Sunday, December 04, 2011

The Returnees - South Korea's U.S. Educated Entrepreneurs

Seoul is home to a burgeoning corps of young entrepreneurs, a shocking number of them born or educated in America. Why aren't they starting companies here?
By Max Chafkin | Nov 30, 2011
Two years ago, Daniel Shin quit his job and started a company.

The act was, by almost any standard, a laudable one, coming as it did in the middle of the worst recession in decades and given that Shin had been enjoying the kind of upper-middle-class life that, once tasted, can be difficult to give up. Born in South Korea, Shin moved to suburban Washington, D.C., with his parents when he was 9. He went to a magnet high school and got into the University of Pennsylvania's Wharton School, where he studied finance and marketing. By 2008, he was comfortably ensconced in the New Jersey offices of McKinsey & Company, where recession-era cutbacks meant that all-expenses-paid Caribbean bacchanals had given way to comparatively ascetic (but still all expenses paid) ski trips. He had an apartment in Manhattan. He was comfortable. His parents were proud.

And yet somehow, this life, in all its dull glory, did not feel like his own. Shin was an entrepreneur at heart, having started two companies while still in college. The first, a website for students looking for housing, failed miserably. The second, an Internet advertising company called Invite Media, which he co-founded with several classmates during his senior year, was more promising. It won a business-plan competition in early 2007 and raised $1 million in venture capital the next year.

Shin's buddies would eventually sell Invite Media to Google for $81 million, but Shin had left the company long before that happened. His parents, who had come all the way from Korea precisely so their son could grow up to work at a place like McKinsey, were not about to see Daniel throw the opportunity away for a money-losing start-up no one had ever heard of. "That was the only reason I was at McKinsey," says Shin. "It didn't feel like a career to me. I'd always wanted to start a business."

By late 2009, Shin was through with consulting, but he didn't have the guts to strike out on his own just yet. He applied for, and was offered, a job in the New York City office of Apax Partners, a European private equity firm. He accepted the offer on the condition that he could delay his start date until the following August, so he could complete the two-year stint he had promised McKinsey. It was a lie; he walked out on McKinsey in November. "It was my chance to get something off the ground without my parents telling me I couldn't do it," says Shin. "I had about six months."

Shin got to work. He and two college buddies holed up in a house with whiteboards, laptops, and an endless supply of McDonald's for a series of all-day brainstorming sessions. Their goal: to come up with a business that would grow fast and require no start-up capital. They started with 20 ideas and, over the course of two months, whittled them down to one: a Groupon-style coupon company that would offer deals on restaurants, events, and merchandise. Shin liked the business model because it had a built-in financing strategy: Cash came in several months before the company would have to pay it out, giving him a supply of free debt. He picked a name—Ticket Monster—collected several thousand e-mail addresses, and launched the site in May.

A month later, Apax called Shin to rescind its offer of employment. The firm had done a background check and discovered that Daniel Shin was not a second-year McKinsey associate but the CEO of a fast-growing company that was doing $1 million a month in revenue. By the end of the summer, Ticket Monster had doubled in size, growing to 60 employees. By the end of the year, the company had doubled in size again.

When I met Shin last August, just 20 months after he quit McKinsey, he had 700 employees and roughly $25 million a month in revenue. "We've always been afraid that we wouldn't grow fast enough," said Shin, a baby-faced 26-year-old with a booming voice and a hulking frame. A year ago, he was one of only two salespeople at the company; today, he is sitting in a brand-new corner office acting like the CEO. "We didn't believe in spending money in the early days," Shin said. "We had this whole macho idea about starting up." A week after he said this, Shin sold his company to the social-commerce site LivingSocial for a price that was reported to be $380 million.

An immigrant starts a business, creates hundreds of jobs, and becomes wealthy beyond his wildest dreams—all in a matter of months. It's the kind of only-in-America story that makes us shake our heads in wonder, even pride. At a time of 9 percent unemployment, it's also the sort of story we Americans desperately need to hear more of.

But Daniel Shin isn't that kind of immigrant. He went in the opposite direction. Ticket Monster is based in Seoul, South Korea. Shin arrived there in January 2010 with a vague plan to start a company; the brainstorming sessions that produced Ticket Monster took place in his grandmother's house in Seoul. Now he is the closest thing there is to a Korean Mark Zuckerberg, despite the fact that upon his arrival, he barely spoke Korean.

Last December, Shin was summoned to South Korea's version of the White House—the Blue House—for a meeting with the country's president, a former Hyundai executive named Lee Myung-bak. In attendance were the CEOs of many of the country's largest companies—LG, Samsung, SK, and half a dozen others. "It was the conglomerates and me," says Shin. "They were saying, 'We have X billion in revenue, and we're in X number of countries.' I'm like, 'We didn't exist a few months ago.'" Shin laughs—a sheepish, nervous laugh—as he tells me this story and shakes his head. It's been a crazy year and a half. "I think it was the first time the president had learned an entrepreneur's name," he says. A few weeks later, President Lee gave a radio address in which he sang Shin's praises and urged the youth of South Korea to follow his example. (In Korean, family names come before given names. Throughout the rest of this story, I've used the Western convention, as do most Korean business people.)

At the end of last summer, I traveled to Seoul, an ultra-modern city of 25 million, because I wanted to know how a twentysomething kid with limited money and limited language skills could become this country's great economic hope. I wanted to know what in the world was going on in Seoul—and also, what in the world was going on inside the head of Daniel Shin of Wharton and McKinsey and McLean, Virginia. Why would a guy who could have just as easily written his own ticket in the U.S. decide to do so on the other side of the world?

The first thing I learned was that Shin was not alone—he wasn't even the only young, ambitious American in the coupon business. His chief competitor, Coupang, was founded by a 33-year-old Korean American serial entrepreneur named Bom Kim, who last year dropped out of Harvard Business School and relocated to Seoul to start his company. After a little more than a year in business, Coupang has 650 employees and $30 million from U.S. investors. Kim hopes to take the company public on the Nasdaq by 2013. "There's an opportunity here," says Kim. "I want this to be a company like PayPal or eBay."

Kim was one of more than a dozen American entrepreneurs I met in Seoul. They were the founders of media start-ups, video-game start-ups, financial-services start-ups, manufacturing start-ups, education start-ups, and even a start-up dedicated to producing more start-ups. "It's a big trend here," says Henry Chung, managing director of DFJ Athena, a venture capital firm with offices in Seoul and Silicon Valley. "There's a growing number of students studying overseas and coming back."

The country to which they are returning is an entirely different place from the one they (or their parents) left years ago. In 1961, the southern half of the Korean peninsula—formally known as the Republic of Korea—was one of the poorest places on earth. South Korea has no mineral resources to speak of, and it ranks 117th in the world in terms of arable land per capita, behind Saudi Arabia and Somalia. Fifty years ago, the average South Korean lived about as well as the average Bangladeshi. Today, South Koreans live about as well as Europeans. The country boasts the world's 12th-largest economy by purchasing power, an unemployment rate of just 3.2 percent, and one of the world's lowest rates of public debt. South Korea's per-capita GDP growth over the past half a century—23,000 percent—beats that of China, India, and every other country in the world. "A lot of Koreans still say that the market is too small," says Shin. "But it's not. It's huge."

South Korea is smaller in area than Iceland but has 166 times its population, meaning that 80 percent of its 49 million citizens live in urban areas. In the capital, retail shops and businesses reach high into the air and far below the earth in miles of underground shopping malls. Many of Seoul's bars and nightclubs stay open until sunup, but just walking the city's narrow, hilly streets—jostled by hawkers and flanked by the neon signs that advertise barbecue joints and karaoke rooms and the ubiquitous "love motels"—can be intoxicating all by itself. An hour's drive west, in Incheon, 50- and 60-story apartment buildings abut rice paddies and vegetable gardens.

The sense of claustrophobic density is magnified by the country's embrace of communications technologies. In the 1990s, the South Korean government invested heavily in the installation of fiber-optic cables, with the result that by 2000, Koreans were four times as likely as Americans to have high-speed Internet access. Koreans still enjoy the fastest Internet in the world while paying some of the lowest prices. The easiest way to feel like an outsider in this country is to board one of Seoul's subway cars, which are equipped with high-speed cellular Internet, Wi-Fi, and digital TV service, and look anywhere but at the screen in your hand.

Have you ever heard the term Pali pali?" asks Brian Park, the 32-year-old CEO of X-Mon Games, which makes games for mobile devices. The phrase—often said quickly and at considerable volume—can be heard all over Seoul; it translates roughly to "Hurry, hurry." Park, who founded his company in early 2011 with $40,000 in seed capital from Ticket Monster's Shin and another $40,000 from the South Korean government, invokes the phrase in trying to explain the three beds I had noticed in his company's conference room.

"It's normal," he says, gesturing at the makeshift bunkhouse. "Our crazy culture." By that, he doesn't mean the culture of the seven-person company. He means the culture of the entire country of South Korea, where the average worker spent 42 hours a week on the job in 2010, the highest in the Organization for Economic Cooperation and Development. (The average American worked 34 hours; the average German, 26.) I saw similar sleeping arrangements at most of the start-ups I visited, and even at some larger companies. The CEO of a 40-person tech company told me he lived in his office for more than a year, sleeping on a small foldup futon next to his desk. He had recently rented an apartment because his investors had become concerned about his health.

