You’d be forgiven for thinking South Korea’s cloud market is fully developed.
The country has always been a leader in mobile and telecommunications, and Samsung has long been a dominant force in handsets and base stations. And, with fully up-and-running IoT networks (LoRa, NB-IoT, Sigfox, LTE-M) and the first global 5G network launched in April 2019, you’d think Korea’s cloud infrastructure would be ready to process the torrent of data produced by millions of interconnected devices.
But this is far from the case at present – bringing considerable opportunities for western SaaS and analytics platform firms.
The public cloud sector is still nascent compared with other leading economies, and Korea needs to do a good deal of catching up.
That said, the market is now developing rapidly and forecast to double its 2018 size by 2023 to reach USD 3 billion, with business openings in many areas from Iaas to SaaS. And big local players like NHN and Samsung SDS are already teaming up together to strengthen their positions.
Industry 4.0 - the rise of smart cities & factories
When President Moon and his new administration came into power in May 2017, one of their early actions was to create the Presidential Committee on the Fourth Industrial Revolution (PCFIR).
The PCFIR coordinates policies for ICT – with the emphasis on AI and data technology. It fosters ecosystems for new industries such as smart factories, smart cities and digital healthcare. It has also spearheaded the relaxation of regulations governing data storage in public clouds, including in public institutions – a move likely to accelerate the switch to public cloud in the coming years.
This positive environment has enabled two flagship smart city projects: Sejong 5-1 Living Area, planned to be completed in December 2021, and Busan Eco Delta Smart City, planned for 2023.
While these projects alone are impressive, the government’s goal is to package them into a comprehensive smart city platform, which can then be exported to other countries wanting to ‘smartify’ their cities.
Korea being a highly industrialized nation (industry is 38% of GDP - represented mainly by textiles, steel, car manufacturing, shipbuilding and electronics), it was also only natural that smart factories would become one of the pillars of the Fourth Industrial Revolution and a strategic area of interest for the PCFIR.
As of late 2018, the country had 192,244 factories, with more than 11,000 in Seoul alone. Admittedly, a large number of these are small or family-run operations with little aspiration to become ‘smart’. Nevertheless, the current administration has set a goal to create (or convert) 20,000 smart factories and 10 smart industrial zones by 2022.
Data under house arrest
Our Seoul team has recently worked with several western SaaS companies - specializing in smart monitoring, predictive maintenance and energy optimization technology - to help them target the Korean market.
While the country’s industrial firms have responded enthusiastically in general, one common barrier has been the cultural stigma around sharing data – in particular, the desire to keep data stored on-site. One time, we even ran into a situation where we were told data could not ‘leave’ one building to be shared with a department in another building … on the same campus!
Evidently, there remains a gap in understanding of how public cloud infrastructure works and how secure it is, which needs to be addressed in any sales programme targeting Korean industrial firms. A fear of losing control of data and – more importantly – intellectual property persists, but factories do increasingly ‘get’ that moving data to the public cloud is often a requirement for extracting valuable information via artificial intelligence (AI) and machine learning (ML) platforms.
And as more and more on-premise and private cloud data begin to shift to the public cloud, the demand for software-as-a service-based AI and ML platforms will continue to accelerate – especially in the industrial IoT and smart city spaces.
Smaller, nimble players making the leap
Migration to the public cloud has so far been most prevalent amongst small and medium sized factories that lack the means to develop and deploy their own AI solutions. They know such solutions are critical to staying on top of their game and reducing operating costs – and that their best option is typically to look to international vendors for help.
When it comes to the large domestic industrial groups, on the other hand, their answer to their desire to extract valuable insights from data is often to try to develop their own solutions in-house. This is what Posco Steel and Hyundai Steel - the world’s fifth and 15th largest steel-producing companies - have been doing since 2018: using AI for process optimization and scrap management, with varying degrees of success.
But even the big industrial conglomerates (chaebol) are now realizing they should stick to what they do best - manufacturing - and, rather than reinvent the wheel, source tried-and-tested cloud solutions and services externally.
In recent months, we’ve met several managers of major factories in the paper (Hansol Paper), glass (KCC), steel (Hyundai Steel) and food and beverage (SPC) fields – all domestic leaders in their respective verticals. Their reaction was the same: we understand cloud-based AI can help us hone our competitive edge, but we need support from external suppliers to make it a reality.
Startups offering production optimization, energy optimization or predictive maintenance solutions for smart factories would do well to take advantage of the trend.
Rapidly shifting cloud landscape
So, South Korea’s rapidly shifting cloud landscape is revealing many openings for western businesses with infrastructure or platform-as-a-service offerings and software-as-a-service applications in the AIoT space.
Above all, it’s smart city and smart factory applications that are driving the big opportunities in Korea. For international firms with technologies in these fields, it’s a market you can’t afford to ignore.