IT in Korea
Electronic Commerce in Korea
Business to Business (B2B)
Since an EDI (Electronic Data Interchange) system
was used by Pohang Iron and Steel Co. LTD. (POSCO) for the first time in
1987, it is widely used by government enterprises and large private business
enterprises to conduct business-to-business transactions. To boost
electronic commerce, Korean government is strongly promoting use of EDI
and electronic procurement. Government enterprises are encouraged
to adopt an EDI system to promote corporate informatization. and
the government announced that 80% of all government procurement activities
will be done by EDI system by 2001. [32]
It is obvious that market size of business-to-business
is larger than business-to-consumer market. However, market size
of business-to-business electronic commerce is difficult to estimate because
of two reasons. First, most of B2B transactions are based on EDI
system, but it doesn't represent the size of the market. For example,
EFTs (Electronic Funds Transfer) between banks and business firms show
the amount of transferred money, but it is hard to use this to estimate
size of the market. Second, in case of trade over the Internet and
electronic procurement, total amount of transaction could be used
to estimate the size of the market. However, these types of electronic
commerce were newly introduced in Korea, and there is no statistical data.
EC Korea (www.eckorea.net),
EC21(www.ec21.net), KOBO( www.kotra.or.kr/kobo),
Small and medium enterprise in Korea (www.smipc.or.kr),
and Dreammart (www.dreammart.com)
serve as a virtual trade service linking international businesses with
Korean traders. These virtual trade sites provide users access to
database of Korean market information, company directories and digital
catalogs. Also, these sites have advanced features allowing users
to submit trade offers through an electronic mail and post trade inquiries
on bulletin board.
Business to Consumer (B2C)
Although electronic commerce is growing very quickly,
size of market is currently small and it is in a nascent stage. Most
Korean Internet users have been on the Internet for only a year or two
years. Furthermore, the Internet shopping malls and E-tailers are
still in an embryonic stage. In May 1999, there were approximately
568 electronic shopping malls and online retailers in Korea [33].
This number is relatively puny compare to the United States (450,000 )and
Japan (7,000).
However, with the increasing public interest in electronic
commerce, sales of internet shopping malls is increasing. Daily sales
of Lotte department store (http://lotte.shopping.co.kr),
which launched its online shopping mall in 1996 for the first time in Korea,
exceeds 30 million won (US $ 25,000) and Uniplaza(www.uniplaza.co.kr)
posted $3.1 million in sales revenue in last year. [34]
The market size of B2C electronic commerce was only
1.4 billion won in 1996; however, National
Computerization Agency (NCA) expects the market
to reach 61 billion won ( 50 $US
million) by the year 2000 [35].
Table 1. Market Size of Electronic
Commerce [36]
|
Classification
|
1996
|
1997
|
1998
|
1999
|
2000
|
Total World *
($ US million)
|
518
|
1,188
|
2,371
|
3,990
|
6,570
|
Korea
(Million Won)
|
1,400
|
6,285
|
15,004
|
34,484
|
61,396
|
$ US million
(1 US$ =1,200 won)
|
1.1
|
5.2
|
12.5
|
28.7
|
51.1
|
* Estimated by Forrester Research.
Source:
Electronic Commerce Resource Center
Obstacles to Growing E-Commerce
There are some risks and obstacles, which
are involved in an electronic transaction and retarding growth of the e-commerce,
including:
Security Issues: The reliability
and security of transactions are the major obstacles of electronic
commerce in Korea. Effective security measures and technology regarding
to security are required to prevent the violation of privacy and violence
in the e-commerce.
Legal Issues: In July 1998, the government
legislate and enact the Electronic commerce Act and the Digital Signature
Act for legal validity of the digital signature and electronic authentication
system. However, some experts pointed out that these must be revised
to make up the deficiency.
Distrust between buyers and sellers: E-commerce
was newly introduced in Korea. Sellers may hesitate to ship goods
to an unknown buyer without assurance of payment, and buyers may hesitate
to pay a seller before it has inspected the goods or at least know that
the goods have been shipped. Buyers worry about data interception
and illicit modification; sellers worry about misrepresentation of data
to commit fraud.
Payment Methods: Although a type
of an electronic money, I-Cash, was newly introduced in Korea, only particular
credit card holders are able to use the I-Cash. Like the United States,
most consumer purchases took place using credit cards in Korea. However,
it is very difficult to have a credit card if credit card applicants, especially
young people, don't have a secure job and source of income.
Taxation: The government levies value-added
tax (V.A.T.) on e-commerce related transactions. Also, banks charge
3 to 5% of credit card transaction fee on every transaction paid by credit
card. To promote e-commerce, the government should avoid imposing
unnecessary taxes and restrictions on e-commerce until it is stabilized.
Costs related to use of the Internet:
Whereas telephone users in the United States have unmeasured local call
rates, cost of using telephone increases in proportion to the duration
of the calls. Also, average cost of private network services
is 150 to 289% higher than that of the U.S. [37]
Table 2. Cost of Private Network
Service. [38]
|
Speed
|
The U.S. (IDT)
|
Korea (KT)
|
Percentage (%)
|
|
56 Kbps
|
490,000 won
|
796,000 won
|
162 %
|
|
256 Kbps
|
980,000 won
|
1,462,000 won
|
149 %
|
|
1.544 Mbps
|
1,260,000 won
|
3,636,000 won
|
289 %
|
Source:
Ministry of Commerce, Industry, and Energy
This report was completed in December 1999
for the class
Impacts of National Information Technology
Environments on Business
taught in the program of the MOGIT
(Management of Global Information Technology)
at the
Kogod School of Business at American
University in Washington, D.C.