In their personal lives, South Koreans are relentless self-improvers, spending more on private education—English lessons and cram schools for college entrance exams—than do the citizens of any other developed country. Another obsession: cosmetic surgery, which is more common in South Korea than anywhere else in the world.

And yet despite this outward show of dynamism, South Korea remains in its soul a deeply conservative place. Shin told me about meeting, in Ticket Monster's early days, with an executive from a large Korean conglomerate about a marketing deal. The executive refused to talk business. He wanted to know why a young man with a wealthy family and an Ivy League diploma was messing around with start-ups. "He said that if his kid did what I'm doing, he'd disown him," Shin recalled. If this sounds like hyperbole, it's not: Jiho Kang, who is chief technology officer of a start-up in California and CEO of another one in Seoul, says that when he started a company after high school, his father, a college professor, kicked him out of the house. "My dad is seriously conservative, seriously Korean," Kang says.

That older Koreans view risk taking with suspicion isn't surprising, given the country's history. The Asian financial crisis of 1997 nearly destroyed the South Korean economic miracle. (In a remarkable show of national resilience, South Koreans turned in hundreds of pounds of gold—wedding bands, good-luck charms, heirlooms—to help their government pay down its debt.) These days, Seoul, which is just 30 miles from the North Korean border, remains on alert for a nuclear or chemical attack. One afternoon when I was in Seoul, the city stood still for 15 minutes as sirens blasted and police cleared the roadways. These drills, which are held several times a year, can be even more involved. Last December, a dozen South Korean fighter jets buzzed the city streets to simulate a North Korean air raid.

Amid all this instability, the Chaebol, Korea's family-owned conglomerates, have been a redoubt of stability, providing the best jobs, training new generations of leaders, and turning the country into the export powerhouse it is today. The Chaebol grew thanks to government policies, instituted in the 1960s, that gave them monopoly status in every major industry. Their power was greatly diminished in the wake of the 1997 financial crisis, but the Chaebol still dominate the economy. The 2010 sales of South Korea's largest Chaebol, the Samsung Group, were nearly $200 billion, or about one-fifth of the country's GDP.

To many South Koreans, being an entrepreneur—that is to say, going against the system that made the country rich—is seen as rebellious or even deviant. "Let's say you're working at Samsung and one day you say, 'This isn't for me' and start a company," says Won-ki Lim, a reporter for the Korea Economic Daily. "I don't know how Americans think about that, but in Korea, a lot of people will think you of you as a traitor." Business loans generally require personal guarantees, and bankruptcy usually disqualifies former entrepreneurs from good jobs. "People who fail leave this country," Lim says. "Or they leave their industry and start something different. They open a bakery or a coffee shop."

The penalty for failure is even more onerous for female entrepreneurs. When Ji Young Park founded her first company, in 1998, her bank not only required her to personally guarantee the company's loans—a typical request for a male founder—it also demanded guarantees from her husband, her parents, and her husband's parents. Park persevered—her current business, Com2uS, is a $25 million developer of cell-phone games—but her case is extremely rare. According to the Global Entrepreneurship Monitor, South Korea has fewer female entrepreneurs, on a per-capita basis, than Saudi Arabia, Iran, or Pakistan. "Most of the companies women are creating are really small, and the survival rates are really low," says Hyunsuk Lee, a professor at Seoul National University of Science and Technology.

Entrepreneurs in South Korea often struggle to raise capital. Though Korean venture capitalists invest several billion dollars a year—about half of which comes from government coffers—most of the money goes to well-established, profitable companies rather than true start-ups. It's not that Korean VCs hate small companies; it's just hard to make money selling them. "The Chaebol don't buy companies," says Chester Roh, a serial entrepreneur and angel investor who has taken one company public and sold one to Google. "They don't need to. They just call you up and say, 'We'll give you a good job.'"

As an American, Daniel Shin wasn't subject to these constraints. His largest institutional investor was Insight Venture Partners in New York City, where his college roommate worked as an associate. "American Koreans have a big competitive advantage," says Ji Young Park. "They can raise much larger investments from outside of Korea, and they can take business models from the U.S. It is much harder for a genuine Korean." This has a cultural component as well: "Korean Americans aren't predisposed to the Korean mindset," says Richard Min, co-founder and CEO of Seoul Space. "They're open to risk."

Min, a 38-year-old Korean American, is a former college swimmer who looks as if he could still do a couple of laps. He dresses well and talks fast, with just a hint of an accent from his native New England. He launched Seoul Space last year with two other Americans as a redoubt of Silicon Valley–style entrepreneurship in Seoul. The company offers discounted office space to start-ups, mentors them, and then introduces them to investors, in exchange for small equity stakes. "We're trying to get an ecosystem going here," Min says, leading me through a sea of mismatched office furniture at which 20 or so young people are pecking away at keyboards.

Min moved to South Korea in 2001 because he was curious about his roots and because he saw an opportunity in his dual identity. His first Korean company, Zingu, was the country's first pay-per-click advertising company. When the dot-com bust hit Seoul, he turned Zingu into a consulting firm to help large Korean companies market themselves outside the country. Two years ago, when the Korean launch of Apple's iPhone gave local software developers an easy route to international consumers, he decided that the next big opportunity was in start-ups. "You have a new generation feeling like they have a pathway that's not working for Samsung," says Min, who is winding down his ad agency in order to focus on Seoul Space. "We're at the forefront of a major shift."

I had assumed that everyone working in Seoul Space was Korean, but when Min started introducing me, I realized that half of these guys were American—there was Victor from Hawaii, Peter from Chicago, Mike from Virginia. Others were Korean nationals but with a decidedly American way of looking at the world. "I was a pure engineer—one of those nerds," says Richard Choi, who came to the United States in 2002, as a freshman biomedical engineering student at Johns Hopkins. "I had no interest in business whatsoever."

Choi assumed he would end up in the laboratory of some large company, but when he and several classmates designed a gadget that made it easier for medical technicians to take blood, he found himself in a business-plan competition. His team won first place—a whopping $5,000 prize—and he was hooked. Choi thought about starting a company after graduation, but he had a problem: His student visa had expired. He didn't have the $1 million in cash necessary to qualify for an investor visa, so he figured his only option would be to get a job and hope that his employer would sponsor his application for permanent residence. He went on a dozen interviews at American medical-device companies, but none were interested, and he finally enrolled in a master's program at Cornell to stay for another year. When it was over, he gave up on the States, returned to Korea, and took a job at the pharmaceutical division of SK, one of the country's largest conglomerates.

Choi worked at SK for three years, but he never got the entrepreneurial bug out of his system. Out of boredom, he started an event marketing company called Nodus, and then he met Min at a party. Min introduced him to the person with whom he would eventually (with one other person) co-found his current company, Spoqa, which makes a smartphone app designed to replace the loyalty cards issued by retail businesses. "It's funny how a small event can change your life," Choi says.

Over the past two years, the South Korean government has launched a series of policies designed to help people like Choi. The Small and Medium Business Administration—South Korea's version of the SBA—has created hundreds of incubators throughout the country, offering entrepreneurs free office space, thousands of dollars in grants, and guaranteed loans. There are government-sponsored missions to the United States and regular seminars for aspiring entrepreneurs. "Our economy can no longer rely only on the conglomerates," says Jangwoo Lee, a member of the Presidential Council for Future and Vision and a professor at Kyungpook National University in Seoul. "This is the 21st century. We need another instrument for economic growth."

That instrument, Lee told me, will be people like Shin. "He's part of a new trend in Korea," says Lee. "He made his success with his ideas and imagination, without a lot of technology and investment." Lee tells me that although South Korea has been very good at commercializing university research, it has been very bad at nurturing the kinds of disruptive companies that are so common in the U.S. "We need to get our young guys dreaming," he says.

That, says Min, is the idea of Seoul Space. "We're focusing on helping people understand how things work in Silicon Valley," he says. I got a taste of this on a Saturday morning at Seoul Space, as I watched half a dozen new entrepreneurs—some Korean and some American—present their ideas to an audience of 100 in the room and, via Skype, to several thousand viewers around the world as part of a Web TV show called This Week in Startups. The language of the day was, of course, English, and Min, who had spent hours coaching the six entrepreneurs on their pitches, leaned against a wall just off camera, watching nervously as his students performed.

Among the presenters was the incubator's biggest star, Jaehong Kim, a slight 26-year-old who wore an untucked white dress shirt and black trousers that stopped 8 inches above a pair of two-tone dress shoes. Kim is a co-founder of AdbyMe, an online advertising company that allows companies in South Korea and Japan to pay the users of social media to hawk their products. In his first four months, Kim turned a profit while taking in an impressive $250,000 in revenue.

