Public Transport policies in Korea

First published in The Hindu Business Line, July 25th 
Korea’s traffic policies, beginning with the reform of its public transportation system, and integrated use of information technology, has been acknowledged for its effectiveness and benchmarked by many other countries.

The transport network in Seoul is famed for its impressive standard of operational capacity and efficiency, and for incorporating the latest technology to make commuting convenient.

Before the public transport reforms of 2004, the bus system in Seoul faced severe problems as few people used it, leading to a deficit, that affected the quality of service. The reforms introduced an integrated operation system along with Bus Rapid Transit.

The government introduced what it calls a ‘quasi-public operation system’, under which it manages buses and routes that private companies own and operate, and reimburses bus companies on the basis of kilometres of service instead of operational revenue from passenger trips.

As observed by Lee Jae-joon, Associate Research Fellow, Korea Transport Institute, the most significant change, however, was the application of information technology in bus operations.

IT Innovation

The system than it is in place today enables real-time management of bus operation information and punctuality, and prevents reckless driving. In addition, the Transport Operation and Information Service (TOPIS) functions as a comprehensive traffic management center that gathers and processes all traffic information.

This enables buses to run at definite intervals. The installation of GPS devices on board allows traffic control centres to determine the real-time location of running buses. It helps avoid having buses on the same route running in groups.

“From the passengers’ point of view, it is an innovative service because they can expect buses to arrive within a definite time. Also, a communication system between traffic control centers and drivers was established for quick responses in the case of emergencies,” he noted.

With the rapid spread of smartphones, it is easy to access public transport information by using smartphones. Recently, heating systems were introduced at bus stops, keeping passengers waiting for a bus warm. In addition, ‘U-Shelters’, highly technology-intensive places, connecting IT and weather/air sensors, have been established.

Among other things, these shelters provide useful information on the local area and stores, weather and air quality as well as bus arrivals. There is an interactive kiosk, called ‘Digital View’, at almost every major bus stop and subway station. The kiosks are provided by Daum, a major Korean search portal. The screens display a subway map, a satellite map service, nearby attractions as well as news and entertainment content. It also has a VoIP service (voice over Internet Protocol).

In addition to the digital kiosks, there is a growing number of digital billboards, advertisements and commercial displays, many of which are interactive and touch-screen capable.

Another innovation is the introduction of the smart card system for electronic payment of public transport fares — bus, subway, taxi, etc — and charges for facilities such as parking lots.

The card creates benefits, such as the reduction in waiting time at bus stops and transparent accounting of bus operations. More importantly, as Lee points out, along with the bus reforms, Seoul has an integrated public transport system for subways and buses. Under this new system, fares are based only on distance travelled, regardless of the transport mode

Integrated system

Besides the capital, Seoul, there is also a national integrated transport system that improves the efficiency, integration and connectivity of the network. All expressways in Korea (total length 3,906 km) are equipped with a variety of Integrated Transportation System (ITS) services, including traffic management, public transport service, electronic payment, traffic control centers and traffic information.

ITS currently provides a basic information broadcasting service, incident management service, and freeway traffic flow control service. The traffic management service collects data from roads and running vehicles, controls the traffic flow, and provides travelers with traffic information. Based on real-time information, road users can make a decision on the choice of route to their destinations, alleviating traffic congestion and increasing average speeds.

The automatic traffic enforcement service encourages lawful driving and monitors traffic light violations, speed limit violations, illegal parking, overloading, and bus-only lane violations.

Korea has also introduced an electronic toll collection system, Hi-Pass, which allows drivers to pay highway tolls without stopping. This has been a boon for drivers while improving the efficiency of toll collection.

The Hi-Pass system has been installed at 344 tollgates in South Korea. Currently, 5.6 million vehicles — 50.8 per cent of registered cars — use the non-stop toll payment system.

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Korea: Speeding on the IT, communications superhighway

First published in The Hindu Business Line, July 25th
Korea has one of the world’s most active telecommunications and information technology markets backed by strong support from the Government.

No surprise that Korea was ranked No. 1 among 152 countries surveyed in the ICT Development Index of the International Telecommunication Union in end-2012.

