Convergence is Coming

http://www.ikjournal.com/


Ten years ago the really hot products to have were a laptop computer hooked up to that new-fangled thing called the Internet, a mobile telephone, and a flat screen television, plus a VCR.

Who wudda thunk that in so short a space of time that the then-new technologies that powered these enchanting gadgets would intertwine and mutate to produce then-unimaginable services and products based upon digitalization of information, a process that seems to open an almost infinite realm of possibilities and whose import is only just becoming apparent.

Now though a spate of new services available in Korea, via Internet Protocol TV (IPTV), it's possible to download the last episode of Desperate Housewives that you missed last night and watch it on a computer screen or television.

Through Korean developed Digital Multimedia Broad- casting technology (DMB, see IK Journal, Cover Story March/April 2005), it's now possible to watch TV programming, via satellite or terrestrial transmissions, on a handheld device even while traveling at speed.

Others on the move can use a phone enabled with high-speed downlink packet access (HSDPA) to download massive amounts of high-quality multimedia including games, movies, music, and yes, the phone can also be used as a phone!

It may have seemed cool to talk on a mobile phone 10 years ago but Voice over Internet Protocol (VoIP) not only allows users to make significant economies in making long-distance or international calls but also permits video connection by personal computers, to the betterment of relations, either personal or commercial.

Logging onto the Internet with your first laptop back in `97 was a thrill, but such was the technology at that time that you had to stay in one place -- indoors at that and close to a telephone jack -- to access the wonders of the information highway. That was then but this is now and through Korean-developed wireless broadband (WiBro), access to the Internet is not only always on (remember dial-up?) but accessible anywhere even (like DMB) in moving vehicles.

Welcome to the new era of digital technology convergence, one that will render obsolescent services that not too long ago were lauded as cutting edge and one where Korea is staking out its leadership, partly on the back of its groundbreaking homegrown technologies, partly through the power of its digital information networks -- wired and wireless -- but most certainly because of the incredible level of broadband access that allows the markets for these new technologies to be driven.

Korea has one the world's highest broadband penetration rates at 25.3 per 100 persons at end-2005. This translates into 12.3 million households or 77 percent of the total among a population of 49 million that are connected to high-speed Broadband service, mostly of the ADSL type (Asymmetric Digital Subscriber Line) although faster and more capable systems are being installed at the time of writing (see below).


BLURRING WIRED/WIRELESS DISTINCTIONS
Already vested with one of the world's fastest Internet speeds of 1.5 to 2 megabytes per second (Mbps), the government is currently constructing the nationwide Broadband Convergence Network (BcN) that will allow the transmission of data and images at speeds of 50 Mbps to 100 Mbps.

Meanwhile, on the wireless network front WiMax (Worldwide Interoperability for Microwave Access) offers upload/download speeds of 70 Mbps, WiBro offers 50 Mbps and HSDPA 14.4 Mbps (with plans in the works to raise speeds to 28.6 Mbps).

As wireless speeds match those of the wired network, and the differences between them become less apparent, Koreans will have access to a seamless, ubiquitous information platform that can be tapped into by numerous types of devices and appliances.

It is by the five technologies and systems of IPTV, DMB, HSDPA, WiBro and VoIP referred to above that will leverage the capabilities of these networks, drive the trend to convergence and thereby generate new market opportunities.

Certainly the stakes are high. Initially estimating a commercialization date for IPTV in Korea of 2006, the Research on Asia (ROA) Group projected that the service would attract as many as 570,000 subscribers by the end of the year producing revenues of 160 billion won (approximately US$154 million), rising to three million subscribers by end of 2012 who would provide an income flow to service providers of 770 million won (US$827 million at current rates). ROA based its prediction on the likely modes of delivery of the service with its implications for quality and breadth of accessibility: the Broadband Convergence Network and the equally speedy (100 Mbps) Fiber to the Home (FTTH) network. Cognizant that ADSL just doesn't have the capability to handle the traffic content of IPTV, Korea's largest Internet service provider KT (Korea Telecom) has embarked upon an ambitious program to connect every household in the country with FTTH service at a cost of US$1 billion.

So how is the ROA projection panning out? Full commercialization of IPTV has been delayed over regulatory issues but KT and Hanaro Telecom have weighed into the market offering non-real-time video on demand (VOD) content as opposed to live broadcasting. With the limited service they are able to provide, Hanaro Telecom's HanaTV attracted 330,000 subscribers paying 10,000 won per month by mid-February since its launch in July, while another 30,000 had signed up for KT's MegapassTV, available to homes equipped with the carrier's 100-Mbps optical local area network (LAN) service, by the end of January. Good news travels fast since NHN, operator of the Naver Internet portal, the country's most popular, has announced that it, too, will enter the IPTV market.

PREMIER LEAGUE FOR DMB?
What do IPTV subscribers currently get for their money? Besides retransmission of programming from on-air broadcasters KBS, MBC, SBS and EBS, MegapassTV users can have access to movies, music, and a number of interactive services that concern education, finance and a messaging service. While the DVD player has eclipsed the VCR, the movie downloads now possible through IPTV also call into question the convenience of such devices and threaten that venerable neighborhood institution, the video store. Along with real-time live broadcasting, IPTV is eventually expected to offer a broad range of home networking-type home automation and security services as well as securities dealing, banking and T-commerce, or television commerce, that is, shopping by TV via a suite of systems that includes interactive applications.

In a bid to overcome the regulatory obstacles to its introduction, the Ministry of Information committed itself in February to full commercialization of IPTV this year with enabling legislation promised for April.

As noted by Hanaro Telecom CEO, Park Byung-Moo, commercialized IPTV is the subject of eager anticipation by Korea's telecom players as it represents a broadcasting/telecom convergence business model through which to create new streams of revenue.

More developed as a market is Digital Multimedia Broadcasting. The subscriber-based satellite service (S-DMB) was introduced nationwide in May 2005 by SK Telecom subsidiary TU Media, and in the December of the year became available via terrestrial stations (T-DMB). Although this latter service has the advantage of being gratuitous it has restricted availability. S-DMB service offers 15 video channels, 19 audio channels, and three data channels, while its terrestial counterpart provides 11 TV channels, 25 radio, and eight data channels.

Like WiBro, DBM was developed by the Daejeon-based Electronics and Telecommunications Research Institute (ETRI) and debuted for the first time in Korea. Like IPTV, DMB is a new concept in multimedia transmission that converges telecommunications and broadcasting but with the major difference that reception is via mobile devices. It features crystal-clear reception and FM-quality sound even while traveling in a moving vehicle. Receivers are usually integrated into other systems such as laptop computers, mobile phones, portable media players (PMPs) personal digital assistants (PDAs) or in-car navigation systems.

So more than a year after the introduction of two rival DMB services -- S-DMB and T-DMB -- how have they fared? The fee-based satellite service run by TU Media is the clear winner. After investing heavily to eliminate reception "shadow" areas, the telecom giant watched its subscriber base climb toward the one-million mark in December 2005, and is garnering enough in the way of fees to invest back into quality programming and thereby further boost its popularity. In November, for example, TU Media revealed that it was in negotiations with the English Premier League to broadcast the league's matches on its S-DMB system this year.


TECHNOLOGY WITH A PEDIGREE
Terrestrial DMB, by contrast, has not yet succeeded in generating sufficient revenues through advertising, a situation compounded by the fact that the free service has wide shadow areas where it cannot be accessed. Therefore, the experience of TU Media points to a fee-based business model being that most likely to succeed with this particular technology.

If DMB is a form of convergence that elicits a passive response from its user (TV shows can only be watched), HSDPA might prompt a more interactive approach. Why, you might ask, is that guy with the mobile phone on the corner talking to himself, or more precisely, talking at his phone? Closer inspection will reveal that the telephone is far from conventional, featuring a split video screen with talking heads in each of its three segments. Hmmm.....mobile video conferencing in action!

High-Speed Downlink Packet (or Protocol) Access (HSDPA) is like a type of mobile broadband, but is, in fact, a 3.5G (three-and-a-half generation) mobile telephony protocol currently used by some 64 networks in 64 countries.

Like many high-technologies, HSDPA comes with a pedigree and one in which Korea has played a significant role. HSDPA is an advance on its predecessor, the 3G Wideband Code Division Multiple Access (W-CDMA), a CDMA channel, but one that is four times as broad as predecessor, CDMA proper. Second-generation CDMA, in turn, is a technology devised by Qualcomm of the United States, but one that was first commercialized in Korea by ETRI in 1996. The big improvement compared to WCDMA is download speed; HSDPA is as much as 10 times quicker than its predecessor. As such, downloading crisp-image movies, sophisticated multiplayer games and other massive files from the `Net is a cinch. As in the case of IPTV, the availability of such content via downloads brings into question the future of separate devices in the home on which to play them.

Given its history with the technology, Korea understandably became a leader in the building and operation of W-CDMA systems but this is now falling out of favor with carriers given the superior capabilities of HSDPA and its inherent potential for convergence and hence the provision of value added services. Korea Telecom and SK Telecom are building HSDPA networks across the country, with this latter carrier hoping to have the bulk of the population covered by installing service in 84 cities. In May last year, SK Telecom pipped KT to be the first to bring a commercial network into operation with Samsung simultaneously launching the world's first HSDPA handset, the W200. Major features of the phone that exemplify HSDPA's capability are video calls, Internet telephony (voice over Internet protocol, see below), ultra-high speed data transfer allowing the downloading of DVD-quality movies, a high-resolution (320x240 pixel) screen on which to view them, and an upload link allowing users to put their user-created contents (UCC) up on the Web. Did I mention global roaming? It is now possible to roam with the W200 in WCDMA-serviceed areas of Europe and Asia.


