Overseas ICT MarketPenetration

ODA program centered

Robert(SeokJin Yun)2014-07-21

Table of Content

Background.........................................................3

External Fact Analysis........................................4Regulation and Law Analysis......................................5Competitor Analysis..............................................8

Market Analysis.................................................11

Internal Fact Analysis.......................................17Vision..........................................................18Services and Solutions..........................................18

Performances....................................................20

Case Studies......................................................23Failure Case Studies............................................24Success Case Studies............................................25

Conclusion.........................................................28Strategic Directions............................................29

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BackgroundIn 2012, the Korean government has announced the revised bill of SWDevelopment Promotion restricting the domestic public ICT marketparticipation of major ICT companies. This was for the fundamentalrestructuring of the ICT industry, which had been major ICT company-centered and boosting small and medium ICT companies. Moreover, president Park’s regime announced a new regulationimposing gift taxes on the companies with owners’ equity of 20% ormore ( 30% for the listed company) if their internal transactionsexceed 30% of annual revenue. This stringent regulation has broughtabout the drastic revenue decrease in major ICT companies. However,considering current domestic market circumstances, there seems to benothing but to develop new business opportunities in the globalmarket.

POSCO ICT has also put great efforts in overseas market, but theresult has not been satisfactory. In 2011, only 5 projects wereobtained out of 45 opportunities and 6 projects out of 42opportunities in 2012. Furthermore, most of the projects obtainedwere small.

Year 2011 2012

Category SOC Convergence Steel Total SOC Converge

nce Steel Total

Opportunity 14 16 15 45 15 12 15 42

Bidding 4 3 4 11 3 2 1 6Won 1 1 3 5 3 2 1 6

[Table 1.Overseas Projects of POSCO ICT]

The worst of all is that POSCO ICT participated in bids for only 17out of 87 projects. Seventy projects were dropped in the middle ofsales activities after already spending a large amount of money.

This document will include:

Environment analysis including market relatedlaws/regulations, competitors’ strategies

Market analysis Problems and Causes needed to be solved Suggesting strategic directions

3

4

External Fact AnalysisRegulation and

Law AnalysisCompetitor Analysis

Market Analysis

5

Regulation and Law Analysis

The IT Service Market has grown rapidly along with thecomputerization of domestic industries from the late 1990s.According to the report from KEA (Korea Electronics Association),the size of the IT service market was 25 trillion won in 2011, whichwas an amazing growth considering 1 trillion in the early 1990s.However, the market structure was polarized because top three ICTcompanies such as SAMSUNG SDS, LG-CNS and SK C&C. occupied more than30% of the market.

Korean government considered this is a serious impediment to the ICTmarket. Therefore, Korean government has announced regulationsconstricting major ICT companies’ business activities in thedomestic public market.This was for the fundamental restructuring of the ICT industry,which had been major ICT company-centered and boosting small andmedium ICT companies.

MOKE*) Notification (’11.12.30)In 2011, MOKE notified a regulation restricting the major ICTcompanies’ domestic ICT market participation. This notificationregulated the bottommost prices of the public IT projects in whichICT companies could participate.* MOKE: the Ministry of Knowledge Economy

Big sized ICT companies with annual turnover of 800 billionwon or more can only participate in a project above 8 millionwon(from 4 million won)

Big sized ICT companies with annual turnover of under 800billion can only participate in a project above 4 million won.(from 2 million won)

Medium sized ICT companies can only participate in a projectabove 2 million won for 5 years.(new regulation)

According to market research agencies, 30% of the public ICTprojects was over 4 million won(959.1 billion won in total) in 2011and SAMSUNG SDS, LG CNS and SK C&C, the top three companies, won75.5% of those projects(723.8 billion won in total).

The Law of SW Development PromotionIn 2012, the Korean government has announced the revised bill of SWDevelopment Promotion preventing major Korean ICT companies fromparticipating in the public ICT market including government agencies

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and government owned corporations. Below are the major amendments: SI*) companies which belong to conglomerates with assets of 5

trillion won ($4.25 billion) or more, are restricted toparticipate in the public ICT projects entirely.(amendment ofclause 2 of article 24)* SI (System Integration) company is a company which build and maintain business IT systems for the efficient processing of business of commercial companies and government agencies.

Government agencies ought to open RFP(Request For Proposal) inadvance of placing an order and can utilize external expertsin developing the RFP document.(new clause insert into article20, amendment of clause 5 of article 20)

The Government should establish a legal basis for an orderingorganization to estimate engineering costs.(amendment ofarticle 22)

MOKE(The ministry of Knowledge Economy) shall monitor law-observance of government agencies and recommend improvementsif necessary.(new clause in article 24)

Below table shows the 63 designated conglomerates with assets of 5trillion won ($4.25 billion) or more

(As of April 2, 20141)

[Table 2. List of Conglomerates with asset of 5 trillion won or more]

This legislation has been come into effect from January 1, 2013.

[ Market Size (unit: billion won), Growth Rate]

1 Incited from a new release from Fair Trade Commission(April 1, 2014)

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[Picture 1.Public Agencies’ ICT budget2]

As shown in the picture 1 and 2, annual public agencies’ ICT budgethas increased significantly, and big sized ICT companies occupiedaround 40% of the market. Due to this restriction, around 40% marketlosses are expected for big sized companies.

