North Korean Economy Watch

From the Choson Ilbo:
Chinese Banks Restricting Cash Flow to N.Korea
10/17/2006

Major Chinese banks are currently stopping or restricting remittances or payments to North Korea after the North’s announcement of what it claims was a nuclear test, it emerged Monday. Chinese banks in Dandong, where cross-border trade is concentrated, recently started restricting banking transactions with North Korea, an official with the South Korean Embassy in China said. The restrictions, in fact, started in March this year, when the U.S. imposed financial sanctions on Macau’s Banco Delta Asia after designating it Pyongyang’s “primary money laundering concern.”

But not all Chinese banks are doing so, each bank and branch having its own policy. Sources say it does not look as if the Chinese government is ordering them to do so; rather banks have started doing so on their own. Rumor is spreading among traders doing business with North Korea in China that all financial accounts with North Korea including those by North Korean traders in China could be frozen.

North Korean workers in China are leaving the country in droves after North’s claimed nuclear test. A businessman operating a sewing factory in Shenyang, China, said, “Some 100 North Korean workers in my factory returned home three days ago because the Chinese authorities didn’t renew their work permit.” Banks in Dandong and Shenyang, where many businesses trading with North Korea have accounts, are seeing an increasing number of them not receive payments for exports to the North. “Since the U.S. froze North Korea’s accounts in the Macau bank, it takes three or four times longer for us to get paid for imports to the North, and this is hurting us badly,” a businessman trading with the North said. “We can’t do business with the North any longer.”

As official trade between the North and China shrinks, smuggling between the two countries is thriving, local people say. An ethnic Korean in Dandong said if a North Korean vessel ships 1,000 tons of iron ore to a port here, it officially reports only 100 ton of them and smuggles the rest. Smuggling covers almost everything from iron ore to bronze, TVs, computers, petrochemical products, antiques and maritime products. That is why many feel how determined the Chinese authorities are in cracking down on smuggling will determine the success of sanctions against the North. Locals say they have not heard of any Chinese crackdown on smuggling to and from the North, nor do they expect one.

China clearly stated its opposition against military action in the UN resolution against the North over its claimed nuclear test, calling for “an appropriate level” of sanctions. Beijing says the ultimate goal should be getting the North to return to the six-party talks on its nuclear program, not forcing regime collapse. Some expect China to reduce, rather than stop, its supply of oil to the North.

Meanwhile, China is preparing for an emergency in North Korea. It is setting up barbed-wire fences along the border near the Yalu and Tumen rivers where the military units of the provinces there took charge of guarding the area three years ago. The barbed-wire fences are being extended near Changbai County and the Tumen River. A Chinese official said the fences “were put up after consultations with the North because we needed to draw up a clear border between us and North Korea because of the narrowness of the river or newly built roads.” But some say the main goal is to prevent a mass exodus of North Koreans when the regime falls apart. Experts say another reason China is building up its military strength and carrying out more military exercises near the border with the North is to prepare for regime collapse in the north. The new 60-km long road along the Yalu River is also said to serve strategic military purposes.

BBC
10/16/2006

Australia is to ban North Korean ships from entering its ports in response to its claimed nuclear bomb test, the foreign minister has announced.

Alexander Downer told Parliament the move would help Australia make a “quite clear contribution” to other sanctions agreed by the UN on Saturday.

The UN resolution imposes both weapons and financial sanctions on the North, but despite the unanimous vote, disagreements have emerged between the members of the council.

Beijing has indicated that it still has reservations about carrying out the extensive cargo inspections that Washington says are called for in the resolution.

Ship inspections

Australia is one of the few countries to have diplomatic relations with North Korea, but its trade ties are limited. In 2005, imports amounted to A$16m ($12m).

“If we are to ban North Korean vessels from visiting Australian ports then I think that will help Australia make a quite clear contribution to the United Nations sanctions regime.”

Japan, which banned North Korean ships from its ports last week, is looking at whether it can provide logistical support for US vessels if they start trying to inspect cargo ships going to or from North Korea.

The restrictions imposed by Japan’s pacifist constitution may require the government to pass new laws to allow that to happen.

In a further diplomatic drive, US Secretary of State Condoleezza Rice is due to arrive in Japan on Wednesday.

She reportedly intends to reassure the country that Washington will provide adequate protection in the event that North Korea obtains a viable nuclear weapon – a message she will later take to South Korea.

