What Korea’s Electronics Industry Has Done

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The third installment in a twelve-part series
Wednesday, September 2nd, 2009

“The Electronics Industry Gains Momentum” – A Story of the 1960s

Decade of Upheavals

IBM's First Computer Desktop

IBM's First Computer Desktop

The 1960s were full of social and political upheavals at home and abroad. The period was also characterized by new and exciting events and trends. In Korea, the decade dawned with two revolutions – one by students and the other by military officers. The student revolution occurred on April 19, 1960 and the military revolution on May 16, 1961.

These two events changed Korea’s political and economic landscape forever. Despite some controversy, the military revolution led by Gen. Park Chung-hee is generally credited with contributing significantly to the development of Korea's economy by shifting its focus to export-oriented industrialization. When the military revolution was staged in 1961, Korea’s per capita income was a mere US$72, compared to US$19,231 of GNI per capita in 2008.

Send-Radio Campaign

Even after Korea’s first vacuum tube AM radio was developed by engineers at Lucky GoldStar (present-day LG Electronics) in 1959, Korean consumers still looked for foreign products made mainly in the United States. At that time, the majority of American-made products were smuggled out of US military camps stationed in Korea. Korean consumers wanted high-fidelity electronic products, ignoring the Korean goods that were 30 to 40 percent cheaper than foreign imports.

But the military revolution in 1961 put a stop to this trend by banning imports of goods, for which domestic products could substitute, and cracking down on smuggling of such goods from US military camps. As a result, the supply of foreign radios nearly stopped and domestic radios eventually filled the void. Furthermore, the military government carried out a nationwide campaign to send radios to rural and fishing villages from July 1961, as it felt the need for good public relations for its policies. This policy naturally helped radio makers get rid of overstock and keep developing new models.

First Exports of Electronics Goods

The year 1962 saw the country’s first export of electronics goods. GoldStar exported a total of 62 transistor radios (32 T-703 and 30 TP-603 models) worth US$594 to Eisenberg Co. in New York on Nov. 28 that year – the first of its kind for Korea. Besides GoldStar, two more manufacturers, Samyang Electric and Ideal Industries, also exported radios overseas. Korean companies exported a combined total of 3,592 radios (US$49,842.40) in 1962. The volume increased to 11,657 radios (US$105,092.81) in 1963, 80,519 (US$583,974.47) in 1964, 323,775 (US$1,417,179.90) in 1965, 830,424 (US$2,901,230.13) in 1966, and 426,707 (US$1,432,736.36) in 1967 (up to July). Meanwhile, Korean firms supplied 3,331 radios (US$47,409) to US Forces Korea in 1962 alone.

Electronics Startups

Until the early 1960s, only a handful of Korean electronics makers assembled radios and produced some electronic components. Their number was a mere 27 in 1963. But it soared to as many 145 in 1969. After the production of black and white TV sets started in 1966, 28 electronics startups were established in 1967 and 25 more in 1969. A total of 23 radio makers and eight TV makers had been founded by 1969.

Joint Venture Startups and Foreign Direct Investment

The decade was also characterized by first cases of foreign direct investment and joint venture startups. In 1965, Joong-Ang Sangyuk, a radio and TV maker, was established as the first joint venture firm with an investment of US$88,000 by Royal Pac, an American company. A total of 13 such joint venture firms, including Korea Micro Electronics, Toshiba Korea, Samsung-Sanyo and Samsung-NEC, were founded by December 1969.

In 1966, Fairchild, an American semiconductor chip maker, made an investment of US$2,145,000, the first case of foreign direct investment in Korea, in founding Fairchild Semikor, a manufacturer of silicon transistors and diodes. Besides, more foreign companies such as Signectics (with an investment of US$1,679,000), Motorola (US$7,544,000), IBM (US$952,000), Control Data Far East (US$500,000), Oak (US$2,290,000), AMC (US$315,000), Doranko (US$600,000), and Komy (US$432,000), followed suit and founded local electronics startups in the 1960s.  Most of these companies were American.

