What is South Korea's strategic posture in East Asia?

After the Korean War ended in 1953, South Korea and the United States established a political and security alliance that has lasted more than half a century. "For a number of decades, South Korea primarily defined itself as a U.S. ally, with the enemy to the north," says Donald Gregg, president of the Korea Society and a former U.S. ambassador to Korea. However, South Korea is now trying to create a new role for itself in Asia. Seoul is exploring a growing economic relationship with China--which passed the United States in 2003 to become South Korea's largest trading partner--and its policy of engagement and growing cooperation with North Korea is pulling it away from the United States. "All we know for sure is that South Korea's role is no longer junior partner to the U.S.," says David Kang, a visiting professor of Asian studies at Stanford University. "The days when they would just unquestioningly follow the U.S. are over."

Kang and other experts say Seoul is beginning to shift its focus towards increasing regional ties with its Asian neighbors. The U.S.-South Korea relationship, while still strong, is not as exclusive as it has been in the past. "South Korea is still an ally of the United States ... nevertheless, it has been the most active country in promoting East Asian cooperation and integration, and will probably continue to do so," says Charles Armstrong, professor of history and director of the Center for Korean Studies at Columbia University.

What are South Korea's biggest foreign policy challenges?

Dealing with North Korea while preserving its relationship with the United States, maintaining relations with Japan, and addressing potential long-term military or economic threats from China, experts say. But "the major issue for Seoul is overwhelmingly North Korea, and everything else gets filtered through that lens," Kang says. South Korea looks to its northern neighbor with the goal of eventual reunification, and therefore seeks economic cooperation and political engagement to smooth relations and slowly move down that path. The United States, on the other hand, is primarily seeking to prevent North Korea from gaining nuclear weapons, and has refused to engage with Pyongyang until that issue is resolved.

Other experts see a disconnect between how South Korea views its role in the region and how other nations see it. South Korean officials talk of playing a "balancing" or mediating role in regional disputes, including tensions between China and Japan and the nuclear standoff between the United States and North Korea. But South Korea's "actual ability to mediate and balance is limited," says Armstrong. And while South Korean President Roh Moo-Hyun has expressed hopes of building Seoul into a logistics and business hub for the region, existing tensions on the peninsula--including international fears that North Korea is amassing a nuclear arsenal--cloud any long-term economic plans. As things stand, South Korea has the world's 11th largest economy, but not a corresponding level of political clout.

How is South Korea dealing with North Korea?

Through a policy of active engagement. In 1998, Former President Kim Dae-Jung introduced the "Sunshine Policy" aimed at improving ties with North Korea while assuring Pyongyang that Seoul is not trying to absorb it. Since then, "the degree of economic interaction between south and north has substantially increased," Armstrong says. Kim and North Korean President Kim Jung-Il met at a historic summit in 2000, and increasing progress has been made on a range of issues, from economic--increased rail links and joint projects like the Gaesung industrial complex--to social and symbolic, including cross-border family visits and Korean athletes marching together under a single flag at the Olympics. Trade between the two countries reached $697 million in 2004, and South Korea is now Pyongyang's second-largest trading partner after China.

South Korea sees engagement with North Korea as yielding far more benefits than confrontation. "South Korea is reorienting itself toward reconciliation and eventual reunification of the peninsula," Gregg says. South Korean officials say reunification would reduce the burden on each side of maintaining huge armies, help improve living standards, draw international investment, create employment, and help avert the worst possibility: open war on the Korean peninsula.

What is South Korea's relationship with China?

South Korea is developing increasingly warm relations with its giant western neighbor. "There is a real fascination with China in South Korea, and the flow of investment, exports, students, tourists, and businessmen going to China from South Korea has exploded in the last several years," Armstrong says. Bilateral trade between Seoul and Beijing reached $90 billion in 2004, a 42 percent increase from 2003. The two countries also agree politically on issues ranging from opposition to Japanese Prime Minister Junichiro Koizumi's visits to the Yasukuni war shrine, to accord on how to deal with North Korea's nuclear ambitions. China is also choosing the path of engagement with North Korea, and helping Pyongyang find a "Chinese way" to develop: that is, increasing economic openness without sacrificing political control. "On the whole, [South Korea and China] see pretty much eye to eye on the major geopolitical issues," Kang says.