‘Heavy responsibility’

The UN resolution against North Korea was agreed after lengthy negotiations.

It imposes tough weapons restrictions, targets luxury goods and imposes a travel ban on some North Korean officials.

It also allows the inspection of cargo vessels going in and out of North Korea for banned materials, although the resolution was weakened slightly at China and Russia’s insistence, to make this provision less mandatory.

Beijing’s UN envoy, Wang Guangya, said immediately after the vote that China urged countries to “refrain from taking any provocative steps that may intensify the tension”.

Both Russia and China are concerned that inspections could spark naval confrontations with North Korean boats.

But the US ambassador to the UN, John Bolton, told American television that China had voted for the sanctions and therefore “China itself now has an obligation to make sure that it complies.”

From the Associated Press:
China erects barbed wire fence along border with North Korea
10/16/2006
Alexa Olesen
Jae-soon Chang

China has been building a massive barbed wire and concrete fence along parts of its border with North Korea in the most visible sign of Beijing’s strained ties with its once-cozy communist neighbor.
 
Scores of soldiers have descended on farmland near the border-marking Yalu River to erect concrete barriers 2.5 to 4 meters (8 to 15 feet) tall and string barbed wire between them, farmers and visitors to the area said.
 
Last week, they reached Hushan, a collection of villages 20 kilometers (12 miles) inland from the border port of Dandong.
 
“About 100 People’s Liberation Army soldiers in camouflage started building the fence four days ago and finished it yesterday,” said a farmer, who only gave his surname, Ai. “I assume it was built to prevent smuggling and illegal crossing.”
 
Though the fence-building appears to have picked up in the days following North Korea’s claimed nuclear test last week, experts said the project was approved in 2003. Experts and a local Hushan official, who requested anonymity because of the project’s sensitivity, said the military was in charge of the building.
 
A Defense Ministry spokesman, Ye Xing, declined comment, saying he was not authorized to release information on border security.
 
The fence marks a noticeable change in China’s approach to its North Korean neighbor. In the decades following their shared fight against U.S.-led U.N. forces in the Korean War, China left their border lightly guarded, deploying most of its forces in the northeast toward its enemy, the Soviet Union.
 
But the border became a security concern for Beijing in the past decade, as North Korea’s economy collapsed and social order crumbled in some places. Tens of thousands of refugees began trickling across the border into northeast China, fording the Yalu and Tumen rivers or walking across the ice in winter.
 
Professor Kim Woo-jun at the Institute of East and West Studies in Seoul said China built wire fences on major defection routes along the Tumen River in a project that began in 2003, and since September this year, China has been building wire fences along the Yalu River.
 
“The move is mainly aimed at North Korean defectors,” Kim said. “As the U.N. sanctions are enforced … the number of defectors are likely to increase as the regime can’t take care of its people … I think the wire fence work will likely go on to control this.”
 
But he said he also believes that Beijing wants to firmly mark its border with the North along the two rivers.
 
Kim said China and the North drew their border in a secret treaty. That treaty wasn’t reported to the United Nations and therefore does not apply to a third country, like South Korea. China is concerned that South Korea may claim a different border after absorbing or unifying with the North.
 
Reporters who visited the border area in the past week saw about 500 meters (1,640 feet) of newly erected barbed wire fence north of Dandong, mainly along river banks and occasionally broken up by mountain areas or military guard posts.
 
A duck farmer in Hushan, who would only give his surname Han, said that soldiers began putting up the fence near his farm last Monday afternoon — the same day that North Korea claims to have carried out an underground nuclear test.

From NK Zone:
Michael Rank
10/15/2006

The Chinese businessman who is planning to develop the North Korean port of Rajin under a 50-year agreement with the border city of Hunchun says the deal remains on track despite NK’s nuclear test.

Fan Yingsheng, a property developer from Hunan province, said a road between the two cities should be completed within 15 months but gave few other details.

He told the Shanghai Evening Post [in Chinese] that U.N. sanctions “are something that we are expecting, and won’t have much effect on us.”

“After the nuclear test, North Korean colleagues did not tell my company about anything being different, I didn’t even receive any phone calls from them, which shows that it’s business as usual.

