(Nikkei BP Group)
(No.1 High-Tech News Site in Japanese)
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| IBM to Expand Investments, Outsourcing in Korea
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September 28, 1998 (SEOUL) -- IBM Corp. plans to substantially expand
its investment and outsourcing programs in Korea, IBM Korea Inc. officials
said.
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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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