Internet power play in S. Korea
The old-style conglomerates call the tune as new ventures struggle
By Kyong-Hwa Seok
THE ASSOCIATED PRESS
SEATTLE POST-INTELLIGENCER
Saturday, February 24, 2001SEOUL, South Korea -- Despite months of hunting for people to invest in his online consulting company, Park Nam-shik found no takers. The 35-year-old marketing professional closed up shop on New Year's Eve.
He's been out of a job since.
Getting a new business off the ground was considerably easier for Megawebstation, the biggest Internet cafe in downtown Seoul. Aglow with blue and purple neon, the cafe's 400 personal computers are used by roughly 3,000 people daily, often past midnight.
Park believes the difference between his experience and Megawebstation's is fairly simple to understand: The cafe is run by Tong- yang Group, a South Korean conglomerate, or chaebol. Tongyang, which owns securities and confectionery businesses, has cash, connections and the muscle to outmaneuver smaller competitors.
The chaebol, infamous for their reckless expansion in the 1980s and early 1990s through cheap bank loans, were ultimately saddled with much of the blame for the economic turmoil that hit South Korea three years ago.
Since then, the powerful organizations have become more transparent. But concerns are rising that they are now bullying young dot-coms and lending much of the new economy a distinctively traditional management flavor.
"Young companies have only ideas," said Park, whose company had offered small businesses online services such as finding an online design or marketing research firm. "Trying to compete against chaebol with nothing but ideas is like trying to break a rock with an egg."
Although forced to undertake reforms in the wake of the Asian currency crisis, Hyundai, Samsung, LG and other family-owned conglomerates still pervade virtually every industry in South Korea. The Internet is no exception.
South Korea, which built a powerful economy out of the ruins of war a half-century ago, is among the world's most Internet-savvy nations. There are 20,000 Internet cafes and 500,000 registered domain names for 46 million people, of whom 40 percent are Internet users.
More than half of all stock trading in South Korea is done online.
"Conglomerates have made vast investments in this sector while trying to save costs in others," said Lim Young-hak, an executive director at Samsung group's Internet business division.
The conglomerates viewed the Internet as a way out of their financial woes as they cut investment in more traditional sectors such as semiconductors, machinery and cars.
Today, a handful of conglomerates run the nation's largest Internet shopping malls and portals, either alone or in alliance with young dot-com or foreign companies. Samsung, LG and Hansol business groups control about 80 percent of the cybermarket while the rest is fragmented among more than 1,000 dot-coms.
Samsung SDS, a system integration unit of Samsung group, last year invested $18 million in independent dot-coms, five times more than the previous year. It plans to spend $91 million this year.
"It's quite possible that even healthy young dot-com companies that manage to survive on their own through this difficult time will be eventually bought out by chaebol," said Hur Young-ho, an analyst at HSBC Securities Co. in Seoul.
For their part, foreign investors seem to prefer partnering with conglomerates rather than young dot-coms. Yahoo! Inc. and Amazon.com entered the South Korean market by forming an alliance with Samsung, for example.
The nation's e-commerce market was estimated at $15.5 billion last year, almost double the previous year. The industry will be watched closely in 2001 as all businesses are being threatened by a slumping economy and ebbing investor confidence.
Experts differ over whether the chaebols' dominance of the Internet will hurt or help the industry.
"Whoever does the business, you should be specialized, efficient and transparent. If chaebol can adopt the new ways, adding to its traditional strength, why not?" said Park Sung-ju, a professor of business management at the Korea Institute of Science and Technology.
But Lee Pil-sang, a Korea University professor, sees things differently.
"A monopoly in off-line business plus a monopoly in online business would give them a huge amount of economic power," Lee said.
"It would block any newcomers with good ideas from even entering the market. It is unhealthy."