is an increase of 66.9
percent from 21.5594 trillion won
(US$18.3142 billion) in 2014. It also
grew by 226.0 percent, or 23.7407 trillion won (US$20.1672 billion), from
10.5063 trillion won (US$8.9204 billion)
in 2011, when the Overseas Financial
Account Report System was introduced.
The system makes it obligatory for Koreans and Korean corporations to report
any balances that exceed one billion won
(US$849,050) in their overseas financial
accounts starting in June of next year.
By company size, balances reported
by large companies totaled 34.0411 trillion won (US$28.9012 billion), accounting for 99.4 percent. Only 205.9 billion
won (US$174.8 million) was reported by
small and medium-sized companies. The
increase in overseas balances reported by
companies is paralleling a sharp increase
in their proportion of cash equivalents.
The reported amount in 2011 accounted for 5.5 percent of 190 trillion won
(US$161 billion), the total cash in deposits in 2010. But the reported amount in
2015 took up 15.2 percent of 224.9 trillion
won (US$190.9 billion), the total cash in
deposits in 2014.
“I ascribe this increase to the fact
that Korean companies have accumulated increased overseas profits and sent
reserves expanded thanks to a drop in
the corporate tax and tax deduction and
exemption abroad,” Rep. Park said. Korean companies’ overseas profits doubled
to 24.2 trillion won (US$20.5 billion) in
2014 from 12.4 trillion won (US$10.5 billion) in 2010.
In the meantime, fund data provider
FnGuide announced on Oct. 12 that the
49 funds each investing at least 1 billion
won (US$870,130) in Europe and available in Korea have recorded an average
return of 7.45 percent this year, similar
to those investing in Japan and Russia. It
added that five out of the 12 non-index
and non-ETF stock funds for overseas
investment that have posted a return of
at least 10 percent since the beginning of
this year are those investing in Europe,
including Fidelity Europe (15.32 percent),
Eastspring European Leaders (13.15 percent), and Hana UBS Europe Focus (11.40
percent). The Shinhan BNPP The Dream
Asia topped the list with a rate of return of
17.17 percent, and was followed by two
Russia-focused and two global funds.
Europe-focused funds’ excellent performance can be attributed to the inflow of
money into the region based on investors’
preference for risk-free assets. Last week
alone, stock funds investing in Western
Europe recorded a net inflow of US$1.96
billion, thanks to expectations for an economic recovery to follow the ECB’s quantitative easing. The region’s high level of
currency stability is attracting investors,
while uncertainties are still lingering with
regard to the Chinese economy, and the
Fed is about to raise interest rates.
Under the circumstances, the Europefocused funds fared well in the third
quarter, when global stock markets faced
a high level of volatility. Those funds
recorded an average return of -2.96 percent in that quarter, whereas the average
of all overseas stock funds was -8.85 percent. Half of the top 12 during the period
were Europe-focused funds, including the
JP Morgan Europe with a return of over 2
percent.
In the meantime, Russia funds have
been sticking out throughout this year, too.
Their average rate of return for this year is
7.70 percent as of now. On the contrary,
Brazil and China funds lost much of their
earnings in the third quarter.
29
MonEY
Treasury Bonds
US Treasury Bond Rate Exceeds Korean
Counterpart More Frequently than Before
by Jung Suk-yee
T
he three-year Korean treasury
bond rate increased by 0.028 percentage points to 1.596 percent between
Sept. 30 and Oct. 1. Likewise, the five
and 10-year rates climbed 0.038 and
0.046 percentage points to 1.761 percent
and 2.107 percent, respectively.
According to industry sources, treasury bond prices are likely to continue
rising until the key rate announcement
scheduled for Oct. 15, as the Monetary
Policy Committee of the Bank of Korea
is expected to cut the base rate in spite
of the possibility of an interest rate hike
by the Fed. In addition, global investors’ increasing preference for risk-free
assets is contributing to this trend as well.
Under the circumstances, it has been
pointed out that the three-year treasury
bond rate could be exceeded by the official rate, as it was for about three weeks
from late March this year.
These days, the 10-year U.S. treasury
bond rate exceeds its Korean counterpart
more frequently than before. For example, the former rose 0.015 percentage
points to 2.068 percent on Sept. 30, when
the latter fell short of it by a margin of
0.007 percentage points. Such a reversal
was witnessed once in June, three times
in the following month, and for over five
days in the latter half of last month.
The 30-year U.S. treasury bond
rate, in the meantime, has been above
its Korean counterpart all the way since
March this year. On the last day of the
previous month, the former reached 2.878
percent and the latter was 2.295 percent.
The reversal is unlikely to trigger a
large-scale capital outflow, though. “A
large portion of the bonds foreigners
invest in here have a maturity of three
years or less, and thus the reversal’s
effect on the market is likely to be rather
limited,” said a market expert.
Credit Default Swaps
Korea’s CDS Premium on the Rise
by Jung Suk-yee
T
he Korea Center for International
Finance announced on Oct. 4
that the CDS premium for Korea’s fiveyear foreign exchange stabilization bond
rose one basis point from a month ago to
76 bps on Oct. 2.
The CDS premium used to move
around 50 to 60 bps, but has skyrocketed
to over 80 bps during the last eight days.
Specifically, it increased from 66 bps to
71 bps between Sept. 21 and the following day, and then to 74 and 75 the next
two days. The figure reached 83 bps on
Sept. 28, three basis points higher than
the 18-month high recorded on Aug. 24.
Such a rapid rise can be attributed
to an increase in short-term debts with
a maturity of one year or less. According to the Bank of Korea, the amount
30
increased by US$8.4 billion to US$121.2
billion between the end of March and
the end of June, and the ratio of shortterm debts to total external liabilities
rose from 26.9 percent to 28.8 percent,
an eight-quarter high, during the same
period. The ratio of short-term debts to
foreign exchange reserves climbed from
31.1 percent to 32.3 percent, too.
Another factor is the current account
surplus that is increasing based on the
current economic recession. The central
bank recently said that Korea recorded a
surplus of US$8.46 billion in August, led
by a decrease in imports rather than an
increase in exports. This situation could
be exacerbated depending on the economy of China, which accounts for 25.1
percent of Korea’s exports.
An interest rate hike by the Fed that
is expected to take place within this
year is another risk factor. In fact, foreign investors are already leaving Korea.
As of the end of June, their investments
in Korea totaled US$1.0083 trillion,
US$15.3 billion less than three months
earlier. Direct investments fell by US$2.4
billion to US$180.5 billion, securities
investments decreased by US$10.2 billion to US$600.8 billion, and derivatives
investments declined by US$4 billion to
US$38.4 billion. They took an investment of US$3.74 billion out of the Korean stock market in Aug. alone.
MonEY
In, Out, and Down
Korea’s Exports, Imports Declined
Alike in September
by Jung Suk-yee
T
he Ministry of Trade, Industry & Energy announced on
Oct. 1 that Korea’s exports and imports
decreased 8.3 percent and 21.8 percent
month-on-month to US$43.5 billion and
US$34.6 billion last month, respectively.
Its trade balance remained in the black
for the 44th consecutive month. Imports
declined by more than 20 percent for the
first time since Sept. 2009, when the rate
of decrease amounted to 24.7 percent.
Such a rapid decrease can be attributed to plummeting oil prices. Last
month, the Dubai crude oil price recorded
an average of US$45.80 per barrel. The
average price of petroleum products fell
55.9 percent, and the percentages reached
52.0 percent for crude oil, 35.7 percent
for gas, and 22.5 percent when it comes
to coal.
On the export side, the rate of decline
was reduced from 14.9 to 8.3 percent
between Aug. and Sept. Auto parts
exports increased 5.0 percent, and consumer electronics exports increased 1.4
percent along with OLED (2.5 percent),
solid state drives (7.0 percent) and cosmetics (43.7 percent). Meanwhile, automobiles (-1.5 percent), textiles (-9.7 per-
cent), machinery (-10.3 percent), computers (-11.7 percent), flat panel displays
(-13.0 percent), ships (-20.4 percent) and
steel products (-21.6 percent) showed a
decrease.
The exports to the E.U. region
jumped by 19.7 percent, led by TVs
(119.0 percent), ships (102.2 percent),
synthetic resins (35.2 percent), auto parts
(33.5 percent), semiconductors (23.2
percent) and automobiles (18.2 percent).
Furthermore, the exports to Vietnam
recorded a month-on-month increase of
26.9 percent, with Korean companies
increasing their ratio of overseas production. Still, those to China, Japan and the
United States declined.
Record-high ICT Trade
Surplus in Sept.
The Ministry of Science, ICT &
Future Planning announced on Oct. 13
that Korea’s ICT exports increased by 1.6
percent year-on-year in Sept. to US$15.9
billion, the highest level since the beginning of this year. It added that the country’s ICT imports for Sept. increased by
1.4 percent from a year ago to US$7.77
billion, and the trade surplus reached a
new high.
Korea showed positive export growth
in the ICT industry for two months in a
row in spite of market research firm Gartner’s prediction that the global ICT market is likely to shrink by 4.9 percent this
year and the fact that overall exports from
Korea posted a decrease of 8.3 percent
last month.
The remarkable performance was led
by digital TV suppliers as well as mobile
phone and semiconductor exporters. Digital TV and component exports, which
continued to fall year-on-year during the
first eight months of this year, recorded
an increase of 9.3 percent to US$610 million in Sept., while mobile phone and
semiconductor exports rose 34.1 percent
and 0.8 percent to US$2.83 billion and
US$5.86 billion, respectively.
On the contrary, the exports of display products declined 14.5 percent to
US$2.68 billion, and those of computers and auxiliary equipment fell 9.0 percent to US$600 million during the same
period.
Meanwhile, the ratio of the exports
of industrial materials and components to
the total exports from Korea has exceeded 50 percent. The Ministry of Trade,
Industry & Energy announced on Oct. 6
that Korea’s exports and imports of materials and components reached US$199.7
billion and US$120.7 billion for the first
three quarters of this year, respectively.
During the period, the ratio reached
a new high of 50.3 percent, in spite of
adverse global economic conditions such
as the weak yen and the recession on the
part of emerging economies. It is expected that the trade surplus in the industry
will be able to top US$100 billion for the
second consecutive year if this pace continues.
31
MonEY
Less Total Added Value
Total Added Value of Top 30 Korean
Business Groups Decreased Last Year
by Jung Suk-yee
A
ccording to market research
firm CEO Score, 293 subsidiaries of the 30 largest business groups
in Korea created a total added value of
207.6359 trillion won (US$182.6179
billion) last year, showing a 0.6 percent decrease from a year ago. During
the same period, Korea’s GDP increased
by 3.3 percent to 1.426 quadrillion won
(US$1.255 trillion), and the ratio of
the added value to the GDP fell from
15.1 percent to 14.6 percent. The ratio
declined from 12.7 percent to 12.1 percent and from 10.3 percent to 10.1 percent when it comes to the top 10 and top
four groups, respectively.
The top 10 groups’ total added
value showed a particularly significant decrease. Specifically, it fell by
0.9 percent to 152.293 trillion won
(US$133.867 billion) and the decrement
was 1.5916 trillion won (US$1.3989
billion), exceeding the 30 groups’ total
decrement by a margin of 301.8 billion
won (US$265.1 million). The Samsung Group’s figure fell by 5.6 percent
to 67.9163 trillion won (US$59.6529
billion) between 2013 and 2014, along
with those of Hyundai Heavy Industries
32
(-65.7 percent, -2.6682 trillion won or
-US$2.344 billion), GS (-11 percent,
-426.7 billion won or -US$374.9 million), POSCO (-2.8 percent, -225.6 billion won or -US$198.1 million) and
Hanjin (-2.9 percent, -123.9 billion won
or -US$108.8 million).
Dongbu recorded a decrease of 94.3
percent, equivalent to 1.4187 trillion won
(US$1.2485 billion). The decrements
and percentages were 709.6 billion won
(US$624.7 million) and 60.1 percent for
Daelim, 645.3 billion won (US$568.2
million) and 65.6 percent for S-Oil,
181.8 billion won (US$160.1 million)
and 29.7 percent for Dongkuk Steel,
102.2 billion won (US$90.0 million) and
8.3 percent for Young Poong, 89.8 billion
won (US$79.1 million) and 1.2 percent
for KT, 89.8 billion won and 5.8 percent
for LS, and 80.5 billion won (US$70.9
million) and 4.5 percent for Daewoo
Shipbuilding & Marine Engineering.
In contrast, the SK Group increased
its added value by 2.4089 trillion won
(US$2.1210 billion) as in the cases of the
Hyundai Motor Group (+1.7316 trillion
won or US$1.5250 billion), LG (+926.9
billion won or US$816.2 million), Lotte
(+463.7 billion won or US$408.4 million) and Hanwha (+314.4 billion won
or US$276.8 million). Likewise, Daewoo Engineering & Construction posted an increase of 1.0651 trillion won
(US$937.6 million), KumhoAsiana 540.8
billion won (US$476.1 million), Mirae
Asset 461.2 billion won (US$406.0 million), CJ 453.6 billion won (US$399.4
million), Hyosung 327.8 billion won
(US$288.5 million), KCC 266.1 billion
won (US$234.3 million), Hyundai 195.5
billion won (US$172.1 million), Shinsegae 149.2 billion won (US$131.4 million), Doosan 99.8 billion won (US$87.9
million), OCI 32 billion won (US$28.2
million) and Hyundai Department Store
28.3 billion won (US$24.9 million).
The Samsung Group’s added value
accounted for 4.8 percent of Korea’s
GDP, followed by that of the Hyundai
Motor Group (2.4 percent), LG (1.5 percent), and SK (1.4 percent). Samsung
Electronics’ added value fell 14.2 percent
to 38.4967 trillion won (US$33.8925
billion), and Hyundai Heavy Industries
lost 1.7979 trillion won (US$1.5829 billion) to show a rate of decrease of 65.5
percent like Dongbu Steel (-1.5235 trillion won, -US$1.3413 billion or -500.8
percent) and GS Caltex (-1.2289 trillion won, -US$1.0822 billion or -70
percent). The added value increased by
more than a trillion won in SK Hynix
(+2.0409 trillion won, US$1.7972 billion
or +28.3 percent), Samsung Life Insurance (+1.5093 trillion won, US$1.3291
billion or +141.3 percent), Hyundai Steel
(+1.3998 trillion won, US$1.2327 billion
or +62 percent), Daewoo Engineering
& Construction (+1.0651 trillion won,
US$937.8 million or +342.6 percent),
and GS Engineering & Construction
(+1.0539 trillion won, US$928.06 million).
MonEY
Preparing for Crisis
Samsung Group Accumulating Cash
for Proactive Crisis Management
by Jung Suk-yee
T
he Samsung Group is renovating itself at a fast pace. First of
all, it is expected to reduce the number
of promotions by at least 30 percent late
this year, and carry out executive performance evaluations for this year in
Nov., earlier than in previous years. The
Samsung Group has continued to reduce
the number of those promoted to executive positions for years, from 501 to 485
between 2012 and 2013, and then to 475
and 353 in the following years.
Some employees are predicted to
be asked to leave the company as well.
Samsung Electronics could maintain substantial operating profits last year and
in the first half of this year, in spite of a
decrease in sales, because of cost reductions. It is likely to show them the door in
this context.
The possibility of additional intersubsidiary M&As is still open. Those
working for the construction business
unit of Samsung Heavy Industries are
expected to be relocated to Samsung
C&T, while rumors are continuing to
circulate that the construction and resort
divisions of Samsung C&T will be com-
bined with each other. It is also said that
a merger between Samsung Engineering
and Samsung Heavy Industries is a matter of time. A merger between Samsung
Electronics and Samsung SDS or Samsung Medison and Samsung Electronics’ spinoff have been mentioned several
times, too.
In addition, the group is mulling over
the relocation of its financial subsidiaries such as Samsung Life Insurance and
Samsung Fire & Marine Insurance to its
headquarters in Seoul, while moving the
main office of Samsung Electronics to
Suwon City. “It seems that this plan mirrors Vice Chairman Lee Jae-yong’s blueprint for seeking new opportunities while
concentrating on electronics and finance
rather than construction, shipbuilding,
and the like,” said an industry insider.
As part of renovation, the Samsung
Group also is planning to sell a number
of buildings of Samsung Life Insurance,
including its main office building located in Jung-gu, Seoul. The total price is
estimated at no less than 2 trillion won
(US$1.8 billion). According to industry
sources, the number of buildings put on
the market by the insurer is eight in Seoul
alone, and more than 10 nationwide.
At present, Samsung Life Insurance
is scheduled to be relocated to the group’s
office building in Seocho-gu, Seoul along
with Samsung Card and Samsung Securities. The general trading arm of Samsung
C&T is slated to be housed in the group’s
main office building in Jung-gu.
The group’s move is estimated to
be to dispose of unnecessary real estate
assets. In the first half of this year, the
Samsung Group increased its cash by
more than 1 trillion won (US$883 million) and cash equivalents of up to 17.86
trillion won (US$15.76 billion) by such
means. At the same time, Samsung C&T
paid debts amounting to 120 billion won
(US$105.9 million) earlier this year, and
Samsung SDI paid back 100 billion won
(US$88 million) in Aug.
Such cost reduction and cash accumulation efforts are based on the group’s
prediction that business conditions are
likely to deteriorate at a rapid pace down
the road. This move is expected to inspire
the other conglomerates in Korea to take
similar measures.
33
MonEY
Zombie Company Apocalypse
10% of Top 500 Korean Firms
are ‘Zombies’
by Jung Suk-yee
1
out of 10 Korean companies
among the nation’s top 500 has an
ailing financial structure to the extent that
it is unable to repay even the interest on
its debts with profits earned from normal
business activities.
On Oct. 18, CEO Score, a business
performance evaluation website, released
the results of an analysis that it conducted on the nation’s top 500 companies in
terms of sales. A total of 49 companies
had an interest coverage rate smaller than
1 for two consecutive years in 2013 and
2014. The number of companies that
recorded an interest coverage ratio of less
than 1 for even a year increased by 10,
from 75 in 2013 to 85 last year.
Interest coverage is a great tool that
provides a quick picture of a company's
financial soundness. When the interest
coverage ratio is smaller than 1, the company is not generating enough cash from
its operations earnings before interest and
taxes (EBIT) to cover its interest payments. When a company's interest coverage ratio is 1.5 or higher, it has the ability
to repay its debts. However, when a company's interest coverage ratio is smaller
34
than 1, it is considered a potentially insolvent company.
The 49 companies with an interestcoverage ratio below 1 for two years in
a row posted 3.93 trillion won (US$3.47
billion) in operating losses last year. Their
total interest to pay reached 4.87 trillion
won (US$4.3 billion), while the interest
coverage rate of the companies stood at
-0.8. The figure in 2013 was -1.6.
