For Outsourcing IT, Have You Considered North Korea?

North Korea has a flourishing information technology industry that’s eager for your business

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Steven Cherry: Hi, this is Steven Cherry for IEEE Spectrum’s “Techwise Conversations.”

You know the board game Go? Did you know that one of the top computer Go programs comes from North Korea? Did you know there are a number of major IT firms in North Korea? Did you know that there are IT firms in North Korea that accept foreign outsourcing contracts, just like IT companies in India and China do? One of them, the Korea Computer Center, has more than 1000 employees.

The man who knows all these facts and more is Paul Tjia. He’s a senior consultant and founder of GPI Consultancy, based in Rotterdam [in the Netherlands]. He’s the author of Offshoring Information Technology: Sourcing and Outsourcing to a Global Workforce, a guide for business executives interested in offshore labor, and he wrote an article in this month’s issue of Communications of the ACM titled “Inside the Hermit Kingdom: IT and Outsourcing in North Korea.” He joins us by phone.

Paul, welcome to the podcast.

Paul Tjia: Yeah. Thank you.

Steven Cherry: Paul, let’s say I’m a company in Scandinavia that wants to offshore some work. Probably one of the last places in the world I would think of is North Korea. Tell me why it should be one of the first.

Paul Tjia: North Korea is probably indeed one of the last countries they would think about. As a matter of fact, there are a lot of other countries more known in the field of outsourcing. When I started this work in the 1990s, it was India which became rather well known, and over the years dozens of other countries appeared. And I think a company in Europe, be it in Scandinavia or in Holland or the U.K., they can choose now, I think, from about 30 or 40 different destinations. I think North Korea is probably indeed the least well-known country, but it has one major advantage: It can offer a very experienced skills [sic]. And the tariffs are the lowest in the world, probably, so that makes sense.

Steven Cherry: In the U.S., I believe it’s illegal to offshore work to North Korea.

Paul Tjia: I think so. Officially, American companies are not allowed to trade with North Korea, so for, although I know quite a few American companies that would love to explore North Korea, it is not allowed. So most of the North Korean customers you will find—and by the way, not in Europe but in China there is a lot of cooperation going on between Chinese and North Korean companies, so I think that’s now the major export market. But surprisingly, I also find North Korean companies also working in, for example, the Middle East, so they are quite going international over the years.

Steven Cherry: Okay. So let’s say I’m an IT manager in Denmark or Saudi Arabia or someplace. These North Korean firms are owned by the government there, so who do I call? Do I have to start with a government office?

Paul Tjia: Well, that’s probably the main challenge. Normal IT companies, they have their websites, and you can contact them easily wherever you are. And the large Indian companies or the large Chinese companies, they really have their own offices all around the world nowadays. So contacting a potential outsourcing partner normally is very easy. This is the main challenge for North Korea: It is very difficult to contact them. They have their websites on a local “internet,” but it’s really an intranet, so the outside world cannot even see most of their websites. They are not located in many countries around the world, so sending an e-mail or making a phone call, it’s quite difficult to North Korea. So in reality, middlemen or consultants are being used in establishing those contacts, and of course personal contacts are very important in this field. So sometimes the North Koreans, they meet foreign companies personally, for example by attending trade fairs or conferences or having business visits, and then of course communication is certainly much more easy. But otherwise, establishing business links, it’s always a challenge with North Korea, not only in the field of IT but also in other business sectors.

Steven Cherry: IT workers have to have access to the Internet. How does that work in North Korea?

Paul Tjia: The IT industry is one of the most advanced sectors in North Korea, I would say. Having connections to the outside world and access to the Internet I would say is for IT people less difficult than it is for the other North Koreans. And obviously, they have to use these means of communication in order to work with foreign clients, but nevertheless it is still a rather isolated country, and even making a short visit to discuss a business project is quite difficult and time-consuming. For example, it takes one month to get a visa for North Korea, so even doing a short visit to North Korea takes a lot of time. What I see is that a lot of foreign clients, they avoid working with North Korea, especially in the beginning phase, and they set up their own office just outside North Korea. For example, in China where the North Koreans are working on behalf of the foreign clients, together with the foreign client they set up a joint office, and then suddenly communication, be it electronic communication or personal visits, is of course extremely easy because going to China, for example, is very easy nowadays. Getting a visa for China is extremely easy. So in order to avoid the traditional problems in communicating with North Koreans, I would also say setting up a joint office in China is the best way to start exploring a North Korean company.

Steven Cherry: In 1978, before the westernization of China and in part as the beginning of it, China set up two special economic zones, one in Guangdong province and the other in Shenzhen. I’m wondering if this IT outsourcing could be the start of North Korea doing something like that, and generally, does this kind of work presage a capitalist opening of the North Korean economy?