”So I am still planning to fly to Pyongyang to sign an agreement as planned, and haven’t thought of changing my schedule.“

Fan was speaking from Hunchun on October 12, shortly after meeting a group of North Korean officials, and was about to head across the border to Raseon where his company apparently has its main North Korean office. He said this visit had been scheduled a month ago.

The ceding of Rajin, an ice-free port with a handling capacity of three million tonnes a year, will give access to the sea to inland areas of northeast China which at present must send freight long distances by rail to the port of Dalian on the Bohai gulf.

The agreement also provides for the construction of a 5-10 square km industrial zone and a 67 km highway, and envisages that the Rajin area will become a processing zone for Chinese goods which will then be re-exported to southern China.

Fan is reported to have put up half the initial capital investment of 60 million euros ($70 million). The sum could not be denominated in dollars for political reasons.

Fan said in July that the Chinese side had approved the leasing of the port as had the city of Raseon, and “all we are waiting for is for the Korean central government to give its approval…”

From the Wall Street Journal:
Let Them Go: China should open its border to North Korean refugees
10/15/2006
Melanie Kilbatrick

If China is to assume what it considers to be its rightful place as a great power, now is the moment. The world is looking to Beijing as the only government with a measure of influence over its lunatic nuclear ward in the Hermit Kingdom. The question is, will it use it?

China says it favors “punitive” actions on Pyongyang for its apparent nuclear test last week, and there’s talk–so far desultory–of sanctions. But no one is speaking publicly about Beijing’s biggest source of influence: the 900-mile border it shares with North Korea. Opening the frontier to refugees would put pressure on Kim Jong Il to give up his nukes or watch his regime implode. As Mark Palmer, U.S. ambassador to Hungary in 1989, has noted, the East German refugees who passed through that country en route to West Germany sped the collapse of the Soviet Union.

The plight of North Korean refugees hiding in northeastern China is a humanitarian crisis that has received scant global notice. No one knows how many are in hiding or how many Beijing has deported back to North Korea in violation of its obligations under the Convention Relating to the Status of Refugees. China refuses to let the United Nations or other countries help the North Koreans.

Now, three official Chinese government documents–obtained privately and smuggled out of the country–show that the humanitarian crisis may be more dire than widely believed and the burden on China heavier. Two of the documents are from the Public Security Bureau–one from the Border Police and the other from a police station along the border. The third is from the Finance Bureau of the Yanbian Korean Autonomous Prefecture in Jilin Province, home to many ethnic Koreans.

The documents were obtained by a U.S.-South Korean group that helps North Korean refugees navigate the underground railroad to safety out of China. The group prefers to remain anonymous for fear that its work could be endangered. They have been vouched for to me by two other sources, one on Capitol Hill and another at an international human-rights organization.

The Border Police document, dated Jan. 10, 2005, begins blandly enough: “From the start of illegal border crossings in 1983,” it says, “the number of illegal immigrants from North Korea that have stayed in China has increased every year.” It adds, “Public Security and Armed Police departments have strengthened preventative and deportation efforts.”

The numbers it reports are newsworthy–and staggering: “To date, almost 400,000 North Korean illegal immigrants have entered China and large numbers continue to cross the border illegally.” And, “As of the end of December 2004, 133,009 North Korean illegal immigrants have been deported.” While Chinese authorities obviously know how many refugees they have deported, by definition they can’t know how many are in hiding. The estimate of 400,000 is sure to be low.

The Yanbian Finance Bureau document, dated Oct. 19, 2004, provides further evidence of the extent of the crisis. It is a letter to provincial authorities requesting more money to help with deportation efforts. “According to statistics from the Public Security, border police and civil administration, more than 93,000 refugees are still living in Yanbian Prefecture.” The letter goes on to say that although the Border Police Bureau has established “six new refugee-deportation and detention centers,” it does not have sufficient funds to do the job. Yanbian requests 30 million yuan ($3.8 million) a year “to solve this financial problem.”

It’s the third document, though, that puts this “financial problem” in human terms. It’s a report, dated Oct. 7, 2003, from a police station in Badaogou Precinct, near Baishan City, in Zhangbai Korean Autonomous County, also in Jilin Province.

“At 7 a.m. on Oct. 3, 2003,” Case Report No. 055 begins, “a report was received from the public of several corpses floating in the Yalu River. Officers from the Precinct immediately responded and organized personnel and by 10 a.m. 53 corpses had been recovered.