The average rate improved compared to 2013, but the number of insolvent companies increased. In addition, 25
companies out of the 49, or 51 percent,
with an interest-coverage ratio below 1
for two consecutive years were subsidiaries of the nation’s top 30 business groups.
Dividing them up by parent company, three subsidiaries of Hyundai Heavy
Industries were included in the list,
while two subsidiaries each of SK, LG,
Hanwha, Hanjin, and the Dongbu Group
were included. Also, one subsidiary
each of Samsung, GS, CJ, LS, Daelim,
Hyundai, OCI, KumhoAsiana, KCC and
Dongkuk Steel were included too.
Also, there were as many as 19 companies that had an interest-coverage ratio
below 1 due to large debts, although
they made profits. The interest coverage
rates of LS Networks, Kolon Global, and
KCC Engineering & Construction were
0.1, while the figures for Taihan Electric
Wire, Hanjin Shipping, and Korea Railroad Corporation (Korail) stood at 0.2.
The rates of GS Engineering & Construction, TK Chemical, Halla, and CJ
Foodville were 0.4, while the figures of
Asiana Airlines and Hi Plaza were 0.6.
Moreover, the interest coverage rates of
Hanwha Chemical and STX were 0.7 and
0.8, respectively, while the figures for SK
Shipping, Daechang, Korean Air, Doosan
Engineering & Construction, and Samdong stood at 0.9 and 1, respectively.
By industry, construction has the largest number with 12, followed by both
the petrochemical and the shipbuilding,
machinery, and equipment industries
with 7. The transportation industry has
5, while the IT, electric, electronics, and
steel industries have 3 each. The public
enterprise, trading, automobile, and parts
industries each have 2 zombie companies.
Earlieron Oct. 4, the LG Economic
Research Institute also unveiled that the
ratio of companies with an interest coverage ratio of less than 1 increased from
24.7 percent to 34.9 percent between
2010 and the first quarter of this year,
when it comes to 628 non-financial companies listed on the Korean stock market.
Concerns are rising over the possibility
that this situation could affect the banking
sector. The Financial Supervisory Service
recently mentioned that its bad debt ratio
regarding large corporations increased
from 2.31 percent to 2.35 percent between
the ends of Q1 and Q2 this year, while
the overall bad debt ratio went down
from 1.56 percent to 1.50 percent during
the same period. Large corporations’ loan
default rate rose 0.1 percentage points to
0.84 percent in that period, too.
MonEY
Formal Rejection
Financial Authority Tells DSME ‘God
Helps Those Who Help Themselves’
by Jung Suk-yee
M
ultiple financial institutions are
planning to provide a refund
guarantee of US$5 billion in order to
help Daewoo Shipbuilding & Marine
Engineering obtain new shipbuilding
orders. Financial assistance for the company is estimated to be up to 10 trillion
won (US$8.8 billion) in the short term,
given that trillions of won are likely to be
provided by means of direct financing in
accordance with the due diligence results
slated to be made available at the end of
this month.
Specifically, 30 percent of the refund
guarantee is to be borne jointly by the
Korea Development Bank, which is the
largest shareholder; the Korea Trade
Insurance Corporation; and the ExportImport Bank of Korea, which is the main
creditor. The rest is shouldered by commercial banks. In this context, the Korean government will hold a meeting on
Oct. 22 so as to discuss the resuscitation
of the company and financial support.
According to the shipbuilder, the
refund guarantee allows it to win contracts worth up to 15 trillion won
(US$13.2 billion). As of the end of the
third quarter, the company’s losses were
estimated to be about four trillion won
(US$3.5 billion). The Korea Trade Insurance Corporation changed its stance at
the last moment, allowing the financial
support for Daewoo to be doubled.
“What matters now is helping the
company to get new contracts so that
it can stand on its own feet rather than
life extension based on some stop-gap
measures,” said a government official,
adding, “Ultimately, the refund guarantee
determined at this time is for a return to
normal.”
The burden of financial support,
however, compelled the government
to defer a support plan for Daewoo
Shipbuilding and Marine Engineering
(DSME) on Oct. 22. It is said that the
deferment of the plan is a rather unexpected decision, but does not mean that
the government has completely scrapped
its project to help the DSME survive. It
is interpreted as the government’s message that it will give the DSME a helping
hand only if some conditions are met.
“Support is given to the DSME on
the premise that government-run banks
and related financial institutions will suffer losses,” Lim Jong-ryong, chairman
of the Financial Services Commission
told reporters in the Fifth Fintech Demo
Day Event. “The DSME should have a
clear and strong self-help plan for its normalization. Its labor union is very important.”
“If the labor union resists and goes
on a strike so the company fails to deliver products in time, giving rise to a shortage of funds despite our support for the
DSME, we will have to give more support,” a government official said. “But
skepticism was stirred up by some people who said that we cannot continue to
support the DSME unconditionally.”
It is said that their concerns became
greater as labor unions in the shipbuilding industry are radical. Normally, the
government receives a company’s selfhelp plan and its labor union’s agreement
after finalizing a normalization plan for
the company. But this time, the government means to receive the DSME’s selfhelp plan and its labor union’s agreement
first.
The Korea Development Bank, the
largest shareholder of the DSME, asked
the DSME to submit a self-help plan
and its labor union’s agreement, telling the company the above-mentioned
story. But it will take some time for the
DSME to come up with its plan for selfhelp efforts. Earlier, the DSME sold off
assets amounting to about 400 billion
won (US$355 million), such as its HQ
building in downtown Seoul, and slashed
its workforce by 30 percent.
The sale of additional assets and
wider HR restructuring will definitely cause the DSME much more pain.
Besides, a lot of attention is being paid to
whether or not the Korean Development
Bank will make additional measures
to help the DSME keep its head above
water.
35
spEcial REpoRt
From left: Chairman of the Korea Employers Federation BahkByong-won, Chairman of Economic and Social Development Commission Kim Dae-hwan, President of the FKTU Kim
Dong-man, and Minister of Employment and Labor, Lee Ki-kweon (right) on Sept. 13.
Wage Peak Misgivings
Doubts about Policy Impact of Wage
Peak System in Korea
by Marie Kim
O
n Sept. 13, a tripartite commission consisting of Minister of
Employment and Labor Lee Ki-kweon
representing the government, Chairman of the Korea Employers Federation BahkByong-won representing
business, and President of the FKTU
Kim Dong-man representing labor
reached an agreement on labor reform.
The key point of the agreement was
the wage peak system. It was first time
that the Korean political scene saw a
similar feat since the 1998 financial
crisis. With the extension of the retirement age to 60 taking effect in companies with more than 300 employees
in 2016 and less than 300 employees
in 2017, the management side of local
36
companies and organizations are being
forced to face an increase in personnel
expenses. Against this backdrop, the
wage peak system is emerging as an
essential part of labor reform to provide
job security for older workers, relieve
employers of additional costs related
to extended employment, and boost the
competitiveness of Korean corporations
in the export market.
The wage peak system refers to a
policy of introducing reduced salaries
to workers nearing retirement age, i.e.,
retirement age minus 5-7 years. Wages
tend to increase steadily over a worker's lifetime, because the traditional
wage system is based on seniority. The
premise is that the system would free
up wage-money, which then could be
used to hire younger workers and retain
older workers.
However, the wage peak system
that the Korean government has recently adopted represents an imperfect policy measure with loopholes. The peak
system takes a form of administrative
guidance rather than legislation. For
instance, the revised Employment Promotion for the Aged Act stipulates that
employers have to get consent from a
majority of their employees when introducing the wage peak system. However, the procedural process is not legally
enforced or clear as a provision, which
creates the potential for more conflict between management and labor.
spEcial REpoRt
Moreover, whether the money saved
from reducing salaries for old workers
is going to be used for more jobs for
young people is uncertain.
Coping with Extending
the Retirement Age to 60
The subject of the wage peak system
started to surface in the policy scene in
Korea in the early 2000s, as the national
economy relying on the manufacturing
industry started experiencing declining
competitiveness in the export market.
Nevertheless, management couldn’t easily broach the topic, facing strong resistance from labor unions, that refused
to accept reduced salaries in exchange
for an extended period of employment.
The management side also thought at
the time that there is little benefit to be
derived from reduced wages in return
for an extended retirement age. In the
last couple of years, the consensus has
shifted towards adopting a wage peak
system, as the majority of large corporations have come under increasing
financial burdens, with many employees
pushing their 50s.
The system gained additional
urgency with the passage of the Act on
the Prohibition of Age Discrimination
in Employment and Aged Employment
Promotion (hereinafter the Employment Promotion for the Aged Act) at the
National Assembly in April 2013, which
stipulates that the mandatory retirement
age be raised to 60 or above. Companies
with more than 300 employees have to
implement the wage peak system beginning in 2016.
Proponents of the wage peak system – mainly management and government officials – argue that the system
would increase job security for both old
and young workers. Opponents – mainly
unions – argue that the system is just
a pretense to decrease real wages and
instead say that the wage-savings will be
retained by employers as excess profits.
Korean Version of Wage
Peak System: Political
Middle Ground?
With the extension of the retirement
age to 60 legally guaranteed by the
Employment Promotion for the Aged
Act, unions have been refusing to come
to the negotiating table for the compromises that they have to make regarding
wages.
However, youth unemployment is
emerging as a prominent social issue,
as the jobless rate of people between
15 and 29 has hit a record high, standing at 9.4 percent in July, much higher than the 3.7 percent tallied for the
entire country. In this light, the issues
surrounding the wage peak system have
become increasingly politicized in the
political scene, and unions are forced
to accept the introduction of the wage
peak system.
Against prolonged political disagreement and difficult negotiation processes, in many ways, the newly-adopted wage peak system in Korea features
political compromises with glaring policy loopholes.
No Legal Provision: More
Room for More Conflict
Given that the wage peak system
takes the form of an administrative
guideline rather than legislation, critics
point out that the government is creating room for more conflict than resolution as far as labor-management relations are concerned.
For instance, the revised Employment Promotion for the Aged Act does
not include any specific provisions or
details such as adjusting wage levels
and introducing a wage peak system,
but only vaguely refers to “wage system improvement.” Although maintaining cooperative relations with
trade unions is critical for successfully
reforming the existing wage system,
there is, however, no dispute settlement
process to resolve conflicts arising
from labor-management disagreements.
Therefore, more worrisome is the event
where employees oppose the introduction of a wage peak system.
Some say that a labor dispute with a
trade union at the workplace can be set-
tled through mediation by the National
Labor Relations Commission (LRC),
but the effectiveness of NRC mediation
is in doubt, because their proposals go
into effect only when both labor and
management accept them.
In order to avoid potential confusion and conflict, the government plans
to develop and disseminate guidelines
on the wage peak system and provide
consulting.
Creating More Jobs for
Young Workers?
According to the Federation of
Korean Industries and the Korea Economic Research Institute (KERI), the
extension of the retirement age will
incur 107 trillion won (US$95 billion)
by 2020.
Deducting 10 percent of the salary every year beginning with workers
aged 55 will save a total of 25.91 trillion won (US$23.00 billion). Researchers at KERI claim that businesses can
create 80,000 to 130,000 jobs with that
money from 2016 to 2019. However,
all of the wage-money saved should be
used to employ new recruits in order to
see these kinds of results, and the concern is that some businesses won’t use
all the savings to hire new recruits.
Other experts say that the wage
peak system will have little effect,
since the average time that a South
Korean regular worker spends at a
company is only 85 months (7.08
years).
For some professions and situations
where layoffs and voluntarily resignation happens more often, extension of
the retirement age and introduction of
a wage peak system has little impact
on companies’ labor costs and workers’
job security. Moreover, as for the prospect of creating jobs for youth, many
raise doubts. “Companies have been
restructuring to steadily reduce their
workforce, but new hiring of young
people has not increased proportionally,” said Kim Seong-hee, a research
professor at the Graduate School of
Labor Studies at Korea University.
37
spEcial REpoRt
KAMCO Case
Necessities for Successful
Implementation of Wage Peak System
by Marie Kim
A
lthough the wage peak system
gained momentum following the Park Geun-hye administration’s
push for a reform of the labor market
in Korea, it turns out that a successful
implementation requires delicate handling of management and labor relations,
as well as government supervision over
new hires.
Given the record-high youth unemployment rate – at 11.1 percent last Feb.,
the administration has announced government commitment to restructuring
the labor market, the key of which is to
introduce the wage peak system. Especially with regard to the public sector,
President Park announced that in the next
two years, public offices will create 8,000
jobs for youth via the wage peak system.
According to the Ministry of Strategy
and Finance, all 316 state-run companies
and institutions nationwide will adopt
the wage peak system, in which the salaries of high-paid executives or managers
will begin to decline at a determined rate
from a certain age. The policy rationale
is that the saved wage money will be
used to hire young people as entry-level
38
workers.
However, after facing fierce political opposition from unions in the private
sector, the Korean government intended
for the public sector to take lead in what
is known as a part of wider labor reforms
aimed at reversing the sluggish economy
and cutting deficits. It hoped the private
sector would follow suit.
However, such expectations prove to
be ill-positioned. Lee Ki-kweon, minister of employment and labor, especially
noted the difficulty of cutting salaries for
workers in the top 10 percent both in the
private and public sectors. “While some
companies have imposed layoffs due to
sluggish profits, high-paid executives
and employees were paid hundreds of
millions of won when they retired,” Lee
said. “[That made it] really difficult to
persuade the labor unions to cut wages
for workers in the top 10 percent.”
Given that changes are expected
to be met with strong opposition from
labor, many public organizations, including the Korea Asset Management Corporation (KAMCO), set up a task force in
an effort to narrow the differences. On
average, although parties agreed to the
necessity of the wage peak system, they
differed over when to start trimming salaries. Labor unions generally demanded
the cut to be enforced after the legallyguaranteed retirement age of 60, while
management called for it to be started
before then.
Through negotiations in a special
task force, KAMCO hammered out the
decision to adopt the wage peak system
beginning on Aug. 31 this year.
Unlike many government-run companies that hire just a few new recruits under
the pressure of reducing deficits and
downsizing operations, KAMCO hired
55 interns, the same number as last year.
Ninety percent of these interns will be
converted into full-time staff. The spokesperson said that KAMCO plans to hire an
additional 20 new interns next year.
He also mentioned that the government conducted a parliamentary inspection on state-run companies for new
hires, and KAMCO and the Korea Credit
Guaranteed Fund were subject to that
inspection, which proved to be an effective impetus for new hires.
spEcial REpoRt
LG Case
Positive Implications of Wage Peak
System in Korea
by Marie Kim
D
espite the political stigma and
negative connotations associated with the wage peak system in Korea,
some major Korean companies report
positive effects from adopting the system.
The wage peak system proposes
reduced salaries for workers nearing
retirement age (i.e., retirement age minus
5-7 years), as wages tend to increase
steadily over a worker's lifetime. The
premise is that the system would free up
wage-money, which then could be used
to hire younger workers. Proponents also
argue that system would increase job
security for older workers. Nevertheless,
there are also opponents, mainly unions,
that argue that the system is just a pretense to decrease real wages – they argue
that the wage-savings will be retained by
employers as excess profits.
Due to political sensitivity and stigma, large corporations in Korea have
been passive about adopting the wage
peak system. According to the Ministry
of Employment and Labor, only 56 percent of affiliates of the top 30 companies
have adopted the wage peak system as
of the end of Aug. this year. Even when
they decided to implement the system,
this may end up as mere planning rather
than reality on the ground.
In the early 2000s, when the issue
started surfacing, facing strong resistance from the labor unions that refused
to accept reduced salaries in exchange
for an extended period of employment,
management couldn’t easily broach the
topic. Moreover, the management side
also thought there is little benefit to be
derived from reduced wages in return for
an extended retirement age.
In the last couple of years, consensus has shifted towards adopting a wage
peak system, as the majority of large corporations have come under increasing
financial burdens with many employees
pushing their 50s.
Despite worries about the negative
reactions from workers, some large companies reported a positive side to adopting the wage peak system. LG is one of
the large corporations in Korea that has
adopted the wage peak system early on.
Most LG affiliates, including LG Electronics and LG Care, have adopted the
wage peak system.
In case of LG Electronics, due to the
increasing number of workers in their
50s and 60s, the burdens from the rising
personnel expenses have been bringing
down the management. Also, at the same
time, the management wants to keep
experienced and highly-skilled personnel in R&D. Given conflicting interests
and concerns, the wage peak system provides a good opportunity to find a middle
ground between job security and reduced
salaries. After the adoption of the wage
peak system, LG saw the average period
of employment period extend from 8.3
years in 2008 to 9.9 last year.
39
spEcial REpoRt
POSCO Case
Building Consensus between
Labor, Management
by Marie Kim
T
he wage peak system in Korea
is not legally enforced, and there
is a variety to the forms that the system takes in different companies. For
instance, the age at which the salaries
of employees start to be subjected to the
wage peak differ from one company to
another. Altogether 37.5 percent of the
companies surveyed will start to apply
the wage peak system to people aged 56,
followed by 29.2 percent of companies
to people aged 58, 16.7 percent to people
aged 57, and 12.5 percent to people aged
59. Some of them will apply a wage peak
to the annual salary, while others will
limit it to base pay. A majority of companies including POSCO, KT, LG Chem,
and SK apply a 10 percent wage cut to
employees aged 56, 19 percent cut to 57,
27 percent cut to 58, 34 percent cut to 59,
and 40 percent cut to 60.
This year, the new wage structure of
POSCO, the world’s fourth-largest and
Korea’s largest steel exporter, added new
features to the existing wage peak system
in addition to the 10 percent annual cut
40
that the company started to adopt since
2011.
POSCO has been struggling with
mounting labor costs, while they are still
faced with intensified foreign competition in the export market. As a way of
alleviating costs, the company has been
downsizing operations across the board.
Moreover, this year, it decided to freeze
the salaries of its workers. The company
will also overhaul the traditional wage
system based on seniority to switch to a
performance-based system.
While committing to cutting costs,
POSCO has sought ways to participate
in alleviating the social woes of a deepening divide between small merchants
and big businesses. For instance, POSCO
used the saved wages to purchase gift
certificates to help boost the profits of
small merchants at traditional markets.
“We expect to save about 13 billion
won [US$11.5 million] from the wage
freeze. We will use the money to purchase traditional market gift certificates,
worth 13 billion won, and give them to
our employees and those of our business
partners,” a company spokesperson said.
Moreover, alleviating deepening
youth unemployment, the steel maker
plans to recruit 6,400 entry-level workers
this year, and employ 300 interns from
university students every year for the
next five years.
“Although we have been disposing
of some of our affiliates and downsizing
operations, we decided to hire as many
university graduates as we can,” said the
spokesperson.