Beijing, like Seoul, is investing in North Korea, which has ample natural resources--including coal, iron, and gold--and a low-cost labor force. In 2003, Chinese investment in North Korea was $1.1 million; in 2004, it ballooned to $50 million; and in 2005, it was expected to reach $85-90 million. The volume of trade between China and North Korea reached $1.5 billion in 2005, making Beijing Pyongyang's largest foreign trading partner. North Korean leader Kim Jung-Il, who rarely travels, emphasized Beijing's importance to his country by visiting China in January.

South Korea is positioning itself to be closer to an ascendant China, but trying to do it without jeopardizing existing ties with the United States. South Korea's biggest worry, experts say, is being pulled into a conflict between the United States and China over Taiwan.

What's the relationship like between South Korea and Japan?

"Very bad at the moment in terms of public diplomacy and popular opinion," Columbia University's Armstrong says. South Korean wariness of Japan dates back at least to 1910, when imperial Japan invaded Korea and ruled it as a colony for thirty-five years. During the occupation, Japanese efforts to suppress Korean language and culture earned Korean enmity. During World War II, the Japanese practice of using "comfort women"--women from occupied countries, mostly Korea, who were forced to serve as prostitutes for the Japanese army--increased the anti-Japanese feeling.

South Koreans, and others across the region, are also infuriated by Koizumi's annual visit to the Yasukuni shrine. The site honors more than two million Japanese war dead, but includes the remains of more than a dozen convicted war criminals. South Korea also has disputes with Japan over territory. Both countries claim a group of islands--and the fishing and mineral rights around them--in the Sea of Japan that the Koreans call Dokdo and the Japanese call Takeshima. And many critics in South Korea and across Asia accuse Japan of whitewashing its wartime atrocities in its grade-school textbooks.

But much of the South Korean conflict with Japan may be for domestic political consumption, some experts say. "Under the surface, I would say the degree of interaction [between Seoul and Tokyo] remains high and, in the economic realm, is rather good," Armstrong says.

How is South Korea dealing with the United States?

While experts say most South Koreans still consider the U.S.-Korean alliance the backbone of their security relationship, time has passed and attitudes are shifting. A new generation of South Koreans, assertive and nationalistic, are less mindful of the Korean War--and less grateful for American intervention in the conflict that left nearly three million Koreans dead or wounded--and more resistant to what they see as a U.S. attempt to impose its values and Washington's singular focus on terrorism. The United States has opposed South Korean engagement efforts with North Korea, and has also moved to increase its ties with Japan. The Bush administration's foreign policy, including the war on terror, its punitive stance toward North Korean nuclear weapons, and particularly the invasion of Iraq, is highly unpopular in South Korea, according to opinion surveys there.

South Koreans are also increasingly demanding more control over their country's military and political affairs. In 2004, the United States returned several military bases to Korean control, and agreed to withdraw 12,500 of the 37,500 U.S. troops currently stationed in Korea by 2008. U.S. officials, including Defense Secretary Donald Rumsfeld, had been pushing for South Korea to take more of a role in the defense of the Korean peninsula, to free up U.S. forces for deployment elsewhere. But, all differences aside, Seoul is still eager to cooperate with the United States. South Korea, with some 3,000 troops in Iraq, is the third-largest member of the U.S.-led coalition there, behind the United States and Britain.

What is the recent history of the region?

Poised between China and Japan, fought over by the United States and Russia, the Korean peninsula long has played a central role in Asia's geopolitical affairs. After World War II, Japanese colonial rule gave way to U.S. and Soviet trusteeship over the southern and northern halves of Korea, respectively. The peninsula was divided at the 38th Parallel. In 1948, the southern Republic of Korea and the northern Democratic People's Republic of Korea, under Kim Il-Sung, were established.

