North Korean Economy Watch

There was a great picture in the New York Times today.  The article was about the politics of a UN trade embargo in response to the nuclear test.  I was disappointed that the article was not about the story of the bikes being exported from Japan.  Who is importing them into the DPRK?  How are the funds transferred?  Is there a title? How are they being distributed in the DPRK?  Who is insuring them?  Who is buying them and where did they get the money?  This would have been a far more interesting article.  

Although stories of counterfitting currency and cigarattes, or exporting missles and drugs dominate news headlines, one story that never gets covered in the media, probably because it is so mundane, is how thousands of traders, motivated by nothing but self-interest and survival, are undertaking significant risks which are easing the hardships of the poor citizens of North Korea.  Will stopping this sort of trade make anyone better off? 

Image caption: Bicycles being loaded Friday onto a North Korean ship in Maizuru, west of Tokyo. A proposed Security Council resolution would restrict cargo. 10/14/2006

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.

Financial Times
10/13/2006
Anna Fifield

As the countries of the United Nations wrangle over the sanctions to be imposed on North Korea following its nuclear test this week, doubts are being cast on the effectiveness of whatever measures are agreed.

With China and South Korea fearing the collapse of their volatile neighbour, and with a large proportion of North Korea’s income coming from illegal trade, even targeted sanctions would have a limited impact. The regime has already survived the death of its founder and a famine that killed up to 10 per cent of its population.

Rüdiger Frank, a North Korean economy specialist at the University of Vienna, said: “I don’t think there is any more room for more sanctions from the usual suspects. To be effective, China and South Korea have to join.

“But a nuclear North Korea is even more risky in case of collapse than just a humanitarian catastrophe, so why would they increase the chance of a collapse.”

North Korea says its missile launches in July and the nuclear test were “self-defence” in response to US financial sanctions imposed in September last year to curb alleged counterfeiting and money laundering.

Now the US, Europe and Japan are all calling for a tough UN resolution and authorisation for countries to interdict shipments to and from North Korea, both of which China is opposing.

The dispute over the extent of sanctions reflects differences over the purposes of the measure. While the US and perhaps Japan are eyeing regime change, China and South Korea would be happy with a change in behaviour.

Marcus Noland, of Washington’s Institute for International Economics, said economic sanctions were seldom effective in changing behaviour.

“If the sanctions were going to have any shot at working they would have to be comprehensive sanctions, as suggested by Japan,” he said. “That package was big enough to potentially have an impact and it also had the benefit of simplicity, but they would also imply a significant degree of hardship for ordinary people.”

But the suggested targeted sanctions were too weak to be effective and because of their complexity, they almost invited circumvention, Mr Noland said.

“Weak sanctions may be counterproductive because President Bush and President Roh [of South Korea] warn that they will not tolerate a nuclear test but they are not imposing the penalties or incentives to back it up. That might tempt North Korea to push the envelope even further,” he said.

Much of the crisis can be traced back to North Korea’s dire economic situation. The differences between the North and South Korean economies could not be more stark. The mineral-rich north had always been the industrial heartland and the more fertile South was traditionally the rice bowl.

Indeed, the South’s gross domestic product did not overtake the North’s until the early 1970s but now at $700bn (£377bn, €558bn), it is about 40 times larger than that of the North’s.

Economic reforms that Pyongyang begrudgingly introduced in 2002, which liberalised prices and wages, have led to some changes in North Korea’s decrepit economy and trade has grown exponentially.

The South’s Korea Trade Investment Promotion Agency estimates the value of North Korea’s legal foreign trade crossed the $3bn mark last year, the highest since the Soviet Union collapsed in 1991, with trade with China comprising more than half of the total.

But it is North Korea’s sizeable illegal trade that will further dilute any economic sanctions. Analysts suggest North Korea earns about one-third of its revenues from aid, one-third from conventional exports and the remainder from criminal activities.

Crime is such a fundamental part of North Korea’s economy that David Asher, co-ordinator of the US State Department’s North Korea working group from 2003 to 2005, calls the country the “Soprano state”.