AdbyMe graduated from Seoul Space earlier this year, moving its 10 employees into a small apartment across town. When I stop by on a Monday, Kim tells me to take off my shoes, walks me past the inevitable bedroom—"I sleep two nights a week here," he says with a grin—and then introduces me to a group of guys he calls Ringo, Big I, and AI. "His name isn't really AI," Kim explains. "We call each other by code names."

At most South Korean companies—even many start-ups—employees are addressed by their job title rather than their first name, but Kim is trying something new. At the suggestion of one of his co-founders, an engineer who lived in New Orleans as a child, Kim ordered employees to scrap the titular system and pick new names. If they want to get his attention, they refer to him not by the traditional Korean greeting—"Mr. CEO"—but by his nickname, Josh. "The vision is that an intern can tell me something isn't right," he says. I had assumed that Kim had been educated in the U.S., but it turned out he wasn't straight out of Wharton. He lived for two years in Kansas City, Kansas, but his most recent job had been as a first lieutenant in the Korean Army.

In September, Kim raised $500,000 from investors in South Korea. His goal is to raise enough to qualify for an American investor visa.

He isn't the only entrepreneur who talks about coming to the United States. "I know for sure that I want one more stint in the States," says Shin. He is curious to find out if he can replicate his success in America's larger, more competitive market; and even though he now speaks passable Korean, he has never stopped thinking of himself as an American. "I don't know when, and it's too early to think about ideas, but I know I'll probably end up going back and forth," he says. "I think it's possible to do stuff in both places."


Sunday, November 20, 2011

South Korea's Economy: What do you do when you reach the top?

To outsiders, South Korea’s heroic economic ascent is a template for success. But now it has almost caught up with the developed world it must change its approach

It is a crisp autumn morning in Seoul, and a hopeful fisherman sits dreaming by the Cheonggyecheon stream as the world bustles happily by. Glass skyscrapers rise behind him housing the capital’s new financial district. The shopfronts at their base are among the swankiest in Asia. Office workers, families and schoolchildren amble past. Busking fills the air. The water tumbles past plum trees and willows.

Twenty years ago, this background would itself have seemed a dream for anyone foolish enough to be trying to fish the Cheonggyecheon. Its waters, dirty and hidden, were trapped beneath a roaring highway; its surroundings were a slum of sweatshops, metal bashing and poverty. The reclamation of the Cheonggyecheon, one of the great urban-regeneration projects of the world, has about it the air of a dream achieved. So, to a large extent, has the Korea through which the stream flows.

In 1960, in the aftermath of a devastating war, the exhausted south was one of the poorest countries in the world, with an income per head on a par with the poorest parts of Africa. By the end of 2011 it will be richer than the European Union average, with a gross domestic product per person of $31,750, calculated on a basis of purchasing-power parity (PPP), compared with $31,550 for the EU. South Korea is the only country that has so far managed to go from being the recipient of a lot of development aid to being rich within a working life.

For most poor countries, South Korea is a model of growth, a better exemplar than China, which is too vast to copy, and better, too, than Taiwan, Singapore or Hong Kong. All three are richer than Korea but all are, in different ways, exceptions: Singapore and Hong Kong are city states, while Taiwan’s disputed sovereignty makes it sui generis.

South Korea has not merely grown fast. It has combined growth with democracy. Though its spurt began under a military dictator, Park Chung-hee, for the past 25 years the country has had a vibrant parliamentary system. Korea scores the same as Japan in the democracy tally kept by Freedom House, a think-tank in Washington, DC. No other Asian country does as well. At the same time Korea has combined growth with equity. Between 1980 and 1997, its Gini coefficient, a measure of income inequality, fell from 0.33 to an exceptionally low 0.28, before rising back up during the 1997-98 Asian crisis. In 2010, the level was 0.31, a bit worse than Scandinavian countries, a bit better than Canada.

A model that worked

Now Korea can add resilience to its roster of achievements. It was walloped during the global financial crisis, but recovered faster than any other rich country. Between June 2008 and February 2009, Korea lost 1.2m jobs. South Korea’s relatively open financial system made it vulnerable to the volatility in world markets, a vulnerability that continues. This September, foreigners withdrew over 1.3 trillion won ($1.1 billion) from the stock market and the currency slumped 10%.

Yet in 2010, GDP grew by 6%. This year’s expansion is likely to be 4%. The unemployment rate is now a covetable 3%. Some of the recovery is the result of Korea’s happy dependence on China: it exports more capital goods to China relative to the size of its economy than anyone else, even Germany. But this is only part of the explanation (which is just as well given China’s slowdown). The government also initiated a public-works scheme that is mopping up over 2% of the labour force. It introduced an old-age pension and began, then expanded, an earned-income tax credit. All this from President Lee Myung-bak, who was once chief executive officer of Hyundai Construction and is widely assumed to be excessively friendly to big business.

Korea’s relentless convergence towards America’s standard of living (see chart 1) has barely missed a beat. China’s dollar GDP per person would have to grow at 7.5-8% a year for 20 years to reach the heights Korea has already scaled. If the Korean economy goes on growing at 4.5% a year and America’s at 2.5%, Korea would overtake America (in PPP terms) only a few years later.

To keep growing that impressively, though, Korea will need some new tactics. And it will need to develop them from scratch. When a country or a company is playing catch-up it can look at what others are doing and do it better. This Korea has done well. Hyundai has outcompeted Toyota in the market for reliable, efficient, cheap cars. Korea’s shipyards have beaten everyone through economies of scale.

All change

But this way of doing things works only when others have blazed a trail before you. As you join the ranks of the richest, you run out of beaten track to follow. Your economy comes to depend more on innovation and on learning from your own mistakes than on improving on the successes of others. The South Korean model of 1960-2010 remains an example for developing countries; but Korea itself now needs something new.

The Korean model had four distinctive features: a Stakhanovite workforce; powerful conglomerates; relatively weak smaller firms; and high social cohesion. All these are either coming under strain, or in need of reassessment, or both.

South Koreans lay great store by education and hard work. They put in 2,200 hours of work a year, half as much again as the Dutch or Germans. Their reaction to the 2008 slump was to work harder still. During the 2009-10 recovery, reckons Richard Freeman of Harvard University, Korea had the second-largest increase in hours worked in manufacturing, after Taiwan. And the quality of labour has been even more important than the quantity. Along with Finland and Singapore, Korean schools regularly top international comparisons of educational standards, such as those run by the Organisation for Economic Co-operation and Development (OECD), a rich-country club. Korea spends a larger share of GDP on tertiary education than any rich country other than America. Given relatively low wages, this superbly educated workforce is hard to beat.

But with Korea already top of the league tables, it is harder to generate further jumps in income from big increases in hours and skills. Indeed, the immediate problem is merely to maintain its excellence. According to Yeong Kwan Song of the Korean Development Institute (KDI), a think-tank, companies are starting to worry that graduates are emerging from university with the wrong skills. On some estimates, half of recent graduates are failing to find full-time jobs and are going into further study or part-time employment. So while general education remains good, some industrial skills may be declining.

One way to boost the skilled labour force might be to have rather more people working rather fewer hours. The extra people would be women, often highly educated ones. Quite a lot of Korean women stay at home—the participation rate for women aged 25-54 is only 62%, the fourth-lowest in the OECD—even though they are usually better educated than men. In almost all rich countries, the best-educated women are more likely to work than their less-educated sisters. Not in South Korea.

Shorter hours might encourage some of these skilled women into the workforce. So might a change in attitudes to schooling. The job of supervising a child’s education falls to women, which is one of the reasons why relatively few women have jobs.

This does not mean that they have a lot of children instead. Korea has a fertility rate of 1.2, one of the lowest in the OECD. This is in part because those good educations make having children a pricey proposition. An unusually large part of the spending that makes Korean education so good is private, not public. The government spends just under 5% of GDP on education, slightly below the rich-country average. Families add an extra 2.8% of GDP on top of that, easily the highest rate in the OECD. At universities, family spending is three times that of the state. And families spend an estimated 8% of their household budgets on after-hours programmes for each child, an investment which explains the effort mothers put into making sure it pays off. If you have three children, their after-school activities alone could swallow up a quarter of the household budget.

The power of conglomerates. Much of South Korea’s miracle has been the work of big conglomerates, or chaebol. Barry Eichengreen of the University of California, Berkeley, argues that they are “among the most technologically and commercially progressive agents in the Korean economy”. Samsung Electronics, for instance, one of 83 constituent parts of the Samsung empire, sells more smartphones than Apple. Korea’s shipyards have just started work on a new class of container ships called the triple E-class which are easily the largest container ships ever built (Maersk, the ships’ buyer, says the three Es refer to economy of scale, energy efficiency and environmental cleanliness; simpler just to see them betokening EEEnormity). Korea’s large companies employ slightly less than a quarter of the workforce and produce more than half the country’s output. Chaebol-alikes exist round the world, from Carlos Slim’s Group Carso in Mexico to Lee Ka-shing’s holdings in Hong Kong.

The surviving chaebol have proved resilient. During the 1997-98 crisis, some chaebol’s debt-to-equity ratios soared to over 500%; half of them went bust and conglomerates were widely seen as a drag on the economy. Now, those that came through the time of trial have returned to profitability and respectable debt ratios—but their success still has a downside.