“At 5 a.m. on Oct. 4 an additional three corpses were recovered for a total of 56 corpses. There were 36 males and 20 females, including seven children (five male and two female). After examination of the personal effects it was determined that the dead were citizens of the DPRK [North Korea]. Autopsies confirmed that all 56 had been shot to death. It is estimated that the dead were shot by Korean border guards while attempting to cross into China.”

While Pyongyang bears ultimate responsibility for the abuse of its citizens, China is complicit. Its policy of tracking down and repatriating refugees amounts to a death sentence for many returnees. It’s a crime to leave the workers’ paradise, and North Koreans who are caught and deported are shipped off to internment camps or worse.

If Beijing wants to send a message to Pyongyang about its nuclear program, it could announce that, effective immediately, it is taking several steps: It will stop deporting North Koreans, allow the United Nations to set up refugee camps, and permit the resettlement of refugees in third countries, from which they could go to South Korea, whose constitution codifies its moral responsibility to accept its Northern cousins, or to other countries willing to take them in. The U.S., which so far has accepted a mere eight North Koreans, could step up to the plate here.

The Border Police document notes that since the early 1980s there have been six instances of mass migrations that have coincided with North Korea’s famines. Now, winter is coming, and there are already reports of food shortages. Allowing the world to help the North Korean refugees in China would help Beijing deal with a problem that is likely to get worse.

From Yonhap:
Suspension of inter-Korean business only hurts S. Korea: official
10/13/2006

Suspending South Korea’s joint business projects with North Korea would do more harm to the South than the North while doing little to convince the communist state to halt additional nuclear tests, a ranking South Korean official said Friday.

“Cutting off (inter-Korean economic projects) now would only show our firm will (to retaliate against North Korea for its claimed nuclear test) by inflicting wounds on parts of our own body,” the official told reporters, asking not to be identified.

“The damage North Korea would suffer would be very insignificant compared to the damages we would suffer,” the official added.

The remarks came amid calls from here and abroad for the Seoul government to immediately halt cross-border business projects with the North in retaliation for the North’s claimed nuclear test on Monday.

The main opposition Grand National Party (GNP) claims the country’s economic cooperation for the impoverished North has helped the North’s missile and nuclear weapons program.

“In the current situation, (South Korea) must strengthen its alliance with the United States and actively participate in U.N. Security Council sanctions on the North while cutting off all of its cash assistance to the North,” GNP floor leader Kim Hyong-o said Friday at a party leadership meeting.

An average of 40,000 South Koreans travel to a scenic resort on North Korea’s Mount Geumgang every month, paying about US$1 million in admission fees to the North, according to Hyundai Asan, the South Korean developer of the resort.

Fifteen South Korean companies also pay about $600,000 a month on average to North Korea in wages for the 8,700 North Korean employees at an industrial complex being developed by the two Koreas near the North’s border town of Kaesong, according to the Unification Ministry.

The government official, however, said the government had no immediate plans to scrap the inter-Korean projects, claiming the money paid to the North through the projects is not aimed at assisting the North’s weapons program and that the amount is insignificant.

He said the country would align its North Korea policy and economic cooperation with a U.N. Security Council resolution when one is passed, but claimed a U.S. draft of the resolution, even if approved by the Security Council, would not call for a suspension or reduction of inter-Korean economic cooperation.

“Vice Foreign Minister Yu Myung-hwan said at the National Assembly Thursday that there is nothing in the U.S. draft resolution” that would call for a suspension of the two cross-border projects, the official said.

Joong Ang Daily:
10/12/2006
Ser Myo-ja

Besides cement, South Korea’s humanitarian aid of rice to North Korea has been temporarily suspended due to the country’s nuclear brinksmanship, the chief of the Red Cross said yesterday.

In an interview with Yonhap News Agency, Han Wang-sang said South Korea, which sends its aid through the Red Cross, had promised to send rice and cement as a part of its flood relief aid.

International rights groups and relief organizations yesterday worried that North Koreans will suffer a worsened food crisis. They said the perennial springtime famine in the North would become more serious next year.

The World Food Program feared that it may have to halt distribution in the North. “If we don’t get more contributions, we won’t have any more food and food aid in January,” Christiane Berthiaume, spokeswoman for the UN agency, said Tuesday in Geneva.