Economic Democratization/Liberalization PolicyOne of President Park’s core presidential election pledges was theEconomic Democratization/Liberalization. The purpose of economicdemocratization/liberalization3 is to provide economic empowermentto all citizens and all local communities, and to prevent theconcentration of economic power that subverts mass political andeconomic empowerment.To ensure economic empowerment, four fundamental conditions arerequired, two of which are individual and two of which arecollective.1. Basic necessities and amenities guaranteed to all people2. Increasing purchasing capacity guaranteed to all people3. Local control of economic decisions, made on the basis of

collective necessity4. No outside interference in local economies or capital drainage

2 Issue examination of SI industry, KIS(Korea Investors Service), 2012.11.263 Incited from Economic Democracy Conference, http://economicdemocracyconference.org/the-meaning-of-economic-democracy/

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Big sized companyMedium sized

companySmall sized

company

[Picture 2. Public ICT Market Share]

1,937.6

2,134.0 2,019

.3

2,242.9

2,538.5

3,090.4

Based on this philosophy, President Park’s regime announced newregulation to achieve the purpose of economic democratization. Mainpoint of this policy is imposing gift taxes on the companies withowners’ equity of 20% or more (30% for the listed company), if theirinternal transactions exceed 30% of annual revenue. Even thoughPOSCO does not have a company owner, POSO is planning to reduceinternal transactions between POSCO and subsidiary companiesgradually. POSCO ICT also is expecting revenue decrease by more than50 billion won from POSCO this year.

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Competitor Analysis

Government issued regulations have resulted in a sandwich phenomenonof big-sized ICT companies including POSCO ICT. Moreover, globaleconomy crisis has brought about market stagnation and has increasedmarket uncertainty.

[Picture 3. Sandwich Phenomenon]

Many big-sized ICT companies argued that these restrictions weredisproportionate and impermissible in the realm of reasonablenessand fairness. Nevertheless, these restrictions have becomeeffective. Eventually, SAMSUNG SDS, the biggest Korean ICT company,has announced to withdraw from domestic market and put every effortto global market.

[Picture 4. Article declaring market withdrawal4]

Other companies like LG-CNS and SK C&C have also set their counterstrategies comprising two main points to overcome this 4 Money Today, 2013.6.16)

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crisis. One is M&A to diversify their business models. The other is global market penetration to open new market in the globe.

Counterstrategies

M&A for business diversificationDue to the rapid change of ICT technology and market circumstances,it has become more difficult for the ICT companies to stay in onestrategy focusing on one business model. Therefore, M&A has become an interest growing area for the businessdiversification, and harmonization with current business models.Industry convergence trend has also instigated M&A in the market.

Company Merger and AcquisitionSAMSUNG SDS - SAMSUNG Networks, Network and telephony

service company(’10)- CREDU, the e-learning company(’11)- EXE C&T, the logistic company(’12)

LG CNS - Acquired share of Korea Smart Card(31.8%, ‘10)- Korea Elecom, the defense IT solution

company(’11)- ATM business department of LG-nsys(’13)

SK C&C - Acquired share of En-Car, the used car sales company(91.7%,’12)

POSCO ICT - POSCON, the system engineering company(’10)- Established LED company, POSCO LED(’10)- Acquired nuclear business part of

SAMCHANG(’11)Lotte - MYb, HanPaySys, eB-Card, the micro payment

companies(‘09~ ’10)- Acquired shares of HIT, 6th biggest ICT

company(52.3%, ’11)Hanhwa S&C - Gunjang, yusu cogeneration(’07 ~ ’10)

[Table 3. Merger and Acquisition of ICT companies]

Overseas Market PenetrationDue to the regulations of the government, the domestic ICT marketdoes not seem attractive to big sized ICT companies any more.Therefore, these companies are considering the global market as apotential growth engine, even though financial crisis in Europe hasbrought about global business slowdown. Constant economic growth ofrising nations such as China, India, and poor IT infrastructures inSouth East Asia, and South America countries seem attractive enough

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to draw the Korean ICT companies’ attentions.

Top big 3 companies are moving remarkably by reallocating ITexperts, who were allocated to public business sectors before, tooverseas business sectors.

SAMSUNG SDS obtained the Ecuador e-universal pass project, the AFC(Automatic Fare Collection) project in Malaysia, and the automationof subway service projects in China and India. LG-CNS isaccelerating financial IT market invasion in Japan, and attackingthe overseas market with transportation card system and smart citysolutions. LG-CNS is planning to achieve 50% of annual turnover fromthe overseas market by 2020. SK C&C has established the overseasbranches in Holland, Singapore, and Spain proactively. At the sametime, SK C&C is expanding m-commerce business using NFC (Near FieldCommunication) technology in North America by strategic alliancewith FDC, the US. SK C&C also provided TSM (Trust ServiceManagement) solutions to Google and Dunkin’ Donuts.

In addition, these top three companies have reorganized theirorganizational structures to strengthen their competitiveness in theglobe.

Company Reorganization of organizationSAMSUNG SDS - Integrated individual overseas departments

into the Global Business Department- Moved the mobile business department into the

Smart Convergence Business DepartmentLG CNS - Established the Overseas Business Development

Teams under business groups of the Public and SOC Business Department

SK C&C - Reorganized branch offices in the US and Chinaunder CEO’s direct control

[Table 4. Reorganization Directions]

Below picture shows the top three ICT companies’ global marketpenetration strategies.

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[Picture 5. Counterstrategies of Big 3 Companies]

13

Market Analysis

Domestic ICT Market-IT Service AreaDomestic ICT market, which showed market contractions with thefinancial crisis, is showing annual average growth of 6% per centdue to the investment restoration after 2009. In October 2013, scaleof market was 24.2 trillion won, which is 14.7% higher than the sameperiod of 2012.

