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Destination Korea: an emerging market for IT services

Outsourcers set to look East for $16 BILLION market

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South Korea is being touted as the latest outsourcing market for global IT services firms to target, and could even emerge as an offshoring destination in its own right in the future, according to analyst outfit Ovum.

The IT analyst’s latest Emerging Outsourcing Opportunities reportclaims the South Korean IT services market is now one of Asia’s most mature, and will grow by 7 per cent over the next three years to be worth $16.4bn by 2016.

This offers global giants like IBM and Capgemini the opportunity to cash in if they can overcome the formidable local presence of large local chaebol incumbents including Samsung SDS, LG CNS and SKC&C, which between them control almost 50 per cent of the market.

The best chance global providers have of countering the chaebol influence is offering elements like offshoring, global delivery and commodity services which Korean buyers have historically not been accustomed to, report author Jens Butler told The Reg.

“However, changes are afoot and in certain markets, especially financial services, the chaebol presence is expected to decrease and the reformist agenda for the new government is also starting to make headway,” he added.

“With the local economy not expected to grow substantially in the near future, the larger local providers are looking to increase their revenue streams from international sources, and this may the leave an opportunity to service the local market.”

To do this, new entrants will have to impress upon local buyers how they can drive cost savings, efficiencies, quality, speed and productivity, whilst remembering to give their services a local flavour, explained Butler.

Korea also has potential as an offshoring location in the longer term, although its relatively high cost base, low number of English language speakers and local servicing focus have ruled it out up until now.

“However, with the main local players’ drive to expand into higher growth markets and its geographical and educational/skills affinity with its two large neighbour, China and Japan, where a higher level of language skills exist, these opportunities may start to grow, from a near-shore perspective at least,” Butler argued.

Unlike many other mature IT services markets, infrastructure services represent 53 per cent of the outsourcing market at the moment and Butler pinpointed "datacentre" and hosting as a couple of areas where Korea could become a favoured destination. ®

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