“North Korea is perhaps the only country in the world whose embassies and overseas personnel are ex-pected to contribute income to the ‘Party Centre’, not rely on central government funds for their operations,” said Mr Asher in a speech at the Wilson Centre last November.

Several North Korean diplomats have been caught carrying narcotics through eastern European countries in recent years. In 2004, a North Korean ship carrying $150m worth of heroin was seized in Australia.

Pyongyang has also been producing and distributing counterfeit US dollars, cigarettes and pharmaceuticals, especially the erectile dysfunction drugs Viagra and Cialis.

Counterfeit cigarettes are said to depart regularly from the North Korean ports of Rajin and Nampo for shipment through China and South Korea to the rest of the world, and tobacco companies have identified factories producing counterfeit cigarettes in North Korea.

But the international community is now most concerned about the prospect of North Korea trading missile and weapons of mass destruction technology, a concern that is only likely to be heightened with sanctions.

Jon Wolfsthal, of the Centre for Strategic and International Studies in Washington, said: “North Korea is probably going to want to hold on to their precious weapons technology. But if the US squeezes them, that increases the risk that they might sell weapons to ensure their survival.”

From the Joong Ang Daily
10/13/2006
Seo Ji-eun

Hyun Jeong-eun, the Hyundai Group chairwoman, may face a serious problem soon: If tourist departures for the North Korean resort area of Mount Kumgang continue in their slump, should she end the operation? And if she does, what happens to the Hyundai Group’s leading role in developing business ties with North Korea, including its exclusive right to conduct tours there for South Koreans?

Hyundai Asan, the group subsidiary that operates the tours, said yesterday that only 549 tourists traveled to the mountain area, now ablaze in fall colors. A day earlier, the number was 788. The company said that 4 percent of its travelers canceled on Monday, when the North announced that it had conducted a nuclear test; yesterday, 65 percent of those who had signed up for the trip cancelled.

Even if the problem continues long enough for an “ordinary” company to think about pulling out of the business, Hyundai’s problem involves other elements of the group and more than just cash flow.

Hyundai Asan won exclusive rights to an inter-Korean tourist business in late 1998, and has set a goal of expanding its corporate sphere across the country. It plans to take tourists to Kaesong and to Mount Paektu and has an ambitious construction program to support. Shutting down the Kumgang tours could endanger that strategy because of North Korea’s long memory and penchant to hold grudges. Once out, Hyundai fears it may never again get in.

North Korea has earned about $500 million so far from the Mount Kumgang tours.

And Hyundai Group’s heritage is bound up in North Korea businesses. Cross-border business dealings were initiated by Chung Ju-yung, the group’s founder, and that business was inherited by his son, Chung Mong-hun, who committed suicide during his trial on charges of helping secretly funnel cash to the North to set up the first inter-Korean summit in 2000. Since Ms. Hyun succeeded her husband three years ago, her husband’s other brothers have been jockeying to seize control of the group from her through stock transactions, in order to reinstate the direct blood line from the group’s founder to its current management.

Ms. Hyun has often stressed that it is she who is the true champion of the founder’s spirit through her persistence in conducting business with North Korea.

In the view of some analysts, that argument could be weakened significantly by shutting down the tours, perhaps inducing group subsidiaries such as the Hyundai Department Store chain, which has remained neutral in the family feud, to turn against Ms. Hyun.

NPR
Morning Edition
10/13/2006

When North Korea recently opened the door to foreign investment, cartoonist Guy Delisle became one of the few Westerners to witness current conditions in the capital city of Pyongyang. Delisle found himself in the city on a work visa for a French film animation company.

Delisle could only explore Pyongyang and its countryside if he was accompanied by his translator and a guide. Among the statues, portraits and propaganda of leaders Kim Il-Sung and his son Kim Jong-Il, Delisle observed the culture and lives of the few North Koreans he encountered. His musings on life in the regime form the basis of the graphic novel: Pyongyang: A Journey to North Korea.

Steve Inskeep speaks with Delisle about his work, his choice of coloring in his novel and what he really thinks is going on inside the heads of North Korean citizens.

There are two great audio clips, so click here to hear them.

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. 

