Friday, June 30, 2006

The fun of being political active overseas

This is just too funny of line not to post. From a contact from the other party (lightly edited to enhance humor):

[The] voting assistance office has decided after consultation with the Girl Scouts of America (GSA) not to let us share their...tent. 

Headless Beasts

A little noticed thing happened the past couple days, Chung Mong-koo, the Chairman of Hyundai Motor, was released on bail for the typical "health" reasons the chaebol exec's get sprung for. In reading over the news of the release, something has been troubling me. Yesterday perhaps the Korean Herald wrote it best:

[Chung's] arrest caused a vast leadership vacuum at the country's leading carmaker. Plans to build overseas car plants were put indefinitely on hold, while at home, sales waned. Just recently, unionists at the company's Ulsan plant initiated a partial strike citing the collapsed salary negotiations.

How can one man play such a role in a large global company? Even better question, how can a "transparent independent board of directors" (which large Korean companies up-and-down-the-line swear they have) allow for such a concentration of power in one man?

All that aside, such worries defiantly do not reflect well on Hyundai Motor. What the hell were the rest of executives doing? Playing grab-ass? I find it disturbing that the top management of Hyundai is so inept that they could not could not even sell cars as well in their (virtually competition free) home market, according to the Korea Herald.

On the other hand, one could take a somewhat cynical position that such news was a function of Chung/Hyundai trying to get him sprung from jail. If so, what does that say about his respect for the company and its employees where he is willing to spread rumors with such malicious and insulting implications.

No wonder DalimerChrysler sold its stake in the company.

The last bit reminds me something rather sad, for both the company and the man. A couple years ago Samsung Electronics thought it a good marketing investment to buy a series of full page article looking ads in the Korea Herald lauding their chairman Lee Kun-hee. The series went on seemingly forever and were entitled something like "Lee Kun-hee's drive for reform" or some such tripe. The incessant articles went on-and-on in a style the North Korean media would admire about what Lee was doing for Samsung. One of these ads included two or three foreign business consultants who waxed so beautifully about Mr. Lee I swear they wanted to marry the guy, or at least hoped for a dinner invitation. 

Then I thought about all this. It would not be surprising for these business consultants to have contracts with Samsung. So to sum up this, Lee is a guy who possibly pays people to say nice things about him and then pays a newspaper to trumpet it as real news. What a sad guy, how sad for Samsung.

Final thought, how could have the lack of Chung at is desk stop strikes at Hyundai factories? Is it just me or do they always strike this time of year?

Stop Sniggering This is Serious!

Business leaders in South Korea asked the Chinese government to strengthen its protection and enforcement of intellectual property rights (IPR), a business lobbying group said June 28. The subject was one of the important agenda items in a meeting the same day of entrepreneurs from the two nations, the Federation of Korean Industries (FKI), the event's organizer, said in a statement. 

Those who do not learn from history....

I dug up this in research recently:

"Clearly, there is a Maginot Line for the South Korea-U.S. free trade talks," Korean Minister for Trade Kim Hyun-chong said in a statement. "If our Maginot Line isn’t protected, it may lead to a potential failure" 

Mr. Kim apparently forgets how useful the Maginot Line was in the first place.

Wednesday, June 28, 2006

Grown businessmen once again giddy as schoolgirls

I have always loved these kind of stories. Every time some major global consolidation takes place, the Korean press buzzes with news on how a Korean company could be next. Today in the wake of the Mittal-Acelor merger comes talk about POSCO may be taken over by somebody.

Reading this perfectly timed headline made a stream of coffee come out my nose. POSCO is a flagship of Korean industry, particularly domestic industry despite its international fame and volume produced. Come on guys, you expect ANY foreign company to get after POSCO after other foreigners got bushwacked in attempts at taking KT&G and SK Corp? Not only that all the investigations against the banking sales recently? Lets face it, Korea at the moment has a blinking neon STAY AWAY sign to capital wanting to get pieces of high profile Korean companies.

The talk though does beg the question, "Could POSCO take over anybody?" A quick scan of their balance sheet indicates a good debt to equity ratio, indicating they may have ammo to tap at banks if they want. Also they do need more capacity to meet Chinese demand. However decent Chinese-centric targets are limited. However just to give an idea of the reach POSCO could have, let say the company borrows to make their debt equity ratio 1:1. This equals about US$19 billion. The once mighty US Steel currently has a market capitalization of US$7 billion. POSCO could be a buyer not a seller.