In the process of further improving the wage structure, the Korean steel
maker set up a task force to draw up a
workable scheme, and invited labor,
management, and labor experts to build
a consensus between labor and management based on such concepts as corporate responsibility.” The spokesperson
stressed that both labor and management
decided not to raise wages this year as
part of efforts to overcome the ongoing
difficulties, and share growth with business partners and local communities.”
iR & ManagEMEnt
Constructing the 118
Ginseng Tourism
Samsung C&T
to Construct
Tallest Building in
Southeast Asia
Cheong Kwan Jang Decorated with
Illustrations of Famous Korean
Tourist Destinations
by Marie Kim
S
amsung C&T
(CEO Choi
Chi-hoon) announced
on Oct. 27 that it has
landed a US$842 million (954.41 billion
won) deal called the
“KL 118 Tower” project commissioned by
PNB Merdeka Ventures
SdnBhd, a subsidiary
of Malaysia’s state-run investment firm PNB.
The building in Kuala Lumpur, the capital of
Malaysia, will have 118 floors above ground and
five below, with a total area of 673,862 square
meters. It will be a complex facility that hosts
office spaces and hotel guestrooms. It will take 49
months to be completed by Dec. 2019. Samsung
C&T will work with local contractor UEM in a
consortium to generally manage the construction
work, including quality and safety management.
With a total cost of US$842 million (954.41 billion won), the share of Samsung C&T will be
US$505 million (572.42 billion won), or 60 percent in total.
With a height of 644 meters, it will be Malaysia’s tallest building and the world’s third-tallest
building when it is completed in 2019.
Samsung C&T outbid other rivals from China
and the United Arab Emirates based on its technical expertise and the experience of successfully
building high-rise structures like the BurjKhalifa,
the world’s highest 162-floor skyscraper in Dubai,
the U.A.E., and Petronas Tower, an 88-floor skyscraper in Malaysia.
With the KL 118 Tower project, Samsung
C&T is establishing a solid foothold as a global
construction company in the Malaysian market.
Currently, the company is carrying out a total of
four construction projects – two plant construction and two building construction deals – worth
US$1.5 billion (1.7 trillion won) in Malaysia.
42
by JeonSeong-hun
A
s the popular souvenir for foreign
tourists, the Red Ginseng Extract
Royal Tour Edition is an extract using sixyear-old red ginseng, putting the illustrations
of Korea’s eight famous tourist attractions,
including SeongsanIlchulbong, also called
“Sunrise Peak,” Mt. Seorak, Bulguksa Temple, and Seokguram Grotto, on the packaging. It is a product designed for tourists who
are looking for a souvenir of Korea, and it is also sold at only duty free shops.
The product consists of eight bottles with 30g of Red Ginseng Extract Royal,
making use of the number “8” which has long been regarded as the luckiest number
in Chinese culture. All the bottles together look like a single landscape painting,
increasing the value as a present. There are QR codes that can be scanned with a
smartphone to check information about the tourist attractions in Chinese and English.
KGC Brand Manager Kim Ga-hye, who designed the product, said, “I designed
the product by combining red ginseng, a main specialty of Korea, and Korea’s tourist attractions in order for tourists to keep the memories of travel to Korea special.
I hope the product becomes a present that can promote Korea to not only tourists
visiting Korea but also foreign business associates and overseas Koreans.”
Hong Kong MAMA
CJ E&M Selects 50 SMEs to Participate
in 2015 MAMA in Hong Kong
by Lee Joon-dong
C
J E&M has selected 50 small and medium-sized
enterprises (SMEs) to take part in the “2015
Mnet Asian Music Awards (MAMA),” which will take
place in Hong Kong in Dec.
Earlier this month, the company received applications
from SMES, who want to tap into Chinese markets, along
with the Small and Medium Business Administration, the
Corporate Partnership Foundation, and the Korea Trade Investment Promotion
Agency (KOTRA). It finalized the list of 50 SMEs through the evaluation carried
out by the panel of judges and KOTRA.
CJ E&M will provide benefits to the companies such as join exhibition halls,
export counseling rooms, one-way shipping fees, and free interpretation services.
Also, it will offer mentoring programs, opportunities for promotion, marketing
activities at home and abroad, and buyer meetings before the event.
This year, in particular, CJ E&M will create opportunities that allow SMEs to
meet Chinese consumers by introducing “2015 MAMA Pre-Week.” Starting from
Nov. 28, it will hold the product sales promotion event at Plaza Hollywood in
central Hong Kong.
iR & ManagEMEnt
Under the Sea
Certified
KT to Run World’s
Largest Submarine
Cable Network
Daewoo E&C First in
Industry to Receive ISO
22301 Certification
by Marie Kim
by Marie Kim
K
T announced on Oct. 22 that it is to take part in the
New Cross Pacific (NCP) Project as a coordinator
and set up and run a network operation center for the project in
Busan City. The purpose of the NCP Project is to form a submarine cable network with a data processing capacity of about 80
Tbps and a total length of approximately 14,000 km across the
Pacific Ocean.
The total capacity under KT’s control is scheduled to be
increased to 118.4 Tbps, including 38.4 Tbps on the side of
the Asia Pacific Gateway (APG) submarine cable connecting
Southeast Asia to Northeast Asia. The company’s role in the
projects is to provide a backup in case of trouble in the event of
cable malfunctioning. The APG and NCP networks are slated to
open in 2016 and 2017, respectively. The total capacity of 118.4
Tbps accounts for 27 percent of the submarine cable data capacity of the Asia-Pacific region, and 11 percent of the global total.
These days, 99 percent of cross-border data traffic is carried
out by means of submarine cable networks, as more and more
data are processed online. At the same time, Internet businesses
such as Microsoft and Facebook as well as telecom operators
are participating in submarine cable projects based on the recognition of importance.
At present, KT is the chair of each of the consortia for the
NCP and the APG and is to play a leading role in every stage,
ranging from network design and establishment to operation
and management in the programs with a total cost of more
than US$1 billion. The NCP consortium consists of KT, China
Mobile, China Telecom, China Unicom, Softbank, CHT, and
Microsoft. The APG consortium has 13 members, including
China Mobile, NTT, Facebook, and KT.
The NCP and APG submarine cable networks.
Ji Hong-geun (6th from right), the head of the department, and the president of BSI
Korea (5th from left) are posing for a photo holding the ISO 22301 certification.
D
aewoo Engineering & Construction (E&C) has
received a certification for the ISO 22301 standard for
business continuity for the first time in the construction industry
on Oct. 15.
ISO 22301 is an international standard for crisis management and business continuity, which are recently the most talked
about in the world. It is also an international certification that
the International Organization for Standardization (ISO) establishes the standards for business management systems in order
to restore the core business as soon as possible, when a company cannot continue the operation due to disasters, terrorists, or
regional conflicts.
British Standard Institution (BSI) gives the approval after
certification and evaluation.
Daewoo E&C has been making efforts to take the leading
role in entering global markets such as Nigeria, Libya, and Algeria, and to secure the overseas business management system to
continuously carry out its business. Obtaining a certification for
the ISO 22301 international standard on crisis management, the
company’s efforts have become globally recognized. Also, the
company has set a foundation to expand its overseas business
capability with the first certification in the construction industry.
Chang Young-jin, managing director at Daewoo E&C,
said, “As more and more domestic construction companies are
expected to tap into the global market in the future, the importance of such international standards will grow bigger and bigger. Overseas ordering organizations are checking thoroughly
from the bidding stage to security-related measures. We hope
to continuously play the leading role in overseas businesses.”
43
iR & ManagEMEnt
Global Market Power
KOGAS Expands Global
Market Power with LNG
Project in Mexico
by Marie Kim
W
ith the success of Mexico’s Manzanillo liquefied natural gas (LNG) terminal construction project, Korea
Gas Corporation (KOGAS) is expanding its dominance in the
global LNG market.
According to KOGAS on Oct. 22, the Manzanillo LNG terminal project is part of the national infrastructure investment
project worth US$3 billion (3.41 trillion won) carried out by the
Mexican government to create a 318 km main gas pipeline in the
private power plant in Guadalajara, to construct the Manzanillo
cogeneration power plant units 1 and 2, and to create a port.
Mexico’s Federal Electricity Commission (CFE) placed an
order in 2008 in a bid to convert coal-fired power that is generated the western region of Mexico into natural gas and to increase
the generating capacity. The project was won by a consortium of
KOGAS (25 percent), Samsung C&T (37.5 percent) and Japan’s
Mitsui (37.5 percent).
The Manzanillo project was the first overseas LNG handling base investment and technology export case achieved by
KOGAS in cooperation with private companies, which were
unable to make inroads into the global LNG market on their own.
The Mexican authorities were also so interested in the project
that the President personally participated in the EPC construction
completion ceremony in Sept. 2011 and the opening ceremony in
March 2012.
The fact that KOGAS enters the middle and downstream
sectors in the overseas gas industry is to export its 30 years of
expertise in LNG base plant construction and operation to the
global market.
KOGAS has already collected 55.38 percent of the principal
from the Manzanillo project in the last five years. It expects to
create 129 billion won (US$113.36 million) of profits by 2031.
An aerial view of Mexico’s Manzanillo LNG terminal construction project by KOGAS
44
Branching Out, Under
Mirae Asset Financial Group to
Establish Foreign Corporations
in Australia, America
by Marie Kim
T
he Mirae Asset Financial Group will establish a foreign
subsidiary in Australia and the United States, setting to
expand the global market. The group will also reorganize other
foreign subsidiaries in Hong Kong, Vietnam, and Brazil, seeking to become the leading global financial group.
Mirae Asset Global Investments announced on Oct. 20 that
it will establish a new subsidiary in Australia within this year
and start its asset management business, including fund sales,
for local institutional investors next year. Mirae Asset launched
a subsidiary in Australia after taking over a local asset management company in 2011. However, it has been selling only
exchange traded funds (ETFs).
The new subsidiary in Australia will sell and manage various products at home and abroad, including its main products
like the “Mirae Asset Global Great Consumer Fund.” Korea
Investment & Securities Co. and Mirae Asset Securities are the
only domestic securities and asset management companies that
directly sell some fund products in Europe. In the global markets, Mirae Asset is the only company that directly sells fund
products at home and abroad on a large scale.
Mirae Asset Securities will also relocate its U.S. office from
New York to Los Angeles next month, reorganizing its foreign
subsidiaries.The new office will be located in City National
Plaza, a twin tower skyscraper complex in downtown L.A. The
company is planning to sell funds and securities to Koreans
living in L.A. and to provide total asset management services,
including investment consulting.
Mirae Asset Securities will open an investment banking
division, such as real estate investment and mergers and acquisitions, in its U.S. office in the future, and foster it as the hub of
its global business.
iR & ManagEMEnt
Bamboo Wife On Top
Patent Issues
Lotte E&C to Mount
‘Diagrid’ Structure
on Top of Skyscraper
LG Display Strengthens
‘Global Patent Management’
by Jung Min-hee
L
otte Engineering
and Construction
announced on Oct. 12
that it will mount a large
“diagrid” structure on top
of the Lotte World Tower,
which is currently under
construction in Jamsil,
Seoul. Once completed, it
will be the tallest diagrid
structure in the world.
A diagrid is a comAn artist's rendition of the proposed “diagrid”
pound word of diagostructure on top of a completed LotteWorld Tower.
nal and grid, and it is a
structure created out of diagonal braces.Professor Kim Jongrak of the School of Architecture at Soongsil University said,
“A diagrid construction method is similar to the principle of a
Jukbuin, or bamboo wife, which is made by crossing and weaving bamboo canes. Just like a bamboo wife, which has enough
strength to maintain its structure even when the user lies on it
despite the open bamboo structure, a diagrid also can withstand
the weight of the building without large corner columns.”
The best part of the diagrid is to increase horizontal resistance
to forces caused by typhoons and earthquakes. Lotte E&C Senior
Researcher Jeon Hyun-soo said, “When the wind hits a diagrid,
the diamond shape of the structure resists with a tensile force and
a compressive force in turn, enhancing the ability to withstand
typhoons and earthquakes.” The Lotte World Tower can withstand 80 m/s winds and earthquakes measuring up to nine on the
Richter scale with its cutting-edge diagrid and outrigger and belt
truss on the spire, which increases the lateral force resistance.
There is only one central column that supports the whole
building through the diagrid in the spire of the Lotte World
Tower. Since there is no need to put up additional interior columns or buttresses, wide open spaces are possible on the inside,
like the uninterrupted view of an observatory.
The diamond pattern of the diagrid also makes the exterior
wall of the building beautiful. The structure on the Lotte World
Tower, which is frequently used in skyscrapers and cleverlydesigned buildings, will become progressively narrower going
up the building in a bid to increase the building’s esthetic effect.
The diagrid will be a large 120-meter structure that supports
from the 107th floor of private offices to the top of the building
(555 meters), including an observatory.
by Cho Jin-young
L
G Display is explaining its patent competitiveness in
China. In the rapidly-growing Chinese market, this is a
preemptive move on the possible infringement of patent rights
in the future.
The company held a briefing session on LG Display’s major
technologies for 150 patent examiners at the Guangdong Patent
Examination Center under the State Intellectual Property Office
(SIPO) of the People’s Republic of China located in Guangzhou,
Guangdong Province on Oct. 27.
During the meeting, Chief Technology Officer Kang Inbyeong introduced its company and major technologies, and
Convergence Technology Research Team Researcher Lee Deuksoo explained about the overall touch technologies and its own
advanced in-cell touch (AIT) technology.
The AIT is a touch technology that is independently developed by LG Display. It employs a touch sensor embedded within
an LCD panel, replacing the “add-on” type that places a touch
panel on top of the LCD. Since the technology eliminates the
space needed for a touch function cover glass, and as a result
reduces the panel’s thickness, it offers a slimmer design and an
excellent touch response. In addition, there is no need for an
additional process to install a touch panel, reducing production
costs, and it features precise calibration of the touch point even
with water drops on the screen.
LG Display applied for 1,900 patents in China, which was
over 30 percent of the total patents applied overseas, in the last
five years. The cumulative number of patent registrations of LG
Display stands at 13,487 in Korea and 13,985 abroad. In the
Ocean Tomo, the index based on the value of intellectual property,
it received a grade of “Valuable,” which is the highest level.
LG Display Chief L LLLLG Display Chief Technology Officer Kang In-byeong (3rd from left)
introduces the company and major technologies at the “LG Display Technology Presentation”
held at Guangdong Patent Examination Center in Guangzhou, China, on Oct. 27.
45
ict
Eye on the Money
Foreign Capital Eyes
Korean Fintech Startups
by Cho Jin-young
F
oreign capital in the U.K., China,
and the U.S. have an eye on
domestic fintech startups. They are planning to foster domestic fintech companies with investments of hundreds of billions of won in the next few years, and
to make them enter the global market.
It means that foreign capital recognizes the value of the growth potential of
domestic fintech firms. However, some
express concerns over its side effects,
citing an example of a gaming industry
that already experienced the outflow of
skilled workers and technologies due to
the rapid inflow of Chinese capital.
According to IT industry sources on
Oct. 25, ENTIQ, a U.K.-based fintech
incubating firm, will establish ENTIQ
Korea by the end of this year and invest
up to 150 billion won (US$132.98 million) in fostering and supporting fintech
startups. The company plans to seek
out and nurture 40 to 50 global fintech
startups in Korea over the next year and
help them to tap into the global market,
including the U.K.
Chinese internet giants Alibaba and
46
Tencent are also looking for promising fintech companies in Korea. In
particular, Tencent is already choosing
top domestic fintech firms based on its
experience investing hundreds of billions
of won in the domestic game industry.
The company has invested 533 billion
won (US$472.52 million) in CJ Games,
72 billion won (US$63.83 million) in
Kakao, and 5.5 billion won (US$4.88
million) in Reloaded Studios since 2010.
Some say that the company’s next investment will go to fintech companies in
order to experience Korea’s financial
market even indirectly. Also, Luxembourg is actively considering ways to
cooperate with domestic fintech startups,
directly led by the Minister of Economy.
Accordingly, many domestic fintech
companies have already received foreign capital. Altos Ventures, a U.S.-based
venture capital firm, invested 1.5 billion
won (US$1.33 million) in Lendit, a P2P
and online lending conference, in May,
and 2.3 billion won (US$2.04 million)
in Viva Republica, the leading fintech
company in Korea, on two separate occa-
sions.
There are mixed expectations and
concerns over foreign capital showing a
high interest and investment in domestic
fintech startups. It can help them enter
the global market in the future, being
recognized around the world for their
value and technologies. However, they
can become subcontractors as well, being
dependent on foreign capital. In particular, some say that the fintech industry can
follow in the footsteps of the domestic
gaming industry, which lost technology
and talent to massive capital from China,
and is now under threat of its status as a
global gaming powerhouse by China.
An official from the domestic IT
investment industry said, “With the
current trend, I am concerned that all
leading fintech companies will be lost
to foreign capital. Just as Korean game
developers cannot publish their games on
their own without support from Tencent
right now, the excessive expectations
and dependence on foreign capital can
become an obstacle to the growth of fintech startups in the future.”
In a bid to address the tipping effect
of foreign capital, the government needs
to create an environment that allows
domestic conglomerates and financial
companies to actively invest in fintech
startups through deregulation and benefits, according to experts.
A representative of a domestic IT
investment company said, “It’s not that
there is a lack of funds to invest in fintech companies in Korea. From an investor’s point of view, however, the problem
is that there is no way to collect capital
and benefits after the investment.” Under
limited domestic conditions, the only
way to collect investments is to get the
company listed or carry out M&As. In
these cases, however, there are no differentiated tax benefits, so it is not an
attractive investment.”
In fact, experts say that the U.S. and
U.K. governments give various tax benefits to Silicon Valley and Tech City.
They provide differentiated tax benefits
to capital, which takes over fintech firms,
and fintech firms themselves, compared
to existing companies.
ict
Underdog OS
Will Samsung’s Tizen Beat
Android and iOS?
by Michael Herh
W
hat is Samsung Electronics’s greatest weakness when
competing with Apple? Many IT industry experts say that it is that Samsung
doesn’t have its own operating system
(OS), while Apple does. Therefore,
Samsung Electronics under the new
leadership of Vice Chairman Lee Jaeyong is putting forth efforts to spread
its own smartphone OS, Tizen. This is
because the top management of Samsung Electronics judged that it should
secure its own OS that can work with
the IoT and an ecosystem for the OS to
secure new future growth engines and
maintain its position in the electronics
industry.
Samsung Electronics announced a
Tizen-based new smartphone called the
“Samsung Z3” in India on Oct. 14 (local
time). The Z3 is the second smartphone
loaded with Tizen OS. The new product
will hit the shelves in India on Oct. 21.