The data rank Korea as the world’s most advanced ICT economy for the sixth year in a row followed by Sweden, Denmark, Iceland and Finland. The index is aimed at assessing ICT development routes, digital gaps and growth potentials of each country. The ranking is proof of the Korean Government’s efforts over the years to improve its regulatory environment and to promote policies to advance IT infrastructure.

Korea is one of the fastest growing ICT markets globally with advanced infrastructure and active consumers who adopt new technologies and products quickly. ICT accounts for 17 per cent of Korea’s GDP and 40 per cent of its total exports. The country ranks among the top countries in Internet usage. More than 80 per cent of the population uses the Internet. Practically everyone has a mobile phone and 95 per cent of the households subscribe to broadband Internet.

Today, ICT has changed the way Koreans live. A mobile handset is an essential. All model houses are wired and come with broadband Internet connection. Korean companies, with the support of the Government, are slowly strengthening their position in the global market and consolidating their market share.

Telecom

The telecom market in Korea is fascinating because it is a world mobile leader on many fronts. Korean mobile operators are among the first in the world to offer third- and fourth-generation services. Even as the rest of world is struggling to deploy 3G networks, plans are now on to roll out upgraded 4G services by the second half of the year. Dubbed LTE-A, the new network will offer a significant upgrade from the fourth-generation LTE and will be the first time that a wireless network exceeds the optic local area network (LAN) in data transmission speed.

Korea continues to be a booming mobile market as it innovatively explores the options for value-added services. The market passed the 105 per cent penetration rate mark in 2011, which means many individuals carry more than one mobile phone. According to the latest data, the number of 4G (Long Term Evolution-LTE) smartphone users has surpassed 21 millionand is likely to reach the 32-million level by the year end. This accounts for close to 40 per cent of the total mobile subscribers in the country, and in a country where four out of 10 people use smartphones, the mobile carriers are ramping up efforts to claim a bigger share of the fast growing market.

It helps that Koreans have a fetish for changing their mobile phones every six months. In fact, the country was positioned at the top in terms of mobile phone replacement rate, according to a survey by Strategy Analytics that was conducted in 88 countries worldwide.

Broadband

Where many countries are being challenged with the tasks of improving and making good use of ICT, Korea is known for its rapid and extensive deployment of broadband. The country’s success is due to the far-sighted government initiatives, where strategies put in place are mindful of the point that ICT infrastructure development must be accompanied by investments in the eco-system.

The extensive role of the government in creating demand in broadband through policies is considered as the most remarkable characteristic of Korea’s broadband growth, according to Ahn Jung-mihn of Hallym University,

“The strong bureaucratic approach in the beginning changed to a light-handed approach as the government invited more private sectors participants,” he pointed out.

To build up critical mass, the government initially pushed for an extremely low price for the public sector and free Internet service for schools. The result was a strong pick-up in information technology by the general public in tandem with the education policy.

Market demand further spurred service providers to offer lower prices along with ICT literacy drive across the entire population.

Currently, Koreans have many technology options for broadband in most areas of the country. The most popular connection technology is XDSL followed by Cable connections, LAN and wireless technologies. This strong inter-modal competition has brought down prices and introduced technologies that can serve remote areas. As telecom drove a positive impact on national competitiveness, the government recognized the future needs of a ubiquitous network and more management strategy.

“This interest was reflected in the IT839 Strategy, which is deemed as the most significant strategy in Korea’s overall broadband policy. Under this policy, eight new IT services were introduced to encourage investment in three key network infrastructures that, in turn, promoted the development of nine new growth engines,” noted Prof Dong Hee-shin, Department of Interaction Science, Sungkyunkwan University.

Having completed the first two phases successfully, the government established the ‘Plan for Developing and Promoting Giga-Internet’ that will enable users transmit data at an average speed of 1 gigabyte per second (GBp) through fixed-line connections and maintain a rate of 10 megabytes per second (MBps) on wireless connections, by this year.