The U.S.-based Human Rights Watch also urged the world not to suspend food aid to the North. The international community “must distinguish between the North Korean government and ordinary citizens,” said Sophie Richardson, deputy Asia director of the nongovernmental agency. “Further restraints on food aid will only make ordinary North Koreans suffer more.”

According to the Unification Ministry, the North each year consumes 6.5 million tons of food including rice, corn and potatoes. Last year, the country’s production was only 4.5 million tons, although the country proudly publicized a bumper crop.

Yonhap:
10/12/2006

A senior North Korean official said Thursday his country will take “strong countermeasures” against Japan if it implements new sanctions against the communist country, Japan’s Kyodo News said.

“We will take strong countermeasures,” Song Il-ho, North Korea’s ambassador on diplomatic normalization talks with Japan, said in an interview with Kyodo News. “The specific contents will become clear if you keep watching. We never speak empty words.”
The threat came after Japan decided to impose additional economic sanctions against North Korea for its claimed nuclear test Monday, imposing a ban on all imports from the communist country and banning its ships from entering Japanese ports. North Korean nationals will be prohibited from entering Japan, according to Japanese officials.

The sanctions are in addition to the measures already in place following Pyongyang’s missile tests in July, prohibiting the flow of funds and technology from Japan to 15 entities suspected to have links with North Korea’s weapons of mass destruction programs.

Japan’s additional measures are “more serious in nature” compared to sanctions imposed or considered by other countries, Song said. Pyongyang will take countermeasures by calculating Japan’s failure to adequately repent for its colonization of the Korean Peninsula from 1910 to 1945, he added.

He also said Pyongyang is watching closely what Japanese Prime Minister Shinzo Abe, who took office last month, plans to do regarding relations between the two countries.

“We are watching his words and actions since becoming prime minister in a careful manner,” Song was quoted as saying.

Yonhap:
10/11/2006

South Korean civic groups on Wednesday sent humanitarian aid shipments to North Korea despite the heightened tension over North Korea’s declared nuclear test, officials said.

A 2,864-ton ship plying the Incheon-Nampo route departed for a North Korean port with shipments of 14 containers for humanitarian aid and another 45 containers for construction and raw materials to be used at the Kaesong industrial complex just north of the inter-Korean border.

The aid shipments include 2,000 bicycles, two ambulances, blankets and boilers, they said.

Following North Korea’s announcement of its first-ever nuclear test on Monday, the South Korean government suspended a shipment of 7,500 tons of cement to the communist country.

“We hope that the provision of bicycles on humanitarian grounds will contribute to maintaining civilian inter-Korean exchanges and offering a clue to the resolution of the stained inter-Korean relationship,” a local YMCA official said. 

Paul Tija
GPI Consultancy
October 10, 2006

IN PDF: IT_in_NKorea.pdf

Surprising business opportunities in Pyongyang

Dutch companies are increasingly conducting Information Technology projects in low-cost countries. Also known as offshore sourcing, this way of working means that labor-intensive activities, such as the programming of computer software, are being done abroad. Asia is the most popular software destination, and Indian IT firms are involved in large projects for Dutch enterprises such as ANB Amro Bank, KLM, Philips or Heineken. More recently, we notice a growth in the software collaboration with China.

As a Dutch IT consultant, I am specialized in offshore software development projects, and I regularly travel to India and China. Recently, I was invited for a study tour to an Asian country which I had never visited before: North Korea. I had my doubts whether to accept this invitation. After all, when we read about North Korea, it is mostly not about its software capabilities. The current focus of the press is on its nuclear activities and it is a country where the Cold War has not even ended, so I was not sure if such a visit would be useful. And finally, such a trip to a farshore country would at least take a week.

Nevertheless, I decided to visit this country. This decision was mainly based on what I had seen in China. I had already traveled to China five times this year, and the fast growth of China as a major IT destination was very clear to me. China is now the production factory of the world, but China’s software industry has emerged to become a global player in just 5 years. Several of the largest Indian IT service providers, including TCS, Infosys, Wipro and Satyam, have established their offices in China, taking advantage of the growing popularity of this country. However, I also noticed that some Chinese companies themselves are outsourcing IT work to neighboring North Korea. And since my profession is being an offshore consultant, I have no choice but to investigate these new trends in country selection, so I accepted the invitation to visit Pyongyang, the capital of North Korea. I happened to be the first Dutch consultant to research the North Korean IT-sector ever, and the one-week tour turned out to be extremely interesting. Quite surprisingly, the country offers interesting business opportunities for European companies.

