South Korea offers emerging IT services outsourcing opportunities

As one of the Asian “tiger economies”, South Korea, with a nominal GDP of $1.151trn in 2012, ranks as the fifteenth largest economy in the world (WorldBank) and stands out as one of the economic miracles of the past 50 years.

New analysis from Ovum expects South Korea’s IT services market to grow by around 7 percent in the period from 2013 to 2016. Therefore, a need to effectively service this growing and relatively mature market will rise, especially as local providers increasingly look to expand internationally. This report highlights some of the factors to be considered when looking to enter this large and sophisticated market, including managing local relationships and partnerships proactively and focusing on approaches that will drive efficiencies and productivity within South Korea’s increasingly costly, and highly selective market.

“As one of the most advanced markets in the Asia-Pacific region, Ovum forecast that the South Korean IT services market will grow to $16.4bn in 2016,” says Jens Butler, principal analyst for Ovum. The largest component is infrastructure services, representing 53 percent of the market and is somewhat different to other mature IT services markets, where application services tend to be the largest sector.

However, South Korea is a uniquely complex and competitive market and successful market entry is driven by numerous factors. Local language barriers and domestic requirements play a major role in South Korea, including the comparatively high market costs and a relatively well-protected and affluent workforce.

“But, what makes the South Korean IT services market uniquely challenging is the substantial footprint and influence of the local providers, such as Samsung SDS, LG CNS and SKC&C, which between them control close to 50 percent of the overall market space. When compared to other international markets, the global Systems Integrator presence and penetration in South Korea is relatively low,” says Butler. In order to counter the chaebol influence, providers must bring differentiators that focus on very different models (offshoring, global delivery, commodity services) to the ones that Korean buyers have grown accustomed to.

“From a pure market opportunity view, this sophisticated $13bn IT services market is one worth targeting. However, it is an extremely complicated and inward-looking market and needs to be considered as such. To succeed, entrants will need to bring their full set of services, innovation, and capabilities to the fore, highlighting approaches that will drive efficiencies, quality, speed and productivity but all with a sufficiently local flavour,” concludes Butler.