After the founding fathers

The chaebol system has proved prone to fraud, dodgy accounting and illegal political contributions. Many of the companies depend to an unhealthy degree on a founder or his family. About half the managers of Samsung’s firms used to work in the chairman’s secretariat—and thus directly for the founder or his son—and owe their promotion to the associated patronage. As with any family business, the moment of greatest danger is when the leadership passes to the next generation. Samsung passed this test in 1987 when the founder handed over to his son, Lee Kun-hee. Now Mr Lee’s son, Jay Y. Lee, has been appointed chief operating officer of Samsung Electronics and a new transition looms. If Mr Lee the third has business acumen, fine. If not, the whole country could suffer.

Find out how much of an Apple iPhone is actually a Samsung with our "teardown" infographic.Moreover, there are signs that the chaebol may be stifling innovation and entrepreneurship. They have proved expert at applying and improving existing technology, even the high technology of touch-screen smartphones. But except in some internet businesses and computer gaming, South Korea has few start-ups or cutting-edge technology firms. It lacks nationwide venture-capital businesses, says Hasung Jang, the dean of Korea University’s Business School, because each chaebol has one of its own. The firms snap up the best and brightest and turn them into company men. Mr Jang compares the conglomerates to light-hogging trees in a forest: their canopy may be impressive, but it is hard for anything to grow underneath.

Koreans perceive fewer opportunities for entrepreneurship than any of their peers in rich countries except Japan, according to an annual survey by the Global Entrepreneurship Monitor, set up by the London Business School and Babson College, Massachusetts. As South Korea moves towards the technological frontier, such attitudes will have to change. Innovation is not going to come if everyone shelters from risk in the chaebol.

Weak small firms. There is a huge productivity gap between Korea’s export-oriented chaebol and small and medium-sized firms (SMEs) which dominate services. Value added per worker in small firms is less than half that in large ones. SMEs’ operating profits were 4.5% of sales in 2007, compared with about 7% for large firms. Small firms spend about half as much on research and development as large ones per unit of sales and borrow far more relative to assets. Over time, their performance seems to be getting worse. Korea, in short, has first-world manufacturing exporters and third-world services.

Coddled, not coping

There are several reasons for the mismatch. Small firms are crowded out of markets for people and skills by the chaebol. And because chaebol pay scales often rise according to years in service, they squeeze wage bills by firing older workers, with the service sector working as a recycling system for surplus labour. Small firms have also been coddled by the government. Korea maintains various entry barriers to shelter mom-and-pop stores from competition. Government support to SMEs rose from under 6 trillion won in 2008 to 10 trillion in 2009. Public credit guarantees rose from 33 trillion won in the Asian crisis to almost 60 trillion won in 2009. Last year, the government “requested” banks to roll over their loans to small firms. Randall Jones of the OECD argues that all this help has made SMEs less, not more, efficient, and damaged competitiveness. The richest economies are switching into services that in Korea are dominated by small firms which cannot compete.

Social cohesion. Korea’s equal distribution of income is changing. Judging by the relationship between the richest and poorest tenth, Korea is becoming more unequal than it used to be. Worse, the growing number of poor people is disproportionately elderly. In other rich countries, people between 66 and 75 are no more likely to be poor than the population as a whole. In Korea, they are three times as likely to be poor. This is all the more worrying because the low birth rate means the country is ageing more rapidly than any other rich country. In 2009, people over 65 were outnumbered ten to one by the working-age population. By 2050, there will be seven over-65s for every ten working-age adults. Disproportionate old-age poverty would have a huge impact on the social backing for policies designed to foster growth.

Not to be left behind
Korea’s equitable income distribution used to provide a sense that society as a whole was benefiting from breakneck catch-up. But discontent is rising both about inequality and about the role of the chaebol, producing growing disenchantment with both main political parties. The recent election for mayor of Seoul produced an upset win for a left-wing anti-establishment maverick.

It is proving hard to resist the trend towards inequality because of another basic feature of Korea’s economic model: total tax revenues are just 26% of GDP. Taxes are especially low on labour, a choice designed to boost work and foreign investment. But as a result, social spending is low (11%); public spending on family benefits is exceptionally low (less than a quarter of the rich-country average); and the tax-benefit system is the worst in the OECD at reducing inequality and poverty. Korea’s tax-benefit system reduces poverty by only 18% (compared with what it would have been without the benefits). Sweden’s tax-benefit system cuts its poverty rate by 80%.

Korea, argues Mr Jones, needs to increase taxes and social spending in order to reduce poverty and inequality. One reason it is reluctant to do this is because it is afraid of the impact on jobs. Its changing demography also suggests caution in expanding the social safety net too fast or far, as it will be used ever more over the decades to come.

And then there is the ever-present imponderable: the possible need, at some point, to finance the horrendous costs of reunification with destitute North Korea when that state collapses. That would make the vast expense of unification in Germany pale into insignificance. At some point in the future Korea may need all the room for future fiscal expansion it can get.

A bridge to the future

The problems of the South Korean model should not be allowed to obscure either its achievements or its continuing strengths. True, over the past 40 years annual GDP growth has declined from about 10% to 4-5% (see chart 2). Business investment has halved from over 30% of GDP in the mid-1990s to 17% in 2010—but that is still 50% over the OECD average. Further declines in growth seem likely.

That is not surprising. As Kwanho Shin of Korea University and Dwight Perkins of Harvard show, every country’s growth starts to ebb as its income reaches about $10,000 a year. South Korea has kept going longer than most. If it can increase public spending a little to reduce inequality and poverty, boost its labour supply by encouraging more women to work and avoid compromising its educational standards and penchant for hard work, then it should be well placed to pull ahead of Europeans and catch up with America, too.

South Korea has long been a model for outsiders. President Kennedy’s chief economic adviser, Walt Rostow, wanted to use it as a testing ground for his theories about stages of economic growth. But Koreans do not see themselves as a blank slate, or as a new world power. They stress a long legacy of openness and innovation. Before the wars of the 20th century Korea was a bridge between the more closed worlds of China and Japan. It developed movable metal type two centuries before Gutenberg; its last imperial dynasty benefited from checks and balances more extensive than in its Chinese prototypes. The more Korea brings these qualities of domestic innovation to the fore, the better its chances of blazing a new trail for itself. ◦

Ahn Cheol-soo: A New Voice Grips South Korea With Plain Talk About Inequality and Justice

SEOUL, South Korea — Two days before Seoul elected a mayor last month, an unassuming man slipped into the campaign headquarters of Park Won-soon, an independent candidate. Amid flashing cameras, the man, Ahn Cheol-soo, a soft-spoken university dean who had earlier been seen as a contender for mayor himself, affirmed his support for Mr. Park, entrusted him with a written statement and then left.

“When we participate in an election, we citizens can become our own masters, principle can defeat irregularity and privilege, and common sense can drive out absurdity,” said Mr. Ahn’s statement, an open appeal to voters that quickly spread by way of Twitter and other social networks. “I’m going to the voting station early in the morning. Please join me.”

It was a pivotal moment in an election whose outcome has rocked South Korea. In a country where resentment of social and economic inequality is on the rise, and where many believe that their government serves the privileged rather than the common good, Mr. Ahn’s words — “participate,” “principle,” “common sense” — propelled younger voters to throw their support overwhelmingly behind Mr. Park, the first independent candidate to win South Korea’s second-most-influential elected office.

Nearly 30 percent of the voters who backed Mr. Park on Oct. 26 did so because of Mr. Ahn, according to an exit poll jointly conducted by YTN, a cable news channel, and the Asan Institute for Policy Studies.

Mr. Ahn’s charged comments on themes like inequality, the middle class, the despair of the young and “businesses with a soul and a goal nobler than just making money” are prompting comparisons here with the Occupy Wall Street movement.

Yet, after setting off what stunned politicians called a “tsunami,” Mr. Ahn retreated from public view, declining all requests for interviews. Nevertheless, he remains South Korea’s hottest political star.

His name has attracted those who are disillusioned with the existing political parties. This month, 25 younger lawmakers from President Lee Myung-bak’s governing Grand National Party, responding to the party’s loss in the mayoral race, demanded that the president apologize for “arrogance and disconnectedness.” Recent surveys have found that if the next presidential election were held today and Mr. Ahn were a candidate, he would win.

Politicians have called on him to declare whether he intends to run in the December 2012 presidential election, but he has kept silent. Mr. Park said recently that he did not know whether Mr. Ahn would run, but added, “The fact that he once dreamed of running for Seoul mayor makes it clear that he is disappointed, and in despair, over the country’s politics.”

Although one newspaper columnist has accused him of spreading “the virus of demagoguery,” to his fans he is “Dr. Ahn,” a medical doctor who became an expert on computer viruses and is now ready to turn his healing powers to politics.

“Like Spider-Man, once you have the power, even if you don’t like it, you have to accept the responsibility that comes with it and act accordingly,” Mr. Ahn, a science fiction fan, told the weekly Sisa Journal last year.