High Quality Korean Fakes in Singapore

An online paper in Singapore published a story on the sale of fake luxury bags localy. Key quote:

The shop assistant explained that the bag is a 'grade A fake good'. 

Said to be made of high-quality leather, it looks and feels like the original. It was imported from South Korea, she said.

One of the interesting points here to the pedestrian is indeed there is a classification of fakes. It shows the maturity of the industry and the black market that trades off them. More over it shows what I have been concerned about for a while, as Korea's manufacturing base leaves for China you have some factories left hold the bag (no pun intended). Some of them may be turing to producing fakes to pay the bills. 

A while ago I was doing some research on Nike fakes. I found many "Nike" shoes sold here in Korea stamped "Made in Korea", the problem? Nike has little, if not no, shoe production in Korea anymore.

FTA Trademark Progress?

The Korea Herald reports that the first round of US ROK FTA negotiations saw progress in trademarks. I hope it has to do with the fame of the mark, a difficult (if not impossible) thing to prove in Korea.

Tuesday, June 27, 2006

Hwang Legacy to Get Patents

(Disclaimer: I am not a lawyer. Nothing in this post should be construed as legal advice or proper opinion. I am simply some idiot trying to make sense of things. Please consult proper legal counsel before making any decision.)

Interesting little story, Seoul National University is planning to obtain patents based on disgraced scientist Hwang Woo-suk's work.  Legally do-able, but they have ran out of money. So the valiant supporters of Dr. Hwang are giving the University around US$120,000 to get patents in 10 countries. It seems according to the article, the money is to cover entering the national phase in 10 countries under a previously flied PCT application.

This amount comes to US$12,000 per country. An amount that almost proves to me Hwang supporters are a few genes short of a nucleus. It is likely that this will all cost a tad more than that. Just filing in the national phase is pretty expensive, just look at the USPTO website for referrence. Then you have all sorts of legal fees, plus translational fees for certain countries (For example, while not a problem in this case, Korea requires a patent application in Korea to be in Korean. This can be a rather expensive proposition especially for patents as technical as these may be.) Then once you get all over that you have to pay various maintenance fees based on each country (which as you can see in the US alone are about US$7,000). And all this is only the bare minimum, I never did add on adverse actions by the various governmental examiners and other fun.

I also blew coffee through my nose laughing at the idea in the article of "individual countries will then conduct their own reviews, which reportedly takes a year." That is more akin to a patent attorney's wet dream than a "report". Even in Korea it takes around two years, and that is if everything is done right and there are no problems with the application (which alone happens about once every time pork chops sprout wings). 

Samsung Gets Smacked

The International Trade Commission has ruled against Samsung unit Cheil Industries. 

Doing a naughty in Shanghai

A Korean importing firm was busted in China with over US$350,000 of fakes including Louis Vuitton, Hello Kitty, and Calvin Klein. The story in substance is not too suprising, many fakes in Korea come from China. Perhaps in what you can see as progress in China the Korean firm had to make attempts to hide the fakes, however the "bag-in-a-bag" techique is usaally done when the fakes are exported, so perhaps it was just timing.

You got to love this quote from a Shanghai offical investigating the case:

"Such case involving foreign companies and a large quantity of pirated brands is quite rare," said Li Xin, a bureau official.

Yes, and he is probably "Shocked, SHOCKED to find gambling going on!"

Monday, June 26, 2006

Fake Korean Botox

From the New Straits Times:

fake botox, worth RM125,000 if genuine, was allegedly imported from South Korea and approved by the Health Ministry.

 The fake botox was sold for as little as RM50 per bottle, compared with RM1,000 for the genuine product. 

It is learnt that the distributor was using the services of a popular artiste to sell the fake botox to operators of hair salons and beauty parlours nationwide.


I got 10 crates of red t-shirts saying "Again 2006" if anybody wants

Thursday, June 22, 2006

Open Door Policy

Seoul was ranked 32nd in the world in hospitality, but the details of the study point out it may be deceiving. The test included:

Reporters performed three experiments: "door tests" (would anyone hold the door open for them?)