Information Technology

The strength of the Korean IT industry has emerged from foresight, product development, and marketing by Korean companies, along with close cooperation with the government. Business government collaboration targeted promising areas for investment and policy support, noted Lee Chi-ho, Senior Research Fellow, Samsung Economic Research Institute.

Anticipating huge growth in LCD panels, Korean firms made massive investments that gave them a strong position when the panel market was ready to take off. Such investments made it easier for Korean firms to rapidly gain ground, in contrast to analog TV, where Korean firms lagged behind their entrenched Japanese counterparts.

By betting heavily on digital TVs, Korean firms were able to outflank their competitors, and exploit the transition to digital broadcasting. The Korean IT industry also focused on large screens and lower operating costs by aggressively investing in LCD panel production facilities. This gave Korean firms an advantage against Japanese companies, who initially focused on high-end, high-definition TVs that failed to reach global consumers. “In semi-conductors, Korean chipmakers raced ahead of their rivals by sustained investment even during contractions in the IT business. Through strenuous efforts to improve production and increase output, Korean companies were able to take the lead in semiconductor miniaturization and price competitiveness.”

In addition, shortened product development cycles and innovations in supply chain management gave Korean makers the flexibility to respond to sudden market changes. Above all, Korean companies developed brand power in emerging economies through diverse marketing and social contributions.

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Cost of living for students in Korea

First published in The Hindu Business Line, July 25th 
South Korea is increasingly seeing international students flocking to its universities for undergraduate, graduate and research programs. There are about 400 national and private universities, some of which have research facilities in several emerging scientific fields.

With many scholarship options available, more Indian students are choosing to study in Korea and the community is slowly increasing in size.

While most choose universities in Seoul, there are also a few who consider other reputed organizations in Daejon, Gyeonggi Province, and Busan.

If you have got admission to a university in Seoul, undoubtedly the first question that pops up in your mind would be the cost of living. While it is true that Seoul is an expensive city, it is still cheaper than most popular student destinations in Europe, Australia and South-East Asia.

Accommodation options

It is ideal to be able to stay on campus in a dormitory, which most scholarships provide for. However, one may also explore options of living outside the campus in a one-room flat or boarding house for students, which will cost more.

While the monthly rent for a 900 sq. ft. furnished apartment in an expensive area of the city is around 2.5 million KRW (1$=1,100 KRW) with a deposit of 10 million KRW, smaller accommodation near universities that cater to students is much cheaper. On a sharing basis, you might have to shell out 300,000-500,000 KRW per month with a deposit of 5 million KRW. Utility bills — gas, electricity, Internet — will put you back by an additional 60,000-100,000 KRW.

Quick public transport

South Korea has a well-developed public transport system with a metro and bus system that is convenient and quick. The basic fare on public transport is 1,150 KRW, and Taxi is 2,400 KRW. It is best to get a travel card (T-card).

Most Korean food is non-vegetarian but one can also find vegetarian food, other international food, fast food as well as Indian restaurants. University campuses have canteens at reasonable rates. Simple Korean meals in small restaurants will cost you around 6,000-10,000 KRW. The University cafeteria may charge you 2,500-3,000 KRW.

Fancier meals may cost about 20,000 KRW and if you are a coffee addict you will have to spend 4,000-5,000 KRW more.

In bars, a bottle of beer is 7,000 KRW and a cocktail is about 10,000 KRW. The cheaper option is buy your beer at convenience stores, where a Korean beer will cost around 1,500 KRW, and imported beer will be double the cost.

Grocery prices

As in most developed countries, the price of daily commodities is high compared to India. If you plan on doing your own cooking, vegetables prices are seasonal but can be expensive depending on the place of sale.

Here’s a quick rundown of the prices of some basic items. A loaf of bread costs 2,500 KRW; a litre of milk: 2,800 KRW; a dozen eggs: 3,500 KRW; 1 kg tomatoes: 8,000 KRW; 1 kg potatoes: 3,000 KRW.

Toothpaste costs around 3000 KRW; shampoo: 7,000 KRW; 1 box of 32 tampons 10,000 KRW, deodorant: 7,000 KRW (very hard to get since Koreans hardly sweat and do not use deodorants);a men's haircut: 10-15000 KRW. Traditional barbershops are cheaper at 6,000 KRW, but are now getting extinct.

