Economist Intelligence Unit Report ‘Good to grow? The environment for Asia’s Internet businesses’: Highlights about Korea

‘Good to grow? The environment for Asia’s Internet businesses’ is an Economist Intelligence Unit report commissioned by the Asia Internet Coalition. Its central question is why Asian-produced online content and platforms do not have greater worldwide audiences, given that Asia is the world’s largest and fastest growing Internet market. Based on interviews with more than 30 entrepreneurs and experts around the region, this report focuses on the internal and external factors that influence the business models and growth ambitions of Asian Internet companies.  These include the commercial and regulatory environment, as well as the market for talent and the ecosystem of collaboration. The Asia Internet Coalition is an industry association formed by eBay, Facebook, Google, Salesforce and Yahoo! Incorporated to promote understanding and resolution of Internet policy issues in Asia Pacific.

Below are highlights from the report related to Korea:

Regulation a concern in South Korea

While governance and regulation of the Internet is a factor throughout Asia, in South Korea stricter regulations are hampering businesses according to digital operators.

South Korea: One of Asia’s best digital infrastructures

The report also talks about the ‘digital divide’ in Asia, highlighting South Korea’s leading position when it comes to digital infrastructure in Asia : The World Economic Forum’s Network Readiness Index puts Singapore, Japan, Taiwan, South Korea and Hong Kong in the top 20 countries globally for the quality of their digital infrastructure. South Korea is thought to have the fastest Internet speeds in the world.

Content: Gangnam Style sets the precedent for Asian “cross-over” content

The report takes the example of South Korean singer Psy’s global success to illustrate the growing appeal of Asian content globally not just among the Asian diaspora abroad.

The report says: On the content side, there is plenty of evidence that Asian culture, including fashion and music, is gaining worldwide popularity. The most obvious example is Gangnam Style, the Korean rap song that became a worldwide sensation and garnered an unprecedented 1.5bn YouTube views. But even before the song’s creator, Psy, appeared on the scene, Korean popular music, or K-Pop, had a pan-Asian audience and an overseas market thanks to the large Korean diaspora in Australia and the US. Riding on Psy’s success, a nine-piece Korean girl band, Girls’ Generation, recently recorded an English language song and made several promotional television appearances and live performances in the US. “I don’t think Psy will be a one-off,” said Max Hole, the chief operating officer of a global music corporation, Universal Music Group, in an interview for The Independent newspaper. “The production values and the creativity coming out of Korea are remarkable. It won’t be long before you see a Chinese or Japanese act doing well.”

South Korean and Japanese Developers are global leaders

Japanese and South Korean companies are global leaders in mobile app development and social gaming, the report says. “In October 2012 revenue made by Japanese app developers overtook those of developers headquartered in the US, and South Korean companies are not far behind. DeNA, a Japanese game company, had turnover of more than US$500m in the third quarter of 2012, with games that have topped the Google Play charts in 22 countries, including the US. But Japan remains its single biggest market. On Google’s Android platform, nine of the top ten app publishers by revenue are based in either Japan or South Korea. American and European companies have a larger market share on Apple’s iOS platform, which is less popular in Asia than in the West,” adds the report.

Accidental Globalization: Expansion due to demand from overseas markets, often unanticipated; Korean company NHN as an example

The report talks about the ‘accidental globalization’ that many Asian internet companies have achieved due to demand for their product/services outside their domestic markets, often unanticipated. The report illustrates this using the example of Korean company NHN.

The report says: NHN, the Korean company that developed Line, initially planned to focus on Japan. But users began springing up everywhere, first in the Middle East and then other places, by virtue of its high rankings on mediums such as Google Play and iTunes, as well as recommendations on blogs and websites. Seeing opportunity, the company decided to go global. It is now actively marketing in East Asia, Spain, Chile and other South American countries where Line has been picked up by users. It currently has 120m users in over 40 countries (40m are in Japan) and aims to top over 300m users this year, putting the service in the same league as Internet behemoths such as Twitter, Facebook, and China’s Sina Weibo. Its expansion plans include China and the US.

Monetization, Credit Card Penetration and Electronic Payments: Korea leads globally

The report also notes that South Korea has one of the highest credit card penetration in the world and leads in global usage of electronic payments.

Credit Card Penetration in Asia

“As with many of the issues discussed in this report, on monetisation there is also a “digital divide” between North Asia and the rest of the region. Both Japan and South Korea have large and highly profitable online gaming industries, and consumers are willing to pay for other content as well. Line, a messaging and voice over Internet provider, has three main revenue streams. The first is what it calls “stickers”, emoticon-like images that can be purchased for use inside of messages. Line’s larger selection and variety of emoticons sets it apart from competition in the instant messaging market” adds the Economist Intelligence Unit Report ‘Good to grow? The environment for Asia’s Internet businesses’.

Use of electronic payments in Korea

Regulation in Korea : Taking the Online Gaming Shutdown Law as an example

The report takes the example of the Shutdown Law passed in South Korea in 2012 because the government wanted to control the excessive time spent on online gaming by youth.

“This law forces online games companies to verify users’ ages through ID cards, and then block access for under 16s between the hours of midnight and 6am. The government insists the measures are necessary to ensure children receive adequate sleep, although the move has been widely criticised as unnecessary and unenforceable regulatory interference. This is particularly so because the government has simultaneously introduced a law prohibiting online sites from collecting personal data, such as social security numbers from users, thus leaving gaming sites with no means of verifying the age of their users” the report adds.

Talent shortage: KakaoTalk’s Sirgoo Lee Lauds government move of allowing IT specialists to fulfil their mandatory military service

The report says: In South Korea, where there were no complaints about talent supply, Sirgoo Lee, coCEO of Kakao Corp, which runs a mobile messenger service, KakaoTalk, lauds the government’s policy of allowing IT specialists to fulfil their mandatory military service by working for venture startups. This has allowed these companies to attract some top talent. The consensus was that the best thing governments could do would be to proclaim Internet-related business—as opposed to the traditional ICT industry—as a priority growth sector

Collaboration among companies vital for the industry and competitiveness

Collaboration is something that South Korean entrepreneurs would welcome, the report says.

“I think that compared with other countries, the Korean gaming industry has a very good general environment, including talent, hardware, IT infrastructure and so on, but in order to develop our competitiveness, we need to promote collaboration more,” said Sung Jin Kim, a director at an online games publisher, Neowiz Games. “This could be another mission the government needs to think about.”

The report also gives the example of DeNA in South Korea which has a partnership with Daum, a web portal, and in China with mobile phone and Internet companies.

This post uses images and content from the report. 

Click here to download the report 

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