) -lI.

Journal of Scientitic & Industrial Research Vol. 60, March 2001 , pp 243-255

Korean Approach to a Teleservice Concept as an Industrial Innovation

Sunyang Chung

Science and Technology Policy Institute (STEPI), Specialty Construction Centel; 395-70 Shindaebang-Dong, Tongjak-Ku, Seoul /56-0/0, Korea

Tel : +82-2-3284-1841 Fax: +82-2-849-8013/8012 E-mail: sychung@stepi .re.kr

Many companies have been tryi ng to improve manufacturing capabilities through effectively meeting the customers ' needs. Teleservice is a new service and manufacturing concept that can fulfill thi s purpose. We detine teleservice as a new innovative service concept for manufacturing companies , which is the result of integrating telecommunication with manu­facturing and service activities. Thus, this concept is a kind of industri al innovation. It is proposed that the level of diffusion of this concept would indicate the innovativencss of manufacturing industry. In thi s paper, we make a cluster analysis on the Korean status on the diffusion ofteleservice concept in Korean machine tool companies. First, we discuss what the teleservice concept is and how important it is for manufacturing capabilities. Secondly, we discuss how the Korean representati ve machine tool companies respond to the te leservice concept for their effort to manufacturing performance. Based on two casc studies on Korean strategies to teleservice, some strong and weak points for teleservice diffusion are discussed. Finally, wc identify some implications for Korean enterprises . The Korean strategies to teleservice offer some clues to service innova­tion in the developing countries.

1 Introduction Production technologies , which are the backbone

of modem industrial society, have been transformed into new production technologies through its merger with telecommunication technologies!" . As a result, fl ex ible manufacturing system (FMS) and computer integrated manufacturing (CIM) are now regarded as most important production concepts by industrial com­panies for enhancing the ir competitiveness. They can simultaneously meet demands from competitiveness factors such as time, quality, cost, etc . without raising the dilemma of productivity3.4.

There have been strong emphases on the role of in­novation in enhancing films' competitiveness' ·6 . Only innovative finns can compete with other firms in highly competitive international markets. We argue that the concept of innovation should be comprchcnsive, s ince a firm's competitiveness is influenced by many fac­tors around the key concept of innovat ion. However the emphases up to the present have been placed rather heav ily on technological innovation rather than on other types of innovati on. In order to attain competi ­ti ve potential , firms should realize organizational in­novation, serv ice innovation , etc. These several types of innovations are not separated, but are interre lated with each other. In order to attain the competiti ve edge in terms of technological innovation, e.g. , finns need to strive to realize organizational innovation that makes

company environment favorable for adopting techn o­logical innovation .

Nowadays, many firms emphasize the role of ser­vice for firm' s performance. Customer-orientation of products is essential for a firms' success. Also inno­vation studies show that customers' demand plays a vital role in generating, diffusing, and appropriating innovations7,x . We emphasize that the role of service including meeting the customer ' s demand in manu­

facturing industry should be emphasized further. The concept of service has been unde rstood as service "af­ter-sales". Furthermore, such a concept of service has been regarded as a least important business functi on, compared to the functions of production , marketing and R&D. However the service concept under the cu r­rent economic environment should go beyond that. Lots of important information from service activities should be fed back to othe r important functions , espec ia ll y us ing informati on technolog ies . Among business ca­pabilities the service capability is most important ; be­cause it will dec ide the sati sfac tion of customers. It implies that service innovation is c losely re lated to technological and production innovati on. However, service innovation and new re lationship between se r­vice and production have rarely been dea lt in innova­tion studies.

Recently, a new service and production concept called teleservice has been defined, M ajor advanced

244 J SCIIND RES VOL 60 MARCH 2001

countries like Germany, recognize the importance of telecommunication application in service and produc­tion areas for strengthening business competitive­ness9

.IO

• We define teleservice as a new manufacturing concept for industrial companies resulting from the integration of telecommunications into service and manufacturing activities. This concept can be consid­ered an innovation in manufacturing based on the fol­lowing five reasons. First, it can be very useful since it integrates service concept into manufacturing ac­tivities. Secondly, this concept presupposes the wide utili zation of advanced telecommunication technolo­gies for the service and manufacturing areas 11 - 1.1.