A movie ticket on weekends will put you back by 9,000 KRW. But there are many affordable options to sightsee and spend your holidays.

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Indian investments in Korea: A wealth of opportunity

First published in The Hindu Business Line, July 25th
Sandwiched between China and Japan, Korea somehow has escaped the sweep of Indian businesses seeking to expand in East Asia. The ‘Look East’ policy seems to somehow overlook the most stable economy in the region.

In the last fiscal, Indian direct investment in Korea, as tracked by the Reserve Bank of India, amounted to only $3.51 million. In comparison, investments in China were pegged at $66.68 million and in Japan at $19.21 million.

In other words, the data on Indian ODI show that investments in Korea were just 3.93 per cent of the total investments in the Big-3 East Asian economies, even three years after the signing of the India-Korea Comprehensive Economic Partnership Agreement (CEPA), a de facto free trade agreement.

It was widely anticipated that the CEPA that came into effect in January 2010 would lead to more Indian investments in Korea. Seoul has abolished the import tariff of 93 per cent on Indian imports and India has done the same on 75 per cent of Korean imports. Besides, the agreement sought to increase the interactive trade account as it includes investment in various sectors such as goods, services and even intellectual property.

While bilateral trade has comparatively improved (with a target of $30 billion by 2014), few Indian companies have used the deal to make inroads into the Korean market.

To date, the cumulative investment is estimated to be a little over $1 billion, with most of it hardly having any connection to the CEPA. Among the noticeable investors are Tata Motors (which acquired Daewoo Commercial Vehicle in 2004), Novelis Inc., a subsidiary of Hindalco Industries Ltd (which acquired Alcan Taihan Aluminum Limited in January 2005) and Mahindra and Mahindra (which acquired Ssangyong Motors in March 2011). Nakhoda Ltd. and Creative are the other smaller investors.

While Indian software companies such as TCS, Wipro and L&T Infotech have a small presence in Korea (with representative offices), they have not made any large commitments.

The only noticeable change in the past three years is the influx of professional workers, such as computer programmers and engineers, and a few English language instructors. Under the CEPA, 163 such professions are allowed access to the Korean services market. While a few years ago, it was difficult to spot Indians on the streets; today, it is not an uncommon sight.

Does it mean that Korea does not offer any potential for Indian businesses? On the contrary, as an FDI destination, the nation has several strengths compared to China and Japan.

As noted by Dr Ahn Choong-yong, Foreign Investment Ombudsman, KOTRA, in recent years Korea has emerged one of the prime investment locations in the Asia-Pacific region.

Its strong economic growth, increasingly favorable business environment, and rapid transformation into a truly knowledge-based information society have contributed to the creation of a wealth of investment opportunities.

It is also most active in pursuing FTAs with large economic blocs. Korea has already struck a deal with European Union, the US and ASEAN. These are helping foreign investors based in Korea to do business more effectively in the world market.

Also, among Korea's greatest strengths are its excellent pool of human resources and its optimal business environment.

To fulfill their globalization objectives, major multinational corporations also recognize Korea as an ideal destination for their production, logistics and R&D base.

Business operating costs in Korea are competitive due to the country's advanced IT infrastructure and low overhead costs including electricity and water. In particular, the basic monthly charge for Internet use in Korea is approximately a tenth that in China. Moreover, rental costs in Korea are also lower than in China, Singapore and Hong Kong.

In terms of tax rate comparisons, both corporate and income-tax rates in Korea are higher than in Singapore and Hong Kong, but lower than in Japan and China.

Recently, the World Bank ranked Korea No 8 (among 185 countries) in its Ease of Doing Business category for 2012.

This sheds light on how easy or difficult it is for entrepreneurs to open and run a business when complying with relevant regulations.

It measures and tracks changes in regulations affecting 11 areas in the lifecycle of a business: Starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency, and employing workers.

It makes much better sense to identify appropriate industries and then invest in Korea rather than following the bandwagon to China.

Many sectors provide ample opportunities for Indian investments.