The Z3 is armed with a 5.0 inch superAMOLED display, an 8 megapixel camera on the back, and a 5 megapixel cam-
era on the front. The camera features the
Wide Selfie’ function which can produce
group selfies since it can cover up to 120
degrees.
Samsung Electronics highlighted the
expansion of the Tizen Ecosystem. Z3 is
the second Tizen-powered smartphone
of Samsung after the Z1, which was
launched early this year. Moreover, the
Gear S2, Samsung’s new smart watch,
runs on Tizen OS. These are indicative of
Samsung’s efforts to promote Tizen.
Lee Jae-yong, vice chairman of Samsung Electronics, is also paying special attention to the OS. Vice Chairman
Lee himself used the phone to check its
qualities and functions before its launch.
He even checked call quality by making calls to employees. This shows that
Lee is bent on securing Samsung’s own
smartphone OS. The success of Tizenbased devices has encouraged Samsung
about building the Tizen ecosystem.
But Tizen has been struggling
between Android and iOS, two absolute
powers in the OS world. The OS mar-
ket is a very highly walled garden. Windows Mobile and Firefox made paltry
progress, even though a huge number of
software developers were mobilized for
their development. Android and iOS are
so powerful that they have not allowed
any newcomers to their playground.
According to IDC, a market survey
organization, Google’s Android takes
up 81.5 percent of the global mobile OS
market, while Apple’s iOS takes up 14.8
percent. In an Aug. 28 report on Koreans’
Internet use in the first half of this year,
Android and iOS accounted for 84.11
percent and iOS 15.87 percent, each.
To Samsung Electronics, Android
and iOS are the teams to beat. Samsung
Electronics has to have its own smartphone OS to rake in more profits from
its smartphone business. Samsung Electronics tops the world smartphone sales
standings at number one. But the company doesn’t have its own OS, so has to
hinge entirely on Android.
No one knows whether or not Samsung Electronics will partner with
Google forever. “If necessary, we may
part ways with Samsung Electronics,”
said a vice president of Google about
Tizen in the Mobile World Congress held
in Spain in March, showing his displeasure with it.
Samsung Electronics also needs to
prepare for the upcoming IoT era. Earlier
this year, the electronics giant declared
that it will link all of its electronics products, including smart TVs, through IoT
within five years. Samsung Electronics is
planning to load all of them with Tizen.
This means the company will turn the
tide in the IoT market. As Google is eyeing the IoT market, an independent OS is
a pressing need for Samsung.
Samsung Electronics held a Tizen
developer conference in China from
Sept. 17 to 18 for the first time. The
event debutedTizen Platform 3.0, with
expanded compatibility that can work
with IoT devices. “Tizen 3.0 is designed
to make mobile devices, wearable devices, TVs, and even home electronics products compatible with the IoT,” a Samsung Electronics spokesperson explained
during the event.
47
ict
Corporate Resurrection
Pantech’s Revival to Depend on IoT,
Indonesian Market
by Cho Jin-young
P
antech is being given a second
chance at financial survival after
being bought by a local tech consortium.
In a meeting of representatives from
creditors and Pantech on Oct. 16, the
Seoul Central District Court approved
a revival plan of the consortium led by
optical disc manufacturer Optis and telecommunications equipment maker Solid.
Accordingly, the debt-ridden company
finally seems to have found itself again,
14 months after it was placed under court
receivership in Aug. last year.
Pantech was established by its founder Park Byeong-yeop as a small beeper
company in 1991, and rapidly grew after
entering the cell phone business in 1997.
Starting with capital of 400 million won
(US$353,000) and six employees, it was
once the country’s third-largest handset
maker after Samsung and LG. In the rapidly-changing cell phone market, however, Pantech reached the breaking point
as other overseas smartphone companies
entering the domestic market as well as
Samsung and LG, collapsing the regional
boundaries. The company, which used to
boast sound sales in a market congested
with global brands, was eventually left
behind due to the limit of the capital
strength.
Although Pantech introduced innovative technologies before conglomerates, such as fingerprint verification and
metal antennas, the company fell behind
in a marketing competition with them. As
a result, Pantech finally filed for receivership in Aug. last year after it was put
under two workout programs. Also, the
sale wasn’t easy for the company. It carried out open sales to seek out a new
owner in Sept. 2014, but not a single
company wanted to bid for it. In the second attempt in Jan. this year, U.S.-based
48
One Value Asset Management showed a
strong desire to purchase Pantech, but the
deal was ditched after the potential buyer
failed to remit the payment on time. In
the third attempt, three bidders submitted
their letters of intent to the Seoul Central District Court, but all of them were
rejected by the court for being poorly
qualified. In the end, Pantech sought to
give up court protection in May.
The future of Pantech, which was
given a second chance, depends on smartphones and the Internet of Things in markets at home and in India. The company
is highly likely to re-enter the domestic
handset market with a new smartphone
as early as the first half of next year. The
consortium acquired the trademark rights
of Pantech’s major phone brand, the Vega
series. It will also start transforming into
an IoT firm. The consortium already
announced its plan to make the IoT business its new growth engine.
In the high-end smartphone market,
the company is planning to release prod-
ucts with communication modems by
using advanced communications technology and innovative ideas, rather than a
full-scale war with handset giants.
The main target market of Pantech
will be the Southeast Asian markets,
including Indonesia. Using Solid’s network in Indonesia, the company will
focus on the Indonesian mobile market
and IoT, based on low-end smartphones.
Still, Pantech faces bumpy roads. It
is urgent to secure continuous operating
funds right now. The catch here is whether or not the company will be able to
secure sufficient funds through Smilegate
Investment, which is considering investing in Pantech.
An official from the industry said,
“Pantech, which has dramatically
revived, will undergo some considerable
changes in the future, including business
models. Since it will take a long time to
see the effects of the takeover, the question is how the company will hold out the
beginning of the takeover.”
ict
Deciding Factor
Success of O2O Service Depends on
Human Touch
by Cho Jin-young
“T
he core of the Online to
Offline [O2O] commerce that
integrates online and offline areas into
one is not to just link two areas, but to
create new added value through human
touch,” noted Park Ji-woong, CEO of
Fast Track Asia. It means that rather than
a simple food delivery O2O service, an
O2O service in which well-trained workers deliver gourmet meals in a courteous
way can create added value and make the
business last longer.
“This year, a lot of O2O services
have been introduced, but the market is
still in its early stages to the extent that
less than 5 percent of the nation’s offline
services are available online,” said Park
Ji-woong. He stressed the potential of
O2O services by saying, “The growth
potential of the O2O market is limitless, as shown by the fact that the market
value of app-based taxi service Uber or
accommodation service Airbnb, which
were founded less than 10 years ago, are
higher than the market capitalization of
its counterparts like Hertz or Hilton.”
Those remarks were made during his
keynote speech at the Tech Planet 2015
in the Lotte Hotel Jamsil, Seoul on Oct.
7.
Park also reiterated human touch as a
key to the success of O2O services.
Wining move: High-quality
O2O services with human
touch
Fast Track Asia, which is growing
up in tandem with the establishment of
a growing number of O2O startups, is
leading Stripes, male fashion; HelloNature, organic foods; Fast Campus, practical education for adults; Fast Five, office
real estate; and FLY&COMPANY, which
is famous for Foodfly, an online food
delivery service that allows consumers to
order gourmet food online and get them
delivered.
These companies provide high-quality O2O services, where people create
added value and increase the value of
businesses, instead of just turning offline
services into online platforms.
In other words, the role of people is
most important in the O2O service area.
For example, those who deliver food at
Foodfly have more stable jobs and earn
more steady income than those engaged
in the quick delivery service. Owing to
the quality of the service, business operators and consumers have been less reluctant to pay service fees, according to
Park.
Human resource
management: Key to
success of O2O business
Since the value of the O2O business
is increasing with human touch, managing people is another key to the success
of the O2O business.
Park said, “Uber and Airbnb suffer
from conflicts with existing business
operators and various types of regulations wherever they are introduced, but
the biggest issue is human resource management,” adding, “For instance, if Uber
drivers are classified as regular workers,
the company will have to bear higher
costs and take bigger responsibility.”
49
ict
Internet of Innovative Things
Which Company is the Most Innovative
IoT Company in the World?
by Cho Jin-young
W
T VOX announced its ranking
of the most innovative companies in the IoT industry on Oct. 1. Intel
remained on the top of the list for two
years in a row by recording US$2.1 billion in sales in the IoT sector alone last
year and forming an IoT consortium with
Dell and Samsung Electronics earlier this
year.
Intel was followed by Samsung Electronics. “Sensors are one of the most
important elements in the IoT era, and
Samsung Electronics is currently working on energy-efficient bioprocessor and
embedded package-on-package technology for use in wearable devices and
mobile devices,” a WT VOX spokesperson explained.
Google, in the meantime, climbed
seven notches from a year ago to take
third place. According to WT VOX,
Google has prepared well for the era by
means of the acquisition of Nest, Project
Brillo for IoT OS development, and the
Google Beacon as NFC equipment.
Fourth place went to IBM, which
has more than 1,400 executive and staff
members committed to the development
of IoT and is planning to invest a total of
US$3 billion in this field for five years to
come. It was Amazon that ranked fifth.
Amazon recently took over 2lemetry, an
enterprise IoTplatform developer, and is
selling devices such as smart locks and
thermostats incorporating IoT technology.
Smart Home
‘Telecommunication Companies Taking Lead in
Smart Home Markets at Home and Abroad’
by Michael Herh
T
he KT Economic Management
Institute released a report titled
“Home IoT of Telecommunication Companies that Takes the Lead in Smart
Homes” on Oct. 15. According to the
report, smart homes that have been developed from home networks in the early
2000s and later home automation. The
report carries an analysis that the birth of
the smartphone and the advancement of
IoT technology are signaling the creation
of the smart home market.
The report focuses on the fact that
telecommunication companies are taking
the initiative in the smart home market by
launching commercialized services ahead
of hardware manufacturers and platform
business operators.
“Hardware manufacturers such as
Samsung Electronics and LG Electronics are unveiling smart home terminals in
an effort not to lose in the race. But few
have been commercialized,” the report
pointed out. The report added that plat-
50
form operators are staying in the phase
of publicizing service plans, although
Google took over Nest and Apple took
the wrap off a home kit for a smart home
platform.
On the other hand, telecommunication service operators are busy creating
the Korean smart home service market
by launching home IoT products and
services in Korea. LG U+ launched IoT
services for security and energy savings in July. The IoT services attracted
25,000 subscribers two months after their
launch. KT and SK Telecom are setting
their sights on securing leadership in the
IoT ecosystem by expanding partnerships
with a wide variety of manufacturers.
The domestic smart home market
is expected to break through ten trillion
won (US$8.8 billion) this year, and grow
20 percent or more annually. By 2018,
the value of the market is expected to
reach 18.9 trillion won (US$16.8 billion).
The world smart home market will grow
19 percent on average annually. The market is expected to grow to US$57.5 billion this year, and more than double to
US$111.5 billion in 2019.
Accordingly, overseas telecommunication companies are showing active
moves to preempt the global smart home
market. The report suggests that companies offer intelligent services based on
connected devices, going beyond simply
linking home appliances and devices, to
expand the market.
ict
Internet of New Things
Internet of Pets
Qualcomm, KISA to Jointly Nurture
IoT Small Businesses
LG U+ Launches IoT
Service for Pets
by Cho Jin-young
Baek Ki-seung (right), the head KISA, and Qualcomm
President Derek Aberle (left) pose for a picture following
an MOU signing ceremony between the two parties to
foster Korean small and mid-sized IoT companies at
KISA’s headquarters on Oct. 1.
T
he Korea Internet & Security
Agency (KISA) announced on
Oct. 1 that it has decided to strengthen
cooperation with Qualcomm, the world’s
largest mobile chipset maker, to provide
support for local small and medium-sized
enterprises (SMEs) in the Internet of
Things (IoT) area.
Both sides signed a Memorandum of
Understanding (MOU) to pursue projects
by Michael Herh
aimed at cultivating and nurturing IoT
SMEs in the nation at KISA’s headquarters
in Seoul on that day.
The organizations are going to cultivate and provide customized support such
as training and marketing for selected IoT
companies in the first half of next year,
and to help them hold events to showcase
their products involving companies and
investors at home and abroad.
To facilitate win-win cooperation
between local IoT SMEs and global companies, KISA opened the IoT Innovation Center in May of last year, running a
global public-private consultation body in
the IoT field, in which 22 large companies
at home and abroad participate, including
Qualcomm, IBM, Naver, and SK Telecom.
Currently, the agency is fostering and
providing support for 15 local IoT startups, together with IBM, Naver, and SK
Telecom.
Internet of Companies
LG U+ to Foster IoT Small Firms in
Partnership with Qualcomm
by Cho Jin-young
L
G U+ announced on Oct. 1 that
it signed a Memorandum of
Understanding (MOU) with Qualcomm
to cooperate in the Internet of Things
(IoT) field. Both companies have decided to select five projects including those
for home, public, and industry, and invest
between US$100,000 to US$500,000
(118 to 591 million won) or per project
over the next two years.
The Korean mobile carrier plans to
actively cultivate promising local IoT
companies using its LTE-based experience, expertise in the IoT area, and Qualcomm’s technical capability.
Qualcomm President Derek Aberle
invited LG U+’s headquarters to sign
an MOU with the carrier, discussing an
open-source eco-system to expand the
IoT and support measures to develop IoT
services, along with LG U+ Vice President Lee Sang-cheol.
Derek Aberle said, “Qualcomm
hopes to closely cooperate with LG U+
in order to accelerate the development
of the IoT industry and to create an environment that helps Korean small and
mid-sized companies grow not only in
the local market, but also in the global
market.”
LG U+ announced on Oct. 26 that it launched an IoT
service for pets.
N
ow, the internet can take care of
your pets instead of you. LG U+
announced on Oct. 26 that it launched an
IoT service that can feed pets and measure their exercise and calorie consumption via a smartphone application. The
new Pet IoT services are pet Station and
StarWalk. Pet Station enables users to
remotely feed their pets and provide feed
to their pets at given times.
The company explained that this service will come in handy when people are
away from their homes on business or
for travel, when they cannot take care of
their pets. What is more, the application
has a two-way walkie-talkie function so
that pet owners can talk with their pets
at home. The application also plays prerecorded voices of pet owners.
Using a reserved feeding function,
users can have Pet Station make a call to
a users’ smartphone one minute before
a given time, and show the users their
pets when they come to their bowls to eat
food. StarWalk, a star-shaped pet accessory, can measure a pet’s burned calories
and the number of steps the pets walked.
The application sends owners their
pets’ activities and the number of steps
they took per hour. So, the owners can
always check on their pets through
smartphones. Pet Station charges 1,100
won (US$0.97) a month, plus tax.
The terminal is priced at 129,000 won
(US$114).
51
ict
Hyper Connective
Korean Gov’t to Establish ‘Hyper-connectivity
Intelligent Network’ by 2020
by Jung Suk-yee
I
n line with the spread and prevalence of the Internet of Things
(IoT) and various wearable devices, the
South Korean government has decided
to establish a “Hyper-connectivity Intelligent Network” (HIN) by 2020. HIN is
a network that connects all things and
people everywhere in the country and
provides Gb-like speed in both wired and
wireless networks.
According to the Ministry of Science,
ICT and Future Planning (MSIP) on
Sept. 28, the ministry has come up with
a “K-ICT HIN Development Strategy
(Plan)” and decided to establish HIN in
the country for the first time in the world
by 2020.
The HIN is a network that combines
two concepts of “hyper-connectivity”
and “intelligent network.” Hyper-connectivity refers to a connection between all
things and people at all times, along with
the spread of the IoT, and a network that
is able to provide high-capacity content,
such as ultra-high definition (UHD) TV,
holograms, and access to Big Data.
Also, an Intelligent Network is a network that delegates available resources
appropriately by modifying security,
speed, and real-time on its own according to situations and users’ demands.
If an HIN is established, the speed
of wireless and wired networks will be
3.3 times and 10 times faster than current networks. The maximum speed of
a wireless network will increase from
the current 300 Mbps to 1 Gbps in 2020,
while the figure of a wired network will
rise from the current 1 Gbps to 10 Gbps
in 2017.
The HIN configuration is similar to
current networks. The IoT network will
be added to the current networks of a
backbone network, which is considered
52
a communication highway, a wired network and a wireless network.
However, the latest technologies,
such as SDN[099220], NFV, and TIPN
will be applied to the backbone network
in a bid to transport tens of terabits per
second (Tbps). Also, the speed of the
wired and wireless networks will be
much faster than we have now.
The IoT network is a kind of wireless network, but it has the nature of the
IoT. So, it has a small amount of data and
low power consumption. Also, it should
be designed to have a long frequency
range and to allow thousands of devices
to access the network at the same time.
In regard to intelligent e-networks, it
will internalize security functions in network equipment, increasing security, and
secure continuity even when disasters
and other interruptions occur, improving
stability and continuity.
This is because high credibility and
stability and high bandwidth services are
needed in order to provide healthcare,
smart car, and UHD TV services through
wireless networks in the future.
The MSIP estimates that it will cost a
total of 38.5 trillion won (US$32.24 billion) to establish HIN by 2020. It is predicted that 37.1 trillion won (US$31.07
billion) from the private sector, including
telecommunication companies, and 1.4
trillion won (US$1.17 billion) from the
government will be invested into R&D to
establish HIN.
An official from the MSIP said, “Once
HIN becomes established in the nation for
the first time in the world, Korea will not
only secure core technologies of future
networks, including 5th generation mobile
communications and optical communications, but also make good use of ICT in
all industries. Therefore, the convergence
industry will grow in earnest and industrial
efficiency will improve.”
ict
Mobile War
Global IT Giants Wage
Mobile News War
by Michael Herh
G
oogle, Apple, and Facebook are
running to win the global news
race. In contrast, controversy over news
editing biases is causing domestic Internet business operators such as Naver and
Daum a crisis that may scale down the
sizes of their news services. So, they can
hardly pay attention to the mobile news
service race abroad.
According to major foreign news
services and related industries on Oct.
26, Google launched a new technology that can upload articles and videos
to websites of leading media companies
and mobile devices such as smartphones
almost at the same time. It is called
Accelerated Mobile Page (AMP), and it
enables content producers to make exquisite mobile web pages simply.
At the moment, Google has formed
ties with 48 media companies around the
world such as the Financial Times. An
AMP-based story can hit smartphones
within five to six seconds after the
reporter sends the story.
Facebook, the world’s largest SNS
company, introduced the Instant Articles
Service through which media companies
directly upload news to Facebook. So
articles and news videos can appear on
Facebook within ten seconds.
