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  • IBM to Expand Investments, Outsourcing in Korea
  • September 28, 1998 (SEOUL) -- IBM Corp. plans to substantially expand its investment and outsourcing programs in Korea, IBM Korea Inc. officials said.
    Thus, IBM is joining the rush of global IT companies raising stakes in the recession-ridden country.

    Under terms of its recent plans, IBM will expand its procurement of IT products and components from Korea to US$1.2 billion in 1998, compared with US$3 billion in the three-year period from 1995. Specifically, it will invest US$200 million in outsourcing facilities and resources over the next two or three years.

    Also, IBM will help establish re-engineering support centers designed to meet the needs of small and midsize businesses, by providing 10 billion won (US$7.2 million) worth of hardware, software, services and technical expertise. The computer giant will spend another US$15 million in addition to an existing investment of US$15 million to set up a Tivoli software test and technical support facility in Seoul as a regional operation center.

    "We are making these investments because IBM has full confidence in Korea," said Chae Chol-shin, president of IBM Korea.

    These programs will help "facilitate corporate reengineering and enable Korea to resume its competitive role in the global market," he added.

    The announcement was followed by two major outsourcing agreements worth as much as US$1.4 billion. The SK Group, the country's fifth largest business conglomerate, entered into a strategic alliance with IBM to provide IT services for 15 SK companies under a 10-year outsourcing contract.

    SK and IBM will set up a joint venture to handle the companies' outsourcing business worth US$1 billion.

    At the same time, Korean Air Lines reached a 10-year outsourcing arrangement with IBM, which will allow it to save an annual 10 billion won in operating costs. Under the agreement worth some US$400 million, IBM will provide the airline with global network solutions covering data management and customer service. Also, IBM will help Korean Air Lines expand its Internet-based business.

    IBM's planned investment of US$200 million in its outsourcing program in Korea will build the groundwork for its effort to attract business in the Korean outsourcing market, which has remained largely untapped by global IT vendors.

    "This investment will give IBM's Korean operations extensive capacity to meet virtually any outsourcing needs of its Korean customers," said IBM Korea spokesman Lee Byung-yun.

    Korean conglomerates have largely resisted the idea of outsourcing IT activities for fear of losing control over some of their business secrets. However, the trend is changing under Korea's ongoing economic reform, which calls for major restructuring of the bloated industrial giants.

    IBM chairman Louis Gerstner joined the company's sales pitch during his visit to Seoul in August. "We are the largest outsourcing company in the world. Should opportunities emerge in Korea we will bring that capability to Korea," he told reporters.

    Analysts said that other international IT providers will launch campaigns to clinch deals with Korean companies, which are seeking to reform their business practices.

    IBM appears to have an advantage over global rivals because of its large regional outsourcing capacity. The company's strong presence in Korea, spanning three decades and bolstered by major joint ventures including a PC manufacturing and marketing alliance with LG Electronics Inc., also puts it in a leading position, analysts said.

    (James Lim, Asia BizTech Correspondent)

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    Updated: Fri Sep 25 20:04:15 1998 PDT