Problem is the act of holding the door open is unusual, and more than that the person holding is seen as a little unusual. It’s just not in the palette of polite acts in Korea, if not in Asia.

I am reminded of the first time I was in this neck of the woods, a short trip to Japan. I was in the city of Niigata, and was exiting a large department store. There was a large bank of entrance doors, about 10 or so. I was exiting from the extreme right.

Approaching me was two girls, and I did the instinctive thing, I pause a bit and held the door open for them. The saw the scene and stopped dead in their tracks. They turned to each other, and as if by some telepathic agreement they made an immediate bee-line to use the last door on the left, 10 or so doors away.

That, coupled with another, lead me to believe it was not just a pointless act but a socially awkward one.

Wednesday, June 21, 2006

KCNA in the Blue House

I know the web is abuzz with the issue, but its funny how soon people for get. The South Korean government is currently mumbling something about a North Korean Satellite to be launched.  Such only makes me wonder, when did the Korean Central News Agency open up a bureau in the Blue House?

How can one not remember the famous claims of the North of the last missile test that it launched a satellite into space:

Pentagon officials say they are "highly skeptical" of claims by North Korea that it successfully launched a satellite into space, but one U.S. intelligence official tells CNN, "We can't rule that out."

 On Monday, North Korea fired a missile that crossed over Japanese territory, alarming Washington and Tokyo. Both U.S. and Japanese officials said the device was a Taepo Dong medium-range ballistic missile capable of carrying nuclear weapons.

What is troubling to me in this is the South seems to be crossing the line from being an apologist to a collaborator. Expect North Korea to crow about another satellite launch if they do fire off another missile.

More Korean Copyright Fun

Much a to-do has been made by a decision by Korean file sharing operators to ban together to stop illegal file sharing until an agreement has been made to legalize things. The Korean Assoication of Phonograph Producers (KAPP) is oviously tickled pink by the news:

Responding to music industry requests to block illegal music sharing, the association of peer-to-peer (P2P) file sharing service providers in South Korea have decided not to allow transfers of MP3 music files, as of Friday. 

"We held an urgent meeting last week, and eight of 11 member companies agreed to block MP3 files until we find ways to charge users,’’ said Jun Hyun-sung, chairman of the association.

The swapping is indeed illegal, and the current move is likely part of an effort by Korean internet companies to stop talks of more draconian methods to stop illegal sharing. However one has to wonder what impact this will have on copyright violations stemming from P2P type services. Consider this article that came out during my blogging-absence:

Many P2P services such as Cooldisk and e-Donky (sic) are still allowing their users to share songs without paying the copyright holders. Service providers such as Cooldisk, Folder Plus and Purna all refused to comment on the issue. 

Moreover, foreign-based P2P services are getting more popular after Soribada was shut down in November, as they are not subject to South Korean laws. 

"It’s impossible to completely block illegal file sharing,’’ said 30-year-old Jang Jae-woong, saying he often uses e-Donky to download music. "Maybe, some people will pay for the music on the Internet when Soribada opens. But there are always ways to get around the law on the Internet, and South Koreans are very good at doing that.’’ 

Not only that, there is some doubt in assigning liablity for infringement. Consider this from an article about the shutdown of Korean P2P service Soribada earlier this year:

The Seoul Central District Court found...Yang Jung-hwan, operator of Soribada, not guilty of aiding and abetting copyright law violations.

So then the swappers are all liable in Korea? Perhaps on paper, consider this article on the prosecution guidelines for swappers:

Internet users who share music files for commercial purposes will be subject to criminal charges [under guidelines set by the Seoul Central District Prosecutors Office].

 However, Web surfers who download music files for personal purposes and use in a limited area will not be accused.

What is this wiggle of downloading "personal purposes" and "use in a limited area"?

All this gets me to what I really want to comment on today, a move last week by a Korean movie company to file criminal charges against 12 file sharing websites allowing users to swap movies.  One can only wonder how much of the events surrounding music swapping will influence this criminal case since the Soribada case indicates Korean courts will not assign liability to the sharing sites, and if swappers will be a target since the movies are for "personal purposes" and "use in a limited area".

Missed News

Nobody is mentioning this in the Korea blog-sphere from what I can tell, but a PayPal "phishing" scam was ran through a sever in Korea. I wonder if the Korean gov't is looking into this.

