Electronics: a mainstay of Korean economy
By Alan Biggs
By all indications, the growth of Korea’s electronics industry epitomizes its rapid advance over the past six decades and, to a certain extent, may be said to have driven it. After the Korean War (1950-53) the country was a divided and demoralized nation in abject poverty, lacking non-human natural resources and facing never-ending security threats. Under these circumstances, what were the best economic policies to pursue? Just guess! What was thought of then was the utilization of its abundant manpower, development of new and prospective industries, encouragement of import substitution, promotion of exports, the effective use of aid from the U.S. and the coordination of government policies with Korea’s new entrepreneurial class.
Early Days - electrics
Although an electricity generator was imported in 1898 and in the pre-war years, there was some minor development in electrical production, the electric industry suffered a serious setback in 1948 when North Korea (with a fairly large generating capacity built on ample coal and water resources) cut off its power exports to the South. The ROK then had just 200,000 KW of electricity available, 14 percent of its requirements. With a per capita GNP of $67 the nation was truly in a parlous state.
Making the situation more challenging was the Korean War which resulted in the destruction of much of the country, including the nascent industrial areas (Seoul was fought over four times). However, there was an incredibly powerful industrial benefit to these tragic times--the maintenance of the ROK-U.S. security alliance. The solid alliance helped the ROK develop into a self-sustainable nation with massive material aid and expertise provided by the U.S.
In the late 1950s, the country made a good start on bolstering power generation, an essential step for the creation of industry leading to the formation of electrical companies that have become today’s world leaders. Early efforts were concentrated on power transformers and automatic voltage regulators plus, of course, the production of simple household electric items such as wire, light bulbs and switches.
Birth of electronics
A milestone was marked in 1959 when GoldStar (today’s LG Electronics) produced a two-band super-heterodyne radio with five imported vacuum tubes, followed in 1960 by what was the shape of things to come, a portable transistor radio.
On May 16, 1961 there occurred an epoch-making event that caused a tremendous transformation in Korea’s industrial and economic development: the military revolution led by General Park Chung-hee. Some people may view this political change as a negative anti-democratic event but later they find it very hard to deny that Park’s policies enhanced the people’s morale, earned the nation international respect and brought about the breakneck development that has propelled Korea to its present elevated economic powerhouse status.
With national policies directed toward the export sector and the encouragement of import substitution, and against a backdrop of a per capita income of $72, the stage was set for huge advances in the electronics field. Foreign direct investment and joint ventures flourished.
A start for semiconductors
In 1966, Fairchild Semikor was established with an investment of $2,145,000 to make diodes and silicon transistors. This venture was quickly followed by others, mainly from the U.S. They included Motorola, Signetics and IBM. In 1966, the government designated electronics as a strategic export industry and formulated comprehensive policies. Foreign firms were anxious to participate, with the U.S. in the lead and the Japanese and West Germans following. These foreign companies generally outsourced chip assembly to their Korean affiliates. Despite some hiccups, the profits and potential available put Korea in a position to demand the importation of advanced technologies, and its call was translated into action.
In a technical tie-up with Amkor Electronics of the United States, a technology agreement was made with Anam Industries of Korea for the assembly of transistors and diodes. With the founding in 1974 of Korea Semiconductor in a joint venture with ICII of the United States, the domestic electronics industry started to hit the big time by producing silicon wafers, the precursor to memory chips. Samsung Group (founded in 1969) bought the company and founded Samsung Semiconductor. The firm assembled IC and LSI chips, and transistors, and in 1980 was absorbed into Samsung Electronics.
The 1970s: decade of consumer goods, higher tech
Building on a background of government policies that nurtured industrial development, Korea underwent an economic leap forward during the 1970s. This advance was largely pushed by a series of new inventions, the government electronics promotion policy and the 1974 establishment of the Masan Free Export Zone as well as the Gumi Export Industrial Complex.