REPLICATING MOBILE INTERNET
Offering a download speed of 14.4 Mbps, KT launched its own HSDPA network the following July in 50 cities including Seoul with plans for a further 34 by year-end. Primary network supplier Korean/Canadian joint venture LG-Nortel supplied a 5.8-Mbps uplink packet while access to the network was provided initially by LG's SH-100 phone, with the promise of five more models to come.

The full effect of HSDPA, a form of wireless Internet that closely conveys the Web experience, will become fully apparent later this year when the two carriers complete their networks and full range of handheld terminals comes on the market. Telecom industry observers expected it to promote convergence through the greater availability of virtual communities such as Cyworld, on which 90 percent of Koreans in their twenties have a page, and music portals such as Jukeon.

SK Telecom CEO Kim Shin-Bae has pointed out that the convergence potential of HSDPA between digital cameras and mobile terminals such as laptops and PMPs is heightened by the use of a USB modem that can actually boost accessibility to the network. Moreover, he maintained the use of a Universal Subscriber Identity Module (USIM) would promote convergence in mobile banking and credit card services since a smart card bearing a single chip would allow transactions with numerous financial institutions.

If HSDPA comes close to replicating mobile Internet, WiBro is mobile Internet, offering flawless connection at speeds of up to 120 kilometers per hour. The two have different operating platforms and both can offer voice and videophone calls making them natural competitors, although WiBro has yet to offer these services.

WiBro was developed by ETRI in collaboration with Samsung as a Korean version of WiMax (Worldwide Interoperability for Microwave Access) to provide a broader range of function than represented by the mobile phone and a mobile version of broadband Internet. The Internet connectivity of WiBro depends on base stations operating at speeds of up to 50Mbps. Through a network of such stations covering parts of Seoul and surrounding cities, Korea Telecom and SK Telecom launched commercial WiBro services in mid-2006.


THE WIBRO NICHE
It may be early days for WiBro but subscriptions have failed to meet expectations and KT has halted its program of network expansion. It is deemed a superior 4G technology to the more popular 3.5G HSDPA as it offers speeds three times faster, but perhaps it is a question of it finding its niche. Premier telecom provider SK Telecom maintains that WiBro is meant to complement HSDPA rather than compete with it. For this reason, the company intends to make WiBro available only in densely populated university areas or business districts, while deeming HSDPA more suitable for national coverage.

The Korean Information Strategy Development Institute (KISDI), a government sponsored think tank, has recognized the potential for competition between HSDPA and WiBro but stresses that they are essentially suited to different markets. KISDI has argued that because WiBro is directly connected to the Internet provider (IP) backbone, it is better suited to handling large data transfers such video (and music)-on-demand, network gaming, game downloading, and e-mail. HSDPA, on the other hand is a more appropriate technology for the transfer of data of a more limited scale such as short messaging services (SMS), video telephony, and banking and securities transactions.

One impressive success of WiBro to date is its adoption by telephony operators Sprint of the United States and KDDI of Japan as their mobile Internet platform of choice in their respective countries. Perhaps success overseas for this stellar Korean technology will encourage its broader use at home.

VoIP (voice over Internet protocol) has the power to effect huge savings and directly create new markets to support the service. In all, it is big business, and domestic Korean companies have not been slow to recognize the potential offered by foreign providers. Kookmin Bank, Korea's largest, selected Nortel of Canada in 2002 to provide a single next-generation network (NGN) voice over IP (Internet protocol) and multimedia solution for its call centers in Seoul and Daejeon. The following year, Nortel found itself selected once more, this time by telephony and data communications company Dacom Corp. to provide a similar solution in a deal that included products from Nortel Networks Multimedia Communications.

The year 2006 was marked by renewed interest by overseas VoIP solutions providers in the Korean market.

U.S.-based Skype, the world's most popular VoIP provider and now acquired by eBay, launched services in Korea in February 2006 after being attracted by the potential of what the company described as the world's leading broadband infrastructure. In keeping with its usual practice, Skype makes no charge for PC-to-PC calls, but charges a small fee for international PC-to-phone calls.

IDEAL MARKET
The Korean market attracted another major player in the VoIP field when Broadsoft of the United States launched its mobile VoIP software platform Nov. 1st, claiming high-profile corporates Korea Telecom, Samsung Networks, SK Telink and Hanaro among its clientele.

"Korea leads the world in next-generation mobile communications services, such HSDPA, making it an ideal market for our Broadworks mobile PBX, mixed/mobile convergence solutions," said Ken Rokoff, vice president of business development and Asia/Pacific sales. (A PBX is a private branch exchange, a private telephone network used within an enterprise).

Meanwhile, the newly established Korea Cable Telecom -- a nationwide consortium of seven cable operators -- began VoIP services last August. The launch followed government approval of the consortium the previous March in order to create synergy between the broadcasting and telecom sectors, and to further the success of cable-based convergence services.

IDC Korea projects that the Korean VoIP service market will grow 54 percent annually, from US$250 million in 2006 to US$1 billion in 2009, and that IP convergence products will drive the VoIP device market to US$263.5 million by 2009.

The Internet Society (ISOC), a think tank comprised of professionals worldwide, observed the massive efficiencies of VoIP compared to traditional telephony systems in a 2006 paper. The society highlighted its relatively low cost of deployment in system terms, and stated that a country would be at a disadvantage if it did not embrace the protocol while warning of the impending obsolescence of circuit-switched networks.

Doubtless, Korea is in the process of embracing VoIP in a manner that may eventually result in a radical alteration in the nature of the telecommunications industry. Indeed, the impact of VoIP may well be taken as an example as to how technological convergence is bringing subtle but immense change for the Korean economy and society. Convergence is coming, and with it, new industries and lifestyles that are guaranteed to fuel the dynamism that is the essence of Korea. ◦

Convergence is Coming

Digital South Korea's Wireless World

March 12, 2007

A next-gen wireless broadband network will allow Koreans to use high-speed apps on their mobile handsets. And it's sure to power big growth

by Moon Ihlwan

South Korea, with its blisteringly fast broadband networks and tech-happy consumer base, is one of the most wired societies in Asia, if not the world. And if a new next-generation wireless broadband network under development here lives up to the hype, South Korean consumers could soon be enjoying such high-speed data applications as video conferencing, file swapping, or catching TV entertainment on their mobile phones anytime, anyplace.

That is the hope of engineers at South Korea's flagship telecom operator KT (KTC), who are trying to work out any potential kinks in the company's new wireless broadband network. In April, the company will roll out a new high-speed network based on a technology called Mobile WiMAX (as in worldwide interoperability for microwave access) in Seoul.

This will be the first time that Mobile WiMAX—by far the fastest wireless broadband standard available today—will be made available in such a large metropolitan market. It could be a powerful source of revenue for KT—whose fixed-line business is facing slower growth—and a big step forward for South Korea in its quest to stay at the forefront of information technology innovation.

"Turbocharge" Growth
This wireless network, which is called WiBro—short for wireless broadband—in Korea, boasts peak data download speeds of 16 megabits per second. (The upload speed is about seven megabits per second). It is based somewhat on the WiMAX technology developed and heavily promoted by Intel (INTC) as the next big thing in mobile communication. However, Korean engineers in the private sector and working at the state-run Electronics & Telecommunications Research Institute have made significant engineering changes to adapt Mobile WiMAX for handling high-speed data transmissions.

A successful commercial launch would spur innovation, create new consumer markets, and boost South Korea's digital credentials internationally, the government hopes. "The IT sector has been the engine of our economic growth," says Lee Sang Jin, director at Korea's Ministry of Information and Communication. "We must try to create leading-edge environments to turbocharge this engine."

South Korea has already made some significant strides. One can point to the widespread use of the Internet and digital gadgets at home—or the rise of Samsung Electronics and LG Electronics as world-class competitors in consumer electronics, mobile phones, and high-end memory chips over the last decade.

Trade Powerhouse
Nearly 90% of the nation's 15.9 million households enjoy broadband Internet access and virtually all adults and teenagers carry mobile phones, the bulk of them capable of surfing the Net and handling multimedia services. And policymakers are determined to turn the country into testing ground for all things digital (see BusinessWeek.com, 1/29/07, "The Mobile Internet's Future is East").

That's important for local companies that want to try out new gadgets or digital applications at home before exporting them abroad. Shipments of IT products and parts last year totaled $113.4 billion and accounted for 35% of the country's total exports abroad. The sector also racked up a trade surplus of $54.5 billion in 2006 against a deficit of $38.1 billion in trade of non-IT products. In the past four years, South Korean IT industries represented nearly half of the expansion in Korea's overall economy, according to government statistics.

For instance, Samsung is rolling out a new line of multitasking mobile gadgets with the new KT wireless broadband network in mind. One product is a smartphone and an all-purpose portable device called the Deluxe MITs, short for mobile intelligent terminal by Samsung. The MITs, whose prototype was first unveiled during an industry conference on Mobile WiMAX last November, functions like an ultra-mobile personal computer, in addition to being a high-end mobile phone and camera (see BusinessWeek.com, 11/8/06, "Samsung's Next-Gen Wireless Vision").