The Ahn Cheol-soo phenomenon speaks volumes about why many Koreans often react with distrust to initiatives trumpeted by the political and corporate elite, like the contentious free-trade agreement with the United States, and why Mr. Lee, while winning the admiration of President Obama, is often regarded by his own people as out of touch.

“Professor Ahn represents the people’s aspirations for change,” said Kim Hyung-joon, a political scientist at Myongji University.

Champion of change is a new addition to Mr. Ahn’s unusual résumé. When he was a young medical doctor, Mr. Ahn, now 49, worked for seven years in his spare time to develop what became South Korea’s first widely used antivirus software.

In 1995, he quit medicine and founded AhnLab, the country’s most successful software company. When he retired as its chief executive in 2005, he donated millions of dollars’ worth of shares to his employees. (Many South Koreans see a telling contrast between that gesture and the actions of a parade of well-known businessmen who have been caught breaking the law to channel wealth to their children.)

On Nov. 14, Mr. Ahn said he would donate half of his 37.1 percent stake in AhnLab to charity. His donation, worth about $130 million, would be used to help “the children of low-income families whose opportunities are limited because of social and economic inequality,” Mr. Ahn said in a statement.

In June, Mr. Ahn became dean of the Graduate School of Convergence Science and Technology at his alma mater, Seoul National University. After the election, he resigned as director of a research institute when the governing party, citing his political activities, threatened to end government financing for it.

Mr. Ahn’s interviews, and the lectures that until recently he gave on campuses across South Korea, reveal Mr. Ahn to be not only a mentor whose talks have inspired younger Koreans, but a social critic whose pointed criticism of the country’s big businesses has struck a deep chord.

“Bill Gates wouldn’t have become Bill Gates if he were born in South Korea,” Mr. Ahn likes to say, accusing Samsung, LG and other major corporations of creating “zoos” and “a realm of predators and lawlessness” where, he says, they have shackled small entrepreneurs with slaverylike contracts.

He took on a national icon: Lee Kun-hee, the chairman of Samsung, whose elitism, analysts say, epitomizes South Korea’s national strategy of letting big business drive economic growth, in the expectation that society as a whole will benefit. Mr. Lee famously said, “We need talented people who can each create livelihoods for 10,000 people.”

“What he failed to add,” Mr. Ahn said in an interview this year with MBC TV, “is that if someone keeps those 10,000 livelihoods for himself and takes more from others, then he’s no help to society, where all of us must live together.”

Such remarks tap into what is arguably the biggest public grievance in South Korean society — and, potentially, a political tinderbox.

President Lee, a former Hyundai chief executive, campaigned in the 2007 election on what he called his “747” vision: the economy would take off like a Boeing 747, giving South Korea a 7 percent economic growth rate, a $40,000 per capita income and the world’s seventh-largest economy.

The economy did grow, though not spectacularly. And many Koreans complained that the 747 of growth had only the rich on board. While big businesses reaped profits, often achieved in part by moving jobs abroad, smaller businesses that supplied them earned less and less.

Older Koreans grew up believing that young people, if they worked hard, could climb high even if their families were poor; the classic example is President Lee himself. But young Koreans tend to see diminished opportunities in a country where the rich can afford private tutors for their children while others struggle to pay skyrocketing tuition and the poor are shut out altogether. Sociologists have sounded alarms about antiestablishment hatred boiling in cyberspace.

“In a way, the current system is worse than the old military dictators,” said Kim Ou-joon, who produces a weekly podcast that satirizes the government and is downloaded by millions of South Koreans. “The dictators beat students, hurting them physically. Today’s ruling class destroys young people’s self-esteem by threatening their livelihood. It humiliates their soul.”

In August, Mr. Ahn told the newsweekly Chosun that many of the students who seek his advice break down, crying in despair.

“A lack of justice is a serious problem,” he told MBC TV, explaining why the book “Justice: What’s the Right Thing to Do?” by the Harvard political philosopher Michael J. Sandel became a No. 1 best seller in South Korea. “If we let this problem balloon, the tremendous social pressures can explode.”

Before the Seoul mayoral election, some polls showed Mr. Ahn potentially running far ahead of Mr. Park, but on Sept. 6 he announced that he would not run and would instead back Mr. Park. “The expectations people have had for me are not solely for me,” Mr. Ahn said. “Our society’s wish for change was merely expressed through me.”

If Mr. Park was the great beneficiary of Mr. Ahn’s popularity, the hardest hit has been Park Geun-hye, a leader of the Grand National Party and the daughter of Park Chung-hee, the country’s president from 1963 to 1979. Until Mr. Ahn came along, she polled higher than any other potential candidates in the 2012 election to succeed Mr. Lee, who by law cannot run again.

“She’s suddenly become a symbol of the status quo — old times, old age, old ideas,” said Hahm Sung-deuk, a political scientist at Korea University.

But he questioned whether the halo surrounding Mr. Ahn would survive an actual political contest. “People want a fresh face, and the first face they see is Professor Ahn’s,” Mr. Hahm said. “If Professor Ahn jumps into actual politics, much of the mystique and aurora surrounding him will evaporate, too.”

In an interview with the daily Chosun Ilbo in August, Mr. Ahn’s wife, a university professor with whom he has a daughter, said she saw “little chance” of Mr. Ahn entering politics.

Still, in one of his lectures to students, Mr. Ahn said: “You can’t find out how fast the river is flowing by sitting on the banks and watching. You have to take off your shoes and socks and jump in.” ◦

Sunday, October 16, 2011

The Big Business of South Korea's Mega-Churches

KOREA has long been a hotbed of religiosity. Before a certain Kim Il Sung began having other ideas, Pyongyang (now the capital of North Korea) used to be known as “The Jerusalem of the East”. And in today’s Seoul, practitioners of traditional shamanism, Buddhism, Christianity and even cults such as the Unification Church (better known in the West as the Moonies), all have plenty of followers.

Many of them also have lots of money (not least because religious institutions are tax-exempt). The Protestant church, in particular, seems to have produced a tribe of flashy, mansion-dwelling pastors. This is partly a result of the character of Korean Protestantism: a common theme, for instance, at the Yoido Full Gospel Church in Seoul is that a poor Christian is not a good Christian. However, it is also a result of the incentives created by the sheer size of some churches. Yoido itself ranks as the largest Christian congregation in the world, with over 1m members. Another, Somang Church, has hundreds of thousands of faithful, including South Korea’s president, Lee Myung-bak.

With all these people throwing their spare won into the collection plate, mega-churches have become big businesses. Yoido Full Gospel Church’s founder Cho Yong-gi, who has run the congregation since 1958, has family interests ranging from private universities to newspapers. Members of his church were once asked to pray for higher sales for one of his titles.

A pastor at a Seoul-based church of a mere 60,000 members notes that the likes of Yoido have become “so big, and with assets so huge, that human greed comes into play”. And in late September, following complaints by 29 church elders, prosecutors began investigating Mr Cho over the alleged embezzlement of 23 billion won ($20m) from Yoido’s funds. A documentary aired by MBC, a television station, claims that this money was used to buy property in America. The show also charged that Mr Cho’s wife sold a building constructed with collection money for her own gain. Its buyer was Hansei University—an institution where she also happens to be president. Mr and Mrs Cho deny the allegations.

Yoido Church’s founder is rarely out of the news in South Korea. In March he sparked a storm of criticism by claiming the earthquake and tsunami in Japan was “God’s warning” to a country that follows “idol worship, atheism, and materialism”.

He is also too political for some. When President Lee’s government drew up plans to legislate for Islamic sukuk bonds in South Korea, Mr Cho argued that this would aid “terrorists”, and that the president was forgetting the vital role the Protestant lobby had in electing him. Following concerted efforts by Mr Cho and other South Korean church leaders, the government blinked first, and the plan was dropped.

There are plenty of rank-and-file Christians in South Korea who do not indulge in the cathedralism of the mega-pastors. Many of the underground networks helping North Koreans on the run in China are organised by South Korean Christians. Refugees who reach South Korea are often cared for by church groups, and South Korean church aid-agencies are usually among the first to respond to natural disasters around the world, including the Japanese tsunami in March.

But in a country that thrives on group activities and collective bonding, as well as religion, Seoul is a natural home for mega-churches. The likes of Mr Cho, for all their flaws, provide something that millions of Koreans find irresistible. ◦

Friday, October 14, 2011

Video: Did Koreans Invent Pizza?


Monday, October 03, 2011

Samsung: Asia’s new model company

Samsung’s recent success has been extraordinary. But its strategy will be hard to copy
Oct 1st 2011 from the print edition

THE founders of South Korea’s chaebol (conglomerates) were an ambitious bunch. Look at the names they picked for their enterprises: Daewoo (“Great Universe”), Hyundai (“The Modern Era”) and Samsung (“Three Stars”, implying a business that would be huge and eternal). Samsung began as a small noodle business in 1938. Since then it has swelled into a network of 83 companies that account for a staggering 13% of South Korea’s exports. The hottest chilli in the Samsung kimchi bowl is Samsung Electronics, which started out making clunky transistor radios but is now the world’s biggest technology firm, measured by sales. It makes more televisions than any other company, and may soon displace Nokia as the biggest maker of mobile-telephone handsets.

