South Korea

Index performance

Survey highlights

• 67% say their firm’s digital transformation has led them to change their business model

• 53% have five or more digital partners

• 65% say their organisation needs to become better at leveraging their digital partnerships

#2

Overall

#2Digital

infrastructure

#1 Human capital

#4

Industry connectivity

Overview

South Korea ranks 2nd in the Asian Digital Transformation Index behind Singapore, and ahead of nine other countries in the region. South Korea demonstrates clear strengths in all three Index categories. It is head of the table when it comes to human capital development, thanks to a large supply of skilled technology talent trained at home and in the US, although there is a shortfall of talent in specialist digital areas, as is the case elsewhere in the region. In the digital infrastructure category, South Korea trails only Singapore. The only area of relative weakness vis-à-vis other Index leaders is in the industry connectivity category, where the country ranks 4th behind Japan, Singapore and Taiwan.

Overall Score

Average 45.8

1. Singapore 75.6

2. South Korea 72.5

3. Japan 70.7

4. Hong Kong 65.7

5. Taiwan 65.1

6. Malaysia 42.0

7. China 33.9

8. Thailand 23.9

9. India 19.3

10. Philippines 18.8

11. Indonesia 16.0

The environment for digital transformation

The country’s strong performance in the Index is consistent with the positive assessments it receives in other global indices of digital competitiveness. South Korea holds 13th place globally, for example, in the 2016 edition of World Economic Forum’s Global Competitiveness Index. In the latter’s infrastructure pillar it ranks 5th globally and 2nd in the region. That result is replicated in the Asian Digital Transformation Index, where South Korea’s infrastructure strengths show through in such areas as broadband speeds (and affordability), 4G mobile network coverage and cyber security. (The country numbers more secure Internet servers per million population than any other Asian country.)

Oh-hyoung Kwon, an investment associate at FuturePlay, which operates one of South Korea’s largest technology accelerators, gives the country’s ICT infrastructure extremely high marks. “Mobile and broadband penetration rates are amongst the highest in the world, and the speeds are incredibly fast compared to Europe and America,” he says.

Mr Kwon believes this high-quality infrastructure is not all good news for South Korean businesses pursuing digital transformation see ‘The paradox of world-class infrastructure’). And South Korean executives surveyed by the EIU

do not believe it necessarily translates into a supportive environment for digital transformation. Only 13% of respondents, for example – the lowest figure in any of the country samples – say efforts to build a digital transformation environment have been ‘very successful’.

The frontline: digital transformation of businesses

Human capital is another area of Index strength for South Korea, where it ranks 1st. Indeed, no more than 13% of survey respondents believe a shortage of talent is an impediment to their organisation’s digital transformation. Mr Kwon, who has experience of working in the US and elsewhere in Asia, confirms the existence of an ample pool of skilled technology professionals available to South Korean businesses. This includes, he says, people with the types of advanced digital skills that other countries in the region lack.

The greatest impediments to digital transformation at respondents’ companies (top responses)

0

10

20

30

40

50

60

13%15%

22% 22%

28%

33%35%

55%Lack of talent

Lack of ICT infrastructure

Lack of technology solutions within the organisation

Dif�

culty from a regulatory perspective

Lack of strategy and/or new ideas

Fear of failure

Lack of managem

ent support

Lack of �nancing

However, important talent gaps exist elsewhere, according to Mr Kwon. “Technology talent is right up there in quality with the US and other countries. We also have good data engineers and scientists, many of whom have been trained in the US. But there is a shortage of genuine technology innovators and entrepreneurs.” The problem, he says, is mainly cultural – the traditional desire to land a secure job in a big established company. “Once you’ve worked for these ‘old culture’ companies, even the smart ones, you get used to doing what your boss tells you to do, and there’s less chance for you to be proactive or creative. This is a huge cultural obstacle to digital transformation,” says Mr Kwon.

South Korean businesses nevertheless appear to be using digital technologies to good effect, judging by the survey results. For example, half of respondents (50%) say their firms’ investments in digital transformation have already proven their value. Over two-thirds (67%) say their companies have changed their business model in some way as a result of digital transformation. Half of respondents also say their business unit uses data analytics tools to a large or great extent; 43% say the same about embedded sensors in their products or processes.