Indian suppliers with products that have eliminated or lower tariffs from the CEPA should actively look for business with Korean partners.

Indian buyers should also keep in mind that they can obtain high quality Korean goods at a better price through the tariff reduction. Financial and legal services, auto-parts, food, pharmaceuticals, fashion and textiles, and IT are just some of the areas Indian businesses should start considering.

Korea is seen as a stable springboard to jump into East Asia, and Indian businesses should not miss it.

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Korean investments in India: Growing, but at a slow pace

First published in The Hindu Business Line, July 25th
Large Korean brands are household names in India and their strength has grown in the years since they first started operations.

However, the fact remains that Korean FDI inflows have been growing at a very tardy pace, and companies seem to be keener to explore other emerging markets.

Many Korean companies were the first movers as FDI investors in India, following the spate of reforms and liberalization since 1991. They started to invest by forming joint ventures with local companies or established wholly owned subsidiaries, predominantly in automobiles and white consumer goods. With clever business models, they managed to make deep inroads into the Indian market, in a relatively short period of time, led by technology giants Samsung Electronics, LG Electronics, and Hyundai Motor.

More recently Lotte Group, Doosan Heavy Industries and POSCO have become familiar names in the Indian business lexicon. As of today, there are officially 603 large and small Korean firms, which have offices in India.

It may come as a surprise, therefore, that India figures quite low on the list of favored investment destinations for Korean companies, with a rank of 16 worldwide.

According to the latest foreign investment statistics published by Exim Bank Korea, till end-2012, total Korean investments in India amounted to just 1.25 per cent ($2.67 billion of their $215 billion overseas investments).

In comparison, across the Asian countries, the Korean companies have pumped in $39.67 billion in China, $14.18 billion in Hong Kong, $8.38 billion in Vietnam, $6.73 billion in Indonesia and $4.65 billion in Singapore, $3.95 billion in Malaysia and $3.81 billion in Japan.

Looking at it from India’s point of view, the latest available analysis of FDI equity inflows from April-2000 to end-February 2013, by the Department of Industrial Policy & Promotion shows that Korea ranks 13th with $1.22 billion, which represents 0.64 per cent of the cumulative inflows received.

The top sectors that attracted FDI equity inflows from Korea are: metallurgical industries (26 per cent); prime mover- other than electrical generators (10 per cent); machine tools (8 per cent); automobile industry (7 per cent); and electronics (6 per cent).

Among the companies that invested, POSCO tops the list for this period, followed by Hyundai Mobis, Mirae Asset Investment Management, Samsung Electronics, Doosan Heavy Industries, Korea Western Power, Hyundai Heavy Industries, Lotte Confectionery and Lanco Intratech.

INDUSTRIAL ZONE

In the next few years, more investments are likely in the exclusive Korean Industrial Zone that will soon come up in the Neemrana region of Alwar district in Rajasthan. The 250-acre zone is seeking to attract Korean entrepreneurs and facilitate technology transfer between the nations.

A memorandum of understanding was signed between the Rajasthan Industrial Development and Investment Corporation (RIICO) and the South Korean Trade Promotion Agency (KOTRA) in March. But it remains to be seen how the project progresses before drawing any conclusions.

As can be seen from the table, Korean investment has indeed perked up during the last two years, but is still way below potential. The India-Korea Comprehensive Economic Partnership Agreement (CEPA), in force since January 2010, has not really been effective in attracting large-scale investments into the country, as desired.

Some experts argue that it is too early to draw any conclusion on the effect of CEPA in attracting Korean investments, and it could also be because of the global economic downturn and problems in the European Union.

As noted by Dr Cho Choong-jae, Head of India-South Asia Division at Korea Institute of International Economic Policy, for the most part, Korean companies are satisfied with their growth in India, and positive concerning prospects for growth in the next three years.

WAGE FACTOR

A survey conducted by his institute among Korean companies based in India showed that entering and gaining access to India’s domestic market constituted the biggest motivation for Korean manufacturing companies in India. Particularly since wages were lower than those in China, but comparable to Indonesia and only slightly higher than in Vietnam.