Saturday, June 17, 2006

The Good Ship Samsung

Korea Investment and Securities Ltd. released an analyst report, that was pretty bearish on the company. According the press reports the firm said "[Samsung's] design strategy has lost its appeal to customers.Since I do not have the report, I can only speculate if this is part of the fall out of the loss of Eric Kim. Kim was seen as one of the key brand builders before he left for Intel.  

What was really amusing in investigating this story was the research report on Korea Investment and Securities Web site. Check out these warnings, quoted directly:

"Due to the lower share price, the ongoing stock buyback should be about W1.8trn.. foreign investors tend to sell during SEC’s buybacks." 


"This time around, SEC’s stock price movement is unclear, as we believe the stock price is also affected by the economic cycle and SEC’s earnings cycle, not only by foreign investors’ sell-off." 


"We adjusted down 2Q earnings estimates, due to lower LCD and handset margins and an inventory burden." 

"The TFT-LCD division is likely to drag 2Q earnings down further...the inventory of panels for 30” TVs and IT products acts to increase expenses in June, the profit would be cut by an additional W50bn-100bn."

Sounds like some serious problems with the fundamentals. However, the at the top is this puzzling statement:

"We maintain [a] BUY [on Samsung Electronics]"

And then people wonder why I am suspicious of Korean research.

Friday, June 16, 2006

Kawaii Nai

"If someone doesn't find me cute, I want to know why because then I'll work on it to get better at being cute." -Yuri Ebihara, Japanese model and actress

Is it just me or does she have "BAGGAGE" stamped on her forehead in big bold letters?

Tuesday, June 13, 2006

Vacation Story

A few weeks ago, I decided to try a little experiment. I walked up to
one of the ubiquitous watch dealers in Iteawon, and was offered
“Rolex” watches. Not bad fakes by the way, the still had the one tell
tale sign of fake, a clicking second hand. A good rule of thumb, if
the secondhand is obviously ticking it’s not real.

Anyway, when I was there, I was shown a variety of “Rolex’s”. The
sales lady must have had about 50 of various models behind the
counter. In addition a few fakes of other makers. I asked if she
could fulfill a bulk order, and she said yes, but it will take time
to assemble the watches. On average, a single fake was about US$100,
and a order of ten cost US$75 for each watch.

Now I just got back from a vacation in the Philippines. While walking
the streets I was a approached to by a “Rolex”. Normally I avoid
these people, but since I am in the business, I decided to inspect
the merchandise. His opening offer was US$40 for the watch, and as I
walked away and he screamed numbers I realized I could have gotten if
for US$25 if I really pressed.

What was remarkable in both these cases, is they were the same fakes.
No I don’t mean same model, but the same ultimate maker. They had the
same construction, packaging (plastic bags and rubber bands), and
even the same serial number on the back casing. This is some factory,
likely in China, making and distributing enough fakes to supply
everything from higher-class retailers in Seoul to low market street
peddlers in Manila.

Which gets me to my real question behind this all. Why are the prices
so different? We are talking about a 60% difference in price. Are
there more middlemen in Korea? Are they greedier? Are the smuggling
costs higher? Or simply are Koreans willing to pay more?

Regardless, it can give you some sense of what the factory actually
sells them for. I would figure US$5 (each chain charging half, so
street guy US$40, distributor US$20, importer US$10, factory US$5).
Quite a change from a few thousand-dollar watch!

Monday, June 12, 2006

Get your map out

Where is "Huston"?

Sunday, June 04, 2006

A Return, and FTA Talks

I should be taken out in to the street, beat bloody, and shot for this post. It has been too long since I have posted. However lazy summer days are here for me, and I can resume some blogging activity it seems. It remains to see with how much frequency however, especially since I am leaving for a one-week vacation in two days.
This morning I realized I should finish up my FTA posts, since the talks are in the news more and more. I originally planned a rather exhaustive look at both sides and the impact. However the US side got longer, and longer, and longer. My view of the US side is currently eight pages, and frankly most of that is intro and small piddling requests the US will make of the FTA. The real core the US would really like to change may take me three or four times the time and effort the piddling issues took.
Getting back to it, all this work reinforces one of my arguments about the US-ROK FTA. Without getting too much into it, let me explain. Compare these two quotes from a Heritage Foundation report on economic freedom:
United States