Korea Computer Center
My study tour was organized by KCC (Korea Computer Center), the largest IT-company in the country. Established in 1990, it is state-owned and has more than one thousand employees. It is headquartered in Pyongyang and has regional branches in eleven cities. My accommodation has been arranged at the KCC campus, which comprises of several office buildings. It also has iown hostel, with a swimming pool, for foreign guests. These guests are mainly Asian (during my stay, there were Chinese delegations), so I had to get used to having rice for breakfast. In the evenings, the restaurant doubled as a karaoke bar, and some of the waitresses appeared to be talented singers. The campus is located in a rather attractive green area, and the butterflies flying around were the largest I had ever seen. It also has sporting grounds, and basketball was during my one-week visit the most popular game among KCC staff. An internal competition takes place during lunch hours.

Korea Computer Center is organized in different specialized business units. Before their representatives started with presentations, I received a tour through the premises. As is the case in India and China, the programmers at KCC also work in cubicles. KCC develops various software products, of which some are especially designed for the local market. Examples are a Korean version of Linux and translation software between Korean, Japanese, Chinese and English. They also produce software for Korean character and handwriting recognition and voice recognition. Other products are made for export, and North Korean games to be used on mobile phones are already quite popular in Japan. There are also games for PC’s, Nintendo and Playstation; their computer version of Go, an Asian chess game, has won the world championship for Go games for several years. The games department has a display showing all the trophies which were won during international competitions.

For several years, KCC is active as an offshore services provider and it works for clients in China, South Korea and Japan. For these markets, North Korea is a nearshore destination, and quite a few North Korean IT-staff do speak Chinese or Japanese. KCC also has branch offices in various Chinese cities, including Beijing and Dalian. It works for both foreign software product companies and end user firms, such as banks. For these clients, different types of applications have been developed, for example in the field of finance, security or Human Resources. Europe is a relatively new market for the North Koreans, and some of their products have been showed for the first time at the large international IT-exhibition CeBIT, in 2006 in Hannover, Germany.

The level of IT-expertise was high, with attention to quality through the use of ISO9001, CMMI and Six Sigma. KCC develops embedded software for the newest generation of digital television, for multimedia-players and for PDA’s (Personal Digital Assistants). Surprisingly, it also produces the software for the mobile phones of South Korean Samsung. I was shown innovative software which could recognize music by humming a few sounds. In less than a second, the melody was recognized from a database of more than 500 songs. Also applications for home use were developed, such as accessing the Internet by using a mobile phone to adjust the air conditioning. KCC also Photo: KCC campus in Pyongyang made software to recognize faces on photographs and video films. They gave me demonstrations of video-conferencing systems, and applications for distance learning. There was a separate medical department, which made software to be used by hospitals and doctors, such as systems to check the condition of heart and blood vessels.

Supply of IT-labor In countries such as The Netherlands, the enrollment in courses in Information Technology is not popular anymore among the youth, and a shortage of software engineers is expected. This situation is different in many offshore countries, where a career in IT is very ‘cool’. Also in North Korea, large numbers of students have an interest to study IT. I visited in Pyongyang the large Kim Chaek University of Technology, where there are much more applications, than available places. Although my visit took place during the summer holiday, there were still students around at the faculty of Informatics. In order to gain experience, they were conducting projects for foreign companies. I spoke with students who were programming computer games or were developing software for PDA’s. A large pool of technically qualified workforce is now available in North Korea. Some of the staff is taking courses abroad and foreign teachers (e.g. from India) are regularly invited to teach classes in Pyongyang.

Business Process Outsourcing
Some companies in Pyongyang are involved in activities in the field of BPO (Business Process Outsourcing), an areas which includes various kinds of administrative work. Because of the available knowledge of the Japanese language, the North Koreans are offering back-office services to western companies engaged in doing business with Japan.

In order to get an understanding of this type of work, I visited Dakor, which was established 10 years ago in cooperation with a Swiss firm. This joint venture is located at the opposite side of Pyongyang, across the Taedong river. It works for European research companies, and it receives from them scanned survey forms electronically on a daily basis. It processes these papers and returns the results within 48 hours to their clients. The company is also conducting data-entry work for international organizations such as the United Nations and the International Red Cross. Their data, which is stored on paper only, is being made available for use online. Dakor is also offering additional services, such as producing 2D and 3D designs for architectural firms, and it is also programming websites.