Thirdly, we see that this concept is very environment­friendly for manufacturing companies as it can substi­tute physical transportation with telecommunication . Fourthly, it targets to realize a newly emerging com­petitiveness factor important to manufacturing activi­ties l4

• Finally, itcan promote technological innovations in terms of just-in-time feed back of customers' needs and problems to product manufacturer. To summarize, te leservice is a new industrial innovation resulting from the interrelationship between service, manufacturing, and technology.

: The teleservice concept can be a powerful tool for manufacturing companies in enhancing the ir competi­tiveness, as it can save time and energy in their pro­duction and service activities and satisfy customers by providing them with real-time services. We also assume that thi s concept will be widely diffused when companies are located in a very dense country hav ing a high-level of telecommunication infrastructure I". If these companies have aggress ive business ' strategies, the teleservice concept can be widely utilized and dif­fused. Its diffusion depends upon country- spec ific " frame" conditions. Korea has a well-developed tele­communication infrastructure and Korean companies are generally regarded as very aggressive in the ir busi­ness acti vities as well as in introducing new technolo­g ies and concepts. With this in mind, it is assumed that the teleservice concept will be widely diffused among Korean companies as these are located in a very small country.

This pa per a nalyzes the diffu s ion potenti a l of te leservice as a new innovation concept in the Korean manufac turing industry. Thi s concept is very modern and requires heavy investment. A very careful approach is needed to implement te leservice concept. Mac hine tool manufacture rs will be the forenll1ner in te leservice app li cat ion, and in thi s paper, we analyze how Korean machine tool companies rea lize the te leservi ce con-

cept in their manufacturing activities. Four research questions are formulated as follows:

(i) What is the teleservice concept?

(ii) What kinds of factors do influence the dif­fusion of teleservice in Korea?

(iii) How do Korean machine tool companies rec­ognize and appreciate the concept and what kind of response do they plan?

(iv) What kinds of policy implicat ions can be identified for the development and diffus ion of the teleservice?

This study is based on the diffusion potential of the teleservice concept in the Korean manufacturing sector9

• During the study many official documents from the public sector as well as many pri vate documents on Korean companies were gathered and analyzed . In addition, four detailed case studies were conducted and more than fifty re levant experts in Korean enterprises, public research institutes, governments, and telecom­munication companies were consulted and interv iewed. Here, we present two representative cases out of these four cases .

Thi s paper comprises four main sections. In sec­tion 2, we discuss our understanding of the teleservice concept in manufacturing activities . Section 3 dea ls with some important factors that influence the diffu­sion of teleservice in Korea. In section 4, we carry ou t case studies in which two representati ve companies in the Korean machine tool industry are se lec ted and ana­lyzed in-depth , especially with regard to the rea li za­tion of teleservice. These two case companies are most advanced machine tool manufacturers in Korea , so that they have better position to realize a te leservice con­cept. Based on these analyses, in section 5, we iden­tify major factors affecting teleservice diffusion in the Korean manufacturing industry. In add it ion, we ide n­tify so me suggestion s for effec tive rea lizati o n of te leservice concept in Korean machi ne tool co mpa­meso

The results of the paper will a lso be useful for com­panies in other manufac turing industri es. Actuall y, Chung and Yim9 show that a Korean company pro­ducin g e levator has bee n ac tive ly impl e me nting teleservice concept. Thi s study will al so he lp fore ign manufacturing companies to apply the teleservice con­cept as a competiti ve manufacturing tool. Furthermore. it would present some policy implicati ons.

CHUNG: TELESERVICE CONCEPT AS AN INDUSTRIAL INNOVATION - KOREAN APPROACH 245

Teleservice application in manufacturing

Machine Tool Industry

Information of mid-user (measuring and monitoring) ...... Communication Services. middle agency ......