[ Market size, unit: Trillion Won]

* SI (System Integration) company is a company which build and maintain business IT systems for the efficient processing of business of commercial companies and government agencies.

[Picture 6. ICT Service Market5]

[Picture 7. ICT Market (except the public market)]

However, the ICT market except the public ICT sectors shows only 2%growth rate compared to 2012 in 2013. This is because of the ITinvestment contractions of private companies due to the delay ofmarket recovery. Financial IT market stagnation, which pulledgrowth, also affected growth slowdown with the completion of nextgeneration system projects. However, market seems stabilized morethan before due to the market switch from system integration (SI) tosystem maintenance(SM). SM ratios in 2013 have increased to 42.3%from 29.6% of 2004. The characteristics of System Maintenance are

Long term based contract Given to the subsidiary ICT company

5 Industry outlook, Korea Electronics Association, 2013

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IT Consulting and SystemDevelopment

System Maintenance & SupportService

etc

Easy to lock in customers

In summary, domestic market does not seem attractive due to Public ICT market driven domestic market : annual growth of

around 15%- Dead market for major companies due to public marketparticipation restriction

The ICT market decrease of private sectors Market structure shift from SI to SM: lack of new market

opportunities

Global ICT MarketGlobal market itself is too huge to deal with, and it is very hardto forecast the market size, and feasibility. However, according tovarious institutes including WORLD BANK and Korean government,estimated global public ICT market is bigger than 6 trillion dollars(no measurement of global private ICT market). Below table showsmarket characteristics.

Category Global PublicMarket

(Non-ODA)

Overseas ODA(multinational

Institutes SupportProgram)

Korean ODA(Korean InstitutesSupport Program)

Market Size

$6 trillion $200 billion $1.4 billion

Competitors

- Local/regional & Global Companies

- Global Companies

- Domestic KoreanCompanies

OrderingOrganization

- Public Institutions

- Public Institutions under assistance organization’s observation

Process - Not transparent - transparentTechnical Assistance

- Optional - Mandatory

[Table 5. Global ICT Market6]

As shown in the table above, even though Non-ODA market is biggerthan ODA market, it is not transparent. For example, MalaysianCustoms System, which was supposed to commence in April 2013, wascanceled without any cause after long period of proposal process

6 Major assistance institutes including WORLD BANK and Korean government

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after spending huge more than 200 million won.. Fraud projects onlyasking for under the table payoffs still exist.

So, it is highly recommended to focus on transparent market like theODA market. Unfortunately, ODA market funded by multinationinstitutes is not easy to penetrate because this market requiresmany global project experiences. On the other hand, Koreangovernment funded ODA market is rather easy to open because most ofthe projects are given to Korean companies (called “tied project”)even if OECD keeps claiming to open the Korean ODA market to foreigncompanies (called “untied project”).

Official Development Assistance (ODA) MarketMany MDBs such as WORLD BANK, ADB, and AfDB have played importantroles in national development. MDB7 is a financial institution thatprovides financing for national development. The bank is formed by agroup of countries, consisting of both donor and borrowing nations.Furthermore, an MDB offers financial advice regarding developmentprojects. The best-known multilateral development bank is the WordBank, which extends loans and credits to a plethora of countries.Other popular MDBs include the African Development Bank and theAsian Development Bank.

Official development assistance (ODA)8 refers to the flow offinancial resources from the central and/or local governments ofdonor countries and multilateral agencies to developing countries.ODA is intended to promote the economic development and to improvethe quality of life in developing countries. In other words, ODA canbe described with the following three key questions:

by whom Central and local governments of a donor country or other public, international agencies

To whom?A developing country in the list of ODA recipients, provided by the OECD-Development Assistance Committee (DAC9)

How?Providing grants* or concessional loans** for the recipient country in order to promote its economic development and welfare improvement

7 MDB : Multilateral Development Bank, http://www.investopedia.com/terms/m/multilateral_development_bank.asp8 ODA : http://www.odakorea.go.kr/eng.overview.What.do9 OECD Development Assistance Committee became part of the OECD by Ministerial Resolution on 23 July 1961. It is a unique international forum of many of the largest funders of aid, including 29 DAC Members. The World Bank, IMF and UNDP participate as observers.

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* A grant refers to a “free” form of assistance in cash, goods, and/or services provided without stipulations of repayment or redemption. Certain types of costs or expenses involved in implementing given projects of assistance may fall into the category of grants.

**A loan refers to funding provided either in cash or in goods with stipulations of liabilities for repayment. Concessional loans made as part of ODA are more favorable to the recipient country than other commercially available loans in terms of interest rates, maturity, and grace periods. In order to count as ODA, a concessional loan must have a grant element of 25% or greater.

The report from ODAKorea shows that ODA volumes of the world haveincreased constantly. Below are the figures of ODA volumes:(USD Million, %)

2009 2010 2011Total ODA/GNI ODA/

manTotal ODA/GNI ODA/

manTotal ODA/GNI ODA/

manDAC 119,822 0.31 126$ 128,292 0.32 134$ 133,658 0.31 137$

Korea 816 0.10 17$ 1,174 0.12% 24$ 1,325 0.12% 27$

Bilateral 581.1 - - 900.6 - - 989.6 - -Multilate

ral234.9 - - 273.2 - - 335.0 - -

[Table 6. ODA Volumes]

Bilateral means direct Aid from a single donor country to a singlerecipient country, in contrast to multilateral aid which is providedby a group of countries, or an institution representing a group ofcountries such as the World Bank, to one or more recipientcountries.

