A cloud hangs over the Korean economy’s sluggish adoption of new IT delivery models

There are two main reasons Korea's cloud adoption lags. Firstly, the public sector is hampered by regulation, and secondly the conglomerates that comprise a large chunk of the Korean economy lack motivation to move.

Korean government’s baby-steps towards cloud adoption

Cloud service providers can't currently sell to Korean government agencies, removing a potential 15,000 customers from the pipeline.

The biggest hurdle for Korea in adopting cloud is that current laws forbid the public sector from using cloud services provided by private businesses due to security concerns. That means 15,000 potential government agency clients are currently beyond the reach of cloud service providers, both local and foreign. It's a huge disincentive to the establishment of cloud service providers (CSPs).

Local analysts say a wider adoption by the public sector is needed to spur private businesses to follow suit.

In October 2013 the Ministry of Science, ICT and Future Planning proposed a new law, the 'Cloud Computing Development and User Protection Act',  to ease restrictions and help resolve this problem.

But despite earlier predictions the law would be progressed in the first half of 2014, Korea's National Assembly members are yet to give a final go-ahead on the proposal so that it can be passed by the Assembly.

The ministry’s target back in 2013 was for the new law to help expand cloud use by the public sector to 15 percent by 2017, but the delay has made this highly improbable.

Head Honchos of Korea Inc. don’t find cloud compelling just yet

It isn’t just the government that needs to get things moving. The Korean conglomerates, or chaebols, are, as usual in Korea, the role models that encourage small and medium-sized enterprises to move forward. But the big guys won’t budge so easy. They have legitimate reasons for this.

Most conglomerates have their own subsidiary that provides IT and systems integration (SI) services: Samsung has Samsung SDS; LG has LG CNS; Hyundai Motor has Hyundai AutoEver; and Hyundai Group has Hyundai U&I. And on it goes.

The affiliated IT and SI subsidiaries, though rarely the sole manager of each conglomerate’s massive stockpile of data, handle the majority of data required by their parent companies and group affiliates. Or at least the most crucial data.

The majority of servers and software used by the chaebols for Enterprise Resource Planning (ERP), Customer Relationship Management (CRM) and Supply Chain Management (SCM) are all managed by their subsidiaries, and all these systems are very deeply rooted in their day-to-day business. Software supplied by non-affiliates, as with Samsung’s use of SAP’s ERP solution, is tweaked by their own subsidiaries to ensure security and compatibility.

So why spend more money to outsource data management to cloud service providers when things already run smoothly? And when they may contain sensitive information? And, most crucially, when the affiliated subsidiary makes a steady income thanks to the status quo.

The SI affiliates themselves resist the changes. They still have an advantage over new cloud service providers by dint of their longer track record of reliability and intimate knowledge of the business of their internal clients.

However, Samsung, Korea’s largest chaebol, with revenues representing close to 20 percent of Korea's GDP, is the only one at least actively toying with the idea of adopting cost-effective cloud models as an alternative way to respond to globalized demand and response times.

Amazon Web Services (AWS) opened up shop here in 2013 and its clients include all the big names: Samsung, LG, and Hyundai Motor, among others.

Samsung is AWS's biggest client, with speculation it accounts for between 50 to 90 percent of the cloud juggernaut's revenue in Korea, with a deal worth millions of dollars annually. The electronics giant chose AWS’s cloud service to deliver its ChatOn mobile messenger globally and quickly, according to sources.

Samsung previously aimed to become self-sufficient in cloud services. The conglomerate’s flagship company Samsung Electronics launched S Cloud, developed by affiliate Samsung SDS, back in 2011 and still services it on mobile devices, though consumer interest is tepid.

Samsung's software development division, known as media solution center (MCS), has also initiated various cloud projects that were not known to the public, according to sources, but curtailed them due either to lack of funds or support.

Consequently, Samsung will now likely increase its use of external cloud services, and other conglomerates can be expected to follow its lead.

Conclusion: what does slow cloud adoption mean for Korea?

The sluggish take-up of cloud by influential chaebols and government departments means the growth of cloud in Korea thus far lags behind other leading economies. The Asia Cloud Computing Association's 2014 Cloud Readiness Index shows Korea has dropped from the second-ranked cloud-ready economy in the 2011 index to fifth-ranked this year, trailing Japan, New Zealand, Australia and Singapore. This is a risk given global competitors are already using cloud to generate competitive advantages in terms of business agility, speed to market, and cost savings.  At the same time, global CSPs are building operations in these competitor economies.

Other economies that boast robust government support for cloud, and a stronger cloud ecosystem - where cloud customers and providers are more clearly delineated without conflict of interest – have an opportunity to outperform Korea in the short term.

While the move to cloud in Korea is happening, it must accelerate. There is a fledging start-up scene focused on developing cloud-related services, and the government at least acknowledges the need to push in this area to stay competitive as a tech powerhouse on the global stage. More local companies are going global, and ubiquitous and cheap cloud becomes more and more attractive to them to service international operations.

The onus is now on government and conglomerates to lead the way on cloud adoption to ensure Korea's economy gets on an equal footing with competitors that are travelling faster and currently view Korea's cloud efforts in their rear-view mirror.

Source: ZDNet Korea (zdnet.co.kr)