Export Potential
In close cooperation with KT, Samsung engineers have made sure its WiBro gadgets meet both consumer and business needs. The mobile intelligent terminals allow a consumer moving in a vehicle at a speed of 60 mph to download games and transmit photos. A business traveler could hold a video conference with clients showing changes in an Excel spread sheet called up on the screen.

There is also considerable export potential if overseas telecoms adopt this network technology. Samsung has either signed agreements or is in talks with more than 30 overseas carriers, including British Telecom (BT), France Telecom (FTE), KDDI of Japan, and Sprint Nextel (S) to supply Mobile WiMAX equipment or handhelds.

Much hinges, though, on how well KT commercializes the service at home. "A success story in a test bed here will serve as a springboard for our marketing push abroad," says Kim Song Shin, senior manager at Samsung's telecom division.

Betting on User-Created Content
With consumer demand for high-speed connectivity strong in rich world markets, the Koreans could be at the forefront of a lucrative segment. Researcher Yankee Group projects the global Mobile WiMAX infrastructure market will amount to nearly $4 billion in three years and device sales of the technology will hit 32 million units globally by 2011.

Korean companies are also exploring rival wireless technologies. KTF, a subsidiary of telecom giant KT and Korea's second largest wireless carrier, this month became the world's first company to launch a nationwide wireless broadband network using a competing technology called HSDPA, or High-Speed Downlink Packet Access, promoted by wireless chipmaker Qualcomm (QCOM). Both Samsung and its crosstown rival LG make HSDPA handsets, too.

For Mobile WiMAX, KT is pinning its hopes on the explosive growth in user-created content, and increasing demand for swapping photos, music, and video data at ever-faster speeds. "We believe WiBro will become a significant contributor to our revenues and profits by 2010, when we expect to have a subscriber base of four to five million," says Cho Sung Kil, director at KT's mobile Internet business group.

Government-Led Effort
Nevertheless telecom analysts expect WiBro and HSDPA to complement each other, given the faster speed of the former and the latter's wider area coverage. To accommodate such needs, the Seoul government has recently allowed telcos to offer services in a mix of various networks based on different technologies. KT is offering a USB-based modem with connectivity for both HSDPA and WiBro for PC users.

Whatever the outcome, Seoul isn't letting up in its drive to keep the country in the vanguard of telecom infrastructure. In the past three years, the government spent $563 million on research and pilot projects, thereby prompting private companies to invest $20.9 billion in building a so-called broadband convergence network (BCN) designed to integrate wired and wireless systems and the telecom and broadcasting sectors. The country plans to invest many more billions to increase the number of BCN-latched households from 5.5 million at the end of 2006 to 8.2 million in 2007—and virtually all urban households by 2010.

The BCN systems will allow companies and consumers to send voice, text, photos, and video all through the same pipe. KT says the company alone has earmarked some $10 billion for BCN over a five-year period until 2010, when most Koreans will be able to send data at ultra-fast speeds—between 50 megabits and 100 megabits per second.

"A Trigger Unleashing Innovation"
Information and Communication Ministry officials say the government also wants to lead the way to foster two new IT areas for future growth. One is the ubiquitous sensor network, or USN, aimed at letting smart machines and products communicate with each other. That network will use radio-frequency identification technology for industries and government to manage logistics and distribution.

Another IT segment policymakers are pushing hard to develop is software and digital content. To help create a cluster of related companies, the government is due to launch "Nuritkum Square" comprising four buildings in Seoul, in November, at the cost of $386 million. For the USN and radio chip project, the government last December began building a $334 million research and development and manufacturing site in the Songdo special economic zone, west of Seoul. "The government wants to be a trigger unleashing innovation by Korea's IT companies," says Lee of the Korean information ministry.

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Digital South Korea's Wireless World

Korea and Japan: New Technology, Old Habits

Despite world-class IT networks, Japanese and Korean workers are still chained to their desks
by Moon Ihlwan and Kenji Hall

Masanori Goto was in for a culture shock when he returned to Japan after a seven-year stint in New York. The 42-year-old public relations officer at cellular giant NTT DoCoMo (DCM) logged many a late night at his Manhattan apartment, using his company laptop to communicate with colleagues 14 time zones away. Now back in Tokyo, Goto has a cell phone he can use to send quick e-mails after hours, but he must hole up at the office late into the night if he needs to do any serious work. The reason: His bosses haven't outfitted him with a portable computer. "I didn't realize that our people in Japan weren't using laptops," he says. "That was a surprise."

A few hundred miles to the west, in Seoul, Lee Seung Hwa also knows what it's like to spend long hours chained to her desk. The 33-year-old recently quit her job as an executive assistant at a carmaker because, among other complaints, her company didn't let lower-level employees log on from outside the office. "I could have done all the work from home, but managers thought I was working hard only if I stayed late," says Lee.

These days, information technology could easily free the likes of Goto and Lee. Korea and Japan are world leaders in broadband access, with connection speeds that put the U.S. to shame. And their wireless networks are state of the art, allowing supercharged Web surfing from mobile phones and other handhelds, whether at a café, in the subway, or on the highway. But when it comes to taking advantage of connectivity for business, Americans are way ahead.

For a study in contrasts, consider the daily commute. American trains are packed with business people furiously tapping their BlackBerrys or Treos, squeezing a few extra minutes into their work days. In Tokyo or Seoul, commuters stare intently at their cell phone screens, but they're usually playing games, watching video clips, or sending Hello Kitty icons to friends. And while advertising for U.S. cellular companies emphasizes how data services can make users more productive at work, Asian carriers tend to stress the fun factor.

Why? Corporate culture in the Far East remains deeply conservative, and most businesses have been slow to mine the opportunities offered by newfangled communications technologies. One big reason is the premium placed on face time at the office. Junior employees are reluctant to leave work before the boss does for fear of looking like slackers. Also, Confucianism places greater stock on group effort and consensus-building than on individual initiative. So members of a team all feel they must stick around if there is a task to complete. "To reap full benefits from IT investment, companies must change the way they do business," says Lee Inn Chan, vice-president at SK Research Institute, a Seoul management think tank funded by cellular carrier SK Telecom (SKM). "What's most needed in Korea and Japan is an overhaul in business processes and practices."

TIME, NOT TASK.in these countries, if you're not in the office, your boss simply assumes you're not working. It doesn't help that a lack of clear job definitions and performance metrics makes it difficult for managers to assess the productivity of employees working off site. "Performance reviews and judgments are still largely time-oriented here, rather than task-oriented as in the West," says Cho Bum Coo, a Seoul-based executive partner at business consulting firm Accenture Ltd. (ACN)

Even tech companies in the region often refuse to untether workers from the office. Camera-maker Canon Inc. (CAJ) for instance, dispensed with flextime four years ago after employees said it interfered with communications, while Samsung stresses that person-to-person contact is far more effective than e-mail. In Japan, many companies say they are reluctant to send workers home with their laptops for fear that proprietary information might go astray. Canon publishes a 33-page code of conduct that includes a cautionary tale of a worker who loses a notebook computer loaded with sensitive customer data on his commute. At Korean companies SK Telecom, Samsung Electronics, and lg Electronics, employees must obtain permission before they can carry their laptops out of the office. Even then, they often are barred from full access to files from work. And while just about everyone has a cell phone that can display Web pages or send e-mails, getting into corporate networks is complicated and unwieldy.

The result: Korean and Japanese white-collar workers clock long days at the office, often toiling till midnight and coming in on weekends. "In my dictionary there's no such thing as work/life balance as far as weekdays are concerned," says a Samsung Electronics senior manager who declined to be named. Tom Coyner, a consultant and author of Mastering Business in Korea: A Practical Guide, says: "Even your wife would think you were not regarded as an important player in the office if you came home at five or six."

These factors may be preventing Japan and Korea from wringing more productivity out of their massive IT investments. Both countries place high on lists of global innovators. For instance, Japan and Korea rank No. 2 and No. 6, respectively, out of 30 nations in terms of spending on research and development, according to the Organization for Economic Cooperation and Development. And the Geneva-based World Intellectual property Organization says Japan was second and Korea fourth in international patent filings. But when it comes to the productivity of IT users, both countries badly lag the U.S., says Kazuyuki Motohashi, a University of Tokyo professor who is an expert on technological innovation. "Companies in Japan and Korea haven't made the structural changes to get the most out of new technologies," he says.

Still, a new generation of managers rising through the ranks may speed the transformation. These workers are tech-savvy and often more individualistic, having come from smaller families. Already, some companies are tinkering with changes to meet their needs. SK Telecom abolished titles for all midlevel managers in the hopes that this would spur workers to take greater initiative. Japan's NEC Corp. (NIPNY) is experimenting with telecommuting for 2,000 of its 148,000 employees. And in Korea, CJ 39 Shopping, a cable-TV shopping channel, is letting 10% of its call-center employees work from home.

Foreign companies are doing their bit to shake things up. In Korea, ibm has outfitted all of its 2,600 employees with laptops and actively encourages them to work off site. The system, which was first introduced in 1995, has allowed the company to cut back on office space and reap savings of $2.3 million a year. One beneficiary is Kim Yoon Hee. The procurement specialist reports to the office only on Tuesdays and Thursdays. On other days, calls to her office phone are automatically routed to her laptop, so she can work from home. "It would have been difficult for me to remain employed had it not been for the telecommuting system," says Kim, 35, who quit a job at a big Korean company seven years ago because late nights at the office kept her away from her infant daughter. "This certainly makes me more loyal to my company."