According to the assistance distributions shown below, the biggestarea is the Social Infrastructure and Service area encompassingpublic administration, water resource, reproductive health, hygiene,population policy, health, and education. However, this area is notstrongly related to ICT businesses. The area, which ICT companiesshould focus on, is the Economic Infrastructure and Service areaincluding Energy, Telecommunication, Transportation, Logistics,Banking, and Finance.

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[Picture 8. ODA Distribution (2011)10]

Around 40 per cent of Korean ODA financing has put into this area asthe form of projects. Most of these projects were awarded to Koreancompanies even though OECD is claiming strongly to increase untiedprojects in which foreign countries can participate. However, inconsideration of the competitiveness, the Korean ODA market looksmore attractive than the Overseas ODA market.

Korea has repeatedly affirmed its commitment to increase its ODAvolume. The commitment was echoed by the President at majorinternational conferences including the UN General Assembly, the G20Seoul Summit, and the Busan HLF-4. The Strategic Plan also projectsa steady increase of the ODA/GNI ratio up to 0.25% by 2015, by whichKorea can come close to the average level of DAC members.

Prioritized Recipient CountriesAccording to the statistical data published by KEXIM, 35% ofassistance funds were for the reconstruction and waiver ofobligation of Democratic Republic of the Congo and Afghanistan.

[Unit: million USD, net spending]Rank Country Amount Etc.1 Afghanistan 5,456.0

2 Democratic Republic of theCongo

2,579.4 Prioritized country of theKorean Government

3 Iraqi 2,146.4

4 Pakistan 2,128.3 Prioritized country of theKorean Government5 Vietnam 1,987.7

6 India 1,944.8

7 Ethiopia 1,907.6 Prioritized country of theKorean Government

10 Incited from ODA Statistics of KEXIM(the Export-Import Bank of Korea)

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8 West Bank and Gaza Strip 1,644.6

9 Tanzania 1,575.3

10 Mozambique 1,449.9 Prioritized country of theKorean Government

Total 22820.0[Table 7. Top 10 Recipient Countries-World Wide]

* Based on 3year aids of DAC members.(2009~ 2011)[Unit: million USD, net spending]

RankCredit Assistance Grant-Type Aid

2010 2011 2010 2011

1 Vietnam 1,911 Vietnam 2,547 Afghanistan

6,510 DRC 7,214

2 India 1,523 Turkey 2,519 DRC 5,839 Afghanistan

6,644

3 Nigeria 1,044 India 1,875 Haiti 3,754 Pakistan 3,139

4 Tanzania 932 Serbia 858 Pakistan 2,968 Ethiopia 2,917

5 Ghana 651 Ghana 787 Ethiopia 2,888 GazaStrip

2,434

6 Ethiopia 637 the Ivory Coast

694 GazaStrip

2,513 Tanzania 1,965

7 Turkey 556 Kenya 680 Tanzania 2,026 Kenya 1,804

8 Uganda 435 Nigeria 641 Sudan 2,009 Mozambique

1,682

9 Mozambique

346 Morocco 636 Iraqi 2,006 Haiti 1,640

10 Honduras 299 Ethiopia 615 Liberia 1,725 Iraqi 1,508

13863 67206 32238 30947[Table 8. Top 10 Recipient Countries (Credit/Grant)11]

Most of aids for African countries were grant-type and it was threetimes bigger than credit assistances. However, if taking a closelook, most of countries are politically instable or extremely poor.So it is strongly required to consider political and social risks inadvance.

Korean Government has also designated twenty-six prioritizedcountries and set “Country Partnership Strategy” to increaseefficiency of assistance programs.

Region Countries11 Incited from ODA Statistics of KEXIM(the Export-Import Bank of Korea),2012

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Asia(11)

Vietnam, Indonesia, Cambodia, Philippine, Bangladesh, Mongol,Laos, Sri Lanka, Nepal, Pakistan, East Timor

Africa(8)

Ghana, Democratic Republic of the Congo, Nigeria, Ethiopia, Mozambique, Cameron,Rwanda, Uganda

Mideast &CIS(2)

Uzbekistan, the Azerbaijani Republic

Central &SouthAmerica(4)

Colombia, Peru, Bolivia, Paraguay

Oceania(1)

The Solomon Islands

[Table 9. List of Strategic Assistance Countries of Korean Government12][Unit: million USD]

Rank Country Approved

Frequency

BranchOffice

RankCountry

Approved

Amount

Frequency

BranchOffice

1 Vietnam 1,639.9 40 11 Mozambique

223.9 6

2 Indonesia

557.1 18 12 Ghana 203.9 5

3 SriLanka

553.4 16 13 Laos 195.1 9

4 Bangladesh

498.8 22 14 Pakistan 175.0 5

5 Philippines

435.4 16 15 Mongol 160.0 9

6 Cambodia

383.7 12 16 Bolivia 157.4 4

7 Tanzania

323.7 8 17 Uzbekistan

146.2 6

8 Angola 255.7 7 18 Nicaragua

118.9 6

9China 233.6 22 19 Bosnia

Herzegovina

117.2 3

12The first half year integrated ODA Workshop of Korean Government, 2014

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10 Jordan 231.6 6 20 Turkey 104.8 3[Table 10.Aid Record-the Korean Government (~ 2011.12)13]

According to the table above, around 45% of assistances were givento top five countries such as Vietnam and Indonesia. It is requiredfor POSCO ICT to concentrate on those countries and corporate withfamily companies having branch offices in these area like DAEWOOInternational because POSCO ICT only has three branch offices amongstrategic assistance countries.

13 Report on supporting Overseas market participation through EDCF, KEXIM, 2012.12

21

.