A smaller respondent share than in other Asian countries report using the cloud extensively to store data or access business applications. This is not a surprise to Mr Kwon, who notes residual reluctance from large companies to use the cloud due to security concerns. Virtually all start-ups and other new companies, however, he says, use the cloud extensively.

1. Digital Infrastructure

Average 47.9

1. Singapore 80.1

2. South Korea 74.4

3. Hong Kong 70.7

4. Taiwan 66.5

5. Japan 63.5

6. Malaysia 53.7

7. China 36.4

8. Thailand 22.5

9. Indonesia 19.3

10. Philippines 18.8

11. India 17.9

2. Human Capital

Average 46.0

1. South Korea 82.2

2. Japan 80.2

3. Hong Kong 76.1

4. Singapore 74.5

5. Taiwan 68.0

6. Malaysia 42.5

7. China 28.9

8. Thailand 20.6

9. Philippines 16.3

10. India 10.8

11. Indonesia 5.7

3. Industry Connectivity

Average 39.7

1. Japan 78.9

2. Singapore 64.7

3. Taiwan 57.8

4. South Korea 55.2

5. Hong Kong 40.4

6. India 33.6

7. China 33.3

8. Thailand 31.9

9. Philippines 20.5

10. Indonesia 11.0

11. Malaysia 9.2

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Digital connections

The industry connectivity category measures countries on their businesses’ penchant for partnering with third parties in formal alliances and looser innovation-oriented networks and communities. South Korea’s Index performance falls slightly in this area, the country trailing three others in the region.

Mr Kwon observes that large corporates in South Korea have not historically been interested in partnering with, learning from or even acquiring technology start-ups. That, however, is starting to change. “Large companies are understanding more about what they can and cannot do, and what start-ups can do better.” This applies not just to big technology firms, he says, but also those in other industries, such as food and cosmetics.

It can be seen in the survey results, where 53% of firms report having five or more digital partners. In addition to productivity improvements, South Korean companies have benefitted from their partnerships in the form of more innovative ideas for new products and services, and the development of new customer segments.

Agree or disagree: “Companies going it alone (without digital partnerships) will soon be a thing of the past.”

Agree Disagree

43%

57%

Nonetheless, most recognise that such initiatives could deliver much more. Nearly two-thirds of respondents (65%) say their organisation needs to get better at leveraging their digital partnerships. This is probably related to the view of nearly half (47%) that their digital partners will do much to determine the success of their own digital transformation efforts.

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The paradox of world-class infrastructure

Are Korean companies spoiled by their country’s excellent ICT infrastructure? Yes, maintains Oh-hyoung Kwon, an investment associate at FuturePlay, which is part accelerator, part venture capital investor in Korean technology start-ups. South Korea’s ICT infrastructure – including broadband and mobile networks, and access to advanced IT and digital services – is second to none in the world, believes Mr Kwon. However, it is so good, he says, that it actually prevents local companies from energetically pushing digital transformation.

Mr Kwon explains his thinking: “Digital disruption originates from ‘pain points’, which in many countries have to do with poor infrastructure. Companies operating

locally have to find ways to get around that, and it forces them to be creative and innovate.” Take African countries such as Kenya or Ghana. Their fintech sectors are blossoming because their infrastructure is so bad they have to find creative ways for individuals and businesses to send money or make payments.”

Korean businesses have not yet had to deal with real technology ‘pain points’ to be overcome, and which would force them to innovate, insists Mr Kwon. “Korean businesses are spoiled by this, and therefore it’s masking some areas where they need to develop digitally.”

One such area is website development. Mr Kwon notes that network load and capacity issues have forced some US

companies to find ways of reducing the bandwidth needs of websites to make them lighter and thus able to maintain and even increase speeds. At the moment, South Korea’s networks have more than enough bandwidth and there’s no need to develop ‘lighter’ websites. Korean companies could be innovating in this area, Mr Kwon says, but they’re not being forced to.

There is, however, reason for optimism. Mr Kwon observes that website developers, data engineers and other digital specialists trained in the US and familiar with such types of innovation are beginning to return to South Korea and share their knowledge. “Things are definitely changing,” he says.