Japan And Korea: A Match Made On The Net

Overcoming a bitter past, high-tech companies are hooking up

The deal makes sense, from a purely business point of view. About a year ago, NTT DoCoMo, Japan's top cell-phone operator and a pioneer in wireless Web technology, kicked off talks to buy a minority stake in South Korea's largest wireless company, SK Telecom Co. Together, the two companies could develop shared protocols for next-generation mobile Net services and tap Japan and Korea's formidable private research labs.

What's remarkable is that not long ago, such a Japanese-Korean tie-up would have been almost unthinkable. For decades, Korea's bitterness over Japanese colonization from 1910-45 helped fuel their rivalry in everything from ships to memory chips. Japanese companies kept Korean investments quiet, avoiding high-profile manufacturers for fear of stoking Korean nationalism and because operating costs at Korean conglomerates were too high.

CHEAPER ALTERNATIVE. Now, Korea and Japan are looking for the next big thing in high tech, and Korean companies are eager for Japanese capital, market access, and savvy. Although the DoCoMo-SK Telecom deal may be the splashiest, the Japanese have been steadily moving into Korea's high-tech sector, especially its startups. "Forming an alliance with Japanese partners is in vogue in the dot-com world here," says Ghim Jong Cheol, planning director at Papabean Inc., an Internet incubator and consultant whose dozen Japan-Korea deals include portals, gaming companies, and mobile-phone software outfits.

Japanese heavyweights like Softbank Corp., whose president, Masayoshi Son, is an ethnic Korean, and Mitsubishi Corp. have been especially busy. The deals are still small, but involve dozens of Korean companies. Japanese companies poured $268 million into Korean Internet firms in the first half of 2000, eight times more than in all of 1999, says the Korea Trade Center in Tokyo.

For Japanese investors, Korea offers a cheaper alternative to Silicon Valley deals, where the cultural gap is much wider than between Korea and Japan. "Japanese are more patient than U.S. investors because we share the same business values," says Suh Kap Soo, president and CEO of Korean Technology Investment Corp., the largest venture capital group in Korea.

The dot-com crash has helped too. Since the 80% plunge in Korea's tech-laden Kosdaq market last year, investing is a bargain. Now that Korea has the most broadband connections per capita in the world, companies have practice developing related technology. The two countries use double-byte software written for many Asian languages, so translating code is easier. South Korea's Unisoft, in which Sony Network Communications invested, makes top translation software.

Most appealing to Japanese investors, Korea boasts a new entrepreneurial class. Shaken by the Asian crisis, the government has deregulated telecommunications and freed researchers to start companies or sell ideas big companies would have buried. These new Korean entrepreneurs see Japanese investors as a bridge to Japan's Internet market, the world's second-largest.

Softbank and computer systems integrator Trans Cosmos Inc. are key in forging the bridge. The companies' funds started investing in Korea when the stock market fell. Softbank has bought into 20 companies--none listed. Softbank also assembled a group that will pay $250 million for a 16.5% stake in Korea Thrunet Co., the country's top cable-service company. "If you're a buyer, the timing is great," says Hitoshi Hasegawa, Softbank's chief negotiator for the deal.

Softbank also sees Thrunet as an entree for its media companies into Korea, which banned Japa-nese cultural imports until 1999. While only a few thousand Japanese households have broadband cable service, one-quarter of Korean households use high-speed links. "We'll be a test bed for Softbank companies and technology," says Korea Thrunet Chief Operating Officer Jae Lee.

Some Koreans aren't waiting for the Japanese to come to them. Kim Ideak, president of Internet auction company Digital FK, canvassed Tokyo for nearly a year before landing $900,000 from JAFCO Co., a Nomura Securities Co. unit, and a smaller deal with Samsung's Japan office. Kim will launch his business in Tokyo, then export it to Korea. "If I succeed in Japan, Koreans are more likely to buy my idea," says Kim. Other Koreans are moving entirely to Tokyo. Internet incubator eCorp.jp, for example, helps Korean startups in Japan. The Net, it seems, can be more powerful than age-old grievances.

Before it's here, it's on the Bloomberg Terminal.