In 1950, North Korean forces invaded South Korea, starting a conflict that brought in China on the North Korean side and a U.S.-led UN coalition on the South Korean side. While an armistice was agreed to in 1953, a formal peace treaty was never signed. In 1954, the United States agreed to help South Korea defend itself against external aggression in a mutual defense treaty. U.S. troops have been stationed in Korea since then. In addition to this important security relationship, shared interests in the last fifty years have included fighting communism and, since the 1980s, establishing a strong democracy and fostering economic development. However, in recent years strain has emerged on a range of issues, none more important than how to handle Pyongyang.

On November 1, 2005, SPRIE invited Jimmy Lee, Vice President and General Manager, Timing Solutions, Integrated Device Technology (IDT) to speak at SPRIE's seminar series on the rise of China in innovation. Lee shared his experience in running a full-blown integrated circuit (IC) product development center in China together with an informative account of China's rise in the IC industry.

The globalization of the IC industry and the rise of China

The commoditization of semiconductor technology is marked by the encapsulation of previously proprietary technologies into commercially available equipment and software design tools. This has substantially lowered the entry barrier for IC design. It has enabled the emergence of a new generation of companies in the Far East in backend assembly and testing as well as IC design. The process is further helped by advances in communication technology that eases access to and sharing of information across geographies. Meanwhile, the IC industry is shifting from being technology-driven to application/market driven. The integration of product development and market has become an important differentiator in global competition. These industry changes are coupled with changes in the worldwide market, mostly noticeably the rise of Asia as a significant market.

China is rising quickly as a significant player in IC. It has a huge pool of talent and many "returnees" - those who grew up in China, were educated in the West and have returned to China to work; they are essential in transferring competence from the West to China. China also enjoys substantial cost advantage while having fairly decent productivity. Starting from the 1990s, the government has invested heavily, and issued extensive regulatory incentives, to promote the semiconductor industry. As a result, according to Lee, in 2004, there were 102 IC test and assembly companies, 50 foundries and 457 IC design companies operating in China. They generated a total revenue of $4.4 billion.

IDT's product development venture in China

IDT is a major IC design company. Its workforce of 3,700 (1,500 in U.S.) has designed 1,300 IC products in 15,000 configurations. In fiscal year 2005, the company garnered a revenue of $645 million, 25% of which went into R&D. In the late-1990s, frustrated by the high turnover and the shortage of talent in Silicon Valley, it opened up an operation in

China. China's abundant and low-cost talent pool provided an opportunity. The company was also attracted to its budding telecommunication market, an area IDT had wanted to get into.

Luckily for IDT, "it just so happened that Newave Technology Corporation was available." Newave was the first IC design start-up in China. Founded by several Chinese returnees in 1996, the company had 100 some engineers developing telecommunication IC for the China market. In 2001, IDT acquired Newave for $85 million. At the time of acquisition, Newave was working on two products but its revenue was very small. Since then, Lee built it into a successful product development center.

Challenges for setting up a product development center in China

Setting up and operating a product development center in China is full of challenges. Lee grouped them into two areas.

The first is organizational challenges, from defining the mission of the organization to every aspect of human resource management: recruiting, training, retention, etc. From the beginning, the mission was to be a self-sufficient, whole product development center. "They basically have the responsibility to develop the entire product from the specification to the manufacturing transfer and they also have the entire infrastructure such as HR, finance and legal to be self-sufficient to support the local needs." Such positioning is crucial in China because the competition for talent is extremely intense and this generation of young engineers is very ambitious, many wanting to start their own business sometime in their life. They are often impatient with long-term strategy. Therefore, "if you want to have top-notch talent working for you, you have to challenge them constantly in technical areas." Picking the right leader is also a key. IDT decided that this person had to be born in China, grew up in China, be western trained and have worked in western companies. Such a combination is ideal because there are a lot of subtleties that are culture specific and one has to be born and grow up in China to get it. In the technical area, IDT hired a few long-term expatriates from headquarters. They are the real masters in their respective fields in IC design. This is where the leverage comes from: "You use one super high power master technical guy to leverage the intellectual labors of the local engineers," said Lee.