News stories are directly uploaded to
a Facebook News Feed without attracting
readers to links to media companies such
as NBC News and National Geographic.
At that time, Facebook bragged about
both the qualities of content and article
loading speeds. In fact, last year, videos
uploaded to Facebook jumped 175 percent year on year. Videos to News Feed
Growing Market
Mobile Ad Market Expected to
Hit 1 Trillion Won This Year
by Michael Herh
T
he 2015 Korea Internet White
Paper published by the Korea
Internet & Security Agency (KISA) on
Oct. 2 predicts that this year the mobile
ad market will grow 27.2 percent to
1.0595 trillion won (US$897.40 million),
breaking the wall of one trillion won for
the first time. The entire Korean ad market is estimated at 9 trillion won, and the
mobile ad industry accounts for about 8.4
percent of that.
The growth of the mobile ad market has driven up the proportion of ad
sales to total sales to upwards of 70 percent. Korea’s three leading portal business operators – Naver, Daum, and SK
increased 3.6-fold.
“Clicking on external news links,
news will appear after more than ten seconds,” Mark Zuckerberg, CEO of Facebook once pointed out. “People do not
wait that long.”
Apple is planning to unwrap a new
news application within this year, too.
Apple’s new news service arranges and
exposes articles from more than 50 leading media firms, including the New York
Times, in the order that users want.
“In overseas countries, news consumption via SNS (43 percent) outweighs news consumption via portal
searches,” said a representative in the
Internet business sector. “IT giants are
matching media companies and readers
through various methods such as algorithms and editor algorithms.”
Communication – posted 3.7542 trillion
won (US$3.1785 billion) in combined
sales. Of the amount, 2.6816 trillion won
(US$2.2702 billion), or 71.4 percent, was
generated in the ad sector. The portal
with the highest percentage of ad sales
was SK Communications with 84.2 percent, followed by Naver with 73.1 percent, and Daum with 64.9 percent.
An increase in mobile communication use corresponded to a sharp rise in
mobile shopping. Last year, the volume
of online shopping grew 17.5 percent
to 45.244 trillion won (US$38.243 billion) from a year earlier. Of the amount,
the amount of mobile shopping stood at
14.809 trillion won (US$12.518 billion),
an increase of a whopping 125.8 percent
from 2013.
The proportion of mobile shopping
transactions in the amount of online
shopping transactions swelled 15.7 percent from 2013.
53
ict
Pay with Your Watch
Samsung’s Next
Smart Watch
Will Come with
Samsung Pay
by Michael Herh
A model uses Samsung Pay with the Galaxy Note 5.A
“S
amsung’s next smart watch
will have Samsung Pay,” said
Will Graylin, CEO of Loop Pay in charge
of developing the core technology for
Samsung Pay. “You will be able to use
the service soon.”
Graylin also unveiled a plan to
spread the new payment service to all of
Samsung’s smartphone models. “At the
moment, Samsung Pay is only available
on some of Samsung’s premium smartphones,” Graylin said. “But it will spread
to smart watches and low and mid-priced
smartphones too.”
Samsung Pay has been performing far
better than expected since 100,000 payments have been made a day on average, a
total of one million people have signed up
for the service, and a total of 100 billion
won (US$88 million) has been paid via the
service two months since its launch.
The smart watch Gear S2 that was
launched early this month has become a
hit product, as more than 2,000 units have
been sold per day. Under these circumstances, Samsung expects the combination
Samsung Electronics employees celebrate breaking one million Samsung Pay registration mark on Oct. 25.
Pay Milestone
Number of Samsung Pay Users in
Korea Breaks One Million Mark
by Marie Kim
S
amsung Electronics announced
on Oct. 25 that the number of
Samsung Pay users in Korea topped one
54
million two months after the release of
the mobile payment service. According
to Samsung Electronics, the number of
of Samsung Pay and the smart watch to
create stronger synergies.
Samsung Electronics is planning to
vary its smart watches, such as the Gear
S2 Classic with a 3G wireless telecommunication function, and Gear S2 in
rose gold for the purpose of preempting
the smart watch market. In addition, the
company will appeal to luxury watch users
by launching luxury versions of the Gear
S2 based on high-class external materials
that can fetch 1 million won (US$882) per
unit.
average daily payments via Samsung Pay
has risen to 100,000 recently, most of
which were made at convenience stores,
department stores, supermarkets, and restaurants.
Cumulative payments exceeded
100 billion won (US$88 million). Likewise, daily average payments increased
from approximately 800 million won
(US$705,192) to over 2 billion won
(US$1.8 million) between the early stage
of the service and recent days. Samsung
Pay comes with magnetic security transmission (MST), allowing payments to be
made when a magnetic card terminal prepared at a store is brought into contact. The
payment process takes about three seconds.
Samsung Pay supports not only offline
payments but also online payments using
a Samsung Card, and cash withdrawals at
Woori Bank ATMs. Samsung Electronics
is planning to add membership and public
transit card features to Samsung Pay before
the end of this year, so as to increase user
convenience and attract more customers.
ict
Smart Glasses Competition
Samsung, Google Compete for
AR-based Smart Glasses
by Cho Jin-young
S
amsung Electronics and Google
have both been granted an
increasing number of patents for smart
glasses related to augmented reality (AR), competing with each other for
smart glasses technology. In particular,
the smart glasses that Samsung is working to develop can keep a virtual keyboard afloat on a palm or a table through
3D-based AR technology. Hence, much
attention is being paid to the direction of
the business in the future.
Samsung disclosed the content of a
patent for smart glasses in Sept., according to the United States Patent and
Trademark Office (USPTO) and Patently
Apple on Oct. 6. Patently Apple stated,
“Samsung’s patent this time is similar to
that of Google Glass, but it proves that
the Korean tech giant has been developing more advanced wearable computers.” The number of patents for smart
glasses that Samsung has been granted
far exceeds 10 this year alone, according
to the USPTO.
Smart glasses that were previously
introduced by Google, Epson, and Sony
basically depend on 2D displays. They
can operate by touching the side of the
glasses with a hand, after installing a
display there. On the other hand, Samsung’s patent makes virtual touch possible. Wearers can keep a virtual keyboard
afloat on their palm or project a virtual
piano keyboard onto a table through their
glasses.
It means that the patent is for AR,
which is the most talked-about topic in
the IT industry. In fact, Intel is working
to develop a virtual keyboard in collaboration with numerous companies, by
touting its RealSense camera, a next-gen
core business. HP already introduced this
technology to PCs. Intel is also trying
Google Glass includes a large number of sensors.
to develop a program that analyzes user
behavior and gestures and provides a
suitable solution. Samsung’s smart glasses also appear to operate in a similar way.
Google, the first company to commercialize smart glasses, has reportedly been granted a patent for new smart
glasses that can realize AR as well. A
spokesperson for the search engine giant
explained, “This patent enables a more
perfect display based on AR, which
shows images in which computer-generated images are added.”
Users can experience interaction
between real and virtual images through
Google’s new smart glasses. This product
allows users to see things as they are, as
well as added information and graphics
at the same time. Real and virtual images
can be interacted with, going beyond just
putting graphics on real images. These
characteristics are differentiated from
existing AR technology.
Meanwhile, Google is said to be
developing a second-gen version of
Google Glass. The patent that Google
was granted this time is also highly likely
to be included into the second-gen product. An industry source said, “There was
a certain limit to Google’s first-gen product in terms of design and function. But
the second-gen product is likely to show
a lot of improvement.” The source added,
“If Samsung enters the smart glasses
market, it can create synergy through
partnerships with Intel and Google.”
55
ict
Foldable Watershed
Foldable Displays Will Be Watershed
Moment in Smartphone History
by Michael Herh
T
he race is getting hotter among
smartphone companies to
develop foldable phones,
as the world smartphone
market seems to reach its
technological limits. In
terms of foldable OLED
display technology, which
produces OLED displays
by depositing OLED materials on displays, Samsung
Display and LG Display
have the best technology
in the world. Depositing
means a process where a
light-emitting material is
heated and stuck to a panel.
Samsung Display has
A conceptA concept render of Samsung Electronics’ foldable smartphone. (Photo via GforGames)
strong competitiveness
in small-sized screens by
LG Display also has technology as good as that of Samsung
commercializing OLEDs via the Galaxy series. LG Display is
Display. LG Display succeeded in the production of a foldable
the technological leader in the production of big-sized screens
display early this year. The company is now brooding over
such as TVs and signage, since it has excellent masking techcommercialization types. The LG Group is reviewing various
nology which can deposit OLEDs on big display panels.
possibilities as well, such as producing its own foldable smartThis technological background is enabling Samsung Elecphones with its foldable display technology, and supplying
tronics to take the lead in smartphones and LG Electronics to
display panels to Apple and Google, its traditional partners.
lead the OLED TV industry. Based on this technological prowThe absence of foldable panel technology and facilities makes
ess, the two electronic giants have developed and commercialit almost inevitable for Apple to partner with Korean display
ized flexible displays. Since 2014, the companies are spurring
makers and take the leadership in the display industry.
on the development of displays that can be completely folded
Therefore, Apple may need to buy cutting-edge foldlike paper. Of late, Samsung Display developed and patented a
able display panels from Samsung or LG. But nobody knows
foldable two-part display for an 11 inch tablet PC. It is known
whether or not the Korean companies will sell them to Apple.
that based on this technology, Samsung Electronics began to
Apple is reportedly preparing to launch the 8th-generation
develop the foldable smartphone Valley.
iPhone as a foldable phone expected to hit the market in 2018.
The biggest barrier against the commercialization of
Thus, it is said that Apple will sit at negotiation tables with
foldable smartphones is the development of technology that
Samsung and LG. The advantages of foldable smartphones are
can maintain the shapes and functions of panels after they
convenience in carrying big screen telecommunication and
are repeatedly folded and unfolded. According to industrial
computing devices. But one thing is certain – the commercialsources, Samsung Electronics produced a prototype of a foldization of foldable devices is expected to bring a tremendous
able smartphone with a foldable panel. Some technological
change to the computer industry, including desktops, laptops,
improvements will lead to the commercialization of the prodand smartphones.
uct.
56
industRY
Brand Value
How Much do
Hyundai Motor
and VW Differ
in Brand Value?
by Jung Min-hee
D
ue to the growth of the global retail
market, the brand value of many companies has risen sharply. Domestic firms such as
Samsung Electronics and Hyundai-Kia Motors
have also shown an upturn. On the other hand, the
brand value of Volkswagen has been hit hard by
its emissions test cheating scandal.
On Oct. 5, Interbrand, the world’s largest
brand consulting group, released the 2015 Best
Global Brands Report, an annual report that identifies the 100 most valuable global brands. The
Brand Values of Major Companies in 2015.
(unit: US$ billion)
Rank
Brand
Brand Value
1
Apple
170.2
2
Google
120.3
3
Coca Cola
78.4
4
Microsoft
67.6
5
IBM
65.0
6
Toyota
49.0
7
Samsung Electronics
45.2
35
Volkswagen
12.5
39
Hyundai Motors
11.2
74
Kia Motor
5.6
Source: Interbrand
58
total value of the top 100 brands is worth US$1.7 trillion (1978.8 trillion
won), up 7.4 percent from last year.
Apple and Google ranked first and second both last year and this year. The
brand value of Apple has increased 43 percent to US$170.276 billion (198.2
trillion won) this year from US$118.86 billion (138.36 trillion won) in 2014.
The company is followed by Google, with a brand value that has grown 12
percent to US$120.31 billion (140.05 trillion won) from the previous year.
Amazon also enters the Top 10 for the first time with a brand value of
US$37.95 billion (44.17 trillion won). The company’s brand value increased
by 29 percent from last year.
Domestic firms have also advanced. Samsung Electronics has solidified
its 7th position, surpassing General Electric (GE) for the first time, since the
company entered the top 10 on the list for the first time in 2012. The brand
value of Samsung Electronics stands at US$45.3 billion (52.73 trillion won).
The figure shows no change compared to last year. Hyundai Motor, valued
at US$11.29 billion (13.15 trillion won), has moved up one notch from last
year to 39th this year. It is the first time for Hyundai Motor to rank among the
top 40 brands. The company has also succeeded in exceeding US$10 billion
(11.64 trillion won) of the value for two years in a row this year. In contrast,
Volkswagen has been pushed downed from the 31st to the 35th spot, and
decreased its brand value by 9 percent to US$12.55 billion (14.6 trillion won)
from last year. This is in sharp contrast to its growth of 23 percent last year,
largely due to the fact that the U.S. Environmental Protection Agency has
ordered Volkswagen to recall its major models.
Kia Motors has ranked among the top 100 brands on Interbrand’s list for
four consecutive years. With a brand value of US$5.67 billion (6.6 trillion
won), the company has ranked 74th for two years in a row.
Facebook has seen the highest increase by as much as 54 percent and
ranked 23rd. Meanwhile, five new brands have entered this year’s top 100 –
Lego, PayPal, Moet &Chandon, Lenovo, and auto brand MINI.
industRY
Parts Unneeded
Korea’s Electronic Parts Industry Likely
to See Dismal Q4 Performance
by Cho Jin-young
D
ue to unfavorable factors such as a sharp
decline in both parts prices and exchange
rates, Korea’s semiconductor and display industries, the nation’s major export businesses, are facing difficulties.
Despite the global economic recession, the
nation’s semiconductor and display industries
showed good performance until the third quarter.
However, its profitability is now in trouble, as the
price of DRAM and large liquid-crystal display
(LCD) panels, the major export items, have been
rapidly decreasing from the second half of this
year. In addition, the won-dollar exchange rate,
which had a positive effect in the third quarter, has
recently started to weaken.
According to industry sources on Oct. 20, the
prices of both semiconductors and display panels,
the nation’s largest exports, are on the decline this
year.
Market research institute IHS said that the
standard price of 4GB DDR3 for computer memory, the leading export item of Samsung Electronics and SK Hynix, decreased from US$3.40
(3,849 won) in the first quarter to US$2.15 (2,434
won) in the third quarter. The figure went down
US$1.25 (1,415 won) in two quarters. The situa-
tion is quite serious, considering the fact that its price dropped by as low as
US$0.10 (113 won) in a single year, from US$3.90 (4,415 won) early last year
to US$3.80 (4,302 won) at the end of the year. The price of 4GB DDR3 for
computer memory is expected to fall further to US$2.05 (2,321 won) in the
fourth quarter, and some US$1 (1,132 won) next year.
Mobile DRAM, which is a high-value-added product, is also in a similar
situation. The price of 8 GB LPDDR3 mobile memory chips, which are used
for smartphone memory storage, decreased from US$7.90 (8,943 won) in
the first quarter to US$6.45 (7,301 won) in the third quarter, down US$1.45
(1,641 won). The figure already exceeded the drop of US$1.35 (1,528 won)
last year.
The prices of LCD TV panels, which account for more than 90 percent of
the large display panel market, have also rapidly fallen from the second half
of this year. The average price of 40 in. (101.6 cm) LCD ultra-high definition
(UHD) TV panels, which have recently shown high sales, stood at US$142
(160,744 won) earlier this year, but the figure plunged to US$120 (135,840
won) this month, down more than 15 percent, or US$22 (24,904 won). In particular, its price dropped by US$15 (16,980 won) after June alone. The sharp
drop in display panel prices is due to Chinese firms’ excessive supply and low
price strategy.
Exchange rates make more woes. The dollar has been dropping against the
won since the middle of last month. The won-dollar exchange rate increased
from 1116.3 won to 1 dollar at the end of June to 1204.3 won per dollar on
Sept. 7, the end of the third quarter. Accordingly, the export business, including semiconductors, showed good performance in the third quarter due to
exchange rate effects.
59
industRY
Chasing Market Leader
Micron to Make Massive Investment in
Japan to Catch Up with Samsung
by Cho Jin-young
M
icron Technology of the U.S., the
world’s third largest company in the
memory semiconductor industry, will make an
aggressive investment targeting Korean firms.
Accordingly, the competition in the semiconductor
market, which already suffers from a depression in
the personal computer (PC) market and the slowdown in smartphone market growth, is expected to
be stronger.
Market Shares of Major Memory Chip Makers
Others
16.6
Toshiba
7.3
Micron
Samsung
Electronics
(unit:%,
37.9
as of Q2. 2015)
Source: IHS
17.9
SK Hynix
20.3
60
According to the Nihon KeizaiShimbun on Oct. 12, Micron is planning to
mass produce advanced memory semiconductors for smartphones in Japan. In
order to do so, the company will spend 100 billion yen (US$830 million or 1
trillion won) for a year at the Hiroshima plant of Elpida Memory, which was
taken over in 2013, to install cutting-edge facilities, and secure mass-production technology.
Micron also plans to up its investment in production and research by 40
percent to US$5.8 billion (6.67 trillion won) in the fiscal year ending Aug.
2016, with a specific focus on DRAM and NAND flash memory chips. A
considerable portion of DRAM investments will be injected to install a 16 nm
chip processing system at the plant in Hiroshima. The 16 nm process is the
most advanced semiconductor technology, which has 20 percent to 30 percent
more productivity than the current 20 nm process technology, since it can produce more semiconductors with a single silicon wafer.
About 5 billion to 6 billion yen (US$41.78 to $50.13 million or 48.02 to
57.73 billion won) will be invested in the equipment of each factory. Micron
had already spent 100 billion yen (US$830 million or 1 trillion won) to
expand facilities at its plant in Hiroshima by the end of Aug. this year. Also,
the company plans to make additional investments at other sites in the U.S.,
Japan, and Taiwan. Samsung Electronics is also preparing to install the 16
nm processing facilities in a bid to produce the next-generation DRAM chips,
according to Nihon Keizai.
The newspaper said that Micron is trying to seek a reverse with massive
investments during the stagnation in the market, and to better compete with
Samsung Electronics and SK Hynix, two top semiconductor producers in the
world. Micron is the third-largest firm in the memory semiconductor sector,
following the two companies. It ranks third in the DRAM market of memory
semiconductors, and fourth in the NAND flash market.
industRY
OLED Explosion
Sales of OLED TVs Grew 317%
in First Half
by Cho Jin-young
T
he sales volume of OLED TVs, which are cited as next-gen TVs,
reportedly grew 317 percent year-on-year to reach 75,600 units in the
first half of this year. Last year, only 18,000 units were sold. However, OLED
TVs represent less than 1 percent of the total TV market, and so the OLED
TV market has a long way to go in order to enter a boom period.
According to market research firm IHS iSuppli on Sept. 30, 75,600 OLED
TVs were sold in the first half, up 317 percent from a year ago. The sales volume of LCD TVs slightly decreased to 9,686 units during the same period. The
figure for CRT TVs and PDP TVs dropped 59 percent and 95 percent each.