Manufacturing Industry - SMEs - Big companies

Teleservice application in AlS < -------------------------------------------->

Infonnation of final user (measuring and monitoring) ...... Communication services. middle agency ...... Customer service

Final user (Consumer)

- SMEs - Individual firms - End-user

Customer service L..-__ ...J (controlling) '--____ -l (controlling)

Figure I - Scope of teleservice

2 Teleservice Concept We define teleservice as a new service concept re­

sulting from the integration of telecommunications into manufacturing activities . The definition is composed of the following three aspects:

(i) The objective of teleservice is customer sat­isfaction,

(ii) Teleservice uses telecommunication services and equipment, and

(iii) The equipment has components that enable remote measurement and 'control of ma­chines.

Teleservice activity can take place between any sup­plier and customer. Thus, there are two major teleservice layers that are inbetween original supplier and mid-user (Teleservice Application in Manufactur­ing), and mid-user and final user (Teleservice Appli­cation in After Sales (A/S)). We show this teleservice concept in Figure I. In any interface between supplier and user, there are two flows: (i) customer informa­tion flows to suppliers and (ii) supplier information flows to customers. There can be a middle agency or person between supplier and user. For example, a sup­plier can have many regional agencies for sales and can act as a middle point for gathering information and for providing services to customers. Here, focus is on analyzing the teleservice application in manu­facturing, because we are dealing only with innova­tion in manufacturing. Such analysis of the user-pro­ducer re lationship is very important because innova­tion in manufacturing occurs from vigorous interac­tive learning between them5.

l o.

17•

We classify teleservice in three stages (or levels) according to the degree of teleservice use (Table I ).

The first stage can be characterized by wide use of traditional media such as telephone and fax machine by supplier. Thi s stage is ubiquitous in current pro-

duction activities. In this stage, teleservice is applied for information transfer only. Thus , automatic diag­nosing or solving a problem at a remote place does not occur. However, by even communicating via a fax or telephone, significant reduction in the amount of time for service can be made because information about a machine can be collected and prepared before an A/S team arrives at the machine. Sometimes they may not even need to go to the machine because the user is able to solve the problem by following the orders given over the phone or fax .

In the second stage, machine accumulates its hi s­toric data in its attached PC. When the machine is in trouble, it can give alarms, diagnose the status and send the data to an A/S center of the supplier. The A/S cen­ter can solve the problem by communicating directly to the machine without service personnel ' travelling to the machine. Sometimes it is possible for the ma­chine to fix itself.

In the third stage, original supplier (e.g. machine tool manufacturer) collects data and through pattern recognition, solves problems of machines at the re­mote place. The data of machines will be collected and the solution will be sent to the attached Pc. Cus­tomers will be trained to learn how to manipulate the data and carry out solutions by using the PC-based machine. Through these processes, customers eventu­ally will not need to contact the A/S center as frequently as before. Usually, customers can fix the regularl y occurring problems on-site. Of course, some problems will still need the help of service personnel from the A/S center.

We argue that teleservice is a new innovative con­cept in manufacturing that can simultaneously secure major competitiveness factors: time, flexibility, qual­ity and cost. Most manufacturing companies have con­centrated on securing cost and quality as competiti ve-

246 J SC I IND RES VOL 60 MARCH 2001

Table I - Three s tages of teleservice

Second stage (middle leve l)

Informati on Flow

Diagnos is

First stage (low level)

Machine ---> Operator ---> AJS center ---> Operator ---> Machine - Op"rator 's di agnosis

Machine or operator ---> AJS center ---> Machine or o perator - Machine di agnosis

Third stage (high leve l)

Machine or Operato r <---> AJS center

- Machine di agnosis - AJS center di agnosis

So lution - Operator 's so lution - Machine soluti on or A/S Center soluti on

- Machine soluti on

Informati on Content

- Statu s of machine, - Statu s of machine, - Status o f machine, - Remedy procedure - Remedy procedure - Self-solution result , and command and command, - Highly complicated