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Korea and Japan: New Technology, Old Habits

Why Seoul is soft on North Korea

BY B.R. MYERS
December 24, 2006

No country today is as misunderstood as North Korea. Journalists still refer to it as a Stalinist or communist state, when in fact it espouses a race-based nationalism such as the West last confronted during the Pacific War. Pyongyang's propaganda touts the moral superiority of the Korean race, condemns South Korea for allowing miscegenation, and stresses the need to defend the Dear Leader with kyeolsa, or dare-to-die spirit--the Korean version of the Japanese kamikaze slogan kesshi. The six-party talks are therefore less likely to replicate the successes of Cold War détente than the negotiating failures of the 1930s. According to early reports from Beijing, the North Korean delegation appears more confident than ever. It has clearly been emboldened not only by its accession to the nuclear club, but by the awareness that Seoul will continue providing food and financial support no matter what happens.

This support is not meant to expedite unification, which South Koreans are happy to put off indefinitely. Nor has it much to do with concern for starving children; by now everyone knows where the "humanitarian" aid really goes. No, the desire to help North Korea derives in large part from ideological common ground. South Koreans may chuckle at the personality cult, but they generally agree with Pyongyang that Koreans are a pure-blooded race whose innate goodness has made them the perennial victims of rapacious foreign powers. They share the same tendency to regard Koreans as innocent children on the world stage--and to ascribe evil to foreigners alone. Though the North expresses itself more stridently on such matters, there is no clear ideological divide such as the one that separated West and East Germany. Bonn held its nose when conducting Ostpolitik. Seoul pursues its sunshine policy with respect for Pyongyang.

The relationship between the Koreas can therefore be likened to the relationship between a moderate Muslim state such as Turkey and a fundamentalist one like Iran. The South Koreans have compromised their nationalist principles in a quest for wealth and modernity, and while they're glad they did, they feel a nagging sense of moral inferiority to their more orthodox brethren. They often disapprove of the North's actions, but never with indignation, and always with an effort to blame the outside world for having provoked them. (The same is true of moderate Islam's response to fundamentalist terrorism.) To be sure, there was public anger at Kim Jong Il when his nuclear test made stock prices drop in Seoul, but it dissipated the moment the U.S. began talking sanctions. Seoul has since made clear that the nuclear issue will have no significant effect on its sunshine policy. This earns it no goodwill from the North, mind; between soft-liners and hard-liners, sympathy can only go in one direction.

The ideological landscape of the peninsula defeats the reasoning that led to the six-party talks in the first place. North Korea is not a communist country with ideological and sentimental reasons to listen to China and Russia; it is a virulently nationalist state that distrusts all the other parties at the table. And though the rhetoric of a "concerted front" against North Korea has proved to be just that, it has sufficed to heighten South Korea's sense of solidarity with the North. This will continue to mean plenty of aid money for Kim Jong Il with which to build weapons. The U.S. has urged Beijing to bring more pressure to bear on the North. But if America can do nothing with its own ally, it can hardly expect the Chinese to do more with theirs. ◦

Why Seoul is soft on North Korea

Problems for foreign investors in South Korea

Public Scorn For Private Equity

Spurred by the outcry over huge profits, prosecuters are going after foreign firms Lone Star Funds of Dallas is one of the savviest global investors around. Its managers have put more than $13 billion to work in buyouts and other deals around the globe. A big coup: bagging 51% of Korea Exchange Bank, one of South Korea's largest financial institutions, in 2003 for the low price of $1.5 billion. After cleaning out the bad debt and sprucing up customer service, Lone Star and its local partners were ready this year to sell out to Kookmin Bank (KB ) of Korea for an estimated profit of almost $5 billion.

Lone Star, however, did not count on rising Korean wrath over the huge returns foreign private-equity firms have scored by buying and selling local assets. And Lone Star certainly did not count on aggressive prosecutors in Seoul delving into the Korea Exchange Bank deal for possible criminal wrongdoing. On Nov. 20 prosecutors indicted the Belgian company Lone Star set up to take over the Korean bank. The charge: stock price manipulation. On Nov. 16 a Seoul court even issued warrants for the arrest of Lone Star co-founder Ellis Short and Lone Star's general counsel.

The indictment caps almost a year of street protests, court maneuverings, and blistering newspaper editorials, all on the subject of Lone Star. The Texas firm declined to comment to BusinessWeek, but on Nov. 13, Chairman John Grayken accused the Korean prosecutors of making "slanderous claims against Lone Star and its employees." The ferocity of the Korean investigation has alarmed observers. "I'm worried about this pseudo-nationalist fervor being whipped up," says Kim Sang Jo, a leading shareholder activist. "This could discourage foreign investment." One local private-equity fund manager says he already knows of foreign investors who are steering clear of Korea. Foreign players now have big exposure in Korea. Non-Koreans own some 40% of all shares traded on the Seoul bourse, while foreign direct investment has totaled some $90.8 billion since the Asian crisis in 1997.

Although the Lone Star case has the highest profile, other investment funds have come under intense scrutiny. In April prosecutors charged the local head of U.S.-based Warburg Pincus with insider trading in connection with the 2003 purchase of troubled LG Card Co.: He is still on trial. Another U.S. fund, Newbridge Capital, was investigated last year by the tax office for allegedly making a $1.2 billion tax-free profit from the sale of its interest in Korea First Bank. The tax office has declined comment on the probe's status.

Korean prosecutors accuse Lone Star executives of manipulating the stock price of Korea Exchange Bank's credit-card unit, which once traded separately from the bank. The prosecutors allege that after Lone Star purposely depressed the shares of the credit-card business, it scooped up the subsidiary for a bargain price. A separate investigation is under way into allegations that Lone Star executives bribed regulators into letting the U.S. firm inflate the value of bad loans on Korea Exchange's books. That way, say prosecutors, Lone Star got to pay even less for the bank.

FROM SAVIOR TO DEMON

Koreans also think the huge tax-free profits earned by foreign funds in their country are a scandal. Tax authorities have argued that many private-equity funds sheltered their Korean profits from taxes by setting up companies in tax havens to control their Korean assets.Beneath the legal wrangling is a dramatic change in Korean psychology. In 2003, Lone Star was hailed as a savior, the brave outsider willing to invest in financially troubled Korean companies. Now it's depicted as a demon bent on making a quick buck and trampling corporate ethics underfoot. As one local paper, The Herald Business put it, no other tax evader was more "habitual and wicked" than Lone Star. Whatever the validity of the prosecution's case, Korea risks reverting to an earlier suspicion of foreigners that sharply limited outside investment.

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Problems for foreign investors in South Korea

Political confusion in South Korea

North Korea's nuclear test leads to political confusion in the South
IT IS a place of mythical beauty—its peaks and pine forests the stuff of songs and scroll paintings—but Mount Kumgang, just on the northern side of the divided Korean peninsula, has become a symbol of all that is troubled about South Korea's policy towards its bad neighbour. Since 1998 the South has run a tourist resort at Mount Kumgang, which 1.4m South Koreans have visited. For Roh Moo-hyun, South Korea's president, this (along with a miserable light-industrial park at Kaesong) was proof that his strategy of engaging with North Korea, known as the “sunshine policy”, was bearing fruit. But since North Korea exploded a nuclear device on October 9th, if not before, the fruit has been foul.

The point of engaging North Korea was to coax Kim Jong Il and his regime to behave better. Engagement was supposed to bring economic benefits to the benighted North; a modicum of mutual trust was meant to lessen its threat. These assumptions were badly upset in July, when Mr Kim conducted missile tests; his nuclear test has blown them away. Mr Roh's administration, which has another year to run, is discredited, its popularity rating in the teens. This week both the defence minister and the minister for unification offered to resign.

Quite right too, say Mr Roh's opponents. In particular, the nuclear tests have stirred anger at the money given over several years to a foul regime: public and private money, above the table and under it. More thoughtful critics say the sunshine policy was originally a sensible one, meant to transform the North with a view to reunification. But engagement, particularly under Mr Roh, became an end in itself. Thereby, it can be argued, the policy changed the South more than the North.
How much money it has cost the South may never be known. At the government's urging, Hyundai, a family-held conglomerate, sent some $500m discreetly to Mr Kim to secure a historic summit in 2000 between the Dear Leader and the architect of the sunshine policy, the then president, Kim Dae-jung (no relation). The opposition Grand National Party (GNP) claims that, officially, some $1.2 billion of government cash has gone to North Korea since 1998 (not counting lashings of humanitarian aid, now temporarily suspended). The government disputes that figure but, amazingly, no full audit trail exists.

Among other things, the South Korean government has subsidised visits to Mount Kumgang. These subsidies, it promises, will now stop, but a big chunk of the revenues from the resort—the 40,000 visitors in a usual month pay up to $500 each—will continue to go straight into the regime's pocket. In all, Hyundai, which built the resort and runs it, has sent $850m in royalties to Mr Kim and his cronies.

America's secretary of state, Condoleezza Rice, and its envoy for North Korea, Christopher Hill, who visited South Korea last week, are critical of the Mount Kumgang resort, which they believe generates cash for weapons of mass destruction. In addition, in talks this week over a proposed free-trade agreement between South Korea and the United States, American negotiators made it plain that imports from North Korea through the Kaesong zone could play no part in such a deal—thereby undermining the zone's rationale. The GNP has criticised both projects.