Industry analysts are saying that around 90 percent of 75,600 OLED TVs
sold in the first half are made by LG Electronics. Until last year, the tech
company was the only Korean OLED TV vendor, and it comprised nearly
100 percent of the OLED TV market. However, its share fell to the 90 percent level in the last quarter of this year, since Skyworth, Chang Hong, Haier,
Hisense, and Vestal Elektronik entered the market.
Despite a decline in its share of the OLED TV market, LG appears to be
positive. The optimism is due to the fact that it is more important to expand the
market in the mid to long term, rather than maintain the current market share.
A curved OLED screen by LG.
Meanwhile, much attention is being paid to
Samsung Electronics, the world’s largest TV vendor. Samsung’s entry into the OLED TV market
is likely to speed up market expansion. The company is reportedly scheduled to roll out OLED
TVs in a year, but it has yet to plan new products.
Samsung is working to develop OLED TVs that
can create colors with each RGB pixel without a
color filter, different from existing products. Japanese TV makers like Panasonic and Sharp are also
involved in research and development to increase
the productivity of OLED TVs, along with 8K
TVs.
OLED Smartphones
Increasing Number of Flagship
Smartphones Adopt OLED Panels
by Cho Jin-young
I
t has been confirmed that OLED panels made by Samsung Display
were adopted again for a new Android smartphone revealed by Google
and Huawei, after the recently-released Mate S.
Google announced on Sept. 30 that it used a 5.7” OLED screen with a
resolution of 2560x1440 pixels in the Nexus 6P. This is the first time for any
smart phone vendor other than Samsung Electronics to introduce a Nexus
series model using an OLED panel. Since Samsung and Huawei, which are the
largest and the third-largest smartphone sellers, respectively, have started to
use OLED displays in their flagship products, there is growing anticipation for
market expansion.
Not only Huawei, but also emerging Chinese smartphone makers like
ZTE, Meizu, Vivo, and Oppo are releasing smartphones with OLED displays
as well. The atmosphere is quite different from two or three years ago, when
Samsung Electronics touted OLED panels as a strong point of its products.
Samsung Display seems to be very delighted with this trend. The company
makes up 99 percent of the AMOLED panel market as of the last quarter.
In the past, Samsung Electronics used LCD screens in mid to low-priced
phones, instead of OLED displays, in order to
reduce the cost of production, but the tech giant is
now mainly using OLED panels. It indicates that
OLED panels are more affordable.
In the meantime, some in the industry are
saying that Apple will feature OLED displays in
new iPhones in 2017 or 2018, which will expand
the OLED smartphone market. Contrary to initial expectations, Apple used small OLED panels
in the Apple Watch. Sir Jonathan Ive, senior vice
president of design at Apple, also showed interest
in OLED displays during a recent interview.
61
industRY
Times are Tough
Less Demand
and Chinese
Rivals
Depressing
Korean Display
Makers
by Michael Herh
T
wo big problems are facing Korean display manufacturers, a leading Korean
export item. One is a steady drop in their prices
due to weakened demand and a supply glut, and
the other is Chinese companies’ massive investment in the display industry.
A drop in prices of LCDs, a big cash cow
for display makers, has reached a serious level.
According to WitsView, a Taiwanese display
market survey company, in Sept. the average unit
price of LCDs for TVs stood at US$178, a fall of
17 percent from US$214 in Dec. of last year. It
was the biggest drop since 2010. The average unit
price of LCDs for monitors slid to US$67 from
US$75 during the same span.
The biggest culprit behind this situation is a
supply glut caused by Chinese manufacturers.
BOE, the number one display panel producer
in China, is lowering LCD prices by running its
Chungking factory with a monthly production
62
capacity of 150,000 units. The price drop has come across as a fatal blow to
Korean display manufacturers.
It is estimated that the operating income of LG Display in the third quarter of this year dropped to 350+ billion won (US$305+ million), nearly 24
percent down from a year earlier. Samsung Display chalked up good business
performances thanks to the expansion of sales of OLED displays for smartphones, but in the TV panel sector saw its profitability fall like LG Display.
Moreover, BOE will begin to build a big board factory ahead of Korean
companies this Dec. Korean companies must devise countermeasures i this
climate.
The 10.5th generation process will be started in the factory that BOE is
building in Hefei, China, with a total investment of 40 billion yuan (US$6.3
billion). The generation means a classification of the sizes of boards. The
higher the generation goes, the bigger the board becomes. The 10.5th generation is a process with 3370×2940 mm boards.
Samsung and LG are staying with the eighth generation (2500×2200mm)
at the moment. If a board is bigger, more big TV panels can be produced, and
redundant parts of the board can be decreased, cutting production costs. For
example, the use of an eighth-generation board can result in production of
three 60 inch TV panels. But eight units can be produced through the use of a
industRY
ponent suppliers, are purchasing fewer large-size
LCD panels in the second half of this year. Under
the circumstances, the suppliers’ share in the Chinese TV market is forecast to show a significant
drop from 40 percent in the last quarter of 2015.
According to news sources, including market research firm IHS, the six largest Chinese TV
manufacturers, that is Hisense, TCL, Skyworth,
Haier, Chang Hong, and Konka, are predicted to
buy 14.8 million large-size LCD TV panels in the
fourth quarter of 2015. The number amounted to
17.7 million a year ago. In the first half of this
year, the six companies bought 29.4 million panels
to record a 15 percent growth year-on-year, but the
amount fell 6 percent from a year ago to 15 million or so in the third quarter.
The curtailment is attributable to the current
panel supply glut and predictions of a decrease in
TV demand based on the slowdown of the Chinese economy. In China, the TV sales volume
jumped 12.7 percent year-on-year to 22.93 million units between Jan. and June, but it declined
the next month. Still, Chinese panel makers have
increased their supply at low prices, triggering an
inventory glut.
The six companies’ total LCD TV panel purchase for this year is estimated at 59.3 million
units, down approximately 1 percent from a year
ago. In the third quarter, LG Display took up 22
percent of the market, followed by China Star (20
percent), Innolux (16 percent), Samsung Display
(15 percent), AUO (13 percent), and BOE (10 percent).
10.5 generation board.
The point is that although massive facility investments can build a big
factory, at the same time huge losses are risked if demand shrinks. However,
BOE is free from the efficiency of investment, since the Chinese government
gives financial support to the company. BOE burdens 4 billion yuan (US$632
million), 10 percent of the total investment.
In the first half of this year Korean companies did not care about such
a move by BOE, saying, “The eighth process is enough.” At the same time,
there were misgivings about China’s implementation of the investment. But
since BOE confirmed the investment, Korean companies have been changing
their attitudes.
“We will decide whether we will improve our current facilities or begin
to make new investments in the 10th generation by taking market situations
into account,” said Han Sang-beom, president of LG Display. The name of the
game is time. It will take three years for BOE’s 10.5th generation factory to
become fully operational. But it usually takes more than two years to build a
big display line.
Not much time is remaining for Korean companies to make a decision
about it.
Meanwhile, Chinese TV manufacturers, major clients of Korean com-
Shares of the Chinese Display Panel Market
Market
in Q3, 2015
in Q3, 2015
Others
4
BOE
LG Display
10
22
AUO
13
(unit: %)
Source: IHS
Samsung
Display
15
CSOT
20
Innolux
16
63
industRY
FINEX Exports
POSCO Accelerates Technology Export
by Marie Kim
W
ith untiring research from 1992,
POSCO succeeded in commercializing
FINEX technology in 2007. In 2013, the company signed a memorandum of agreement (MOA)
in FINEX technology with China’s Chongqing
Iron & Steel Group, beginning the first export.
The next year, it signed a memorandum of understanding (MOU) with India’s Mesco Steel to sell
its idle FINEX 1 plant in Pohang, North Gyeongsang Province, to the Indian steelmaker. This
year, the South Korean steel giant is actively discussing export with nine regions from six countries, expanding to not only Southeast Asia but
also the Middle East.
As POSCO Chairman and CEO Kwon Ohjoon said at the beginning of the year, “The company will establish a technology platform business strategy, which is based on POSCO’s best
technologies, including FINEX,” its business
seems to shape up nicely.
As of Oct. 21, POSCO is seeking to export
FINEX technology to nine regions. The region
which shows the most progress is China’s
Chongqing City. Since both the Chinese and
Korean governments approved the building of a
3 million ton FINEX steel mill with Chongqing
Iron & Steel Co., the company is getting ready
to construct the plant in earnest. In Aug., POSCO
64
signed an MOA with India’s steel firm Uttam Galva Steel, Ltd. to establish a
1.5 million ton steel mill. The company also signed an MOU with Vietnam
in June and a country in the Middle East recently. So far, it has signed MOAs
or MOUs, which are just a step before the actual contract, with five regions
in four countries. In addition, the discussions for export with two regions of
India, Kazakhstan, and Indonesia have been progressing admirably.
This is largely due to the fact that POSCO’s FINEX technology reduces
not only construction and maintenance costs but also pollutant emissions
compared to conventional steel making process. The technology lowers
investment and production costs by eliminating unnecessary steps, like
crumpling iron shavings. Compared to blast furnaces, it reduces the emissions of sulfur oxides by 40 percent, nitrogen oxides by 15 percent, and dust
scattering by 71 percent. Therefore, the technology can significantly reduce
global warming and environmental pollution.
Since other competitors have failed to commercialize a new iron-making
process, the FINEX technology is actually the only alternative. In a bid to
protect the FINEX technology, POSCO has applied for 58 patents in Korea
and 20 other countries. Also, the company restricts visitor access to maintain
security.
POSCO also has an expectation for exporting compact endless cast rolling mill (CEM) technology. CEM is a technology that integrates the steelmaking, continuous casting, and rolling processes into one to reduce energy
consumption by 30 to 40 percent than existing technology. The company
signed a formal contract with Germany’s SMS Group in early July for technology license and joint marketing. When FINEX connects with CEM, the
economic feasibility dramatically improves from the process of iron mold
production to hot rolled coil production. Accordingly, the demand of the
technology is expected to grow.
industRY
No Way Forward
Restructuring Deadlock in
Korean Shipbuilding Industry
by Jung Min-hee
T
he three major Korean shipbuilders have posted record losses, and the
Korean government’s industrial restructuring plan based on coupling
between smaller shipbuilders and them is about to be thwarted. The government is claiming that the plan is for co-prosperity, but the industry is saying
Joint Manpower
Major Korean Shipbuilders Agree
to Run Joint Manpower Training
Program
by Cho Jin-young
H
yundai Heavy Industries, Samsung Heavy Industries, and Daewoo
Shipbuilding & Marine Engineering agreed on joint manpower train-
that it could lead to the opposite result.
The government worked on mergers between
Samsung Heavy Industries and Sungdong Shipbuilding & Marine Engineering and between Daewoo Shipbuilding & Marine Engineering and STX
Offshore & Shipbuilding. Although the former
deal managed to be signed last month, things have
changed drastically, as it was found that Daewoo
Shipbuilding & Marine Engineering had recorded
more than 3 trillion won (US$2.6 billion) in losses
in the second quarter. The second deal seems to
be going awry now, after the Korea Development
Bank, the largest shareholder of Daewoo Shipbuilding & Marine Engineering, appointed STX
Offshore & Shipbuilding President Jung Sung-lip
as the new president of Daewoo Shipbuilding &
Marine Engineering five months ago.
Creditors had discussed mergers between small
shipbuilders last year, including those between
STX and Sungdong and between Sungdong and
SPP Shipbuilding. However, the talks reached no
conclusion at all due to conflicts of interest.
STX is currently going through financial and
accounting audits. The company is slated to be liquidated or entrusted once the result of the audits is
made available.
ing and development in the shipbuilding and
marine industry. The Korea Offshore & Shipbuilding Association announced on Oct. 7 that they
developed a training program with one another to
that end.
The program is divided into four levels – introductory, basic, intermediate, and advanced – and
has 84 courses for six occupational groups in the
shipbuilding segment and 229 courses for five
occupational groups in the offshore plant segment.
The three shipbuilding companies are scheduled to
train future employees in accordance with the system, while the association runs the common courses. The association is planning to test-run the offshore plant project management course next month.
“This program is highly meaningful in that it is
a cooperation among the three major shipbuilders
for tiding over the current crisis,” said SeoYeongjoo, vice chairman of the association, adding, “We
will strive so that the experts graduating from this
program can make a substantial contribution to the
competitiveness of the Korean shipbuilding industry, and the offshore plant construction sector can
be positioned as a future growth driver of the Korean economy.”
65
industRY
Power for Smart Watches
Samsung SDI Develops Wire
Battery, LG Chem Develops
Hexagonal Battery
by Jung Min-hee
A Samsung SDI model (right) points to a prototype watch that has a wire battery in its band, while models
for LG Chem (left) showcase a hexagonal battery that is powered a wrist-mounted LCD display.
L
G Chem and Samsung SDI have both unveiled different types of
flexible batteries for smart watches.
LG Chem showcased a battery that it installed in a watch band during InterBattery 2015 on Oct. 20. The core of the watch band battery is a long, thin wireshaped battery that the company developed for the first time in 2013.
The limit that other flexible batteries can bend is a circle with a 30 mm radius,
but this wire battery can bend in a 15 mm radius.
This means that it can be bend back on itself, fitting
perfectly inside a watch band.
Also last June, LG Chem became the first
developer of a hexagonal battery designed to be
installed into smartphones. An associate at LG Chem
remarked that using both the hexagonal battery and
the watch band battery in one device could double its
usage time.
Samsung SDI also debuted its own flexible batteries like the Band battery and the Stripe battery at
the event. The Band battery is also a watch bandtargeted battery, and the company emphasized that
using it could increase the battery storage capacity of
smart watches by 1.5-fold.
Samsung SDI has also extensively tested its
Band battery by bending it 50,000 times to the curvature of the human wrist during testing. The Band
battery was able to maintain its functionality during
that time. Samsung SDI also demonstrated a wearable prototype smart watch that used both types of
battery.
Smart watches are projected to account for more
than 40 percent of the wearable device market in
2016, and total smart watch shipments are expected
to reach over 100 million units in 2020, according to
market research firm Gartner.
Chinese Batteries
Samsung SDI’s EV Battery Factory
in Xi’an Begins Operations
by Jung Min-hee
S
amsung SDI held a ribbon-cutting ceremony for its electric vehicle
battery manufacturing plant in Xi’an, China on Oct. 22. The company started the construction of the manufacturing facilities in June last year
with Anqing Ring New Group amd Xi’an Gaoke Group, and the factory was
put into operation in September this year. Its annual production capacity has
reached about 40,000 EV batteries, and every component from battery cells to
modules can be produced there.
Samsung SDI recently announced that it was supplying batteries to 10 Chinese vehicle manufacturers and OEM suppliers, and will invest a total of US$600
million in it by 2020 so that it reaches US$1 billion in sales. The company is betting on a rapid growth of the Chinese EV and EV battery markets with the State
Council of China having recently announced that charging infrastructure capable
of covering five million EVs would be built by 2020.
LG Chemalso is going to set up an additional plant in Nanjing, where it has
run EV battery pack manufacturing facilities.
The Chinese government is planning to increase the supply volume of EVs
66
and hybrid cars in the local market to 0.5 million
units by 2015 and five million units by 2020. It has
also provided subsidies for these types of cars, since
September last year, in an effort to slow down the
pace of air pollution in major cities.
According to market research firms such as IHS
and B3, in the meantime, the global EV market is
estimated to grow from 2.2 million units to 6.3 million units in size between 2014 and 2020. In particular, the Chinese EV market is expected to jump to
160,000 units this year and 240,000 units next year,
to become the largest in the world.
industRY
Electric Hybrids
The War of Hybrid EVs
is Getting Fierce
by Jung Min-hee
A
s the public interest in eco-friendly vehicles has grown in the wake of
Volkswagen’s diesel emissions and fuel economy cheating scandal,
Hyundai Motor Co., South Korea’s top automaker, and Kia Motors Corp., its
smaller affiliate, plan to launch subcompact hybrid electric vehicles (EV) next
year to target the global market.
According to industry sources on Oct. 19, Hyundai Motor Group will
release Hyundai Motor’s subcompact hybrid model under the name AE, next
year and Kia’s model with the same platform under the name DE.
After launching the new models, Hyundai Motor plans to launch an EV
and plug-in hybrid EV (PHEV) model based on the AE within the next year,
while Kia Motors will release a new PHEV model based on the DE.
The AE and DE are both models designed to improve fuel efficiency even
from the development stage. Once the models hit the market, they will be able
to compete with the market leader, the Toyota Prius, according to industry
sources.
The AE is a five-door hatchback subcompact hybrid model that combines a
1.6-liter four-cylinder gasoline engine and an electric motor, based on the nextgeneration Hyundai Avante. Market watchers think the new model could exceed
the Toyota Prius in fuel efficiency, surpassing the figure of 30 km per liter.
Also, the Hyundai Motor Group plans to expand its base by establishing
large infrastructure with the release of next-generation EVs and hydrogenfuelled fuel cell vehicles (HFCVs).
By maximizing system efficiency and continuously improving the energy
density of lithium-ion batteries, Hyundai Motor is currently developing a new
EV model that dramatically improves its current 148 km driving range per
charge, and is planning to launch the model next year.
In addition, the company signed a memorandum of understanding (MOU)
with POSCO ICT in June to construct charging infrastructure for EVs, and is
looking to greatly expand the EV and PHEV market.
An official from the company said, “The Hyundai Motor Group is developing major parts of HFCVs in cooperation with 200 domestic partner companies. Accomplishing the localization rate of more than 95 percent, the group
holds core technology in the future environmentally-friendly vehicle sector,
along with domestic small companies.”
The Hyundai Motor Group has a medium and
long-term road map to increase the current eight
eco-friendly vehicle models to more than 22 and
to build a full eco-friendly vehicle lineup ranging
from compact cars to SUVs by 2020.
I nves tin g a total of 11 .3 tr illio n wo n
(US$10.06 billion) from this year to 2018, the
group aims to become one of the top two automakers in the global eco-friendly car market by developing various environmentally-friendly vehicles
and securing fundamental technologies related to
core parts, such as motors and batteries.
For the current eco-friendly car lineup of
Hyundai-Kia Motors, there are four hybrid electric
vehicle (HEV) models, one PHEV model, two EV
models, and one HFCV model. In 2020, the group
is expected to have 12 HEV models, six PHEV
models, two EV models, and two HFCV models.
Meanwhile, on Oct. 21 GM selected LG Electronics as a partner of for the development of GM’s
Volt EV. They will cooperate in the battery system
and infotainment sectors based on GM’s capabilities
in electric motor design, battery control technology,
and automotive system verification.