Entry into India’s domestic market was also the prime-motivating factor in investments by Korean non-manufacturing firms, in addition to expanding their presence in the subcontinent.

“It is, however, a fact that foreign firms continue to face many non-tariff barriers in India and unless the situation improves, there will be very little motivation for other companies to seriously consider India as an investment location.”

PROBLEMS

As he points out, India’s FDI policy has been one of gradual opening up. Much of the increase in FDI inflows is in the services sector. However, FDI inflows from Korea have been mostly in the manufacturing industries.

The main irritants are, of course, poor infrastructure, corruption, labour management, taxes, administrative services, fluctuating government policies at the central and state levels, political intervention, customs and clearance procedures.

In the words of Dr Lee Soon-chul, Assistant Professor at Busan University of Foreign Studies, “many recent policies of the Indian government have confused foreign investors.”

He was referring to the delay in opening of the retail sector, telecom policy flip-flops and retroactive taxation of foreign firms that have invested in India.

Such uncertain policies have made investors opt for divestment or to delay their planned investment.

There have been many instances of Korean companies sending a few executives to India for a couple of months to scout for opportunities, but then giving up in despair because of the red tape and corruption.

A senior executive of a large construction conglomerate in Korea, who did not want to be named, confessed that he spent six months in New Delhi last year, along with a few colleagues, trying to negotiate government infrastructure projects with an Indian partner. However, the large scale corruption and lack of transparency made them shift focus to Vietnam.

“The licensing and inspection costs are very high. Additionally, cumbersome bureaucratic procedures, the lack of government accountability and a congested judicial system where cases can linger on for several years, made my company change its mind. The Indian government does not walk the talk.”

There are also other barriers such as problems of land acquisition at the stage of investment implementation, due to the opposition of local residents. Many Korean companies realized that if a big company like POSCO can face difficulties, despite government assurances, it would be even tougher for smaller companies to survive in India.

Dr Choi Ho-sang, Research Fellow at the Korea Center for International Finance, in a recent article, observes that the reason FDI in India has been sluggish is that foreign capital regulations have not been relaxed sufficiently.

“The second UPA administration, which came into power in 2009, set the relaxation of regulations as one of its major policies in order to attract foreign capital. Foreign investors welcomed the new policy with great expectations, but when foreign capital regulations were not relaxed as had been promised, the expected increase in foreign investment did not happen either.”

“Moreover, the protectionist labour laws, complex tax system, and inadequate infrastructure such as roads and electricity, all render India a less attractive investment outlet compared with other Asian countries,” Dr Choi said.

Unlike most other countries, the Indian government does not provide attractive incentives to foreign companies entering the market.

For instance, the Delhi Mumbai Industrial Corridor (DMIC), aimed at the development of futuristic industrial cities in India, can compete with the best manufacturing and investment destinations in the world and is expected to attract huge FDI inflows. Ordinarily, Korean investors would jump at such an opportunity. However, no special incentives are being offered to foreign investors under this initiative.

The implementation of genuine and operational policies of opening up to foreign capital is the key to sustaining investment growth.

OPPORTUNITIES

India’s booming knowledge-based service industry complements the hardware and manufacturing-based economic structure of Korea. India’s capabilities in pharmaceutical industry, IT software and auto components usefully complement Korean competence in heavy engineering, automobiles, machinery and electronic hardware. There is also potential for bilateral cooperation in India’s CDMA service, high speed Internet and e-governance.

As noted by Indian Ambassador to South Korea Vishnu Prakash, “the synergies inherent in the complementarities of the two economies can be harnessed for mutual benefit by the business and industry of the two countries. The expansion in trade and investment flows would create demand for related infrastructure and other supporting socio-economic services.”

Opportunities for expanding business cooperation exist in engineering, design engineering and construction services. Then there is the power sector and India’s plans to enhance civil nuclear power generation capacity.

The economies of India and Korea are highly complementary in terms of factor endowment, capabilities and specialization. If the investment barriers are effectively tackled, India’s cost-effective human resources may complement growing labour scarcity and rising wages in Korea, and a number of companies may consider India as an ideal destination for their relocation or global sourcing.

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