Small wonder others are keen to know the secret of Samsung’s success. China sends emissaries to study what makes the firm tick in the same way that it sends its bureaucrats to learn efficient government from Singapore. To some, Samsung is the harbinger of a new Asian model of capitalism. It ignores the Western conventional wisdom. It sprawls into dozens of unrelated industries, from microchips to insurance. It is family-controlled and hierarchical, prizes market share over profits and has an opaque and confusing ownership structure. Yet it is still prodigiously creative, at least in terms of making incremental improvements to other people’s ideas: only IBM earns more patents in America. Having outstripped the Japanese firms it once mimicked, such as Sony, it is rapidly becoming emerging Asia’s version of General Electric, the American conglomerate so beloved of management gurus.

There is much to admire about Samsung (see article ( It is patient: its managers care more about long-term growth than short-term profits. It is good at motivating its employees. The group thinks strategically: it spots markets that are about to take off and places huge bets on them.

The bets that Samsung Electronics placed on DRAM chips, liquid-crystal display screens and mobile telephones paid off handsomely. In the next decade the group plans to gamble again, investing a whopping $20 billion in five fields in which it is a relative newcomer: solar panels, energy-saving LED lighting, medical devices, biotech drugs and batteries for electric cars. Although these industries seem quite different from each other, Samsung is betting that they have two crucial things in common. They are about to grow rapidly, thanks to new environmental rules (solar power, LED lights and electric cars) or exploding demand in emerging markets (medical devices and drugs). And they would benefit from a splurge of capital that would allow large-scale manufacturing and thus lower costs. By 2020 the Samsung group boldly predicts that it will have sales of $50 billion in these hot new areas, and that Samsung Electronics will have total global sales of $400 billion.

It is easy to see why China might like the chaebol model. South Korea’s industrial titans first prospered in part thanks to their close ties with an authoritarian government (though Samsung was not loved by all the generals). Banks were pressured to pump cheap credit into the chaebol, which were encouraged to enter dozens of new businesses—typically macho ones such as shipbuilding and heavy industry. Ordinary Koreans were chivvied to save, not consume. South Korea grew into an exporting powerhouse. Does this sound familiar?

In China, too, the state draws up long-term plans, funnels cash to industries it deems strategic and works hand-in-glove with national champions, like Huawei and Haier (see article ( ). Some of Beijing’s planners would love to think that state intervention is the route to world-beating innovation. No doubt inadvertently, Samsung feeds this delusion.

Of hindsight and survivor bias

For delusion it is, on three levels. Most broadly, South Korea’s prosperity owes less to dirigisme than China’s dirigistes believe, and nothing to dictatorship—South Korea is now a democracy, and much happier for it. Second, the chaebol system has been less beneficial for South Korea than Samsung’s success might imply. Some of the state-directed cheap credit that powered the chaebol produced superb companies, such as Samsung Electronics and Hyundai Motors. But it yielded some costly failures, too. During the Asian financial crisis of 1997-98, half of the top 30 chaebol went bust because they had expanded recklessly. Daewoo, the Great Universe, is no more.

Defenders of the chaebol say that the crisis spurred reforms, curbing the tendency of the chaebol to overborrow and overexpand. They don’t hog credit as much as before—Samsung Electronics now generates oceans of cash to finance its expansion plans. But in general the giants still crowd out small entrepreneurial firms: a former boss of Samsung Electronics has warned that South Korea has too many eggs in too few baskets. And despite a decade of political reform, the ties between the chaebol and the state are still too cosy. President Lee Myung-bak (the ex-boss of a Hyundai firm) has pardoned dozens of chaebol bosses convicted of corporate crimes.

Find out how much of an Apple iPhone is actually a Samsung with our "teardown" infographic.As for Samsung, it is an admirable company, packed full of individual successes that managers (and not just ones in Asia) should study. But inevitably it has not always got everything right—who now drives a Samsung car? And its overall success is not easily replicable. Samsung is patient and bold because the family of its late founder, Lee Byung-chull, wants it to be. Family control is guaranteed by a complex web of cross-shareholdings. This is fine so long as the boss is as brilliant as the late Lee or his son, Lee Kun-hee, the current chairman. But if the founder’s grandson, who is being groomed for the top job, fails to measure up, he will be harder for the company’s shareholders to oust than his peers at GE, Sony and Nokia.

To that extent, for all its modern technology, Samsung’s story is an old one writ new—the well-run family firm, with a strong culture and a focus on the long term, which has made good use of an indulgent state. Celebrate it on those grounds and Asia’s new model has something going for it. Just don’t expect it to keep going at its current rate for ever. ◦

Thursday, July 21, 2011

The Slowdown in China: How Much is South Korea at Risk?


Friday, July 08, 2011

South Koreans Balk at Saturdays Without School

The government wants to end weekend classes. Mothers revolt
By Sangim Han and Rose Kim

Chung Eunjung, a mother of two sons in Seoul, says South Korea’s plan to give children extra playtime by ending Saturday classes means only one thing: more private tutoring.

On June 14, President Lee Myung Bak’s government announced it would recommend that Korea’s schools end the Saturday classes, a feature of school life since the 1950s. Most schools now hold classes for four hours on two Saturdays a month. President Lee wants Koreans to consume more, and he hopes to wean the school system off its obsession with standardized tests. He figures giving kids and families the weekend off would help achieve both goals.

Don’t expect the playgrounds to fill up with liberated kids, though. “It would be a brave mother who let them play,” says Chung, who spends $1,700 a month on additional classes. Even the kids sound focused. Eleven-year-old Charlie Lee takes 15 hours of cram courses in English and math every week. “I like those classes,” he says. “I can meet my friends and play with them.”

East Asian nations dominate the top five slots in the Organization for Economic Cooperation & Development’s assessment of reading, math, and science skills. U.S. students are ranked 30th in math, 23rd in science, and 17th in reading. President Barack Obama has cited South Koreans’ zeal as an example of the need for American kids to study harder to compete. Three out of four South Korean parents use cram schools, tutors, or online learning to help get their children into college.

Rather than creating more family time, shutting schools on weekends could boost publicly traded cram school operators such as MegaStudy or language instructor JLS, says Kim Mi Song, an analyst at Hyundai Securities in Seoul. “If private institutions expand Saturday classes, I’ll definitely send my son,” says Kim Hyeran, who pays $2,800 per month for out-of-school classes for her 13-year-old, including as much as 20 hours of math. The Kim family, like the Chungs, live in Seoul’s Gangnam district, renowned in Korea for its specialized schools and private academies.

Traditional Confucian reverence for learning matters less to parents these days than the fear their children will be left behind, says Han Zun Shang, a professor of education at Yonsei University in Seoul. Annual per capita income has doubled in the past decade, to $20,759, and wage inequality is increasing.

The Koreans don’t want to repeat the experience of Japan, which cut the school week to five days in 2002. In 2009 the Japanese reversed course after their students began sliding down the OECD’s rankings. Between 2000 and 2006, Japanese high school students slumped from 1st to 10th in math, 2nd to 6th in science, and 8th to 15th in reading comprehension. Japan has added 278 hours back to the elementary school year and 105 hours to junior high school.

The Seoul Metropolitan Office of Education, which governs state education in the capital, says it plans to add two hours to weekday classes and cut some vacation days to offset the end of Saturday school. That doesn’t include all the new cramwork that will eat up those newly empty Saturday hours. “I put great stock in my son’s education,” says Kim, the mother of the 13-year-old boy. “I will make sure he gets whatever he needs.”

The bottom line: Koreans are so scared of falling behind at home and abroad that they do not want to ease up on intensive school prepping. ◦

Virtual Grocery Shopping in South Korea


Sunday, July 03, 2011

South Korea plans to convert all textbooks to digital by 2015

By Zach Honig

Well, that oversized Kindle didn't become the textbook killer Amazon hoped it would be, but at least one country is moving forward with plans to lighten the load on its future generation of Samsung execs. South Korea announced this week that it plans to spend over $2 billion developing digital textbooks, replacing paper in all of its schools by 2015. Students would access paper-free learning materials from a cloud-based system, supplementing traditional content with multimedia on school-supplied tablets. The system would also enable homebound students to catch up on work remotely -- they won't be practicing taekwondo on a virtual mat, but could participate in math or reading lessons while away from school, for example. Both programs clearly offer significant advantages for the country's education system, but don't expect to see a similar solution pop up closer to home -- with the US population numbering six times that of our ally in the Far East, many of our future leaders could be carrying paper for a long time to come. ◦

Wednesday, June 29, 2011

Tiger Moms Hire Private Tutors in South Korea as Saturday Classes Scrapped

Chung Eunjung, a 46-year-old mother from Seoul, says South Korea’s plan to give children more play time by ending Saturday classes means only one thing: more private tutoring.

President Lee Myung Bak’s government said on June 14 it would recommend schools adopt a shorter week starting in 2012, ending Saturday classes that have been a feature of the modern education system since the end of the Korean War in 1953. Most schools now hold classes on two Saturdays a month.