Animation
North Korea is already famous as a production location for high quality cartoons and animation. Staff of the American Walt Disney Corporation described the country as one of the most talented centers of animation in the world. The specialized state corporation SEK Studio has more than 1500 employees, and works for several European producers of children films. New companies are being founded as well, and I visited Tin Ming Alan CG Studio. This firm was set up in early 2006, and is located in a new office building in the outskirts of Pyongyang. Its main focus is in Computer Graphics and in 2D and 3D animation it uses the latest hardware and software, including Maja. Some of the staff of Tin Ming Alan speak Chinese and the company has a marketing office in China. They are hired by Chinese advertisement companies to make the animation for TV-commercials. It also works on animation to be included in computer games.  Several employees of this young company come from other animation studios and have more than ten years of experience in this field.

The North Korean IT sector seems to be dynamic, where new firms are being established, and where business units of larger organizations are being spun-off into new ventures. I visited the Gwang Myong IT Center, which is a spin-off from Korea Computer Center. It is specialized in network software and security, and it produces anti-virus, data encryption, data recovery, and fingerprint software. This firmis internationally active as well; it has an office in China and among its clients are financial institutions in Japan.

Issues of country selection
My study tour revealed that North Korea has specific advantages. The local tariffs are lower than in India or China, thus giving western firms the option of considerable cost reductions. The commitment of North Korean IT-firms is also high, and the country is therefore also an offshore option for especially smaller or medium sized western software companies. Outsourcing work to North Korea could also be used to foster innovation (e.g. developing better products or new applications). This country can be used for research as well (from Linux to parallel processing).  Based from my interaction with Korean managers and software engineers, I do not believe that the cultural differences are larger than with China or India. My communication with them, both formal and informal, was pleasant. Communicating with North Koreans is clearly less difficult than with Japanese.

The North Korean companies have experiences with a wide range of development platforms. They work with Assembler, Cobol, C, Visual Studio .Net, Visual C/C++, Visual Basic, Java, JBuilder, Powerbuilder, Delphi, Flash, XML, Ajax, PHP, Perl, Oracle, SQL Server, MySQL, etc. They can do development work for administrative applications, but also technical software, such as embedded software or PLC’s. North Korea is very advanced in areas such as animation and games, and I have seen a range of titles, including table tennis, chess, golf, or beach volley. The design of many of their applications was modern and according to the western taste.

Over the recent years, North Korea is opening up for foreign business. This process makes offshore sourcing easier, and even investing in an own software subsidiary or joint venture can be considered. This does not mean that North Korea is potential software destination for every user of offshore services. The country is a subject of international political tensions. In addition, a number of circumstances require specific attention, such as the command of the English Language.  As is the case with China, the North Korean IT staff are able to read english bu thtey do not speak it very well.  Another issue is the relative isolation of the country, and in order to arrange an invitation, a visa is required.  The limited number of direct flights is another disadvantage; one can only travel directly from Beijing or Moscow.  If projects will require a lot of communication or knowledge transfer, it might be recommended to do some parts of the work in China, by the Chinese branches of the North Korean companies. Executing a small pilot project is the best way to investigate the opportunities in more detail.

Conclusion
North Korea has a large number of skilled IT professionals, and it has a high level of IT expertise in various areas.  The country is evolving into a nearshore software destination for a growing number of clients from Japan, China and South Korea. An interesting example of their success is the work they are doing for South Korean giant Samsung, in the field of embedded software for mobile phones.

North Korean IT-companies are now also targeting the European market, and the low tariffs and the available skills are major advantages.  Smaller and medium sized software companies can consider this country as a potential offshore destination, and should research the opportunities for collaboration or investment in more detail. Taking part in a study tour, as I have done, is an excellent way to get more insight in the actual business opportunities of a country – not only in the case of North Korea but for all nearshore and farshore destinations.

Paul Tija is the founder of GPI Consultancy, an independent Dutch Consultancy firm in the in the field of offshore IT sourcing. E-mail: info@gpic.nl
GPI Consultancy, Postbus 26151, 3002 ED Rotterdam
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