Yet Mr Roh and the ruling Uri party continue to defend them. They are, after all, the only fruits of engagement. During Ms Rice's visit, Ban Ki-moon, South Korea's foreign minister, who will soon become secretary-general of the United Nations, emphasised the “positive aspects” of the industrial park, as well as the “symbolic” importance of Kumgang in reconciling the two Koreas. The Uri party's chairman, Kim Geun-tae, goes further, claiming the Kumgang tours are needed more than ever.

Though Mr Roh's government has given its approval to stiff American-led sanctions against North Korea, which were passed by the UN Security Council on October 14th, it in fact shows little appetite for confrontation. That is partly because many South Koreans share a blind faith in the ultimate benign nature of the North's brutal regime—about which they are remarkably ill-informed. On October 25th North Korea said the South's participation in the sanctions would be a “declaration of confrontation” for which it would pay “a high price”.

Most Southerners think the North's crude nuclear capability does not represent a big new threat to them. North Korean artillery, after all, has long been positioned within range of Seoul's northern suburbs. Meanwhile, South Korea's predominant political consensus, says Andrei Lankov of Kookmin University in Seoul, is to seek gradual change north of the border in ways that might eventually narrow the vast income gap between the two sides. Tightening the screws too far risks goading Mr Kim to strike back. A collapse of the regime, followed by reunification, would impose unbearable costs on the South. Even the opposition GNP, says Park Jin, a member of the party, believes in maintaining dialogue with the North, while adding some pressure.

It is a path that is likely to lead South Korea increasingly into conflict with America, which wants stiffer confrontation with the North. In annual bilateral defence talks last week in Washington, DC, America's secretary of defence, Donald Rumsfeld, pressed South Korea to join the American-led Proliferation Security Initiative, which is designed to interdict ships carrying material for weapons of mass destruction. The South Korean government is vacillating, fearing that this would rile the North and so increase the nuclear threat.

http://www.economist.com/world/asia/displaystory.cfm?story_id=E1_RDRGSJQ ◦

Political confusion in South Korea

Cartoon: Unilaterally

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Cartoon: Unilaterally

Who Can Stop North Korea Now?

WITH the possible exception of South Africa, no country that has tested an atomic bomb has given its nuclear weapons up. So no matter what the world now does to punish North Korea for its underground test on October 8th, Kim Jong Il's hermit kingdom is likely to hang grimly on to its bomb. If you are the paranoid dictator of a friendless state that is still technically at war with both South Korea and the United States, a nuclear arsenal is your ultimate insurance policy.
To say this is not to say that North Korea should go unpunished. On the contrary, it must be punished even if the punishment is unlikely to change its ways. That is because other would-be nuclear proliferators, with Iran to the fore, are now watching to see whether it is really as easy as Mr Kim has made it look to go nuclear in defiance not only of the dire warnings of the United States and the United Nations but also of powerful neighbours such as Russia and China.

In New York the UN Security Council denounced the North Korean test. George Bush refuses to take any option off the table, implying a readiness to react with military force. Yet America has few military options. Even without nuclear weapons, Mr Kim in effect holds the South Korean capital, Seoul, hostage: his conventional rockets and artillery could rapidly flatten much of the city, killing tens of thousands. And although the Americans could bomb the North's reactors, they do not seem to know where the regime hides its fissile materials and any bombs it has made from them.

Hopes of applying tough new pressure on Mr Kim therefore rest mainly on China. The Chinese could, if they wished, starve North Korea's people and switch off its lights. They are also very angry. Having denounced Mr Kim's “brazen” disregard of world opinion, China went on to speak for the first time of the need for (“appropriate”) punitive action (see article). But Mr Kim, for all his megalomania and paranoia, is a shrewd tactician. He has evidently made a bet with himself that for all their huffing and puffing the Chinese will not in the end want to blow his regime down. And he may be right.

A strategy of sanctions has two weaknesses. One is that Mr Kim, who has already presided nonchalantly over mass starvation inside his country, cares little about the suffering of his own people; he knows that China knows it could cut off his fuel and food and still not force him to give up his bomb. The other is that really harsh sanctions might bring about the sudden collapse of his regime. And however angry China may be about Mr Kim's bomb, it has so far sadly seemed much more anxious to ensure that his regime does not collapse.

Why so? The main threat a North Korean bomb poses to China is indirect: it might persuade Japan to arm itself with nuclear weapons too, though Japan rules this out for now. By contrast, both China and South Korea would face immediate consequences if Mr Kim's regime imploded. Fine if an orderly coup installed a more pliant government, or if (the blithe hope underpinning the South's “sunshine policy”) the North could be guided gradually towards political openness and economic sanity. But a sudden collapse could be highly unpredictable and perhaps violent, spilling millions of desperate refugees into both China and South Korea and lumbering both with the vast, unwanted expense of rescue or reunification.

In 2002 Mr Bush lumped Iraq, North Korea and Iran together in an “axis of evil” and said he would stop them acquiring nuclear weapons. He implied that regime change in Iraq might be followed by regime change in North Korea and Iran. Now one says it has the bomb and the other is ignoring Security Council orders to stop enriching uranium. The anti-proliferation policy Mr Bush put at the forefront of his foreign policy has been a colossal failure. Is there any way to turn it round?

Not if the big powers follow Mr Kim's script. He plainly expects them to wax briefly indignant but then shrug their shoulders and learn to live with his bomb, just as they live with those of Israel, India and Pakistan. Mr Kim says it was America's threats that made him seek a deterrent. Some will cite this as proof that a policy of sanctions is self-defeating.

But this is a misunderstanding. Since Iraq, Mr Bush has tried to build coalitions against proliferation. China took the lead in the six-country talks on North Korea; Britain, France and Germany took the lead on Iran. The trouble is that when persuasion has failed the other big powers have refused to apply pressure. China is set on protecting Mr Kim, and both China and Russia are pathetically reluctant to clamp even mild sanctions on a rising, energy-rich power such as Iran.

If the world is to prevent the spread of nuclear weapons, the Russians and Chinese will have to give up some serious interests in order to cause real pain to proliferators. Good relations with Iran are worth sacrificing for the bigger aim of preventing a chain reaction of proliferation across the Middle East. As for Mr Kim, the moment has come for his neighbours to see the folly of paying for short-term stability by propping up a dictator who has slipped dangerously out of control, and whose nuclear delinquency threatens to spark a much wider nuclear arms race in Asia. That would be in nobody's interest. Both China and South Korea ought now to follow Japan and back tough sanctions even if these do topple the regime. It will fall one day anyway, and this is the time to prepare.

America may need to make sacrifices too. It was not Mr Bush who sent North Korea and Iran on their nuclear trajectories: both started their programmes decades ago. But such regimes need to believe that they can desist and still be safe. Tough sanctions must therefore be coupled with clearer incentives. Mr Bush has already told both governments he has no desire to remove them. If they need stronger guarantees he should give them—in return for a verifiable end to their weapons programmes. It will not be easy for a president who wanted to spread democracy to do this. But that, in an imperfect world, may be the price of preventing dictators from controlling the weapons that could kill millions.

http://www.economist.com/index.html

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Who Can Stop North Korea Now?

Defector: Kim's ouster would stop nukes

By KWANG-TAE KIM
Associated Press Writer
October 17, 2006

The man once considered the mentor of North Korean leader Kim Jong Il said Tuesday that the reclusive country's nuclear weapons program cannot be stopped unless the strongman is ousted.
But Kim's total grip on the communist society makes that only a remote possibility, Hwang Jang Yop, the highest-ranking North Korean government official ever to defect to South Korea, told The Associated Press.

The 83-year-old Hwang, wearing a lapel badge in the shape of the South Korean national flag, is also skeptical that United Nations sanctions imposed on the North for a nuclear test explosion will hurt Kim's rule.

"I don't think his grip on power will be significantly weakened," Hwang said, adding that South Korea continues to give aid to North Korea, while other countries, most notably China and Russia, are opposed to the idea of pressuring the North.

Hwang, who seldom gives interviews, made his surprising defection in 1997 when he and an aide took refuge in the South Korean embassy in Beijing while on a visit to the Chinese capital. At the time, he was a longtime member of the North's elite, serving as secretary of the ruling Workers' Party.

He had been close to the country's founder, Kim Il Sung, the father of Kim Jong Il, and is often described as the younger Kim's former mentor. Hwang is also widely seen as the intellectual architect of the North's "juche" philosophy of self sufficiency.

After intense negotiations between China and South Korea, Hwang eventually left Beijing for the Philippines, where he stayed briefly before making his way to Seoul.

Now under police protection 24 hours a day to prevent any North Korean attempt on his life, Hwang said the six-nation talks aimed at ending the North's nuclear weapons program will not resolve the crisis.

He said South Korea, the U.S., China, Russia and Japan should not bargain with the North. They should instead isolate the regime, he said, calling it an "international criminal organization and the enemy of democracy."

The North's nuclear test last week was not Kim's last card and the North Korean leader could still test fire more missiles like he did in July and even mount nuclear warheads on them, Hwang said.

"It is nonsense to urge the North to abandon its nuclear weapons with Kim in place," he said.
Hwang said China is key to bringing an end to Kim's regime.

China is the last remaining ally and main aid donor to its impoverished neighbor, but their relations have been strained by Beijing's support of the U.N. resolution. Still, Beijing succeeded in blocking an even tougher one pushed by the U.S. and Japan.

