During break in one of my classes last week, Professor Felten mentioned an interesting story about a Korean graduate student who was shell-shocked upon learning just how low the rate of broadband internet penetration in the US is. His reaction is certainly excusable if you consider the fact that Korea ranks first in that category at 2.466 per 10 people, almost doubling that of the U.S. at 1.382, which places it at #16 overall (see top 31 here). The reason as to why this happens to be the case, however, is not so clear-cut. In 1995, Korea had less than one Internet user per 100 inhabitants. That rate is now 55 per 100. What explains this miraculous development in South Korea?
When analyzing the rate of broadband penetration, several factors need to be taken into account (in no particular order):
1) Population density
2) Average income
3) Level of education
4) Economic orientation
5) Governmental policy
I took some time to compile this chart that focuses on a few select countries in the top 20 in terms of broadband penetration, with a special focus on Asian countries. High literacy rate and high income seem to be the pre-requisite for high broadband penetration but correlation does not necessarily imply direct causation. It is likely that high literacy rate and high income lead to a wide variety of positive social developments which enable high internet usage. The list shows that each of the other independent variables separately can account for why some countries rank higher than others but together they do need produce a consistent reason for my the ranking is the way it is. What this chart basically shows is that while each of the indicators above is a necessary condition for high broadband penetration, each cannot fully explain why South Korea ranks first despite not having the best scores in any of the indicators (in fact, SK trails the leaders by substantial amounts in each one).
I believe that the factors that separates South Korea from some of the other developed states are economic orientation and government policy. South Korean economy stands out from the rest in that there is an extreme focus on developing the Information and Communication Technology industry whereas the other economies are diversified. We don’t think of ICT products as the bread and butter of these countries’ economies. South Korea’s economic miracle shows a shift from primitive industries like textiles and chemicals to heavy industries and ICT products. The ICT industry accounts for half of the consistent 8% GDP growth over four decades, 13% of the economy (data in 2000) and 1/3 of export. Economic development in turn boosts the demand for more hi-tech products and means of communications. While ICT certainly plays a much bigger role in SK than in other countries, it is hard-pressed to say that economic profit automatically trickles down to the general population. Demand can’t be met where there is no supply. In this aspect, SK differs remarkably from other developed nations in that the government takes a pro-active role in mandating constant improvements in ICT infrastructure. The government:
requires telecommunication operators to contribute to government programmes for industry development. Unlike other countries, this money is reinvested in the telecommunication sector instead of being transferred to other areas of the government.
New and better technologies sometimes fail not because they don’t work but because there are significant infrastructural and policy barriers. Adopting next-generation technologies is often a two-way street. First these technologies must be able to enjoy low barriers of entry to the market. Second, there must be ways to streamline the delivery of these hi-tech services to the general public at low cost. Third, there must be ways to respond to sudden rise in demand of these new hi-tech services. South Korea, with its emphasis on ICT development and recognition of importance of improved infrastructures for communications, seems to be doing precisely that. Don’t be surprised if rising Asian tigers like Vietnam, with breathtaking pace of Internet penetration resemblant of South Korea in its hay-day, will choose the South Korean models over other supposedly more advanced economies like the U.S.
Last summer I did market research on the Vietnamese ICT industry with a special focus on FPT and its economic model*. Vietnam, given its high density population, penchant for technologies as well as government's encouragement of the ICT sector, should experience a South Korea-like growth but it can continue to modify business laws that encourage small businesses. What SK had that Vietnam currently doesn't are the big corporations like Samsung, LG to which a large percentage of ICT products are fed (Note: this includes not only softwares but hardware as well). While it is not impossible, it is highly probable that these giants will emerge anytime soon Vietnam. As a result, one should bank on the ICT sector being dominated by software outsourcing in the year to come. The detailed report (the pdf version does not do it justice) can be found here (all rights reserved)
*A shameless pat on the back, I predicted FPT's floor value to hover around the VND86,668/share and voila, FPT's share has claimed gradually from below 70.000VND/share to what is now 86.500VND/share. It's time to sell.
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