The second challenge stems from social-cultural differences. A few examples: communications is a big issue, not so much because of language barriers but because of differences in culture and the level of professionalism. As Lee stated, "...it's more of the mindset. It's very difficult at the beginning to teach them how to communicate, when to communicate and what to communicate." Secondly, social-culture norms shape a different level of standard in decision-making and judgment call. Lee needs to put a lot of effort into teaching the local engineers how to think from the customer's perspective. Thirdly, employees are loyal to individuals rather than the corporation. These social-cultural differences are an area where there is no shortcut. They have to be overcome with training. Training means taking every opportunity to educate the local workforce: formal training programs, informal one-on-one coaching, ongoing training-by-doing, training over hundreds of conference calls over the past 4-5 years, you name it. "To some extent, this is sort of the brainwashing process," commented Lee. "There is no shortcut. You just have to put in a lot of TLC - tender, loving care. This is very challenging."

IDT's positive experience in China

While IDT "did run into many, many of those challenges," its overall effort in China has been extremely positive. The local team now manages a dozen of products, which involves some original work. The headquarter team is using some of the intellectual property generated by the folks in China. The local team even presented a paper in this year's IEEE ISSC Conference. It is the first paper coming out of China presented at such a prestigious conference. Productivity and cost advantage are also evident. Lee estimated that "for the team here in the United States to develop the same number of products will probably take them twice as long in time and probably cost 4-5 times more. This is really a good deal for the company."

Future outlook

Looking ahead, Lee highlighted a few issues that will shape China's IC industry. Overall, it will be a fertile ground for IC product development because of the talent pool. The job market will remain red hot with rapid increase of wages and high turnover rates. There will be hundreds of start-ups because of the low entry barrier. However, many will lack management experience and business acumen. Duplication of investment and engineering effort for the same market will result in the industry consolidating into dozens of medium size companies. In ten years time, these survivors will become significant suppliers to domestic IC demand in emerging applications such as wireless communication and digital TV. All in all, as Lee pointed out, "one needs to marry the best of the East and the West to create a world-class company."

What is the state of China-Taiwan relations?

President George Bush fanned the flames of the longstanding conflict between China and Taiwan during his November 16 speech in Kyoto, at the start of a week-long state visit to Asia. In urging China to expand openness and allow its people more freedoms, the president used Taiwan as a model, saying Taiwan had brought prosperity to its people by embracing freedom and creating a democratic Chinese society. China rejected Bush's comments. "Taiwan is an inseparable part ofChina, and China does not brook any interference in its internal affairs," Foreign Minister Li Zhaoxing told reporters at the Asia-Pacific Economic Cooperation (APEC) summit in South Korea. Bush meets Chinese President Hu Jintao and other Asian leaders at the summit November 19.

What is the history of the conflict?

Taiwan, an island of 23 million off China's southern coast, was occupied by Japan for fifty years, from 1895 to 1945. In 1949, after Chiang Kai-shek's Nationalist Party lost its power struggle with the Communist Party in China, Chiang and his followers fled to Taiwan. Their Kuomintang (KMT) government-in-exile in Taipei defined itself as the alternative to Communist rule and hoped one day to return to power in Beijing. The KMT governed Taiwan from 1949 to 2000; its often harsh rule included discriminatory laws against ethnic Taiwanese and nearly forty years of martial law, which was finally lifted in 1987. The KMT has historically seen Taiwan as a part of "one China" that would eventually be reunited under Nationalist rule.

Taiwan's current ruling party, the predominantly ethnic Taiwanese Democratic Progressive Party (DPP) was founded in 1986 to counter the KMT, and only became legal in 1989 after a longtime ban on opposition parties was dropped. Taiwanese President Chen Shui-Bian is a member of the DPP, which envisions Taiwan as an independent nation, separate from China. In 2000, Chen was the first DPP candidate to be elected president. Taiwanese sovereignty is the first and most prominent issue on the party's platform. This position has put the DPP severely at odds with China's leadership, which views Taiwan as a renegade province that will one day be reunited with Communist China--by force, if necessary.

