Korean firms woo U.S. fab gear makers

Electronic News, Sept 19, 1994 by Anthony Cataldo

SAN JOSE, CALIF. - Representatives of about 50 Korean companies recently came to Silicon Valley trying to woo U.S. firms to form joint ventures in Korea in an attempt to bridge the gap between South Korea's swelling semi-conductor output and its scarcity of domestic fabrication equipment suppliers.

Attendees and industry analysts of the four-day Tech-Plaza '94 said the event was emblematic of the increasing importance of Korea as a force in the worldwide semi-conductor market. The convention, consisting of seminars and one-on-one contacts, also highlighted the growing disparity between Korea's emergence as a major player in chip production and its over-dependence on foreign equipment technology.

The Korean Semiconductor Industry Association (KSIA) estimates that Korean manufacturers will import $3 billion worth of semiconductor equipment and materials from the U.S. and Japan. Another $2, billion will be spent on royalty payments, mostly to the U.S. Overall, Korea will export $7.5 billion in devices in 1994.

"We're heavily dependent on equipment from overseas," said S. Hoon Shin, general manager of Samsung America. "We need to have local support right away instead of across the Pacific. We're restricted not by the design itself but by the equipment."

Meanwhile, U.S. companies are scrambling to figure out how to make inroads in Korea, a sometimes elusive task considering the cultural barriers and differences in business practices that exist. Despite the roadblocks, most agree Korea is too promising a market to ignore.

"In 1993, the U.S. exported over $3.2 billion in electronics products to South Korea, an amount almost 30 percent higher than just two years previous," said William Reed, president of Semiconductor Equipment & Materials International. "For semiconductor equipment ... Korea is now a larger market than all of western Europe. Korea's role as a customer of U.S. electronics and other high-tech products is indisputable."

The sentiment was echoed by South Korean delegates, who want to nurture existing relations with U.S. companies as well as to create new ones. Many Korean nationals focused on the changing business climate in Korea, saying government is trying to make it more inviting for foreign companies to take root. Duck-Young Joo, a director of the Korean Ministry of Trade, emphasized President Kim Young Sam's five-year plan to attract foreign business.

"The ambitious five-year program places special emphasis on removing various administrative obstacles hampering the activities of foreign businesses in Korea," Dr. Joo said, noting that lowering entry barriers on foreign investment and enforcing intellectual property rights are being stressed.

Several U.S.-Korean joint venture success stories were described, such as the 10-year-old Samsung and Hewlett-Packard alliance. With $1.07 billion in annual revenues, including $570 million in exports to other HP operations, Samsung Hewlett-Packard sells computers and peripherals, among other products. The secrets to success, said HP senior director Richard Warmington, are to establish a joint venture rather than "go it alone." cultivate strong personal relationships, fully staff the subsidiary with Korean nationals; and promote English training to assure solid company-wide communications.

Some, however, questioned how practical the advice from a company the size of HP would be for U.S. start-ups with few connections and little clout in Korea. Chuck Nolan, president of an equipment engineering firm called Com-De, contends it's tough to gain recognition in Korea unless you have shown a profit for several years. "What's missing is this whole family of small companies," he said. "That's what Korea needs to grow. We need to build foundations, that undercurrent."

Those who have experience in Korea say having perseverance and a willingness to adapt to social and business conventions are the main ingredients for success. Samsung's Mr. Shin laments that many U.S. firms are reluctant to conform to Korean standards. "I think that vendors have to realize that they can't do business in Korea the way they do it here," he said. "They should study hard on what our requirements are."

Varian Associates, a U.S. vendor that has operated a joint venture in Korea for nearly a decade, has learned what it takes to thrive in Korea. At least 20 percent of its equipment sales is derived from this operation, which it shares with a Korean national. Over the last three years, this subsidiary - which supplies thin-film deposition and ion implantation equipment to Hyundai, Samsung and Goldstar - has doubled in sales. Varian executives, however, are quick to point out that the basis of its success is that it is a wholly Korean-managed company, not a foreign appendage.

"Regardless of whether it's Korea or Taiwan or mainland China, you need to have a local management presence and you need to understand the subtleties of the culture," said Richard Aurelio, executive vice president of Varian. "If you go to this country as a foreign subsidiary, you won't make it."