EOUL
, South Korea -- As the Microsoft Corporation expands its dominance of the
world's computer software
markets, it has tried hard not to ruffle the feathers of foreign governments and nationalists, who often
view the American software giant as
a predator.
Nevertheless, in maneuvering to
gain control of the lucrative market
for Korean-language word processing software, it set off a groundswell
of opposition.
"No one could have predicted that
Koreans would have responded the
way they did to Microsoft," said
D. H. Oh, managing director of IDC
Korea, a brokerage house here. "It
was probably the first time that an
entire nation, from the central Government to corporations to private
citizens, combined forces to save a
local industry."
The tale began a year ago, when
South Korea's leading software developer, the Hangul and Computer
Company, was one step from bankruptcy, a victim of poor management, Asia's financial crisis and
rampant software piracy.
Microsoft agreed to inject $20 million into the Korean company. In return, Hangul and Computer was to
stop producing its own popular word-
processing software, which commanded 80 percent of the word-processing market, and start selling Microsoft's Korean-language Word,
which then had less than 15 percent.
For a rather small investment, Microsoft seemed about to gain control
of South Korea's word-processing
software industry, one of the few
markets in the world that the company did not dominate.
Microsoft was already by far the
biggest player in the overall Korean
software market, which is estimated
to be worth $5 billion to $6 billion, but
it played second fiddle to Hangul and
Computer in the word-processing
sector.
Once South Koreans -- well known
for their nationalistic fervor -- got
wind of the deal that would have extended Microsoft's dominance, public outrage was so strong that Hangul
and Computer left Microsoft standing at the altar.
Instead, the company accepted a
$10 million investment raised by Korean computer-related businesses
and associations that led a nationwide campaign to save Hangul --
which many Koreans regarded as a
national technological treasure --
from foreign control.
As part of the campaign, the central Government promised to
crack down on software piracy and began with its own computers, many of which used unlicensed
versions of Hangul and Computer's
software. Legitimate copies of the
software -- named Hangul after the
Korean language -- were installed.
Following that lead, thousands of
guilt-stricken South Koreans who
were using pirated Hangul software
either bought authorized versions or
donated money to the campaign.
Now, bolstered by a surge of Government orders and a new management team, Hangul and Computer
has made a remarkable turnaround.
"Our sales have climbed through the
roof, we've reduced our debt, we are
attracting foreign investment and
we are developing new products,"
said Ha Jin Jhun, Hangul and Computer's new president. "You can say
that we've fully recovered."
After reporting a net loss equivalent to $3.8 million for 1998, the company projects that it will have net income of $4.9 million this year. Revenues, which had tumbled to $11.7 million last year -- down nearly $7 million in two years -- are expected to
reach $28.3 million this year.
In the year since Hangul teetered
on the verge of bankruptcy, its market capitalization has grown fivefold,
to $16.7 million.
Jhun, who was brought in to
restructure the company after it
backed out of the Microsoft deal, said
his first order of business was to refinance the company's debt and reduce its costs. He cut the work force
of several hundred by about 10 percent and shut down unprofitable
businesses, including publications,
educational programs and hardware
distribution. He also slashed research and development efforts.
Jhun then sought to capitalize
on the national campaign to save the
company. The campaign encouraged
Koreans -- both businesses and individuals -- to destroy pirated copies
of the software and buy legitimate
ones. (Last year, industry analysts
estimated that 60 percent to 70 percent of all software programs in use
in South Korea were pirated.)
To facilitate the purchases of legitimate copies, Jhun cut prices,
began selling the software in places
as diverse as banks and supermarkets and introduced a special edition
that sold a record 700,000 copies.
Seeking to assure Hangul's long-term success, Jhun said, he
plans to turn the company into South
Korea's "largest and foremost" Internet service provider.
"We see our major revenue
growth coming from the Internet,"
he said, "and we will soon introduce
a one-stop-package service that provides electronic commerce, cybertrading, e-mail, advertising, and a
virtual office all in one."
Do Haeng Heo, an analyst for
Daewoo Securities, has issued a buy
recommendation for Hangul and
Computer, which he predicts will
post a net profit of $9.25 million this
year. He cited "the possibilities behind a take-off of the Internet business," which, he said, is still in its
formative stage in South Korea.
Microsoft, meanwhile, has continued its aggressive pursuit of the
South Korean software market, and
its revenue has soared, too.
Geun Kim, director of marketing
for Microsoft Korea, said that while
South Korea is currently a marginal
market for Microsoft in dollar value,
it has great potential because of the
country's high rate of personal computer use and high level of education.
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A move by
Microsoft set off a
national reaction.
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Microsoft Korea's revenues increased 110 percent last year,
Kim said, buoyed by rising orders
from the public sector and individual
users. He expects revenues to reach
$100 million this year, a 5 percent to
10 percent increase over last year.
About 55 percent of Microsoft Korea's total revenues come from software products like Word and Office
that compete directly with Hangul
and Computer.
Both Microsoft Korea and Hangul
and Computer have been able to register growth in revenue, analysts
say, as the Korean software piracy
rate has fallen 10 percent in the last
year, thanks in large part to the campaign to save Hangul.
"I think this affair had a very positive impact on the industry,"
Kim said. "The industry and the public are better served by having two
healthy competitors."
Hangul and Computer's view is not
so convivial. It has filed a dumping
charge against Microsoft.
Microsoft recently introduced a
new version of its Korean-language
software -- one that offers many of
the features that have made Hangul's product so popular with South
Koreans, including a graphics function that allows users to incorporate
boxes, tables and graphs within the
text.
Also, the new version of Word can
express the Korean alphabet in more
than 11,000 combinations, including
those needed to represent archaic
words and expressions. Microsoft's
previous version was limited to a few
thousand combinations and was
viewed by many Koreans, especially
academics, as insufficient.
Microsoft's new program has been
selling well, especially since the company slashed prices last month to
match those of Hangul and Computer. Microsoft says that it is offering
discounts to schools in an effort to
capture young computer users.
Those discounts led Hangul
and Computer to file the dumping charge against Microsoft
with the South Korean Fair Trade
Commission, accusing the American
company of selling its educational
software package at a steep discount
to gain market share in South Korea.
The trade commission says that an
investigation of Hangul's complaint
is under way.
Microsoft said that under a program started in July, schools can
buy any piece of its software for an
up-front payment of 10 percent of the
normal end-user price, calculated on
an annual license-fee basis. Hangul
had pioneered the use of such yearly
license fee arrangements in South
Korea.
"To pay $20 million to buy an entire software market is not only
cheap; it's unfair and it's wrong,"
Jhun said.
"Microsoft is not content with just
killing off local software companies," he added. "It wants to wipe out
an entire industry, and Koreans did
not stand for that."