“I’m not the only parent to feel this way,” said Chung, who already spends $1,700 a month on additional classes for her two sons. “It would be a brave mother who let them play.”

The reaction of mothers like Chung helps explain why students in Asia are outperforming the rest of the world. Nations in the region dominate the top five slots in the Organization for Economic Co-operation and Development’s assessment of reading, math and science skills. U.S. students are ranked 30th in math, 23rd in science and 17th in reading.

President Barack Obama has cited South Koreans’ dedication to schooling as an example of the need for American kids to study harder to compete. Three out of four South Korean parents use cram schools, tutors or online learning to get their kids into college. More than half of the students in Asia’s fourth- largest economy take private math and English lessons, according to the government.

Education Stocks
Rather than creating more family time, the plan to shut schools at the weekend would be a boon for academies like MegaStudy Co., or language-course operator JLS Co., said Kim Mi Song, an analyst at Hyundai Securities Co. in Seoul.

“This will be good news for education stocks,” said Kim. “It is clear that the amount of time students spend in private courses will increase.”

Even with the change, South Korean children will spend more time in school than their U.S. counterparts. In his State of the Union address in January, Obama said South Korea treated its teachers as “nation builders.” In 2009, he said: “Our children spend over a month less in school than children in South Korea every year. That’s no way to prepare them for a 21st century economy.”

In the latest round of the OECD’s Program for International Student Assessments in 2009, South Korea placed second in reading, fourth in math and sixth in science. Finland was the only country outside Asia to make it into the OECD’s top five in any of the three categories.

‘Send My Son’
“If private institutions expand Saturday classes, I’ll definitely send my son,” said Kim Hyeran, who pays $2,800 per month for out-of-school classes for her 13-year-old, including as much as 20 hours of math. The Kim family, like the Chungs, live in Seoul’s Gangnam district, renowned in Korea for its concentration of specialized schools and private academies.

South Korean parents spend about $220 per child every month on out-of-school classes, tutoring and online learning, according to government statistics.

Traditional Confucian reverence for learning matters less to parents these days than the fear that their children will be left behind, according to Han Zun Shang, a professor of education at Yonsei University in Seoul. Annual per capita income has doubled in the past decade to $20,759 and wage inequality is increasing, said Han.

Japan, which cut the school week to five days in 2002, is reversing course after its students began sliding down the OECD’s rankings.

Reversing Course
Between 2000 and 2006, Japanese high school students slumped from first to 10th in math, second to sixth in science and from eighth to 15th in reading comprehension.

Japan added 278 hours to the elementary school year in 2009 and 105 hours to junior high school. The Tokyo Metropolitan Government in January last year told schools they could resume Saturday classes twice a month, according to its website.

The Seoul Metropolitan Office of Education, which governs state education in the capital, said it plans to add two hours to weekday classes and will reduce some vacation days to offset ending school on Saturdays.

Hyundai Securities’ Kim is one of 10 analysts with “buy” recommendations on MegaStudy, which prepares kids for college exams. Eleven others rate the stock a “hold,” according to Bloomberg data.

Kim said the stock should rebound from a 13 percent drop in the past 12 months, after the government cracked down on cram schools holding classes past 10 p.m. and changed the way college-entrance-exam questions were chosen.

MegaStudy, Thinkbig
JLS, which offers online courses as well as regular language classes, has declined 7.8 percent over the past year.

Officials at MegaStudy and JLS declined to say if they would begin offering more classes.

Daekyo Co. and Woongjin Thinkbig Co., providers of home- study materials for elementary school students, may also benefit from the end to Saturday classes, said Joseph Shon, an analyst at Shinyoung Securities Co. in Seoul.

Weekly workbooks produced by Daekyo and Woongjin provide a cheaper alternative to private tutors and academies. The companies are setting up study centers where parents can leave children to work by themselves under limited supervision.

Daekyo has gained 9.4 percent on the Korea Exchange this month while Woongjin has advanced 0.6 percent. The benchmark Kospi index has dropped 2.2 percent over the same period.

“I put great stock in my son’s education,” said Kim, the mother of the 13-year-old boy. “I will make sure he gets whatever he needs.” ◦

Monday, June 27, 2011

Wi-Not? South Korea's Seoul To Blanket The City With Free Wi-Fi

By Tim Carmody (Fast Company)

South Korea's capital city is already the best connected in the world [1], so it's not surprising that the local government has announced a $44 million project to bring free Wi-Fi Internet access [2] to every outdoor space and street corner city-wide. Surprising, no. But jealousy-inducing? Oh my, yes.

All buses, taxis, and subway trains will be covered, too. Korea Telecom (KT) already had Seoul's subway lines covered with WiBro [3], its nationwide commercial wireless broadband service.

Was that good enough? Not in Seoul.

KT had rolled out that leg of its service back in 2004 and put it into service in 2007. Before North American telecoms got serious about 3G, before much smaller municipal Wi-Fi projects stateside collapsed under their own weight, South Koreans were already living the IEEE 802.16e mobile WiMAX dream.

South Korea's wireless penetration rates and download speeds make most of the U.S.'s cabled broadband look like an anachronistic joke. (Like when your grandmother tells a long, meandering story that's only funny because she's so old and adorable.)

Seoul is already the long-reigning hotspot champ [4]. You can already get wireless almost everywhere. Their version of the last mile problem [5] is getting Internet signal outside. Actually, Seoul's problem (such as it is) illustrates both the genius and the frustrations of municipal wireless plans worldwide.

They boil down to this: City and regional governments don't want to blanket their jurisdiction in Wi-Fi for the benefit of their citizens. At least not directly. They need data coverage for government workers: police, fire, emergency responders, city inspectors, parking meter readers, and so forth.

Putting Wi-Fi everywhere a city worker might go means putting Wi-Fi everywhere in a city. That's expensive. Metropolitan and regional coverage is even more expensive. Nor do these cities or regions themselves typically have the expertise to do it.

Enter the service providers. They agree to wire up the city and run the service on the cheap so long as the city can help give them paid private subscribers on top of the government users. This sounds like a win for everybody.

But then the long-delayed pain sets in. It turns out that citizens (who are now paid subscribers to a public/private service) want Internet access in strange, exotic places, like their homes. Government workers actually don't want Wi-Fi inside your house as much as they want it on your street. They're not going to hang out and watch a movie. Nor would you like them to.

The conflict between the needs of the two user groups means that either one group or the other is unhappy until the ISP runs a lot more string and puts up a lot more cans than it thought it would have to. Meanwhile, big telecoms (at least the ones cut out of the deal) are doing everything they can to throw up obstacles to public wireless, from lobbying the government [6] to whispering (or shouting) about poor service quality.

Sometimes projects go broke; sometimes they fall apart entirely or have to be saved or taken over by the city, like in Philadelphia [7]. Often, there's a big gap between the initial vision of what a public wireless network could be and what it winds up becoming.

These, however, are birth pangs. They are known bugs, to borrow some jargon from software development. Because when it works, it works. It works for all of the reasons everyone wanted to start the thing in the first place: because it's arguably only at the scale of a metropolitan public works project that you really can deliver the smooth, broad, deep data coverage that we all say and believe we want--not just for those who can put down a mint, not just in place of convenience X, Y, and Z, but everywhere, and for everyone, for the public good.

It's worth remembering that even in South Korea, our wireless infrastructure is still in beta.


Tuesday, June 14, 2011

Video: Meet Sung-Bong Choi, South Korea's Susan Boyle


Saturday, May 21, 2011

South Korea needs fewer wage slaves and more entrepreneurs

Earlier this year Humax, a maker of digital set-top boxes based in Seoul, announced that its annual revenues had exceeded 1 trillion won ($865m) for the first time. For South Korea, this is something of a milestone. Humax is a classic start-up, founded in 1989 after a chat between engineering students in a bar. Alas, scandalously few Korean start-ups grow this big.

The Korean economy is dominated by the chaebol, huge conglomerates with tentacles in every stew. The biggest, Samsung, accounts for around a fifth of the country’s exports. Although the chaebol have played a vital role in South Korea’s development, they also suck up credit and obstruct the rise of start-ups. “Everyone knows you don’t compete with the chaebol” is a commonly heard refrain.

Parents of bright young Koreans typically steer them into steady careers in the chaebol, the government or the professions. As in Japan, being a salaryman (or woman) is far more respectable than running one’s own firm. “In Korea, stability is everything,” says one such parent.

Widespread youth unemployment is changing that calculation, however. An impressive 58% of Koreans aged 25-34 have attended university, but 346,000 graduates are currently out of work, up from 268,000 two years ago. Some become entrepreneurs out of necessity: almost 30,000 young South Koreans say they want to launch their own companies, one survey found. And according to the government, the number of “one-man creative enterprises” in the country has risen by 15% in the past year, to 235,000.

Young entrepreneurs often favour tech fields such as social media or gaming, where the only barrier to entry is the power of your imagination. Challenging the chaebol at, say, shipbuilding, might be trickier. The previous wave of young entrepreneurs—a result of the first internet boom, and the unemployment that followed the 1997-98 Asian financial crisis—threw up fizzy firms such as NHN, the operator of Naver (the “Korean Google”), and NCsoft, a maker of multiplayer online role-playing games. Each was once tiny but now belongs to the trillion-won club.