In Jan., LG Electronics took the wrap off the
Chevrolet Volt EV Concept Car at the Detroit Auto
Show via joint planning and research with GM.
Once fully charged, the Volt can run more than 320
kilometers. GM is planning to mass produce the
Chevrolet Volt EV at the Orion Factory in Michigan beginning at the end of 2016.
LG Electronics is planning to supply core parts
and 11 kinds of systems to the Chevrolet Volt EV.
They include drive motors, inverters, chargers,
electric compressors, battery packs, power distribution modules, battery heaters, DC-DC converters, rapidly-charging communication modules,
dashboards, and infotainment systems.
Since 2007, LG Electronics and GM have been
enjoying a strong partnership. The electronics giant
jointly developed a telecommunication module
for the 4G LTE “OnStar” Telematics System with
GM, and is exclusively supplying them to GM.
67
industRY
Local Auto Market
Korean Carmakers Fared Well in Sept.
by Jung Min-hee
K
orean automakers’ domestic sales increased by more than 15 percent
in Sept., in spite of the fewer number of business days in the Korean
thanksgiving, or Chuseok, holiday season, thanks to the Korean government’s
policy for individual consumption tax reduction.
According to industry sources, the carmakers sold a total of 128,067 cars
in Korea last month, up 15.7 percent from a year ago. Hyundai Motor Company recorded an 8.7 percent increase to 51,954, and Kia Motors sold 45,010
cars by showing a rate of increase of 16.5 percent. Ssangyong Motors’ sales
soared by 59.1 percent to 8,106, while Renault Samsung Motors added 10.9
percent to reach 6,604. GM Korea sold 16,393 cars, the highest level this year,
with the monthly sales rising 24 percent.
The Hyundai Avante was bought by 8,583 consumers to become the best
seller for the second consecutive month. The GM Impala recorded a sales
volume of 1,634, and the Tivoli of Ssangyong Motors recorded over 5,000
in domestic and overseas sales for six months in a row. The sales volume of
Hyundai Avant3 uHyundaiAvante becomes the best seller for the
second consecutive month in Sept.
the SM7 of Renault Samsung Motors hiked by no
less than 47.6 percent to 996, led by the successful
debut of the LPG model.
In the meantime, Hyundai, Renault Samsung,
and GM Korea increased their exports and overseas sales during the same period, whereas the
volumes fell by 4.3 percent and 35.5 percent for
Kia and Ssangyong.
Awaiting Ripples
Import Car Sales Rose in Sept.,
Except for Volkswagen
by Michael Herh
T
he Volkswagen rigging scandal has not had a big impact on overall
import sales last month. This is because the scandal broke out in late
Sept. Moreover, the effects of new import model launches and a cut in the
individual consumption tax fueled the growth of the import car market.
According to the Korea Automobile Importers Association (KAIDA) on
Oct. 6, in Sept. the registration of Volkswagen cars dropped 7.8 percent to
2,901 units from 3,145 units in Aug. In the month, 583 new Passat 2.0 TDI
cars were registered compared to 854 in Aug. So, the model placed fourth.
Registrations of the Golf 2.0 TDI fell to 430 from 740. The model ranked
third in Aug. Sales of the Audi A6 35 TDI, a luxury brand, also dropped to
661 units in Sept from 795 in Aug.
But the total number of registered import automobiles increased 12.0 percent to 20,381. By months, the figure peaked at 24,274 in June, fell to 20,707
in July, 18,200 in Aug., and turned to rise last month.
By brand, German automakers continued to say strong with MercedesBenz (4,329 uits), BMW (3506 units), and Audi (3401 units) making the top
three. By fuel, diesel cars came in first with 13,826 units (67.8 percent). Gasoline cars recorded 5595 units (27.5 percent) and hybrid cars 887 units (4.4
percent). A total of 73 electric cars were booked with a share of 0.4 percent.
Total sales of import cars from Jan. to Sept. of this year added up to 179,120
units, up 22.8 percent from a year before.
Last year, import cars put up a good fight in the market, so the market
68
share of Hyundai and Kia cars stayed at 64.9 percent. This means that the monthly market share of
Hyundai and Kia dropped below 65 percent for
the first time in nine years since June 2006 (62.7
percent). Last month, Hyundai Motor sold 51,954
units, up 8.7 percent from a year earlier and up 1.7
percent from Aug.
Kia Motor sold 45,010, a year-on-year increase
of 16.6 percent and an increase of 7.8 percent
from the previous month. “Last month, a drop in
the individual consumption tax and new model
launches gave rise to the expansion of the domestic automobile market,” said a representative in
the automobile industry. “In Oct., the Volkswagen
scandal will begin to affect sales on a full scale.”
industRY
Volkshame
Rigging Scandal Puts VW Dealerships
in Korea at Greatest-ever Risk
by Michael Herh
The Volkswagen logo on a TDI diesel engine of one of its cars.
T
he Volkswagen scandal drove down Volkswagen car sales and weakened its brand power in Korea. It is now threatening the survival of
Volkswagen dealerships by blocking cash flow into them. Volkswagen Korea
is responding with the desperate measure of returning all Euro 5 model inventories, but its efforts are not enough to stop the deteriorating situations.
According to the import car industry, it is said that Classe Auto, the biggest dealer of Volkswagen in Korea, is considering giving up its business
rights in dealing with Volkswagen vehicles. Classe Auto began its Volkswagen
dealership business in 2008, and is now running seven exhibition centers, five
service centers, and one used car showroom across the nation.
The company is the biggest dealership of Volkswagen now that it has been
recording the most sales of Volkswagen vehicles in Korea. Last year, its sales
hit 240 billion won (US$212 million), with a sharp rise in the sales of Volkswagen Korea. “They say that Classe Auto, a long-time partner of Volkswagen, has suffered a big drop in sales to the extent that lately Classe Auto failed
to pay salaries to its employees,” an industrial sauce said.
Unlike dealerships of big companies, Classe Auto has a weak cash flow,
so it does not have countermeasures against short-term shocks. This makes
them consider giving up their business rights. Volkswagen cars are priced low
or middle, although they are import cars. This characteristic leads many dealerships to hold down their profit margins and sell as many as possible. Under
these circumstances, the scandal slashed sales of Volkswagen cars, impeding
the operation of exhibition centers a great deal.
Classe Auto is not the only one that suffers from the scandal. It was
reported that GS Mbiz which became a Volkswagen dealer in 2013 recently discussed the relinquishment of its dealer rights on a high level.
The GS Group recently expanded its business
scope into the dealer business, and even import
car repair and parts for import cars, despite some
criticisms that the move robs small businesses of
their work. But this scandal put a quick brake to
GS’s business plan. It is said that these market
changes thwarted the Hyosung Group’s plan to
become the biggest mega dealer in Asia by taking
over an Audi dealer right after Mercedes-Benz,
Lexus, Ferrari, and Maserati.
The Hyosung Group has decided to give up
taking over equities in Charmzone Motors and its
building in Seoul’s Daechi-dong from the Charmzone Group. Hyosung’s acquisition of the equities
and the building can naturally bring rights to the
Audi Daechi Audi Center which is Asia’s biggest
as well as dealerships in Daechi and Gangdong.
Charmzone Motors, an official Audi dealer in
Korea, is now suffering from severe financial difficulties. The company is unable to give back contract money to customers who canceled contracts
to purchase Audi cars. Charmzone Motors has not
announced any solutions, repeating the position
that they will quickly address the problem. Import
car experts predict that it is highly likely that more
Volkswagen deader companies will sell off their
sales rights due to the plunging sales of Volkswagen cars.
This is because most import car dealers borrow a lot from banks, and if the banks begin to
pressure the dealers to pay back the money, they
will not be able to avoid financial difficulties. “We
do not have any proper solutions, since we cannot
recover consumer trust, not to mention switching
to aggressive sales promotion, until the Ministry of Environment’s announcement of the final
results of its investigations,” said a representative at a Volkswagen dealership. “Neither shipments nor contracts are done at some dealerships
rumored to sell off their dealer rights. So it will be
not easy for them to cut off vicious circles.”
69
industRY
A refinery in Kuwait.
Largest Project Ever
Local Builders Sign US$4.5 Billion
Formal Contract for Kuwait’s Al
Zour NPR Project
by Jung Min-hee
F
ive South Korean construction firms – Daewoo Engineering & Construction (E&C), Hyundai Engineering & Construction (E&C), SK
Engineering & Construction (E&C) and Hanwha Engineering & Construction
(E&C) – signed a US$4.54 billion (5.12 trillion won) formal contract for the
New Refinery Project (NRP) in Al Zour, Kuwait.
According to industry sources on Oct. 14, the
five companies formally closed the deal with the
Kuwait National Petroleum Company (KNPC) in
Kuwait on Oct. 13 (local time).
The NRP project commissioned by the KNPC
is the largest overseas construction project this
year, with total project expenses reaching US$14
billion (15.78 trillion won). South Korean builders established consortia and won four out of five
packages of the project.
A Daewoo E&C consortium won the second and third packages, which involve the largest scale of construction worth US$5.76 billion
(6.49 trillion won), and the share of Daewoo E&C
accounts for 35 percent, or US$2.02 billion (2.28
trillion won), of the total. Hanwha E&C, in concert with Spain’s TecnicasReunidas and China’s
Sinopec, won the first construction package worth
US$4.23 billion (4.78 trillion won), and Hanwha’s
share accounts for 10 percent or US$423 million
(476.72 billion won).
Also, a consortium of SK E&C and Hyundai E&C won the fifth package, which involves
the construction of marine oil shipment facilities
worth US$1.5 billion (1.69 trillion won). SK E&C
has a 30 percent stake worth US$450 million
(507.15 billion won) in the contract, while Hyundai E&C has a 40 percent stake worth US$600
million (676.2 billion won).
Kuwait Construction
Daewoo E&C Signs US$2 Billion
Contract to Build Refinery
Facilities in Kuwait
by Marie Kim
D
aewoo Engineering & Construction (E&C, CEO Park Youngsik), a major South Korean builder, said that the second and third
package contracts for the US$5.76 billion (6.49 trillion won) Al-Zour New
Refinery Project (AZRP) were signed on Oct. 13 in Kuwait, a deal that a
consortium led by Daewoo E&C won at the end of July.
The AZRP will be completed by the consortium that includes Daewoo
E&C, American engineering company Fluor, and Hyundai Heavy Industries. The consortium will be in charge of engineering, procurement and
construction (EPC). Daewoo E&C has a 35 percent stake in the contract
worth US$2.02 billion (2.28 trillion won).
The purpose of the AZRP, ordered by the Kuwait National Petroleum
Company (KNPC), is to build low-sulfur fuel oil production facilities with
70
From left: ParkFrom left: Park Young-sik, Daewoo E&C CEO;
Mohammad Ghazi Al-Mutairi, KNPC CEO; and Hatem Ibrahim
Al-Awadhi, KNPC Deputy CEO for Projects.
a daily capacity of 615,000 barrels in Al Zour.
Previously, Daewoo E&C clinched a
US$3.4 billion (3.83 trillion won) contract for
the Clean Fuel Project in Kuwait in Feb. last
year, and it has won KNPC’s trust by successfully carrying out the project. Accordingly, the
company won the largest portion among the
local builders in the project.
industRY
Scraping the Sky Locally
Korea Aims to Localize Skyscraper
Design Technology
by Jung Min-hee
T
he government will begin to localize design technologies for skyscrapers such as the 555-meter-tall Second
Lotte World, the 305-meter-tall Northeast Asia Trade Center,
and 411-meter-tall Haeundae L City, by 2020.
According to the Ministry of Land, Infrastructure and
Transport and the Korea Agency for Infrastructure Technology
Advancement on Oct. 26, the government will carry out a project to develop skyscraper design technologies that can compete
with those of world-class design companies by investing a total
of 20 billion won (US$17.7 million) for five years from Dec. to
June.
According to current construction Law, skyscrapers are
buildings which have 50 or more floors above ground and are
200 meters tall or taller. At the moment, the tallest building in
Korea is 68-story and 305-meter-tall Songdo Northeast Asia
Trade Center completed in July of last year.
In Dec. next year, Seoul’s Songpa-gu will see the completion of the 123-story and 555-meter-tall Second Lotte World.
The Second Lotte World will be followed by the Global Business Center (105 floors above ground and 526 meters tall) of
the Hyundai Motor Group in Samseong-dong in Seoul, and
Haeundae L City (101 floors above ground and 411 meters
tall).
Like them, skyscrapers with 100 or more floors will be
built soon in Korea to rival famous skyscrapers abroad. But
core technologies are provided not by Korean companies but
by Korn Pederson Fox (KPF) and Skidmore, Owings & Merrill
(SOM).
KPF designed the Songdo Northeast Asia Trade Center,
which is the tallest now, the 2nd Lotte World that will be the
tallest building in Korea when it is finished, Seocho Samsung
Town, Prudential Life Insurance Building, Dongbu Financial Center, and Posteel Building. The Shanghai International
Financial Center (472 meters tall, 101 floors above ground),
World Bank Headquarters, IBM World Headquarters, and USA
Today Headquarters are also the other brainchildren of the
KPF.
SCM designed Haeundae L City, Tower Palace, the 63
Building, ASEM Tower, GS Gangnam Tower, and COEX Intercontinental Hotel among others. The company also fashioned
the design of Dubai’s BurjKhalifa, the world’s tallest building,
which Samsung C&T erected.
Moreover, the two companies are competing to receive an
order to build the Global Business Center from the Hyundai
The Northeast Asia Trade Center in Songdo International City, South Korea.
Motor Group. So it is highly likely that one of the two will
design the new edifice for the Hyundai Motor Group.
The Ministry of Land, Infrastructure and Transport aims
at developing design technology that can catch up with the
world’s advanced technology and even take the lead in the
world market and engineering technology that can work out
well with the design technology by 2020.
So they decided to develop core technologies for building
skyscrapers for companies and overseas construction markets,
innovative and original technologies for skyscrapers, and global support infrastructure models for skyscrapers.
Other objectives of the ministry are to secure technologies to optimally design the structures and exteriors of big and
atypical skyscrapers by way of computers, to control vibrations
of buildings via highly advanced sensors, system formwork,
and lifting technologies that can speed up construction work
and cut down on cost.
71
sME & staRtup
European Startups
Ventures Under Umbrella
GCA Helps Province’s Startups Enter
European Market
LG Electronics to
Foster In-house
Venture Business
Market
by Lee Joon-dong
T
he Gyeonggi Content Agency (GCA,
Chairman Kwak Bong-koon) has signed
a memorandum of understanding (MOU) with
Europe’s Young Entrepreneurs Organization in
Brussels, Belgium, to develop startups together.
The agreement is part of the “Cultural Creative Network-Global Hub” project conducted by
the Gyeonggi Culture Creation Hub, a support A representative of Gyeonggi Content Agency
shakes hands with a representative of the Young
center for startups.
Entrepreneurs Organization in Brussels, Belgium,
The Global Hub is a project that helps startups after signing an MOU to develop startups together.
in the province extend its businesses abroad. It
seeks global success models, provides opportunities for overseas expansion, and supports companies in order to increase their competitiveness in the local market.
The Young Entrepreneurs Organization is the largest group in Europe to offer educational
opportunities and other kinds of support to young business owners. The group hosts a demo
day every year and provides business platforms and investment opportunities to prospective
young business owners. Also, it promotes partnerships with not only the European Union
member states but also OECD member countries to help them tap into the global markets.
Under the MOU, the two organizations have agreed to help their startups develop. They
will exchange information to strengthen the networks between local companies, boost mutual
business cooperation between local companies, and push ahead with businesses and events
based on the human resource networks.
K-Global Startup 2015
Toy Smith Wins Grand Prize in
‘K-Global Startup 2015’
by Lee Joon-dong
T
he Ministry of Science, ICT and Future Planning
(MSIP) announced on Oct. 21 that Toy Smith
(CEO SeoHyung-jun) has won the grand prize in “K-Global Startup 2015,” which seeks out creative startups.
The K-Global Startup is a project in which the MSIP
picks creative ideas in the Internet sector and actively supports them from the service development to commercialization and overseas expansion.
This year, the MSIP received 878 ideas, chose 45 teams in the primary selection, and then
the final seven teams after the second selection.
The grand prize went to Toy Smith, which has developed an Internet of Things (IoT)
platform service. Accordingly, the company won 100 million won (US$87,951) as a support
fund for the startup. The top excellence award went to GameCoach, while the excellence
award went to Soundlly and Twinword. The participation prize went to Day2Life, Master
Company, and SLabAsia. Accordingly, these companies will get 10 million won to 700 million
won (US$8,795 to $61,566) as a reward. Three teams out of the seven finalists and five teams
selected by experts will have various other opportunities to tap into the global markets.
72
by Lee Joon-dong
L
G Electronics is ready to operate
an internal corporate venture system. This seems to be an attempt to boost
its profits and seek new breakthroughs
amid sluggish smartphone sales.
According to electronics industry sources on Oct. 25, LG Electronics
Mobile Communications (MC) Division
has decided to foster in-house venture
companies, and encouraged its executives
and employees to propose ideas. The
company plans to provide initial capital
and incubating programs to ideas selected
in the in-house review board.
Also, LG Electronics will host a
“Hackathon” to develop Android Wear
apps, Google’s operating system for wearable devices, for two days from Oct. 31.
Hackathon, a compound word of hacking
and marathon, is a contest that continuously develops ideas during the time appointed and builds a prototype or output.
It is a way to seek innovative and
fresh ideas for global information and
communications technology (ICT) companies, such as Google and Facebook.
The fact that LG Electronics tries to
secure its competitiveness in the software
industry through the Hackathon corresponds to the company’s decision to push
ahead with new projects, including the inhouse venture promotion system.
LG Electronics will choose 15 teams
from general applicants, such as developers, planners, and designers who are
interested in developing Android Wear
apps, and help them to develop apps.
sME & staRtup
Venture Promotion
Another Accelerator
Korean Big 3 Mobile Carriers Lotte Group Establishes ‘Lotte
Raise 1.7 Trillion Won to
Accelerator’ to Support Startups
Promote ICT Venture Firms
by Marie Kim
by Jung Suk-yee
K
o r e a ’s t o p
three mobile
carriers will raise 1.7
trillion won (US$1.44
billion) in the next
nine years in a bid to
support venture firms
and start-ups in the
information and communications technology (ICT) sector,
such as the Internet of Things, the Cloud, and Big Data.
The Korea Telecommunications Operators Association (KTOA) announced such a plan, while co-hosting
the third Korea IT Fund (KIF) launching ceremony with
SK Telecom, KT, and LG U+ at the Korea Press Center in
Jung-gu, Seoul, on Sept. 22.
KIF is a 300 billion won (US$253.7 million) fund,
which is financed by the three mobile carriers in 2002.