What is the U.S. position?

The United States officially recognizes only one China -- including Taiwan -- and urges a peaceful resolution to the Taiwan question. However, Washington is also bound by the 1979 Taiwan Relations Act to aid in Taiwan 's defense, including selling the island the weapons it needs to defend itself against China. Experts say the United States is walking a fine line between China 's growing influence and the historical U.S. relationship with Taiwan. "Bush had to stand up for freedom and democracy and all the other values he constantly talks about, without picking a fight with China that nobody really wants," says David Kang, an Asia expert and visiting professor at Stanford University's Shorenstein APARC. Bush stressed in his speech that "there should be no unilateral attempts to change the status quo by either side."

What is the impetus behind independence for Taiwan?

After the long KMT reign, many Taiwanese are now pushing for self-determination. Independence advocates say Taiwan is a free and democratic nation with multiparty elections and a very successful economy, with a gross national product (GNP) of $328 billion in 2004, of which $174 billion was due to exports including electronics, computer parts, textiles, metals, plastic, and rubber. They say the Taiwan people should have the right to decide for themselves if they want to join China or become an independent nation. Since Chen was elected to his first term in 2000, he has steadily pushed the idea of Taiwanese independence. He provoked Beijing August 3 by supporting the idea of a referendum to ask Taiwanese citizens if the island should declare formal independence from China. China is very hostile to such talk: On August 7, the official China Daily newspaper quoted a Chinese military official saying, "Taiwan choosing independence is tantamount to choosing war."

What has China been doing?

Making both incendiary statements and conciliatory moves. In July, General Zhu Chenghu, the dean of China's National Defense University, warned that China would attack the United States with nuclear weapons if it intervened in a military dispute over Taiwan. Although he later claimed the comments were his own and did not reflect the views of the state, Zhu's words generated international concern. However, China's actions toward some Taiwanese officials have been friendlier. James Soong, head of the Taiwanese opposition party People First, has visited China several times in the last year at the invitation of Beijing. Experts say Beijing is reaching out to opposition leaders in Taiwan in an attempt to sidestep the DPP and build new bases of support on the island. Soong is taking advantage of the opening to play for domestic political support and attempt to show up the DPP, they say. His actions infuriate the ruling party in Taiwan because, despite his unofficial status, Soong is building friendly relations with China in direct contrast to DPP policy.

What are the next steps?

Bush alluded to peace talks in his November 16 speech, but experts say such talks between China and Taiwan are unlikely in the near future. "There are elements moving towards peace talks, and other elements, especially in Taiwan, that are pushing toward independence and want to stick China in the eye," David Kang says. But "it's hard to say what Taiwan wants," he adds, noting the Taiwan electorate is almost evenly split between those who favor independence and those who want to improve relations with Beijing for historical, cultural, and especially economic reasons. David Kang says that, in the last several years, as many as one million Taiwanese have moved to China to do business.

What are Taiwan's security concerns?

China, located just 100 miles away across the Taiwan Strait, has hundreds of ballistic missiles aimed at Taiwan, and is targeting much of its recent militarization campaign specifically at the island, including building amphibious tanks that can be used to storm Taiwan's shores. China's military buildup has put Taiwan at a strategic disadvantage: Taiwan's military spending has dropped 25 percent over the last five years, to only 2.4 percent of gross domestic product (GDP). The United States has been pressuring the island to buy a specially designed $18 billion package of U.S. arms to improve its military capabilities. But some Taiwanese politicians are reluctant to devote resources to military buildup given the presumed U.S. protection, and opposition leaders have blocked the sale over what experts call domestic political squabbling. But, David Kang points out, a military invasion of Taiwan by China is highly improbable. "That's the least likely scenario," he says. "You can have a military dispute that's far short of all-out war."