"No Chinese officials like the North Korean leader, but they keep him in power," Hwang said, adding that Kim's regime serves Beijing's interests by helping keep U.S. influence in the region at bay.

Hwang said the best-case scenario would be if the North pursued economic openness and reform in trying to rebuild its dismal economy, which he said would likely lead eventually to Kim's overthrow and naturally resolve the nuclear dispute.

But Hwang doubts that will happen. "Kim Jong Il actually fears Chinese-style economic reform and openness coming to North Korea," he said.

http://news.yahoo.com/s/ap/20061017/ap_on_re_as/koreas_top_defector_1 ◦

Defector: Kim's ouster would stop nukes

What can we do next in North Korea?

October 17, 2006

The Sunday Orlando Sentinel had two thoughtful and pleasantly nonpartisan articles in the op-ed page titled "A Closer Look: North Korea & Nukes." Both pieces were careful to look at the failures from both the current and past administrations in curtailing nuclear proliferation in general and stopping North Korea in particular. But neither offered next steps for the United States. I offer three.

There is a Chinese proverb that says simply, "To take no action is an action." No responsible American political voice is advocating doing nothing in response to North Korea's apparent nuclear test. While North Korea poses little direct military threat to the United States for many years, the likelihood that it would share the nuclear secret with rogue states and even more scary non-states like al-Qaeda means doing nothing cannot even be considered. "Hope is not a strategy," I like to remind my students.

Step 1. Remind China that as a growing economic superpower -- and global political superpower wannabe -- it must take the lead on dealing with North Korea, just as superpowers have always taken the lead in cleaning up their own backyards. The British were the masters of gunboat diplomacy. The United States has the Monroe Doctrine. Now the Chinese must de-nuke North Korea or risk:

- a newly-elected nationalist government in Japan building nuclear weapons;

- a South Korea faced with declining U.S. troops levels going nuclear;

- possibly even a nuclear Taiwan building a theater-sized weapon that could easily be the foundation for a world war if China were to try to forcibly retake the island.

China can make Kim Jong Il disappear and replace him with a general willing to negotiate the peaceful reunification of the two Koreas. In exchange, the United States would promise to remove all troops from a unified Korea so as to eliminate completely China's concern of U.S. troops on what is now its common border with North Korea. If we must, the United States should go further to entice the Chinese to do the right thing. Nothing should be off the table, including continued U.S. support of Taiwan. Old Cold War alliances mean nothing in a post-9-11 world faced with nuclear Islamic terrorists trained by the North Koreans, who already sell scud missiles to anyone with the cash to buy them.

Step 2: Maintain the six-party talks condition. This is not a bilateral issue between us and the North Koreans. We also need the Chinese, Russians, Japanese and South Koreans at the table. Put partisanship aside and stop blaming President Bush for refusing to talk to North Korea. Those partisan voices are the same ones screaming that we acted too unilaterally in Iraq. This is not an "American problem," and North Korea needs to understand that.

Step 3: The United States must actively and vigorously continue the development of a missile-defense system. No, such a system will not stop North Korean fissile material from being smuggled into our country by terrorists. But it will defend us against a North Korean ballistic strike that will be a threat in two to five years. Let's not let the fact that missile defense will never be perfect deter us in deploying and constantly improving such a tool.

There is another Chinese proverb that says, "If you don't change the path you are on, you are likely to end up where you are heading." We cannot do nothing and change paths.

Allen H. Kupetz is the executive-in-residence at Rollins College Crummer Graduate School of Business and served in the U.S. Embassy in Seoul from 1992-96. He publishes a blog on Korean issues at www.koreality.com

http://www.orlandosentinel.com/news/opinion/orl-myword17b_106oct17,0,1442139,print.story?coll=orl-opinion-headlines ◦

What can we do next in North Korea?

Over the years, missed chances on North Korea

By Siobhan Gorman
Balitmore Sun reporter
October 12, 2006

Amid the burgeoning debate and partisan finger-pointing over North Korea's nuclear weapons program, former national security officials say that missed opportunities over the past three administrations - Republican and Democratic - could have ended or significantly stunted Pyongyang's effort.

"It doesn't mean it's our fault, but it means we have missed opportunities to head it off," said Jon Wolfsthal, who was an Energy Department monitor at North Korea's Yongbyon nuclear complex during the Clinton administration.

President Bush defended his administration's diplomatic efforts to contain North Korea's nuclear effort, countering Democrats' charges that his policy had failed and arguing that President Bill Clinton's strategy "did not work. "Bush's remarks yesterday were gentler than those Tuesday by Sen. John McCain, an Arizona Republican, who called Clinton's approach to North Korea "a failure."

Within an hour of Bush's Rose Garden news conference, Democrats countered via conference call."It is not a time for partisan finger-pointing," said Wendy Sherman, who was Clinton's adviser on North Korea. "We quite understand why some in the Republican Party have decided to lash out at the Democrats," she said, describing Clinton's policy as "very tough, constructive engagement."

After World War II, development of an atomic bomb spelled survival for then-leader Kim Il Sung. His son and successor, Kim Jong Il, sees the "nuclear scepter" as crucial to keeping his family in power, Wolfsthal said.

In the 1950s and 1960s, North Korea entered into nuclear cooperation agreements with the Soviet Union and built a research center in Yongbyon, 60 miles north of the capital, Pyongyang.

In 1965, the Soviet Union gave North Korea its first research reactor, and Pyongyang built a modest unit that became operational in 1986.

As it watched the developments, the U.S. government pressed Moscow to coax North Korea to join the Nuclear Non-Proliferation Treaty, which would subject it to international inspections. North Korea ratified the treaty in 1985, but a squabble over paperwork delayed implementation of safeguards and inspections until 1992.

In 1989, the Yongbyon reactor was taken off-line for about 100 days, and U.S. intelligence officials believe that the North Koreans separated out plutonium for reprocessing. Estimates vary, but many experts believe North Korea obtained enough plutonium at that point to make one or two bombs.

"We didn't do anything," said Wolfsthal. "History is going to show that was a tremendous turning point."Had the United States acted, he said, North Korea could have been required to suspend nuclear activity or put it under international safeguards.At the time, there was considerable debate within the first Bush administration over whether to act, Wolfsthal said, but the White House ultimately rejected calls for action.The next opportunity came five years later.

In 1993, North Korea refused to allow the International Atomic Energy Agency to conduct special inspections of some of its facilities and threatened to withdraw from the treaty.

Tensions escalated, and in 1994, Clinton began making contingency plans for a possible military strike on the Yongbyon facility, said Matthew Bunn, who worked on nuclear security issues in the Clinton White House.The secretary of defense went to China to alert leaders to U.S. plans. Clinton sent bombers to Guam, said Bunn, now a nuclear security specialist at Harvard University.

But those plans were set aside when former President Jimmy Carter flew to North Korea in June 1994, Bunn said. The talks led to an agreement signed in Switzerland that October.

Under the deal, North Korea agreed to halt its nuclear program and the United States said it would help replace North Korea's reactors with light-water power plants. The countries also agreed to move toward normalizing political and economic relations."Both sides failed to fulfill their obligations," Bunn said.Toward the end of the Clinton administration, the United States came close to reaching an agreement to halt North Korea's development of ballistic missiles, said Mark Fitzpatrick, a former assistant secretary of state for nonproliferation in the Bush administration, who left last year.

Meanwhile, North Korea began acquiring centrifuge equipment to enrich uranium from Pakistani nuclear scientist Abdul Qadeer Khan, which violated the 1994 agreement at least in spirit, Fitzpatrick said.

Nuclear bombs can be made with plutonium or highly enriched uranium. U.S. intelligence agencies reached consensus in 2002 that North Korea was trying to enrich uranium.The third turning point, former officials said, was Bush's famous "axis of evil" declaration in his 2002 State of the Union address.The speech gave North Korea strong reason to be concerned about its security, and it "couldn't deal with Bush," Fitzpatrick said. "By then, North Korea probably already had a weapon," he said, "but maybe they would have been willing to keep it on ice or trade it away for a comprehensive peace settlement with the United States.

"In October 2002, James A. Kelly, U.S. assistant secretary of state for East Asia, confronted North Korea with the knowledge that it had been developing the means to enrich uranium. That resulted in the dissolution of the 1994 agreement and allowed North Korea to restart its plutonium program, quadrupling its plutonium stockpile, Fitzpatrick said.

However, National Security Council spokesman Frederick Jones said that Bush's "axis of evil" statement did not choke off diplomatic channels."We were continuing to work with them after the speech," Jones said. He said multiple rounds of negotiations with six countries ultimately led to a Sept. 19, 2005, agreement on "principles" for North Korea to abandon its nuclear program.

After the deal was announced, North Korea and the United States clashed almost instantly over its meaning, and North Korea has walked away from the talks.Other former officials see the axis of evil statement as a different kind of turning point - one in which Bush could have backed up his words with much stronger pressure on North Korea to shut down its nuclear program but chose not to do so.

"That was a moment when there might have been an opportunity to push further," said Aaron Friedberg, a former security adviser to Vice President Dick Cheney.

Between 2002 and 2003, "the situation sort of stalled," said Friedberg, now a professor at Princeton University's Woodrow Wilson School. "We had a lot of momentum going into that because people were really concerned about our reaction coming out of 9/11."

Friedberg cited a few other examples since 2003 when the United States might have used provocations by North Korea to try to build momentum for international pressure to get North Korea to back down."