KTOA has been managing the fund for 13 years. Based on
300 billion won (US$253.7 million) investment, the fund
is increasing its capital every year, and has invested a total
of 1.2 trillion won (US$1.01 billion) in 522 venture companies in the last 13 years, with additional investments
from mobile carriers. Among them, 62 firms have been
listed on the KOSDAQ, said KTOA, becoming mediumsized enterprises.
On the same day, KTOA and the three mobile carriers announced that they would launch the third KIF in
order to respond to the government’s policy for creative
economy activation. The third KIF has decided to extend
its operating term by 10 years from the existing 2020 to
2030. Also, the KIF will add 700 billion won (US$592
million) in the next nine years to the existing amount of 1
trillion won (US$845.67 million), to make 1.7 trillion won
(US$1.44 billion) in total. Then, it will support the government’s nine K-ICT strategic industries – IoT, Cloud,
Big Data, information security, software, UHD and smart
devices – and start-ups and venture companies in the converged ICT sector, including fintech.
Moreover, the third KIF has formed specialized funds
for start-ups and abolished the reserve system for losses.
This is largely due to the fact that it tries to help start-ups
in earnest by reorganizing the funds as venture investments, according to the KTOA. The three mobile carriers will strengthen links between their creative economy
innovation centers and the funds in a bid to offer foundation funds to firms in the centers.
I
n a bid to support start-ups
launched by the younger generation, the Lotte Group has decided to
establish an investment company. Its Chairman Shin Dong-bin will donate
10 billion won (US$8.83 million) of his personal assets to the company.
The group will set up the tentatively-named Lotte Accelerator, which
provides initial capital, infrastructure, and mentoring services to startups,
and raise 100 billion won (US$88.3 million) investment funds.
The retail giant plans to expand its support for start-ups, which has
been sporadically offered through its subsidiaries, including its department
store and duty-free shop, across the group.
In particular, Lotte Chairman Shin Dong-bin will donate 10 billion
won (US$8.83 million) of his personal assets to Lotte Accelerator. He
said, “We won’t spare active investment in and innovative support for
start-ups launched by the younger generation. We will continue studying
various options to contribute to creating jobs for the youth and vitalize the
creative economy.”
Gaming Startups
NHN Entertainment Invests 6 Billion
Won in 3 Mobile Gaming Startups
by Lee Joon-dong
N
HN Entertainment (CEO
Jung Woo-jin) announced
on Oct. 21 that it has invested a total
of 6 billion won (US$5.28 million)
into three mobile game companies.
The investments went to leading game makers at home and abroad –
Blackbeard, SupremeGames, and A-33 Studio.
Blackbeard (CEO Kang Gun-woo) was founded in Nov. 2013, and is
currently developing a science fiction action RPG game tentatively titled
“Dystopia.” SupremeGames (CEO Hwang In-jung) is working on a project
tentatively called “TOP.” It is a RPG game with smart action system and
vertical play mode, which is scheduled to go on sale in 2016. A-33 Studio
(CEO Kim Dong-sun) is currently developing a mobile FPS game tentatively
named “Diving Soul,” which allows users to have real-time match-ups.
Cho Hyun-sik, president at the investment sourcing division of NHN
Entertainment, said, “The objective of the investment is to seek out startups,
which has talent and passion, early, and support them for mutual growth.
NHN Entertainment will keep making continuous investments and various
attempts in not only new business, such as simple payment systems like
PAYCO, but also the gaming industry.”
73
MicE
Christmas Fair
Largest Christmas-themed FAIR
in ASIA Opens at KINTEX
by Marie Kim
A
fair specialized about Christmas
will take place from Dec. 11 to 20
at the KINTEX Convention Center located in Goyang City, Gyeonggi Province.
Co-hosted by EXPORUM, an exhibition
company, this event is expected to become
an effective marketing opportunity for participating firms by collecting the demands
relating to the Christmas season.
On an average day, more than 10,000
people visited the venue during the period
of the first event that took place last year.
In this context, the organizing committee
more than doubled the period and scale of
the show this year. The fair is slated to be
further developed into a tourist attraction
representing the metropolitan area with
cultural elements and products related to
Christmas added to it.
The show is the largest Christmasassociated event in Korea, coming with
diverse charity events to reflect the meaning of Christmas and imbued with its joyful atmosphere in which people buy gifts
for others and enjoy a variety of things and
activities for Christmas. It is expected that
the fair will be a lasting memory for foreigners in Korea as well as Koreans.
The Molly Manners Korea International Conference for child English education is scheduled to be held with the
74
show. The idea of the conference is to let
children become confident in English and
learn about international etiquette while
playing with foreign friends instead of
memorizing things at school. This program is for children aged four to 12 and
their parents.
Also waiting for the visitors to the
fair are Christmas gift packing lessons
for unique Christmas gifts, the Christmas Wine & Spirit for a wine tasting
with loved ones, and the Romantic Table
Decoration in which renowned patisseries
unveil their cookie-making expertise for
family and friend gatherings.
At the same time, the Old Jazz Recital
on a special stage is open to everyone at
the venue who is willing to enjoy beautiful jazz piano melodies, and church
choirs will present various Christmas carols there, too. Also scheduled are exciting
parades accompanied by joyful music and
popular animation characters. Santa Clauses will say hello and give gifts to kids at
the venue as well.
Details of the fair are available at its
official website at www.christmasfair.
co.kr. Firms to participate in the show
or the seminar can file an application at
the website, too. A 30 percent discount is
available for those applying on or before
Oct. 30.
An example of a booth that visitors can see at the Korea Christmas Fair.
MicE
※ Programs are subject to change depending on circumstances
※ Visitors who register beforehand will be exempt from admission fees
Concurrent Event
Molly Manners Winter School
www.christmasfair.co.kr
Title
Korea Christmas Fair 2015
(Festival & Conference Season II)
Date
•A character-building program that is well-received worldwide and also ofered at several
international schools in Korea, including Seoul Foreign School.
•Children will build leadership abilities by obtaining etiquette and manners, and also learn about
the importance of social skills.
•Children can network with foreign peers and leaders in the education industry.
Christmas Market
Venue
•Market presents Christmas desserts, handmade crafts, cooking classes: individual designers,
artists and creators will participate in the 10-day event
•Dessert lea market: “Yum-yum” exhibition / handmade lea market
•Monster Market / Cooking Class: Moon Chef
KINTEX Halls 4 & 5
Children’s Wonderland
Organized by
•Parents with children can have a memorable time
•A variety of products for children are available, including toys
•Children can participate in workshops and get hands-on experience
Dec. 11 to 20, 2015
KINTEX, EXPORUM
Cooperating Organizations
Jazz Piano Performance
Gyeonggi-do, Goyang-si
Scale of Event
•Romantic atmosphere with piano performances
•French pianist David Naze will perform Christmas piano jazz
700 booths, lea market, 30 seminars
An end-of-the-year party for housewives from the community
Participants
•An end-of-the-year party for housewives from Ilsan, Incheon, Bucheon, Gimpo and Gumdan
•The organizer will co-host events where both the key consumer target, housewives, and
exhibitors can get together in one place.
~100,000 over 10 days
Sale Items
Christmas party supplies ( Tree, Bulb,
Cloth, Fireworks etc), Home Decoration/
DIY (Interior & Living Props, Fabric, Candle,
Handcraft, Utensils, DIY etc), Gift (Jewelry,
Toy/Game), Clothes, Gift Certiicate, Beauty
Product, Fancy/Accessory (Stationary,
Accessories etc.), Desser t/Beverage
(Bakery/Dessert, Coffee, Tea, Beverage,
Wine etc.), Travel/Culture (Travel Agency,
Season, Package, Travel Accessory etc.)
Programs
•FAIR: Christmas supplies, Food Beverage,
Design Accessories, Toy, Living Props,
Cosmetics, Cosmetics, Christmas Travel
package, Gardening /Music.
•Seminar: Christmas Seminar, Molly
Manner Winter School, Christmas Tree
Design, Table-Deco, Gift packing, Cakedeco, Christmas Wine School etc.
•Event: Christmas Jazz Recital, Global
Chr istmas Culture Pavilion, Carol
Contest, Local Events, Flea Market,
Busking Stage, Candle -making,
Macaroon-making etc.
•Concurrent Event: Lotte Christmas
Pavilion, the Christmas Cookie Fair
( D e s s e r t Fl e a M a r k e t ) , C h i l d re n’s
Wonderland, World Chess Championship
Other Concurrent Events
•The Lee Seung-hwan concert (Dec. 12)
•Event sponsored by CBS and titled “Time to Change the World, 15 Minutes” (Dec. 12)
•Model U.N. hosted by YMCA (Dec. 18-20)
•World Chess Contest (Dec. 13)
About 30 events will take place simultaneously, The schedule is subject to change, depending on
the circumstances
Various Events
Santa Appearance
•Visitors will have a chance to take pictures with Santa and receive gifts from him.
•Surprising events for children who believe in Santa
Character Parade
•Children can meet their favorite characters during the event
Christmas Card Writing Event
•A time for writing Christmas cards to loved ones
•Good opportunity to convey love to friends and families
Special Center
Global Culture Village
•Visitors can experience Christmas traditions of other countries (i.e., what to eat and how they
spend their Christmas time)
•Visitors will ind out about various winter festivals held across diferent regions in Korea
Christmas Showroom
•The room will present Christmas decoration ideas prepared by professional interior
designers
Room for companies in the Kaesong Industrial Complex
•Products of companies in the Kaesong Industrial Complex will be presented
•Garments, accessories, household goods of good quality will be for sale at afordable prices
Room for social enterprises
•Variety of items (clothing, food, etc.) from social enterprises are available
•Visitors sharing the meaning of Christmas (compassion and saving children)
75
sciEncE
Artificial Intelligence Hardware
Tech Developed to Make 3D AI Semiconductors
by Cho Jin-young
A
Korean research team has succeeded in developing an original semiconductor technology that can
function as a human brain by assembling
a semiconductor with nanomachines.
The National Research Foundation (NRF) announced on Oct. 19 that
a research team headed by Choi Wooyoung, professor of the Department of
Electronic Engineering at Sogang University, successfully developed a tech
for a 3D artificial intelligence semiconductor chip. The von Neumann method,
a representative technique for semiconductor chips, can rapidly and effectively
carry out simple tasks, but there is a certain limit to flexibility, adaptability, evolution, and learning, which are all qualities that are required to functioning like
a human brain.
The research team conducted a
study on new structures and voltage
A diagram of 3D artificial intelligence semiconductor chip.
levels of nanomachines to play the role
as a switch to deliver signals in electronic circuits, in order to integrate
the machine into a 3D form similar to
a human brain. They were able to integrate a nanomachine circuit into an
existing 2D Complementary Metal-
Oxide Semiconductor (CMOS) in a 3D
fashion.
They identified the fact that the new
semiconductor chip could function like a
human brain using less than 50 percent of
the energy of existing chips. The research
team found that the newly-developed
artificial intelligence semiconductor chip
based on a 3D convergence integration
tech has a 400 percent improved density and consumes less than 50 percent
of the energy compared to a one using
2D-based CMOS circuit tech.
The study was funded by Korea’s
Ministry of Science, ICT and Future
Planning and the NRF through a support
project for leading researchers, and the
research findings were published online
in the Sept. 1 issue of IEEE Electron
Device Letters, a scientific journal published by the Institute of Electrical and
Electronics Engineers (IEEE).
Nano Complex Solar Cells
Nano Complex
Film to Make 4X
Efficient Organic
Solar Cells
by Cho Jin-young
A
Korean research team has succeeded in developing a technology for a new structure that can greatly
improve the efficiency of organic solar
cells, which are receiving a lot of attention as next-generation energy devices.
Pohang University of Science and
Technology (POSTECH) announced on
Oct. 18 that one of its research teams
headed by Cho Gil-won, professor of the
Department of Chemical Engineering,
and Cho Sae-byuk, successfully devel-
76
An organic solar cell.
oped a technology for a new structure
that can drastically improve optical conversion efficiency, regardless of the kinds
of polymer semiconductor materials used
in organic solar cells.
The research team utilized the fact
that currents that are created after organic solar cells are exposed to light have a
tendency to sensitively respond to subtle
changes in an electric field. First, they
created another ferroelectric nanocomplex film between a photoactive layer of
a semiconductor polymer and an electrode of a solar cell, based on the idea
that the use of a ferroelectric polymer
makes it possible to arrange a magnetic
sciEncE
dipole in the film in one direction.
The inserted film plays a role as a
faucet for currents, which allows created
electrons and holes to flow toward the
positive or negative poles. Therefore, the
loss of optical current can be minimized.
By slowly adding millimeter seconds to
the outside electric field, it is possible to
systemically control the photoelectromotive force of the device and to effectively
extract an optimal level of optical current
for each semiconductor polymer.
Through the technology, the research
team was able to increase the life expectancy of a photocharge by more than 80
percent and to improve its efficiency
from 10 percent to 400 percent compared
to existing solar cells. In particular, the
study is significant in that the research
team successfully overcame the shortcoming of every semiconductor polymer
that is used in organic solar cells. Every
semiconductor polymer needs an element
structure that can be used to precisely
control efficiency.
Professor Cho Gil-won noted, “Our
Superhero Solar Cell
60x More Stretchable, 470x More
Durable Organic Solar Cell
by Cho Jin-young
A
B
C
A diagram of a bending test for the new polymer-based solar cell. On the left is an electron microscope image of a normal
solar cell after bending, which shows cracks. On the right is the new all-polymer blend solar cell after bending; no cracks.
A
Korean research team led
by Kim Bum-joon, professor of the Department of Chemical and
Biomolecular Engineering, and Kim
Tae-su, professor of the Department of
Mechanical Engineering at the Korea
Advanced Institute of Science and Technology (KAIST), successfully developed
a tech to make a next-gen organic solar
cell necessary for flexible and wearable devices. Using a polymer instead of
fullerene, the new solar cell is 60 times
as stretchable and 470 times as durable
as conventional ones.
The research team further increased
the possibility of the commercialization
of organic solar cells, which are receiving a lot of attention as the source of
energy for next-gen flexible and wearable devices, like flexible displays and
smart glasses. Organic solar cells refer to
solar cells most made by organic materials (carbon compounds) rather than inorganic ones.
research team suggested a model with
an element structure for the first time,
which can be used in next-generation
organic semiconductors,” adding, “I
think that based on this research, our
team will be able to contribute to the
development of highly-efficient and
low-cost flexible organic solar cells for
printing.”
The research findings were featured
as a cover article by Advanced Energy
Materials, a monthly scientific journal
published by Wiley-VCH.
Organic solar cells are more flexible
and lighter than inorganic ones, since the
former is based on a light and flexible
organic film. They are drawing a lot of
attention, owing to superb absorbance
and low manufacturing costs. Existing
organic solar cells are efficient but easily
breakable, since fullerene is used. Due to
a lack of durability, it has been difficult
to commercialize them in order to make
flexible devices.
On the other hand, it has been anticipated that using a polymer other than
fullerene in an organic solar cell would
make it possible to maintain high efficiency and greatly improve the durability of an organic solar cell, thanks to the
flexibility of a polymer and an entangled
effect between polymer chains. An entangled effect refers to an effect that greatly
increases the ability to withstand power
from the outside and the force of restoration, since long polymer chains are
entangled with each other.
Professor Kim Bum-joon said,
“Through this study, our research team
confirmed that a polymer can increase
the efficiency of solar cells and drastically improve the mechanical characteristics of devices.” He added, “I think that
polymer-based solar cells can expedite
the commercialization of a variety of
attachable and portable devices, which
will have ripple effects on the industry.”
The research findings were first published online on Oct. 9 by Nature Communications, a bi-monthly scientific journal published by the Nature Publishing
Group.
77
sciEncE
Paper Lithium Ion Battery
New Nano-cellulose Battery
Foldedinto a Paper Crane
by Michael Herh
The decorative illustration
about new nano-cellulose
flexible lithium ion batteries from the Oct. 14,
2015 cover of Advanced
Functional Materials.
T
he National Forestry Science
Institute of the Korea Forest
Service announced on Oct. 12 that they
developed the world’s first fundamental
technology for a next-gen paper lithium
ion battery in cooperation with the Ulsan
Institute of Science and Technology. The
new battery can last more than three
times longer than current batteries.
The joint research team secured the
fundamental technology for a high-capacity and flexible paper battery by producing an electrode and a separator based
on nano-cellulose extracted from wood.
The technology is now patented at home
and abroad, and will grace the cover of
the Oct. 14 issue of Advanced Functional
Materials, an internationally authoritative
magazine in the nanomaterials sector.
The joint research team drew a lot of
attention by developing the fundamental technology for a flexible battery in
Sept. last year. This research increased
the capacity of a battery three times more
than last year. The battery is so flexible
that you can fold it into a paper crane
with no loss of functionality.
“The new battery technology is
expected to elevate the level of Korea’s
secondary battery by one notch since we
secured much better performances and
flexibility than existing ones by putting
natural wood to good use,” said doctor
Lee Seon-yeong of the National Forestry
Science Institute. “The commercialization of this technology will take the lead
in the global next-generation lithium ion
battery market.”
The world lithium ion market was
estimated to be worth 23 trillion won
(US$20 billion) in 2014. The market is expected to reach 64 trillion won
(US$55.9 billion) by 2020.
Flexible Solar Cells
Flexible Solar Cells 1/20 as Thick of a Human Hair
by Cho Jin-young
T
he Korea Electronics Technology
Institute (KETI) and the Korea
Institute of Science and Technology
(KIST) announced on Oct. 5 that they
successfully developed a technology to
make solar cells with 1/20th of the thickness of a human hair that can be attached
to a curved space and be folded tens of
thousands times.
The newly-developed flexible solar
cell is widely acknowledged to have
extreme flexibility and minimum efficiency reduction. At a thickness of 0.04
mm, this cell loses less than 5 percent
efficiency and be effective at up to 7.4
percent while being folded.
The tech is expected to be widely
78
usable in developing components for
a variety of wearable devices such as
OLED electrodes and optical, tactile,
and olfactory sensors, or as an element
in flexible electronic devices. In addition,
the method can be utilized as the source
of energy by attaching a flexible solar
cell to clothes or a windshield.
Dr. Kim Jong-woong, who leads the
research team at KETI, explained, “Our
research team was able to develop a new
element like a flexible solar cell by fusing the latent property of metal nanowires, such as silver nanowires that were
secured during the research, in other
fields.” He added, “We will continue to
conduct research in an effort to com-
A flexible solar cell that is 1/20th the thickness of a
human hair.
mercialize the technology, like large area
process technology.”
The research findings were first published online in Aug. by Advanced Functional Materials, a scientific journal published by Wiley-VCH.