S. Korea's transformation into a service and information-driven economy will require change - away from copying towards innovation.
The bruising Apple-Samsung fight raises major intellectual property rights (IPR) issues that South Korea and Asian economies generally are ill-prepared for. Unless the concerns raised by the Samsung-Apple dispute are resolved, Korea should expect regular trade friction with major partners and frequent accusations of copying and cheating. As wealthy countries like Korea move away from manufacturing and further into services and information, the need for innovative Korean firms will only grow. Neither Korea’s corporate structure – dominated by mega-oligopolies with strong disincentives to innovate – nor education system – overwhelmed by rote learning and plagiarism – position Korea well for the future.
Korea’s traditional export strengths are in manufacturing – cars, ships, electronics, and heavy industries. These generate about 40% of GDP and much of Korea’s foreign exchange. However, unless Korea strengthens its service economy, it will increasingly compete ‘backward’ against the BRICS (Brazil, Russia, China, India, South Africa) over manufacturing, rather than ‘forward’ against the US, EU, and Japan over innovative services. The Korean business media generally ignore this to focus on chaebol—Korea’s large, international often family owned business conglomerates– but the costs of doing so are already apparent: Korea’s late arrival to smart phones (some five years after the U.S.) led directly to Samsung’s desperation and Apple’s retaliation in the courts.
Industrial skills diffuse easily. Just as Korean companies were able to attract American manufacturing jobs in the 1980s and 1990s, the BRICS and Southeast Asia now draw manufacturing jobs away from Korea. As South Korea grows richer, fewer Koreans are willing to work in a factory. Of the hundreds of Korean undergraduates I have taught, less than 5% tell me they expect to work in manufacturing. And Korea’s chaebol have scarcely invested locally in the last two decades; new capacity is built either closer to markets to prevent local protectionist backlashes (as in the U.S.), or elsewhere in Asia where labor costs are lower.
These trends are not uncommon. As globalization spreads, more and more people enter the global labor force, pushing down wages. Given that service jobs usually require more education than manufacturing ones, the latter more easily cede ground to foreign competition. The U.S. too had to shift, painfully, from an industrial economy manufacturing “stuff,” to a service economy producing useful information. Manufacturing now accounts for about 15% of the U.S. labor force. But American services – including education, research, film, music, video games, health care, banking, and software design – have become global leaders and, crucially, sit atop the value chain generating massive revenue through innovative “first movement” into new areas (tech giants like Google or Apple being obvious examples). By contrast, Korea’s biggest companies face competition from dozens of other firms (whether old rivals like Sony, or new ones from China) in well-established areas. These firms are successful, of course, but will not lead the future nor generate the long-term innovation Korea needs to fend off rising BRICS competition.
Moving Korea toward more innovative production will require two major changes, perhaps so enormous they should be called cultural. First, Korean education needs to emphasize creativity and free-thinking more. Far too much pre-college training focuses on the rote recitation of answers with little underlying comprehension. Math and science may be conducive to this kind of learning, but it is disastrous when applied to the humanities and social sciences. It encourages an intense “copying culture” in which the instructor’s thoughts are treated like ideal answers to open-ended questions and parroted back. This is the single most challenging part of my job as a professor in South Korea. Ask any foreigner instructor in Asia what her biggest challenge is, and she is likely to say plagiarism. Plagiarism extends to the highest levels of Korean academia and is the biggest reason why Korea still lacks a globally ranked university. Its therefore hardly surprising that Apple accused Samsung of plagiarism.
More generally, Korea needs to develop much greater respect for IPR. Mimicry may be the highest form of flattery, but in post-industrial economies, it is also increasingly a crime. Because industrial production is moving to BRIC-like countries, companies in wealthy states increasingly generate their revenue from innovative services and useful information. Because Korea has not yet fully moved into the information economy, the costs of e-piracy feel invisible. But there already has been one major casualty: gaming-obsessed, chaebol-friendly Korea lacks a major recognizable gaming label like Namco or Activision. Domestic downloading pirates profits away, and console gaming has flopped as consumers eschew paying full price in stores. (This is also what destroyed DVD and Blu-ray sales in Korea, damaging those creative industries as well. The Korean penchant to download almost everything will generate increasing trade friction, particularly under new free trade agreements (FTAs) with the U.S. and EU. And Asian firms that engage in egregious copyright infringement will increasingly become litigation targets, just as Napster was eventually shut down for copyright infringement.