These new entrepreneurs are being joined by a growing band of foreigners, including ethnic Koreans from Western countries. Californian Koreans see no stigma in starting your own business. And they see South Korea, where the economy grew by 6.2% last year, as a land of opportunity compared with sluggish America. The country issues about 35,000 investor visas a year, mostly to small-scale entrepreneurs. The Seoul Metropolitan Government’s Global Centre has recently been swamped by expats seeking to attend its classes on Korean business procedures and regulations.

The city has also launched a “Youth 1,000 CEO Project”, to provide young entrepreneurs with free office space and grants of up to 1m won per month. South Korea’s President Lee Myung-bak grumbles that Korea has no Mark Zuckerberg (the baby-faced founder of Facebook).

The problem, though, is not young Koreans, who are both bright and energetic. Nor is it business-throttling regulations: South Korea does better on that score than Japan or Taiwan, says the World Bank. The real obstacle to enterprise is a society that urges its best young minds to aim low. ◦

Hunger in North Korea: Let them eat maize husks

It is the time of year when the previous harvest has been nearly eaten and the next one has just been planted. Time, in other words, to worry about North Korea’s perennially hungry masses.

North Korea had long grown dependent on food handouts from its estranged brother, South Korea, and from the United States. But the South’s current president, Lee Myung-bak, has taken a tougher line, tying assistance to less provocative behaviour by Kim Jong Il’s nuclear-tipped regime. So Mr Kim’s envoys have travelled further afield of late, reportedly doing the rounds of Europe.

The UN’s World Food Programme (WFP) is now preparing to distribute emergency aid to 3.5m North Koreans suffering from “severe malnutrition”. Programme officials are concerned about the possibility of a famine on the scale of the one in the mid-1990s, in which over 1m died. They blame a series of shocks, including the coldest winter in years, widespread flooding and an outbreak of foot-and-mouth disease among livestock. Some 297,000 tonnes of cereal and 137,000 tonnes of fortified blended food must reach the most vulnerable.

With murky data, and diplomats and foreign-aid staff restricted in where they may travel, not everyone agrees with the WFP’s assessment. Certainly, estimating North Korea’s food needs has long been a politicised business. A member of South Korea’s ruling Grand National Party, Yoon Sang-hyun, says that the North is hoarding 1m tonnes of rice, playing up a shortfall in order to get aid on the cheap. Some say Mr Kim wants the aid in order to announce a bumper harvest in 2012. That year is the 100th anniversary of North Korea’s founder, Mr Kim’s father, Kim Il Sung. Something approaching paradise has long been promised to North Koreans for 2012.

The South’s unification minister, Hyun In-taek, also suspects North Korea of exaggerating its troubles for political gain. Certainly, he says, starvation has begun to overshadow other topics that the South would rather discuss, namely denuclearisation and the North’s refusal to apologise for last year’s shelling of Yeonpyeong island and the presumed sinking in March 2010 of a naval corvette. This is apparently a view shared by Daily NK, an activist network and news source which says that the price of rice in the black market has actually fallen by around half in recent months.

Others, such as Good Friends, a South Korean Buddhist charity long working in the North, insist the situation is very bad—and that tuberculosis is on the rise owing to malnutrition. Rimjingang, a magazine with reporters secretly stationed in North Korea, says that in North Pyongan province by the Chinese border even the army is going hungry.

Stephan Haggard and Marcus Noland, both at the Peterson Institute for International Economics in Washington, DC, say that even though the WFP has overstated the case, “all indicators point to a deteriorating food-security situation”. What is more, they take issue with Mr Lee’s belief that withholding aid will temper the North’s behaviour. Rather, they argue, the response will merely be for the hermit kingdom to “hunker down and tighten repression”. The regime has been consistent chiefly in showing complete disregard for its people.

But arguing is pointless. Widespread malnutrition and starvation in at least some parts of the country is a reality in North Korea. For Jimmy Carter, the former American president, who visited Pyongyang recently, the fault lies mainly with South Korea and the United States. That is presumably tonic to the real culprit for the hunger, the chubby Dear Leader, Kim Jong Il. ◦

Conscription in South Korea: Elvis and the draft-dodger

Every South Korean man of sound mind and body is obliged to complete 21 months of compulsory military service. For those with enough money or influence though, the temptation to cheat one’s way out of early mornings, crew cuts and square bashing is often too much to resist. Sons of politicians and business leaders are notorious for this, as are the likes of pop star MC Mong, who spent his youthful years on more enjoyable pursuits, e.g., Mr Mong, or rather Shin Dong-hyun, as he is known to the army and the courts, was given a six-month suspended sentence last month ( , plus probation and 120 hours of community service, for “delaying” his enlistment. Judges however could not decide on whether or not he deliberately had healthy teeth extracted by a compliant dentist in order to disqualify him from service—hence their relative leniency.

Not everyone in his position is so recalcitrant. Hyun Bin, a hugely popular hallyu ( TV actor, last week embarked on the toughest assignment of all: a posting with the marines, to Baengnyeong Island ( —close to the Northern Limit Line and Yeonpyeong, where last November’s lethal North Korean bombardment ( took place. The army’s original plan was to put him on “public relations duty”—appearing in promotional videos, and the like—but highly vocal criticism and Mr Hyun’s reported desire to serve as a marine have seen him sent to the front line.

In a country increasingly preoccupied with the issue of fairness—“Justice”, an academic book on ethics written by Harvard’s Michael Sandel’s sold 1m copies in its Korean edition last year—Hyun Bin’s preference for the Elvis Presley route ( to service is likely to go down well. MC Mong, having been seen as trying to sidestep his national duty, will have a harder time turning his service into a virtue. A quick march towards career oblivion seems more likely. ◦

Saturday, April 16, 2011

Censorship in South Korea: Game Over

A liberal, free-market democracy has some curious rules and regulations

Over 700,000 South Korean children own smartphones, such as the Apple iPhone or a local rival by Samsung Electronics called the Galaxy S. Many use them so much for mobile online gaming that some 50 parental associations have called for an imminent night-time curfew for under-16s playing online computer games to be extended to mobile phones.

Concern over computer games is nothing new. Claims that marathon gaming sessions in South Korea’s “PC-bang” internet cafés have led to violence, including deaths, have prompted much soul-searching. All the same, the state seems too keen to use heavy-handed regulation. Its Game Rating Board (GRB), with the legal power to ban any game, now risks obstructing the development of an entire industry, one of the country’s most vibrant.

Graphic games such as Grand Theft Auto III are already off-limits to Korean gamers. But the chief problem is the GRB’s trouble keeping up with the sheer number of new mobile games being released on the iPhone and the rival Android platform, which Samsung uses. The board insists on a long approval process for even the most innocuous games. Apple and Google, which developed Android, are avoiding trouble by simply not selling any games to Korean customers. Related topicsCensorshipSocial issuesGamesHobbies and pastimesVideo games Yet many “indie” games developers in South Korea desperately want to reach customers. With talented programmers and a ready-made market of smartphone-owning game obsessives, this is a natural growth industry. The government pays lip service to the idea of encouraging entrepreneurship among the young. Yet the GRB, says Kim Jin-sung at Pig-Min, a games developer, is “the arch-enemy of the Korean gaming community”. This is all part of a bigger problem: technology-related censorship. In 2009 an online “economic prophet” who called himself Minerva was prosecuted for making gloomy predictions about the South Korean economy and casting aspersions on policymakers. The 30-year-old was later acquitted. The only charge that stuck was the state’s heavy-handedness. Unusually in a democracy, a “real-name” system is now in effect for those posting on popular online forums: any participant signing up to websites must use their national identity number. So would-be Minervas are now easily traced. The spread of false information carries a maximum punishment of five years’ imprisonment and a hefty fine. What is more, since 2008 a supposedly independent Korea Communications Standards Commission has had the remit to promote a “sound and friendly communications environment”. Critics argue that the commission serves as the government’s de facto internet censorship body. It is supposed merely to “advise” portals to remove articles believed to contain falsehoods, obscenity or statements in favour of North Korea that infringe the National Security Act. In fact it may issue administrative orders backed up by law, forcing content to be deleted. Unsurprisingly, its “advice” tends to be followed. Chang Ha-joon of Cambridge University, whose free-trade critique, “Bad Samaritans”, is on a list of books the defence ministry has banned troops from reading, argues that such efforts are counterproductive. “This is not the 1980s, when you could just cut a few telephone lines,” he says. Blocking free speech in one place would simply “start a bushfire” somewhere else. Much of the desire to control the flow of information and ideas can be traced back to longstanding fears over the spread of North Korean propaganda, which remains illegal. The administration of President Lee Myung-bak has additional suspicions about the power of IT thanks to massive, internet-driven protests against imports of American beef that brought Seoul to a standstill in 2008. Yet South Korea’s mild paranoia about controlling information harms its reputation as a liberal democracy and undermines its potential as a creative powerhouse. ◦