Score: 2.0

The World Bank reports that the United States' weighted average tariff rate in 2004 was 1.8 percent, down from the 2.6 percent for 2002 reported in the 2005 Index, based on World Bank data. According to the Economist Intelligence Unit, the government imposes non-tariff barriers, including quotas, tariff rate import quotas, anti-dumping provisions, countervailing duties, and licensing requirements, on a number of goods. Based on the lower tariff rate, as well as a revision of the trade factor methodology, the United States' trade policy score is 0.5 point better this year.
South Korea


Score: 3.5

According to the World Bank, South Korea's weighted average tariff rate in 2002 (the most recent year for which World Bank data are available) was 10 percent. (The World Bank has revised the figure for 2002 upward from the 5.7 percent reported in the 2005 Index.) According to the World Trade Organization, "The Korean tariff remains a relatively complex instrument and as such constitutes a potential distortion to competition." Korea also restricts imports through a negative list of over 1,000 items and utilizes export subsidies. Based on the higher tariff rate, as well as a revision of the trade factor methodology, South Korea's trade policy score is 0.5 point worse this year.
After reading those I ask you “Who will have to change the most in these FTA talks”. The Koreans will likely ask something, but the US side will likely come with a laundry list (actually a novella) of complaints. 10% vs. 1.8% alone on tariffs is pretty substantial, and then you have all all sorts of non-tariff barriers that Korea will have to change.
This gets us to the nub of something I have felt for a long time, at least 50% of the trade barriers in Korea are structural in nature. There a general law or regulation that applies to imported goods no matter what the origin is. This means any change for the US-ROK FTA is not a preferential change for the US, but may likely end up as a general change in Korean law and will fundamentally change ROK trade policy.
For example, one of the more onerous regulations is drug testing. Let us say you are French pharmaceutical company. You make some miracle drug, and as a default you test it in the US in order to sell it there. It passes with flying colors, and the US and Europe is very happy.
So you want to import into Korea. Korean regulations say you need testing to make sure the drug is safe. The catch is that testing needs to be done in Korea. So in order to sell it here, you have to pay for another expensive clinical trial the market. This testing is seen as a non-tariff barrier for your drug since the FDA testing results in the US is logically same as KFDA testing in Korea.
So if the US wants to change this as part of the FTA talks, the law would need to be changed to accept US testing data. This has the nice side effect of eliminated the trade barrier for you as a French company since you already have done the US testing.
I could go on with examples like these (motorcycles, advertising, legal work, etc.) however you get the idea. Any change to accommodate the US in a FTA will likely broadly change Korea’s regulatory laws and economic policy.
Which brings me to my prediction on the future of the talks, I am afraid that they will fail horribly. It will be political difficult for Korea to change so much for an FTA, especially in an environment where Koreans feel they have already sacrificed so much for the United States already. If you think protests are bad now with farmers and second-rate moviemakers, just wait.
What do you think the reaction of Taepyeongyang will be when it finds out that the restrictions on importing cosmetics have been changed? What do you think the reaction will be among the chaebols when the US demands more protections from illegal trade subsides through Korean banks? What do you think the unions will do when they find out? Guess how much the well connected Kim and Chang Law Firm will lobby against a change that mortally threatens their 60%+ share of work from foreign companies in Korea? Even better, how do you think KBS will react when they find out US TV shows can be shown by competitors more often? I can hear the KBS news team now swinging into action!
Combine all this with the anti-American sentiment in Korea these days and you have a potent and explosive mix. In fact if I were Roh Moo-Hyun I would be trying my damnedest to find a way out without looking like a bumbling idiot. “Lets see what to do…what to do…”
This gets me to the reason why Korea is making a big issue of Kaesong Industrial Complex (made in North Korea) being included into the FTA. They know that this will poison the talks, the US will give up, AND it allows them to take the moral highroad out. Korea does not have the change anything, gracefully allows them to back out, still they can be seen as for free trade, and panders to the anti-American part of the electorate to boot. Pretty neat trick!
Of course the downside to this all is the US is left holding the bag, and I wonder what the backlash would be. A failure will defiantly end up being at least one more straw on the back of the fragile alliance.
And that my friends, in a nutshell, is how I see the FTA winding up…unfortunately for everyone.