Internal Fact AnalysisVision

Services and Solutions Performances

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POSCO ICT, previously POSDATA, which was founded in 1989, is one ofthe major ICT companies aiming for a Smart Future that combinesconventional industries, such as manufacturing, railways andtraffic, environment, and energy, with ICT and engineering. POSDATA,the IT service company, merged POSCON, the engineering company, in2010 and renamed its name POSCO ICT.

VisionThe vision of POSCO ICT is “Creating Smart Future” using ICT and engineering technology.

[Picture 9. Vision of POSCO ICT]

Services and SolutionsAfter merger, POSCO ICT’s business portfolio has been changedsignificantly and there are four main service areas.

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[Picture 10. Business Portfolio]

There are 21 solutions to support business portfolios.(as ofSeptember, 2014)

Solutions Description IT Eng Core

Smart MES

A system of new concept that combines BusinessComputer with Process Computer and it informatizes all production processes from ordering to finished product.

SMB ERP

An ERP system customized for steel companies, which is targeted at overseas SCM corporations. It is a solution for SMBs that provides the purchase, sales, production and financial modules.

MeasuringInstruments

One of main products that measures and recordsthe physical states and defects that affect product quality, such as weight, capacity, vibration, noise, temperature, heat and others.

Multi-tierWarehouseAutomationSolution

This is a system that uses the stacker crane, which can move between storage racks, to receive or issue the products automatically. POSCO ICT implements an optimized, multi-tier warehouse automation system in conjunction

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with MEIC (mechanical, electric, instrumentation, and computer) total solutionsbased on its accumulated technological capabilities and specialists.

ElectronicToll

CollectionSystem

(ETCS/TCS)

ETCS is an up-to-date electronic toll payment system that uses wireless communication between the in-car device (OBU) and the road-side relay (RSE) to allow the toll to be automatically paid without stopping the car. TCS (Toll Collection System) is a system that requires the driver to stop at the toll gate to pay the toll manually.

PSD(Platform

Screen Door)

a safety system used in subway that installs fixed walls and automatic doors at the edge ofthe platform to separate the platform from therailway for the protection of passengers

CBTC(Communication BasedTrain

Control)

A train control system of a new concept that uses wireless communication to detect the location of the train. The CBTC system has evolved further by adopting the proprietary on-board CBTC device and guarantees fast and safe train operation.

POS-AFC(Automatic

FareCollection)

An automatic fare collection system for the train/subway that includes software and devices for automatically processing ticketingand charging, ticket-checking, ticket collection, fare calculation, and statistical calculation.

BHS (BaggageHandlingSystem)

A complex automatic sorting system that reads the tags, and sorts the baggage per destination. It integrates conveyance, searching, and sorting functions to provide the best services to the passenger

Smart EMS

Customized total energy information services for energy optimization in buildings and factories that includes energy efficiency diagnosis, facility implementation and operation. In addition, an energy-optimized solution identifies the causes of excessive energy consumption, proposes the improvement solution, and provides post management.

BESS(BatteryEnergyStorageSystem)

BESS stores excess electricity in the battery when the demand for electric power is low and supplies it when the demand rises, improving the energy efficiency and increasing the stability of the electric system.

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Safety ClassPLC forNuclear

Power Plants(POSAFE-Q

PLC)

POSAFE-Q PLC is a device that is installed in the nuclear power plant to identify the risk factors of the nuclear reactor and takes automatic measures to prevent accidents and minimize damage if an accident occurs.

MPS

MPS (Micro Pulse System) is an industrial high-voltage micro pulse energizing electric precipitator that eliminates fine dust in exhaust gas.

MPC

MPC (Magnetic Pulse Compressor) is a hybrid air environmental equipment that combines coldplasma reaction with powder chemical reaction to eliminate both sulfur oxides and nitrogen oxides in the exhaust gas from power plants and incinerators

Smart LMS(LightingManagementSystem)

Smart LMS, which combines high-efficiency LED devices and IT control technology, recognizes the surrounding environment and adjusts the brightness of the light or turn it on/off, while carrying out real-time monitoring to reduce power consumption.

Smart HomeAn up-to-date Smart Home adopting various technologies including network, IT, content, and electric control

SWP (SmartWorkplace)

A free communication and collaboration workingenvironment unconstrained by time and space including email, video conferencing, knowledgesharing and in-house specialist searches to contribute to business efficiency and productivity.

SmartECM(EnterpriseContents

Management)

SmartECM visualizes the document life cycle that includes production, storing, usage, and disposal, in order to eliminate hidden waste and use documents efficiently. It is a total solution that pursues the advancement and improvement of work methods with enhanced security system of knowledge assets

GlueFramework

Glue Framework is a framework specialized in program recycling that standardizes the architecture of large company applications andallows for quick and easy design/development with no platform and vendor lock-in

u-CUBE EAI/ESB (Enterprise Architecture Integration/Enterprise Service Bus) solution

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that allows for quick and flexible linking of complex IT systems inside a company, or between companies, at the application or service level

PosBee

A middleware solution that collects large sitedata from disparate RFID/USN environments, summarizes them into meaningful information, and delivers them to the application services.The Embedded PosBee is a hardware-integrated, generic device that combines the device interface with a data processing function.

[Table 11. Solution List]

PerformancesAfter merger in 2010, on average 17.6% of annual orders were from overseas market (2010 ~ 2013). However, it has decreased constantly after the peak of 351,962 million won in 2011.