In 1970, Korea started the production of black-and-white transistor TV sets and by the mid-1970s some 13 companies were producing more than one million of these a year. In 1974, Korea National, a joint venture between Anam Industries and National Electric of Japan, produced and exported 29,000 color TV sets. Samsung Electronics and GoldStar, both in tie-ups with RCA, began the production of color TV sets for export in 1977. The three companies made 110,000 sets that year. Yet, color broadcasting did not begin in Korea until 1980.
Radios, electronic watches and cassette tape players took a large part of the business in the second half of the decade. Small and portable cassette players, ‘must-have’ items, were especially favored by youths and generally popularized consumer electronics. Samsung produced its first magnetrons in 1979 and marketed Korea’s first microwave oven that year.
“If you can’t communicate, you can’t operate” is a saying that is equally applicable to Korea’s development.
Prior to 1986, the few phones that Korea had were under a manually operated switching system but in that year a pilot electronic switching system, the TDX-1, was installed for 362 subscribers. This was followed in 1989 by the TDX-10 which later evolved into the CDMA (Code Division Multiple Access) system. CDMA is used in 2G and 3G mobile phone communications and allows many signals to occupy a single transmission channel, increasing the number of customers that can utilize the limited frequencies.
The Electronics and Telecommunications Research Institute (ETRI) strove to expand and commercialize CDMA in Korea through a 1992 tie-up with Qualcomm of the U.S., enabling Korea to be on an equal footing with developed countries and to get into the mobile phone business. In 1996, the predecessors to SK Telecom started commercial services and in 2008 chalked up a market share of 50.5 percent. The company started the world’s first Digital Multimedia Broadcasting (DMB), also known as mobile TV, in 2005 for sending multimedia such as TV signals to mobile devices such as mobile phones, and replacing FM radio.
IT and the Internet
Sambo Trigem was established in 1980 and produced Korea’s first microcomputer that year. Since then a myriad companies have entered the market but Samsung and LG continue as the top contenders with a combined market share in 2009 of over 50 percent. Samsung is on target to sell 10 million PCs worldwide this year while Korea’s IT spending is expected to increase from $16.1 billion in 2010 to around $20.3 billion in 2014. Areas subject to prospective growth are cloud computing (delivering services over the Internet), notebook PCs and flash memory.
A 2007 study by Nielsen showed that Koreans are the world’s most wired people with 80 percent having access to the Internet. Computer ownership for the same year stood at 88 percent, the highest internationally. In 2010, according to the OECD, more than 90 percent of Korean homes have broadband access, while PC cafes are open 24 hours a day. Such market penetration augurs well for the industry.
After such a brilliant beginning and 50 years of prosperous development, the question naturally arises about the future prospects for Korea’s electronics industry. Given that Korean business is highly dependent on exports, it’s obvious that another recession, the feared double-dip, would have a very negative effect on the prospects for growth. Assuming that this does not happen, there still remain many variable factors.
Samsung has admitted that it is far too dependent on memory chips and needs new products. Thus it has advanced into several non-memory markets, including getting back into power ICs.
Financially troubled Hynix, the second largest memory chip manufacturer in Korea and the seventh biggest in the world, is optimistic about recovery from the recent two-year slump and says it is capable of meeting only 60 percent of current demand; it made a net profit of $742 million in the first quarter of the year 2010.
As part of its policies to induce foreign investments and foster private investment, the government has placed semiconductors, nanotechnology and robotics on a list of prospective future technologies. This strategy will very likely procure new markets for the industry. Government R&D funding and collaboration with top scientific institutes are also positive harbingers for the future.
R&D is vital for the new products Korea needs. Samsung Electronics spent $6.4 billion on research and development in 2009 and the company says this amount will certainly increase in the future. For Samsung, enjoying the ability to afford the necessary investment and with huge economies of scale in making TVs and phones among other products the future seems rosy. That of other companies is less certain but if there is no second downturn, Korea may be able to look forward to more bright years for its electronics industry.