Strategic Export Industry

In December 1966, the government designated the electronics industry as a strategic export industry and began formulating various policies to support it. As a result, foreign investors readily expanded their production facilities and increase investments in Korea. At that time, Electronic News, an American media outlet, carried reports featuring the Korean electronics industry, quoting a report published by an American think tank. The American news outlet painted a very rosy picture about the prospects of production and exports of Korean electronics goods. It predicted that the Korean electronics industry would increase its production from US$500 million to US$1 billion, more than half of which Korean firms would export, in a decade.

Such an upbeat trend motivated foreign investors to make more investments in Korea. By the way, American and Japanese investors showed quite different investment patterns. American investors made massive direct investments in the semiconductor sector, including integrated circuits, transistors and diodes.  Their Japanese counterparts made small-scale joint-venture investments in the components sector such as condensers, resistors, transformers and speakers. Meanwhile, American investors made small-scale joint-venture investments in electronic calculators, but Japanese investors made large-scale direct investments in the Masan Export Free Zone near Busan.

Import of Advanced Technologies

Joint-venture cooperation sometimes resulted in withdrawal of foreign investors.  As the old saying goes, “Lights are usually followed by shadows.” One such example was Oak, an American electronics maker, which withdrew in 1968. It had established a joint venture firm to make TV tuners and relays, and switches with the promise of an investment of US$2,290,000, but it had actually brought only US$500,000 worth of capital equipment. Despite its plan to produce 200,000 TV tuners a year, it had produced only 25,000 tuners. American executives found fault with the employees’ launch of a union, demand for wage raises, and complicated customs clearance procedures. But Korean employees blamed American executives for their “high-handedness and lack of management experience.”

Nonetheless, the arrival of foreign investors gave stimulus to the Korean electronics industry as a whole. With their arrival as momentum, Korean firms were able to step up their introduction of state-of-the-art technologies and strengthen their technical tie-up with foreign companies. Korean firms established cooperative ties with American, Japanese or West German companies.

Development of Automatic Telephone Exchanger, Cables and Refrigerators

GoldStar began development of an automatic telephone exchanger in 1961 and produced public telephones the following year. Its development of the telephone exchanger entered a full-fledged stage when it signed a technical tie-in agreement on the production of the EMD exchanger with Siemens, a West German engineering conglomerate, in 1964. GoldStar developed its own technology to a point that it exported EMD exchange network facilities to Taiwan in 1969.

In addition to the telephone exchange network, Korean companies concluded technical tie-ins with their foreign counterparts on various other products as corrugated metal-coated cables and refrigerators. Korea Cable signed a technical tie-in agreement with Hackethal, a West German company, in 1966. GoldStar started developing refrigerators in the summer of 1964. The company released the country’s first refrigerator model, GR-120, in April 1965. About 6,000 units of this model were produced and sold across the country. Since the release of the GR-120 refrigerator, the earliest model, a total of eight refrigerator models were developed in the country until 1969.

Government’s Promotion Efforts

As it keenly felt the need to formulate systematic policies to promote the electronics industry, the government asked Dr. Kim Wan-hee in 1967, then a Columbia University professor of electronics engineering, to fly to Korea to present suggestions on ways to promote Korea’s electronics industry. At the same time, the Korea Institute of Science and Technology (KIST) started a survey on its own to come up with a plan for the development of the electronics industry. In addition, the government enacted the Electronics Industry Promotion Act in 1968, which went into effect the following year. This contributed to the country’s electronics industry gaining momentum.

Full Series Schedule
For those interested in past or future issues of this series, here isthe full schedule of the series:

July 2009: an overview
August 2009: The electronics industry is born
September 2009: Electronics industry gains momentum
October 2009: Color TV production opens a new vista
November 2009: Radios, cassettesand electronic watches change lifestyle
December 2009: The personal computer arrives
January 2010: TDX1 introduced into the local network
February 2010: TFT LCD allows determination of film thickness
March 2010: CDMA comes into commercial use
April 2010: U-technologies (part 1)
June 2010: U-technologies (part 2)
July/August 2010 : WiMAX opens

September 2010 : Era of IPTV

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