[Unit: million won]

YearOrders Receivable Annual Turnover ProfitsTotal Overseas

2010 1,129,600 185,475(16.4%)

828,900 27,400

2011 1,496,000 351,962(23.5%)

983,600 37,000

2012 1,269,000 247,608(19.5%)

1,017,700 44,200

2013 1,448,800 156,691(10.8%)

1,008,100 45,000

Total 5343400 941,731(17.6%)

3838300 153600

As shown in the table below, 34 per cent of overseas projects werefrom the overseas non-captive market while 65.6% of projects werefrom POSCO and POSCO Family companies.

[Unit: M Won]

YearTotal Non-Captive

MarketCaptive Market

POSCO POSCO Family %2010 185,475 165,367 89.2% 17,466 9.4% 2,642 1.4% 10.8%2011 351,962 5,400 1.5% 94,861 26.5% 251,701 72.0% 98.5%2012 247,608 22,697 9.1% 2,312 1.0% 222,599 89.9% 90.9%

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2013 156,691 130,405 83.2% 7,431 4.7% 18,855 12.1% 16.8%Total 941,731 323869 34.4% 122070 13.0% 495797 52.6% 65.6%

[Table 12. Overseas Contracts Awarded14]

050,000100,000150,000200,000250,000300,000350,000400,000

[Picture 11. Accumulated Graph of Overseas Contracts]During the last 5 years, the strategic direction of POSCO was familymanagement aiming for globalization of POSCO and POSCO Families andaccompanied growth so there were many overseas projects placed byPOSCO and POSCO family companies. However, with the completion ofbig overseas projects, the contract amount of POSCO ICT’s overseasprojects in captive market is expected to decrease seriously. On theother hand, overseas non-captive market is also not in a goodsituation, as shown in the table and the picture above, itfluctuated annually. This has mainly resulted from dependency-tendency on one or two big projects. For example, in 2013, thebiggest project was urban railroad project of 104,902 million won inHo Chi Min, Vietnam, which was 80% of total contracts in captivemarket. In 2010, Libyan new city construction contract was thebiggest project, which was amount of 144,200 million won. It was87.2% of the total overseas contracts in 2010. Even worse, thisproject has not started yet because of unrevealed issues.

If looking into overseas sales activities of non-captive market inmore detail, other problems can be identified.

Year 2011 2012 TotalBusinessArea

SOC Convergence

Steel Total SOC Convergence

Steel Total

Opportunity

14 16 15 45 15 12 15 42 87

BidParticipat

ion

4 3 4 11 3 2 1 6 17

14 Referenced From POSCO ICT’s annual report

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Overseas Non-Captive

Market

Overseas POSCO Family

Overseas POSCO

2010 2011 2012

2013

Contract 1 1 3 5 3 2 1 6 11

etc.FS

Consulting(1)

FSconsulting(3)

SupplyDelivery

(2)

[Table 13. Overseas Sales Activities (Non-Captive) in 2011, 201215]

Out of 87 project opportunities, only 11 were obtained which weresmall such as feasibility consulting projects. Furthermore, 70 weredropped in the middle of sales activities after spending huge amountof sales expenses and time. Reducing this cost will be a hugechallenge for POSCO ICT. Case studies will be explained with causesin the next chapter.

In summary, overseas market performances of POSCO ICT after mergerlooks stagnated even though POSCO ICT has announced new vision andstrategy including new business portfolios.

Overseas market ratio : 17.6% Dependency-tendency : 65.6% of the overseas market was from

POSCO/POSCO Family Dependant on one or two big project(non-captive market) Completion of big projects of POSCO and POSCO Families Agent dependent business opportunities identification Loss of money and time because of the Funnel Effect

15 Summarized data of Sales Portal System of POSCO ICT

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Case StudiesFailure Case Studies

Success Case Studies

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In this chapter, various case studies will be introduced with causesto identify strategic directions. Failure cases will be taken fromPOSCO ICT and success cases will be from competitors.

Failure Case Studies

Uzbekistan Education InformatizationIn 2006, KEXIM decided to provide a loan of $ 30 million forUzbekistan Education Informatization based on the feasibility studyconducted by POSCO ICT and KT jointly and KT obtained this projectfinally.

[Picture 12. Comparison of Sales Activities]As shown the picture above, big differences between KT and POSCO ICTwere pre-sales activities after feasibility study. POSCO ICT did notpay attention to this project after feasibility study while KTincreased their effort for the pre-sales activities. The main reasonis that POSCO ICT has a tendency of focusing short-termperformances. This project took three years to the bid announcementafter feasibility study. Considering executives’ terms in offices oftwo ~ three years, it looks very long period.

To resolve this problem, An independent organization shall be in place to focus on new

business opportunity development consistently. This organization must take responsibilities for the business

development and pre-sales activities in cooperation of relatedbusiness departments.

Data Center Project for the government of Vietnam In 2007, POSCO ICT conducted feasibility study consulting work forthe e-government of Hanoi, Vietnam. At that time, POSCO ICTacknowledged that the Vietnam government was considering agovernment-wide integrated data center that was estimated around 200million dollars. The problem was that this business information wasnot shared within the related organizations and was only possessedby personal basis. On the hand, SAMSUNG SDS, which also obtained

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this information, carried out feasibility study by their own budgetwith conjunction with Vietnam government to make this EDCF project(Korean ODA project).

This seems to come from the absence of pre-sales unit inside andformalized business information sharing process.

Indonesian Market PenetrationIndonesia is an emerging market and there are many projects fortheir economic development these days. POSCO ICT also carried outseveral projects in Indonesia and established a branch office inJakarta several years ago. However, every conducted project was one-off project. No after sales activities, no information sharingincluding business network and lessons learned. The role of thebranch office is only for Krakatau-POSCO steel work.