Paul Tjia: Actually, North Korea is already quite open to do business with the capitalist world, I would say. They already set up a few economic zones; there’s one near the South Korean border, the Kaesong Industrial Zone, and there are around 50 000 North Korean workers now working in factories owned by the South Koreans, set up by the South Koreans. So the Kaesong example is quite a successful example, I would say, given the difficult political relations with South Korea. It’s mainly used by the light industry, by the way, clothing production, for example, and not so much for [the] IT industry.

Steven Cherry: So paradoxically, there are no labor laws or labor unions in North Korea because it’s by definition a workers’ paradise. Do we know how the workers are being treated and what are salaries like?

Paul Tjia: In general, but I think that is related to all developing countries. If you are able to work in an IT company and especially if you are able to work in an IT company working for foreign clients, that offers suddenly a lot of advantages. Salaries are higher in those export-related sectors, and of course not only the working conditions are better, but it also gives you, for example, the opportunity to travel abroad or do additional training in a foreign country or to meet foreigners. It gives you the opportunity to work with the latest technology, so I think for the average North Korean, if they would be able to work in a modern IT company, it will offer advantages to them. Also, in the financial area it’s always difficult to know the exact salaries. By the way, I think by the North Korean level it is okay, and for this reason we see a lot of interest among young people to go to university and to pursue a career in IT. But having said so, the tariffs are low in—the tariffs they charge the foreign clients are also lower than, for example, the Indian tariffs or the Chinese tariffs, so they are also trying to compete with those countries on the tariff level, of course.

Steven Cherry: So, bottom line: Am I saving a lot of money if I outsource to North Korea compared to, say, India or China?

Paul Tjia: It is possible. Of course, it depends. To be honest, when we talk about doing software development, there can be advantages when you do it offshore, but it is not guaranteed because doing offshore work—be it in North Korea, be it in China, in India—is related to a lot of difficulties. Suddenly we have to deal with a difference in time, a difference in language, a difference in culture, a difference in distance, and, in connection with North Korea, a difference in political system. So of course, doing software development in your own country is much more easy than doing it abroad. So, if you want to get the same quality—to be honest, quality is the most important issue, I would say, when you develop software or do IT work. Quality has to be guaranteed. And when you do it offshore, you get a lot of difficulties, so to manage those difficulties it takes more management effort than if you would do it in your home country. So there must be a huge cost difference, I would say, if you want to get a cost advantage. If the cost difference is not that high, then it makes no sense to do the work abroad, I would say. But since North Korea offers very low tariffs and the skills of the staff can be quite high, then it makes sense even for smaller projects. Normally, for example, you might not want to do smaller projects in India because it is not worthwhile. But a small project can be done quite cost-effectively in North Korea. So it makes sense to investigate the option of North Korea, I would say, and it is easy to compare the tariffs for a total project if you would do it in India or in China or in Vietnam or in North Korea—that can be done.

Steven Cherry: Paul, the most recent report from the organization Human Rights Watch says North Korea “routinely practices arbitrary arrests, detention, torture, and ill-treatment of detainees and allows no political opposition, free media, or religious freedom.” Do you think Western companies should consider all that when they think about outsourcing work there?

Paul Tjia: I think its always important to think not only about the pure business-related activities but to also think about other relevant aspects of any country you want to work with, so that’s not an issue for me, I would say. But when we look at, for example, another country, China, China in the 1970s when it started to work for foreign companies—you mentioned the economic zones they set up at that time—I think the China of today for the population is a much better country to live in than the China of the 1970s. So economic development can also eventually result in more political improvements, economical improvements, and the way people can live. So I think for any country, if they are able to expand more, to do more business, and to create a middle class eventually, that can have a very positive impact on any country, including North Korea. So in my view, I think doing business with North Korea eventually can result in many improvements—much more than just the business activities we have been talking about.

Steven Cherry: Fair enough. Well, thanks, Paul. It’s a fascinating and unexpected story, and we appreciate your taking the time talk to us about it.

Paul Tjia: Okay, no problem.

Steven Cherry: We’ve been speaking with the author of Offshoring Information Technology: Sourcing and Outsourcing to a Global Workforce, Paul Tjia, about outsourcing IT to North Korea.

For IEEE Spectrum’s “Techwise Conversations,” I’m Steven Cherry.

Announcer: “Techwise Conversations” is sponsored by National Instruments.

This interview was recorded 28 August 2012.

Segment producer: Barbara Finkelstein; audio engineer: Francesco Ferorelli

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