London Times
Lloyd  Parry
10/11/2006

NORTH Korea’s economy, and the methods it uses to support a Stalinist society in the globalised 21st century, is a subject as murky, dark and dangerous as its totalitarian leadership. Many of the country’s traditional industries, such as mining, chemicals and textiles, are in ruins.
 
But the North Korean military and ruling elite have held off political collapse in the years since the end of the Cold War thanks to a web of criminal businesses backed by the power and military might of a well-armed dictatorship.

The greatest danger from Monday’s underground nuclear test may lie not in the potential for a missile attack on another country, but in the export of nuclear devices or technology, to which President Bush referred in his first remarks on the explosion.

Peter Beck, of the International Crisis Group in Seoul, said: “I’m not worried about them using one of their warheads on a neighbour because that would be suicide. But given their record of selling whatever they have — drugs, missile technology, counterfeit currency — the primary concern has to be proliferation.”

Illegal export businesses that North Korea is accused of operating include the manufacture and sale of drugs, counterfeit currency, fake brand goods such as cigarettes, the forging of tax revenue stamps and money laundering. On top of this there is the lucrative trade in weapons, principally missile parts, which is perfectly legal but deplored by the United States and its allies.

Over the years North Korea’s partners in these enterprises have ranged from Japanese yakuza, Russian drug dealers, Irish republican terrorists, bankers in Macau, ivory poachers in Africa, and the Armed Forces of Egypt, Iran, Libya, Pakistan, Syria, Vietnam and Yemen.

If the North does attempt to profit from its nuclear success it will be covert networks like these that it will employ.

North Korean official crime dates back at least to the 1970s when its diplomats based in the four Scandinavian countries were reselling tax-free alcohol and cigarettes.

Diplomatic bags were frequently abused for the purposes of smuggling drugs produced in North Korean factories, beginning with heroin and opium but diversifying in the late 1990s into crystal metamphetamine or “shabu”, the most popular drug in Japan, South Korea and South East Asia.

In 2003, Australian coastguards seized the North Korean boat Pong Su after it dropped off 150kg (330lb) of heroin at a beach in Victoria.

Even harder to pin down are the counterfeit $100 bills known to law enforcement agencies as Superdollar.

US security services have seized $50 million of the counterfeits since they began appearing 1989, of a quality so high that they are often detected only when they reach the Federal Reserve.

Sean Garland, the leader of the Official Irish Republican Army, a Marxist splinter group of the IRA, is presently fighting extradition from Ireland to face charges in the US that he purchased and distributed North Koran supernotes in Belarus, Russia and Ireland.

North Korean factories are reckoned to produce 41 billion fake cigarettes a year, for sale in China, Japan and the US.
In the past ten years at least six North Korean diplomats have been expelled from Africa for smuggling elephant tusks and rhinoceros horns.

Indentured labourers are exported to Russian logging camps and Czech factories as cheap labourers, in wretched conditions. Last year the FBI arrested 59 people at an elaborately staged fake gangster wedding, breaking a Chinese-North Korean racket which sold tens of millions of dollars of contraband every year, including forged notes, postage stamps, tax stamps for cigarettes, Viagra and AK47 assault rifles.

Most difficult to police is the North Korean arms trade — because, as big Western governments know better than most, the lucrative arms trade is not a crime. The US Government estimated that North Korea’s sales of rockets, missiles, parts and technology amounted to $560 million.

In 2002 the Spanish Navy boarded a North Korean ship carrying Scud missiles to Yemen — but had to let it go because it was operating perfectly legally.

A US Senate hearing last April concluded that income from these operations amounted to between $500 million and $1 billion a year.

“These extracurricular revenue streams allow North Korea to balk at participation in negotiations,” Tom Coburn, the chairman of the hearing, said. “Economic pressure is the civilised world’s only real leverage.”

If Kim Jong Il is ever to be forced to the negotiating table it is these sources of income that must be cut off.

“It will take a lot international co-operation, and it will take time,” says Song Young Sun, a South Korean MP and security expert. “It will not kill Kim Jong Il with a single shot. But if it works, it will slowly dry him to death.”

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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