In summary, POSCO ICT has a huge problem in overseas marketpenetration. POSCO ICT should pay more attention to the early stageof the process. In addition, cross-functional role andresponsibility should be in place.

[Picture 13.Overall Problems of POSCO ICT]To get sound information of potential business, agent basedopportunity identification should be reduced. Instead, own effortsfor the potential business development should be increased incooperation with prospective partners.

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Success Case Studies

Success Story of LG-CNS – Major ICT Company CaseLG-CNS, previously LG-EDS, is the most competitive company in non-captive market. LG-CNS made a partnership with EDS in the late 90sand embraced a lot of advanced management skills and technology.Based on this, LG-CNS has expanded its business territories sharplyin domestic and global market.

LG-CNS’s strategy is establishing a branch office just right afterobtaining a project to expand its market in the country. In thisway, they can broaden their sales network and make a virtuouscircle. In addition, LG-CNS has strong relationship with KoreanGovernment agencies.

[Picture 14. Case Study-LG-CNS]As shown above, LG-CNS has strong relationships with governmentinstitutions and ODA support agencies such as KEXIM and KOICA. Thismakes LG-CNS’s overseas market expansion systematic, efficient.

Success Story of CUPIA – Small/Medium Sized ICT Company CaseCUPIA is a company specialized for customs system. CUPIA hasconducted more than 13 feasibility studies since 2007 and hasobtained three big projects out of these feasibility studies.

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[Picture 15. Case Study-CUPIA]

Potential Project Identification MethodRecently, many ICT companies have begun to have strong interest inoverseas projects and some of them have shown good performances.However, POSCO ICT does not have any reference after Batam e-Government project in 2008.

[Unit: million dollars]Category Company Project Amount etc

Developpotential

businesses byfeasibilitystudies

LG CNS PatentInformatization

33.0

SK C&C Mongol NationalRegistration System

3.0

CUPIA Ecuador CustomsSystem

16.0

Tanzania CustomsSystem

2.7

Nepal Customs System 3.8SDS/KT Vietnam integrated

Data Center10.0 Conducted FS on

SDS’s own budgetUsing

References andnetworks

established inadvance

Autoever Dominica e-Immigration

28.5

Daewoo Mongol TaxationSystem

5.0 Obtained afterUlaanbaatar ITS

Cooperationwith relatedinstitutions

SAMSUNG SDS Tunisia Procurement 5.7 Cooperated withPublic

ProcurementOffice

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LG CNS Mongol e-Patent 3.4 Cooperated withKIPO

In summary, .the companies having success stories have common thingsin their approaches.

Have preferred regions and core business areas aiming atoverseas market

Conduct consulting works as much as possible to seed manypotential business opportunities.

Consider consulting work as a marketing and sales activity.(Not like POSCO ICT, POSCO ICT considers it as a project,which should be profitable.)

Continue pre-sales activities for more than three years. Efficient cooperation with branch offices and related

institutions Have independent overseas business development units

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ConclusionStrategic Directions

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By this time, external fact, internal fact and case studies areanalyzed. Base on the key findings, three strategic directions topenetrate ODA ICT market will be explained.

Strategic Directions

There could be three directions to penetrate the ODA market in theglobe. One is the selection of strategic region, another is theimprovement of business development system, and the other isestablishment of overseas business development organizationincluding marketing, pre-sales and consulting work.

[Picture 16. Strategic Directions]

Shift to country marketing aimed at strategic countriesUntil now, POSCO ICT’s overseas target countries were so broad. Itmeans that there were no strategic target countries. In the world,there are 206 listed countries. Around 50 countries are classifiedas advanced countries. In this regard, around 150 countries can bepotential market for POSCO ICT but 150 countries are too many todeal with. Therefore, it is necessary to select certain countries inconsideration of regional issues, cultural familiarity, and businessreferences.

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Public IT, Airport, port logistics are growing fields in South Eastdue to the regional economic development. On the other hand, airportlogistics and advanced transport management systems are required inSouth America due to the big sport events, concentration ofpopulation and regional characteristics. In Africa, demand forpublic IT is a growing area for government reform and ODA donorcountries have strong interest in this area. In addition, portlogistics are also considered as a potential field for large vesselsrouting Europe and Asia.

[Picture 17. Potential Target Countries and Potential Business]

Above picture is showing proposed target countries and potentialbusiness. Aggressive target regions are South East Asia, Africa andSouth America. South East area is relatively easy to accessconsidering distance and cultural similarity.

In South East area, there is a political and economic organizationof ten countries called the Association of Southeast Asian Nations(ASEAN), which was formed on 8 August 1967 by Indonesia, Malaysia,the Philippines, Singapore and Thailand. Since then, membership hasexpanded to include Brunei, Cambodia, Laos, Myanmar (Burma) andVietnam. Its aims include accelerating economic growth, socialprogress, and socio-cultural evolution among its members, protectionof regional peace and stability, and opportunities for membercountries to discuss differences peacefully.

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ASEAN covers a land area of 4.46 million km², which is 3% of thetotal land area of Earth, and has a population of approximately 600million people, which is 8.8% of the world's population. The seaarea of ASEAN is about three times larger than its land counterpart.In 2012, its combined nominal GDP had grown to more than US$2.3trillion. If ASEAN were a single entity, it would rank as the sixthlargest economy in the world, behind the US, China, India, Japan andGermany.16 As mentioned in the market analysis section in externalfact analysis chapter, around 45% of assistances of Korean ODA fundwere flowed to top five countries such as Vietnam and Indonesia.POSCO ICT also has branch offices in Vietnam and Indonesia.