The second big shift Korea needs to avoid more IPR litigation is greater decentralization of its economy. The extreme oligopolization of Korea’s economy by chaebol is destructive in many ways – it encourages rent-seeking, facilitates political corruption, generates a too-big-to-fail mentality, and inhibits a proper currency float. It also discourages innovation. Large firms that permanently and effortlessly dominate their markets become complacent, bloated winners with obvious incentives to keep competitors out and prevent changes that might damage secure revenue streams. A very obvious example is Microsoft, whose operating software monopoly led to the complacency that generated the awful Vista. Microsoft attempted to keep out competitors with gimmicks like purposefully making Windows difficult to use with non-Microsoft software.
Korea’s biggest companies are in a similar position, which is why innovation, even in Korea’s strongest sectors, rarely comes from Korean firms. Chaebol may perfect extant technologies, but they lag at pioneering innovations, largely because disruption does not benefit these gigantic established winners. Rising challengers shake-up markets with clever innovations, but the extreme concentration of Korea’s economy almost deliberately quashes local “animal spirits.” The cell phone industry is an excellent example. Dominated for years by KT and SK, the market was stagnant, with dull flip-phones whose primary innovations were gimmicky colors and lights, while the U.S. phone industry had already entered the smartphone era with products like Blackberry. When the iPhone hit and Koreans learned of it, Korea’s telecom oligopolists panicked. They pressed the Korean government to maintain a protectionist security standard to prevent the iPhone’s arrival for two years, while Samsung effectively reverse-engineered the iPhone to create a competitor. In the end Samsung’s reputation was tarnished and Korea’s consumers spent almost five years without smart phones that Westerners had long taken for granted.
Samsung-Apple is just the beginning of Korea’s troubles as it enters into the mature world of OECD competition, where information is frequently a copyrighted product. The media’s nationalist response that the lawsuits are anti-Korean protectionism ignores both the long history of Korean mercantilism and the importance of patent protection in modern economies. The piracy damage to Korea’s digital industries, like gaming and DVD, are a case in point. Koreans are no less creative than anyone else, but their education system and economic structure strongly encourage copying over innovation. If this does not change, expect more lawsuits.
Robert E. Kelly is an associate professor of international relations in the Department of Political Science and Diplomacy at Pusan National University in South Korea and Senior Analyst at Wikistrat consulting. More of his work may be found at his website, Asia Security Blog.
Photo Credit: Flickr
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gjijijgga
rare to see a diplomat article written not much above a typical blog post's comments section in intelligence.
john chan is unfortunately doing a disservice as his correct stances couched in hypernationalistic pan-asian brotherhood terms comes off as childish. more ebooks are being written (and pirated) in "unoriginal" china than in "daring avant-garde" america
Jean Paul
See that is the problem with a lot of these asian cultures, especially the korean and chinese cultures as they are very similar and close in proximity to eachother. They always say how hard they work and how lazy the west is, however what they do not understand is that their cultures are so strict, so overbearing and almost militaristic in nature.
Having such a monolithic oppressive culture suppresses creative thinking and only leads to a stressed out, over-worked, underpaid population. I really feel sorry for all these chinese posters, no wonder they are always so hostile, it is because of their culture. Until the asians can finally free themselves from this culture and accept the western culture as superior, they will always get stuck in the middle income trap.
Look at the per capita rate of nobel laureates among the various nations, the top 20 per capita is dominated by the west, so now we know that the "lazy" westerners are much better off, they work less and still have better education and technology as well. Here is the link for proof that asian culture is inferior in many ways http://en.wikipedia.org/wiki/List_of_countries_by_Nobel_laureates_per_capita
WangKon936
Jean Paul,
Are Asian cultures inferior or do they just have a massive head start? I guess time will ultimately tell.
WangKon936
Prof. Jones,
Thank you for your thoughtful comments. You have first hand experience in Korean post secondary education so there is no need for me to comment on your expertise. However, because you may see a lot of plagiarism and copying in academia, is that enough evidence to say that Korean companies copy, at least as wholesale as the author says?
JohnX
His is not a unique view and many others have seen similar issues.
If enough people view and say the same thing then when does it become the norm?
I understand your feelings as no one wants to see their nation criticized. Though in my experience as well, copying and using others knowledge as your own is seen as normal in South Korea.
Was it in this case? I guess we will never truly know as those who did it, will never say.
WangKon936
JohnX,
FYI, I am an American citizen. South Korea is not "my" country. I am commenting on a flawed and unfair article. Again, you can't use academic practices to demonstrate business realities without formally connecting the two with supporting evidence. That would be bad scholarship. Do you not agree?
Darren
I agree. As I've commented on the Facebook link, South Korea was ranked second for innovation by Bloomsberg in 2012. It is ridiculous to say the economy is built on piracy and copying. Absolutely ridiculous.
It is amazing how the issue of Samsung vs. Apple has clouded so many people's views of a whole country.