Electronics Dynasty - Three Lees
Korea’s Economy continues to be dominated by the chaebol (family-controlled business groups) and an exemplar of this is Samsung Electronics. The origin of the Samsung Group goes back to the founding of Samsung Trading in 1938 by Lee Byung-chull.
The company moved from Daegu to Seoul in 1947 and during the Korean War, Lee moved to Busan where he founded Cheil Jedang, Korea’s first sugar refinery.
The postwar years saw the rapid development of Samsung, with much government assistance, through businesses that included textiles, securities, insurance, retail ventures and electronics. Samsung Electronics was founded in 1969 and its huge volume of business necessitated the building and enlargement of the giant Suwon and Gumi facilities
In 1987 the founder’s third son, Lee Kun-hee, took over the helm of the group and the next year Samsung Semiconductor and Communications merged with SEC. Lee also saw that the group was concentrating on producing ‘cheap and cheerful’ products, and pushed for quality, if needs be at the expense of quantity. This seismic shift in policy was summed up by his words: “Change everything except your wife and children.” In 2005 Samsung overtook Sony, in 2007 Motorola, and in 2009 Siemens, becoming the world’s largest technology company, doing 117 billion U.S. dollars in business and employing 164,600 people.
Difficulty came to Samsung in 2008 when Lee was charged with tax evasion and breach of trust; he resigned on April 21. He was found guilty in July, fined $109 million and sentenced to a suspended sentence of three years. Next December the government pardoned Lee to help Korea’s bid for the 2018 Winter Olympics and in March 2010 he returned to his position as chairman of the Samsung Group.
Lee Jae-yong, son of Lee Kun-hee, was appointed executive vice-president of SEC in December 2009, a move that may have heralded a return to a stronger chaebol system.
When the Chips Are Down
To understand today’s semiconductors, people have to cut their way through a huge bowl of alphabet soup interlarded with strings of jargon. At the heart of electronics is the integrated circuit (IC), more popularly known as the chip. This is a package of microscopic solid state (no moving parts) electronic components (transistors, diodes, capacitors and resistors) connected together as a single unit on a wafer of semiconducting material, usually silicon.
A transistor is used for switching or amplifying an electrical current, while a diode allows a current to move in just one direction. ICs in the late 1950s consisted of about 10 components on a chip 3mm square. Large-scale integration (LSI) increased the number of components and enabled the production of early digital watches.
Very large-scale integration (VLSI) vastly increased circuit density, making possible the microprocessor (the brain of a computer). The first commercially successful IC chip (by Intel in 1974) had 4,800 transistors, Intel's Pentium (1993) had 3.2 million, and more than a billion are now being used on one device.
Developed during the 1970s, the microprocessor is most visible as the central processor unit of the personal computer. However, the vast majority of microprocessors are used to control everything from consumer appliances to smart weapons.
On the visual front (TVs, computer monitors) light emitting diodes (LEDs, dating from the early 1970s) are used in almost every electrical and electronic product on the market, from miniscule on/off lights to digital readouts, flashlights, traffic lights and perimeter lighting. Liquid crystal displays (LCDs) use less power and thus replaced LEDs in digital watches in the late 1970s. In the 1990s, color LCD screens caused sales of laptop computers to rocket.
Thin film transistor (TFT LCDs are much newer and provide very clear images while the latest advance, organic LEDs (OLEDs) are truly amazing.
Who is the writer?
Alan Biggs is a 67-year-old Englishman who has lived in Korea since 1971. He is a former British Army officer, graduating from Sandhurst, who has worked for the Korean government and The Korea Times.
For the last 20 years he has worked for the Korean Red Cross and saw service with the International Red Cross for four years as a Disaster Management Delegate in Bangladesh, the Maldives and the Philippines. He raised and led a Korean Red Cross rescue corps and maintains an avid interest in the subject.
He lives in the Korean countryside, in Uiwang City.