In Africa, there is a regional association similar to ASEAN, TheEast African Community (EAC). EAC is an intergovernmentalorganization comprising five countries in the African Great Lakesregion in eastern Africa: Burundi, Kenya, Rwanda, Tanzania andUganda. The organization was originally founded in 1967, collapsedin 1977, and was officially revived on 7 July 2000.In 2008, afternegotiations with the Southern Africa Development Community (SADC)and the Common Market for Eastern and Southern Africa (COMESA), theEAC agreed to an expanded free trade area including the memberstates of all three organizations. The EAC is an integral part ofthe African Economic Community.

The East African Community is a potential precursor to theestablishment of the East African Federation, a proposed federationof its five members into a single state. In 2010, the EAC launchedits own common market for goods, labor and capital within theregion, with the goal of creating a common currency and eventually afull political federation. In 2013, a protocol was signed outliningtheir plans for launching a monetary union within 10 years. In 2010and 2011, Tanzania and Kenya were listed on the top 10 ODA fundrecipient country list.

POSCO ICT has provided feasibility study and master plan consultingservices four times to this area since 2011. Although POSCO ICT doesnot have branch offices, POSCO ICT has strong relationship with EACand comprising countries.

South America is also interest-growing area due to the big sportevents such as World Cup game (2014) and the Olympic Games (2016) inBrazil. Therefore, huge investment on SOC including transportation,

16 Association of Southeast Asian Nations, http://en.wikipedia.org/wiki/Association_of_Southeast_Asian_Nations

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public IT is going on in Brazil. POSCO ICT is conducting twoprojects in Brazil and has a branch office.

Improve potential business development systemSo far, most of the overseas project information except captivemarket was provided by agents. This is the main reason why POSCO ICTdropped 70 out of 87 project opportunities. Agent-driven approachmeans the weak information of projects and sales networks, whichlead to business failure. Another problem is an ethical dilemmabecause most agents are asking for commissions, which is consideredillegal. To reduce this problem, POSCO ICT should increase their own effortsin developing potential business opportunities. Master Plan (MP) andFeasibility Study (FS) Consulting services are good way to developnew business potential. There are also many government institutionssupporting funds for MP and FS.

[Picture 18. Business Development Concept]The advantages of MP and FS consulting are:

a) Develop and propose candidate projects to customers directly.b) Can mitigate risks early by including mitigation methods in

consulting result c) Secure sales network and preempt business information.d) Can obtain additional business sources not related to MP and

FS.

Other ICT companies such as LG-CNS, SAMSUNG SDS are adapting thisapproach as a part of their overseas penetration strategy. Reorganize overseas business governance system

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POSCO ICT has a functional organization structure. Consideringconvergence trend in the market, there should be something enforcingcollaboration of business departments. For example, BATAM e-government project can be a typical example of convergence. Thescope of this project included development of 14 applicationsystems, construction of two buildings; one was a data center, theother was an office building, and establishment of fiber opticnetwork. There was no business department accommodating these tasksall alone.

During overseas business development stage, Collaboration of inter-organizations is very imperative. Customer does not care about theinternal matters of the company. Thus, there should be a businessunit controlling every task regarding the overseas businesses. Thisunit should take in charge of leading potential opportunities untilproject funding stage in cooperation with related business units.

[Picture 19. Overall Concept of Collaboration]Above picture is a logical concept. To make this concept effective,there should be a physical organization controlling businessdevelopment and project funding stages. In POSCO ICT, Marketinggroup and consulting team are under separate business departments.It makes it very difficult to work together. So it is recommended tolocate these units under the same business department or integrate.Project funding here can be two parties. One is external partiessuch as customers or ODA donor countries; the other is internalparties, which means project-financing project.

Until now, strategic directions for the overseas market penetrationare developed. These three strategies cannot tell everything for theoverseas market. This work only covers some part of marketing andsales stages. There should be further efforts for businessportfolio, project execution and technical support.

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42

References

Overseas project status analysis report, POSCO ICT, 2013

The press announcement by MKE(Ministry of Knowledge and

Economy), 2012 http://weekly.khan.co.kr/khnm.html?

mode=view&code=124&artid=201205021201291, Economic

Democratization, 2012

FAQ for Economic Democratization, KERI(Korea Economy Research

Institute

The meaning of Economic Democracy, Economic Democracy

Conference, http://economicdemocracyconference.org/the-

meaning-of-economic-democracy/

List of Conglomerates with asset of 5 trillion won or more

Fair Trade Commission, 2014

Goal of Economic Democracy Conference,

http://economicdemocracyconference.org/the-meaning-of-

economic-democracy

Issue examination of SI industry, KIS(Korea Investors

Service), 2012.11.26

SAMSUNG SDS media announcement, Money Today, 2013.6.16

Industry outlook, Korea Electronics Association, 2013

Meaning of MDB : Multilateral Development Bank,

http://www.investopedia.com/terms/m/multilateral_development_b

ank.asp

ODA statistics, http://www.odakorea.go.kr/eng.overview.What.do

The first half year integrated ODA Workshop of Korean

Government, 2014

Report on supporting overseas market participation through

EDCF, KEXIM, 2012.12

POSCO ICT’s annual report, POSCO ICT

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Summarized data of Sales Portal System of POSCO ICT,POSCO ICT

Association of Southeast Asian Nations, Wikipedia, http://en.wikipedia.org/wiki/Association_of_Southeast_Asian_Nations

East African Community, Wikipedia,

http://en.wikipedia.org/wiki/East_African_Community

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