We're at one now again, and the question is, will others join us in applying some pressure?" he said. "It's harder now than it was before. It's not completely out of the question."

http://www.orlandosentinel.com/news/nationworld/bal-te.buildup12oct12,0,2911492.story ◦

Over the years, missed chances on North Korea

Cartoon: Napoleon of the North

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Cartoon: Napoleon of the North

David Ignatius: "Principle of nuclear accountability"

"Present at the Creation" was the title Dean Acheson gave to his memoir about the founding of the post-World War II order. Now, with North Korea claiming to have tested a nuclear weapon in defiance of the international community and Iran seemingly on the way, Harvard professor Graham Allison argues that we are present at the unraveling.

The North Korean bomb test is a seismic event for the world community. It tells us that the structure created to maintain global security is failing. The five permanent members of the United Nations Security Council - the United States, Russia, China, Britain and France - all warned North Korea against taking this step. Yet the leaders in Pyongyang ignored these signals, and in the process blew open the Nuclear Nonproliferation Treaty.

The North Korean leadership, puny in everything but weapons technology, has been marching toward this moment since the 1950s. It`s unrealistic to think that, having brazened their way to detonating what they say is a nuclear bomb, the North Koreans will now give it up. The proliferation machine isn`t going to run in reverse. In that sense, the question isn`t how to repair the old architecture of nonproliferation - practically speaking, it`s a wreck - but how to build a new structure that can stop the worst threats.

What are the right cornerstones of this new security structure? I put that question to Allison, who is a national resource when it comes to questions of nuclear proliferation and deterrence. He wrote the definitive book, "Essence of Decision," on the Cuban missile crisis, the world`s closest brush with all-out nuclear war. In recent years, he has been studying the danger of nuclear terrorism, and he edited a prescient discussion of the implications of a North Korean breakout that appears in the September issue of the Annals of the American Academy of Political and Social Science.

Allison believes that the world community must now focus on what he calls "the principle of nuclear accountability." The biggest danger posed by North Korea isn`t that it would launch a nuclear missile, but that this desperately poor country would sell a bomb to al-Qaida or another terrorist group. Accountability, in Allison`s terms, means that if a bomb explodes in Manhattan that contains North Korean fissile material, the United States would act as if the strike came from North Korea itself - and retaliate accordingly, with devastating force. To make this accountability principle work, the United States needs a crash program to create the "nuclear forensics" that can identify the signature of fissile material of every potential nuclear state. Arms control expert Robert Gallucci describes this approach as "expanded deterrence" in his article in the September Annals.

President Bush seemed to be drawing this red line of accountability when he warned Monday: "The transfer of nuclear weapons or material by North Korea to states or nonstate entities would be considered a grave threat to the United States, and we would hold North Korea fully accountable for the consequences of such action."

Tough words, but are they credible? That`s why the second essential pillar of a new security regime is a restoration of deterrence. The Bush administration warned North Korea over and over that it would face severe consequences if it tested a nuclear weapon. So did China and Russia, but Kim Jong-il went ahead anyway. Iranian leaders are similarly unimpressed by Bush`s saber rattling, viewing America as a weakened nation bogged down by an unwinnable war in Iraq. To restore deterrence, the West needs to stop making threats it can`t keep. And the United States must salvage its strategic position in Iraq - either by winning, or organizing the most stable plan for withdrawal.

After the Cuban missile crisis, President Kennedy got serious about preventing nuclear war. He installed a "hotline" so the White House and the Kremlin could talk when crises arose; he negotiated the 1963 Test Ban Treaty; and he began the discussions that led to the 1968 Nonproliferation Treaty. That treaty worked adequately for almost four decades. Instead of the 20 nuclear states that Kennedy feared would exist by 1975, we had just eight, until last weekend. But the North Korean test threatens to begin what a 2004 U.N. commission warned would be "a cascade of proliferation" that could spread to Japan, South Korea, Iran, Egypt and Saudi Arabia.

We are present at the unraveling. We must "think about the unthinkable" with new urgency. The United States and its allies must begin constructing a system that can succeed where the Nonproliferation Treaty has failed. A terrorist nuclear bomb in Manhattan or Washington isn`t a thriller writer`s fantasy; it`s a probability, unless America and its allies establish new rules for nuclear accountability that are clear and credible.

http://www.koreaherald.co.kr/SITE/data/html_dir/2006/10/14/200610140025.asp ◦

David Ignatius: "Principle of nuclear accountability"

Cartoon: Kim's Temper Tantrum

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Cartoon: Kim's Temper Tantrum

Bilateral Diplomacy Could Still Roll Back North Korea's Nuclear Arms Effort

In a Test, a Reason to Talk

By Selig S. Harrison
Tuesday, October 10, 2006

"You have learned to live with other nuclear powers," said Vice Foreign Minister Kim Gye Gwan, North Korea's chief nuclear negotiator, leaning forward over the dinner table in Pyongyang. "So why not us? We really want to coexist with the United States peacefully, but you must learn to coexist with a North Korea that has nuclear weapons."

"That doesn't sound like you are serious when you talk about denuclearization," I replied.

"You misunderstand me," he said. "We are definitely prepared to carry out the Beijing agreement, step by step, but we won't completely and finally dismantle our nuclear weapons program until our relations with the United States are fully normalized. That will take some time, and until we reach the final target, we should find a way to coexist."

This exchange foreshadowed the North Korean test of a nuclear explosive device that has prompted demands for a naval blockade or military strikes against known North Korean nuclear facilities. But my conversations with six key North Korean leaders on a recent visit indicated that the test opens up new diplomatic opportunities and should not be viewed primarily as a military challenge.

Paradoxical as it may seem, Pyongyang staged the test as a last-ditch effort to jump-start a bilateral dialogue on the normalization of relations that the United States has so far spurned. Over and over, I was told that Pyongyang wants bilateral negotiations to set the stage for implementation of the denuclearization agreement it concluded in Beijing on Sept. 19, 2005, with the United States, China, Russia, Japan and South Korea.

Washington focuses on Article One of the accord, in which North Korea agreed to "abandon all nuclear weapons and existing nuclear programs." But what made the agreement acceptable to Pyongyang was the pledge in Article Two that the United States and North Korea would "respect each other's sovereignty, exist peacefully together and take steps to normalize relations."

In North Korean eyes, it was a flagrant violation when, four days after the agreement was signed, the United States in effect declared economic war on the Kim Jong Il regime. The Treasury Department imposed financial sanctions designed to cut off North Korean access to the international banking system, branding it a "criminal state" guilty of counterfeiting and money laundering.

The sanctions issue has given the initiative to hard-liners in Pyongyang, who can plausibly argue that the sanctions are the cutting edge of a calculated effort by dominant elements in the Bush administration to undercut the Beijing agreement, squeeze the Kim regime and eventually force its collapse.

To be sure, the United States should take action against any abuse of its currency. But the financial sanctions are not targeted solely against counterfeiting and any other illicit North Korean activity. They go much further by seeking to cut off all North Korean financial intercourse with the world. The United States has warned financial institutions everywhere, Treasury Undersecretary Stuart Levey said Aug. 23, "of the risks in holding any North Korean accounts."

Foreign businessmen and diplomats in Pyongyang told me of numerous cases in which legitimate imports of industrial equipment to make consumer goods have been blocked by the banking sanctions. This slows down the efforts of North Korean reformers to open up to the outside world and curtails economic growth. So far, the sanctions do not appear to be undermining the regime, but North Korean leaders can feel the noose tightening.

The Bush administration says that it is not pursuing a policy of "regime change," but the president did tell Bob Woodward that he would like to "topple" Kim Jong Il, according to Woodward's book "Bush at War." Recently, when a State Department official told Levey that the sanctions should distinguish between licit and illicit North Korean activity, Levey replied, "You know the president loves this stuff." Robert Joseph, John Bolton's successor as undersecretary of state for arms control, said at a recent State Department meeting that he hoped the sanctions would "put out all the lights in Pyongyang."

To advance U.S. security interests, the United States should agree to bilateral negotiations. It should press North Korea to suspend further nuclear and missile tests while negotiations on normalization proceed, freeze plutonium production and make a firm, timebound commitment to return to the six-party talks. In return, the administration should negotiate a compromise on the financial sanctions that would reopen North Korean access to the international banking system, offer large-scale energy cooperation and remove North Korea from the State Department's list of terrorist states, thus opening the way for multilateral aid from the World Bank, the International Monetary Fund and the Asian Development Bank, all of which North Korea is actively seeking to join.

Playing games with "regime change" has become much too dangerous and should now give way to a sustained diplomatic effort to roll back North Korea's nuclear weapons program while it is still in its early stages.

The writer, a former Post bureau chief in Northeast Asia, is the director of the Asia program at the Center for International Policy and the author of "Korean Endgame."

http://www.washingtonpost.com/wp-dyn/content/article/2006/10/09/AR2006100901035.html ◦

Bilateral Diplomacy Could Still Roll Back North Korea's Nuclear Arms Effort

Five Keys to South Korean Prosperity in the Chinese Century

Since 1992, I’ve spoken at tradeshows and in academic settings throughout Asia and the United States about South Korea’s technological leadership in the areas of information technology and wireless communication. Until about 2000, the question I was asked most often was, “How did Korea do it?” How and why did Korea succeed when so many other countries that emerged after World War II are still so underdeveloped? More recently, the question I am asked most often is, “Given everything that is going on with the Chinese economy, does Korea still matter?” These are good questions, and the answer to the first may help underscore my positive answer to the second.

Korea today is on track to hit US$20,000 in per capita GDP by 2010, is the world leader in broadband access, and has a wireless telecommunications infrastructure that is one of the best in the world (and is 3−5 years ahead of that of the United States). It hosted the 1988 Summer Olympic Games and cohosted the 2002 World Cup. Korean women dominate the Ladies Professional Golf Association, and Korean men are striking out hitters in Major League Baseball. South Korean firms have built the three tallest skyscrapers in the world, and Korea can boast of 41 companies in the Forbes 2000. Among the almost 100 countries that became independent following World War II, none of them can come close to this list of achievements. It’s not called the “Korean economic miracle” for nothing.

But for all Korea’s economic success and the democratic system that it now enjoys, there remains a shadow on the horizon: China.

China is the most important country in Asia, and that is unlikely to change anytime soon. The United States knows this. Korea knows this. The Chinese certainly know this. But also unlikely to change anytime soon is Korea’s position as the fourth largest economy in Asia (after China, Japan, and India on a purchasing power parity basis). The threat to Korea is not solely from these goliaths, however, but from the David-like eastern Europe and still-emerging Asian countries, such as Vietnam. The Korean government can promote the country’s “talented human resources,” but, ultimately, cost will drive manufacturing venues, and Korea’s unions have made the country just as uncompetitive as U.S. and western European unions have made their manufacturing sectors.

Again, the question is not how Korea can defeat China—it can’t. The question is how Korea can stay relevant in the Chinese century and protect itself from faster growing economies. I offer here five keys to continued economic prosperity for Korea.

1. Look north, south and east—not just west.

An old expression observes that, “Just because you are paranoid doesn’t mean no one is out to get you.” Korea must be a little paranoid about China, but that can be a healthy thing. In addition to improving quality and reducing prices, competition can drive innovation and sharpen focus. Certainly Korean companies are already using Chinese manufacturing to lower costs. And China has replaced the United States as Korea’s largest foreign market. The challenge for Korea is not to lose sight of the other compass points.

Looking north, peaceful reunification with North Korea will obviously help South Korea by allowing for reduced defense expenditures, increasing investor confidence, and, in general, allocating resources (especially men aged 18−22 now faced with mandatory conscription) in areas that offer greater economic return. But North Korea can be South Korea’s China—a center for low-cost manufacturing, a market for almost everything South Korea produces, and a place in desperate need of South Korean expertise.

The Kaesong Industrial Park in North Korea has been a successful merger of South Korea’s capital and technology and the North’s land and non-unionized labor in a classic example of interdependence. A February 2006 International Herald Tribune article reports that, “Over the next year, the number of South Korean factories and North Korean workers will nearly quadruple to 39 factories and 15,000 employees.” According to the 20 March 2006 Business Week, “North Korean workers at Kaesong earn about US$50 per month, around half the average wage for unskilled workers in China and less than 10% of what South Koreans earn.” It is hard not to smile at the irony of North Korea being one of the economic saviors of South Korea.

Looking south offers Korea the chance to export knowledge to a hemisphere desperately in need of mentoring. Think of what Korean companies in the fields of banking, construction, energy, manufacturing, and telecommunications could teach people in lesser developed countries. And this is not about charity—though that could be a component. This is a for-profit business in which Korean companies promote their expertise by saying: We don’t have some theoretical approach to sustainable growth. We know what works and can train your people and companies.

Finally, looking east cannot be overlooked. The U.S. market is one of the largest in the world for Korean goods and will remain so for the foreseeable future. The U.S. security umbrella will help Korea remain competitive, even after peaceful reunification. The unique relationship the two countries share—never having been at war with each other and often fighting together in times of war (WWII, Vietnam, and Iraq), is a foundation to be maintained and could serve Korea well as a deterrent to the ever-present potential for Chinese militarism and economic bullying.

2. Accept and embrace the best global practices for financial transparency at all levels, including banking, regulations, corporate governance, and contract enforcement, including intellectual property rights (IPR). Nothing—nothing—Korea can do will give investors more confidence and provide a clearer differentiator vis-à-vis China and Vietnam.

What China cannot offer today—and shows few signs of offering any time soon—is financial transparency and IPR protection. Huawei, one of China’s largest domestic companies and quickly becoming a global brand, has faced accusations of reverse engineering and corporate espionage since the company was started in 1988. More recently, Huawei came under fire in 2004, when an employee was caught taking photographs of a rival’s circuit boards after hours at a trade show in Chicago. A Huawei official called the incidents "misunderstandings" and added that they are "all about how Westerners and Americans view China.”

Whether China’s transgressions are perception or reality, Korea is far ahead of China in terms of IPR and has significantly improved financial transparency following the 1997−1998 Asian financial crisis. Even the largest foreign firms in China enter the market with their fingers crossed. Vietnam still must climb the same learning curve that China started 10 years ago. Korea can differentiate itself by continued promotion and enforcement of proactive public and private initiatives to strengthen Korea’s laws in these areas.

3. Deal with the domestic political issues with the unions and farmers and sign a Free Trade Agreement (FTA) with the United States.

As a strong Korean currency and increased labor costs eat away at profitability and ultimately harm competitiveness vis-à-vis China, there is nothing better Korea can do to lower the landed cost of their exports to the U.S. than to sign the FTA. Vocal special interests in Korea will make this obvious step harder than it should be. But just like the rice protests prior to Korea joining the World Trade Organization, those opposition voices will be drowned out by the tangible economic gains Korea will enjoy.

Two recent examples of the success of a bilateral trade agreement with the United States are Vietnam and Chile. Since the 2001 U.S.-Vietnam Bilateral Trade Agreement, Vietnam’s exports to the United States have increased more than sixfold under the deal. In terms of foreign direct investment (FDI), according to BusinessWeek, Vietnam’s jumped 41%, while China’s total actually fell slightly. China still saw commitments of $60 billion, but as a percentage of GDP, Vietnam's total was more than twice what China received last year.

Chile’s numbers are even more impressive and serve as a useful counter to Korea’s antitrade farmers. In the two-year period immediately following the start of the Chile-U.S. FTA, Chile’s exports to the United States almost doubled, according to the Central Bank of Chile. And some of the biggest export industries were fish, agriculture (grapes, avocados), and wine.

Equally important is the signal that an FTA with the United States sends to other potential Korean partners about what differentiates Korea from China and many other countries. It tells the world that Korea has addressed successfully such issues as transparency, the rule of law, corruption, and IPR.

4. Forget about competing with China and Vietnam and even eastern Europe in terms of low-cost manufacturing. Focus instead on quality using the Japanese model from the 1970s and 1980s.

Low-cost manufacturing is a race to the bottom as one emerging country after another tries to undercut each other, much like Korea did to Japan 20 years ago. It is a race that Korea can’t win and wouldn’t want to.

When I lived in Seoul from 1992 to1996, the standard joke among the expat community was that Korea was “the land of almost right.” A beautifully hand-tailored suit would have one sleeve just a little longer than the other. Certainly the country has made tremendous strides since then, but “Made in Korea” as a brand still does not evoke a feeling of quality.

The answer is to focus on quality. Korean firms will continue to migrate their manufacturing to low-wage countries. So the products built in Korea must be world class. People will pay more for quality. Americans saw the 10- to 20-year shift in perceptions of Japanese cars such that now the Lexus is arguably the best built car in the world. Hyundai seems on that path to quality, but it is a steep mountain to climb, and it gets much steeper as you get closer to the top. Quality is an attitude not yet common in most Korean companies—and it needs to be.

5. Reduce the percentage of GDP produced by the chaebol without being punitive. Small and medium-sized enterprises (SME) can be a growth engine and offset job losses as manufacturing migrates to China.

Anyone who has done business in Korea quickly sees the spirit of entrepreneurialism that permeates Korean culture. With a higher tolerance for risk and less fear (and fewer consequences) of failure than Japan, Korea should see tremendous wealth creation in the SME sector. And the Korean government sponsors or otherwise supports such organizations as the Small Business Corporation (http://www.sbc.or.kr/eng/), Small and Medium Business Administration (http://www.smba.go.kr/main/english/index.jsp), and Korean Marketplace (http://eng.bestsme.com/main/aboutus/aboutus.jsp) to help Korean firms.

As with quality, however, Korea still talks a better a SME promotion game than it plays. The Korean economy arguably has never been more dependent on chaebol than it is today. In 2003, according to the Korea Times, the four largest chaebol (Samsung, LG, Hyundai Automotive, and SK) accounted for almost a half of the nation’s total exports and 40% of the GNP. But the big four are not creating many new jobs in Korea. According to same Korea Times article, “A bigger issue is that the chaebol are focusing more on expanding operations offshore and reducing the number of local subsidiaries, which has raised concerns about reduction in employment.”

According to the 18 March 2006 issue of The Economist, “By one account, 40% of Korean SME make no operating profits, among them many “zombie” firms kept alive with government credit guarantees.” Weak firms must be allowed to fail, and direct and indirect government subsidies must focus on sectors (i.e., rather than particular companies) where Korea has a competitive advantage in the global marketplace. Korea has the intellectual muscle—both from its own universities and the students that go abroad and return—to enter and compete in many emerging technology and service sectors. ◦

Five Keys to South Korean Prosperity in the Chinese Century