- History of machines prob lems whi ch needs direc t vi sit from AJS

- Hi story of mac hines Media - Phone, Fax - Phone, Fax, Modem,

PC - Phone, Fax, Modem, PC, advanced sensors

Table 2- Supply and demand of FA industry in Korea

1987 1988

Suppl y Domestic 284 572 Producti on Imports 44 1 676 Total 725 1.24~

Demand Domesti c 700 1. 192 Demand Ex ports 25 56

Im port dependency 60.8 54.2 Export ratio 8.8 9.8

Source : Ref. IS

ness factors. Especially, it can reduce time of manu­facturing and increase fl exibility of manufacturing in terms of just-in-time exchange of information between supplier and customer. Therefore, we argue that the teleservice concept, which deals with the relationship between manufacturing, serv ice, and technology, is a comprehensive indu stri al innovati on th at secures firm s' competiti veness. However, thi s competiti ve advantage can only be realized when a company has a good understanding of teleservice and possess a rel­evant strategy fo r its realization.

3 Korean Environment on Teleservice There are many factors that influence the appl ica­

rion of te leservice in Korea. We can broadly class ify those fac tors as industry-related factors and techn o­logica l fac tors. In thi s paper, we analyze fac tory auto­mation (FA) industry and telecommunicati on industry as industry- related fac tors. These two industries are essential in the realizati on of teleservice in the Ko-

(Unit: Milli on $, per cent )

1989 1992 1993 1994 Annual increase

rate 834 875 990 1,1 70 22.4

860 706 750 864 10. 1 1.694 1,58 1 1,740 2,034 15.9 1,634 1,5 12 1.660 1,9 15 15.55

60 69 80 11 9 25.0 50.8 57.9 44.7 42.5 7.2 7.9 8. 1 10.2

rean manufacturing industry. Because technology is so important in teleservice we anal yze technological fac tors separately.

3. 1 Industry-related Factors Factory automati on (FA) requires system technolo­

gies such as sensing, diagnosing, controlling, network­ing and other manufacturing technolog ies as well. As FA technolog ies are di rectly applicable to te leservice. the status of FA industry is a good indicator to mea­sure the environment for teleservice applicati on. The Korean FA industry has grown steadily si nce the end of the 1980s. Table 2 shows that domest ic producti on, import , demand, and export of the Korean FA indus­try are growing very rapidly. However, the Korean FA industry still has a high rate of import dependency. It

decreased from 60 per cent in 1987 to 42 per cent in 1994. Korean companies export some relati vely sim ple FA fac ilities like CNC machine tools, CAD/CAM , and automated materi al handling system. However, they do not have strong capabilities in core technolog ies

).'

-y

CHUNG : TELESERVICE CONCEPT AS AN INDUSTRIAL INNOVATION - KOREAN APPROACH 247

Table 3 - Goal of KAMS

1(1992-1995)

II (1996-1998)

III ( 1999-200 I)

Source: KAITECH I9

Stage

Development of FMS

Development of CIM

Development of IMS

such as systems and software technologies. The lack of technological capabilities of this industry has exer­cised a negative impact on teleservice diffusion .

However, Korea has a relatively strong telecommu­nication industry. The Korean telecommunication in­dustry has developed significantly since the begi nning of the 1980s. The Korean government has been in­vesting a lot of money to meet the rap idly increasing demand for telecommunications in the Korean soci­etyl X. Since the end of the 1980s the Korean te lecom­munication industry, especially Korea Telecom, has extended their services not only in bas ic te lecommu­nications but also in advanced telecommunications. The domestic demand for telecommunication service in Korea amounted to 6.3 trillion Won in 1993, which represents an annual increase of 18 .9 per cent between 1989 and 1993.

Basic telecommunications increased by 18 .1 per cent annually between 1989 and 1993, espec ially be­cause of the rapid growth of mobile te lecommunica­tions. As of 1993, there were 20.2 million subscriber te lephone lines, 785 ,000 mobile phone lines, 4.4 mil­lion paging lines, and 471,784 mobile te lecommuni­cation subscribers. Advanced te lecommunications had grown by 24.4 per cent/y between 1989 and 1993. Value-added communications show a hi gh tendency of increase. The ISDN service was started in 1993. In addition, Korea has just entered into the sate llite com­municati on business with its own sate llite. There are not enough studies on the behav ior of Korean people in the area of information sharing in workplace. How­ever, it is often pointed out that informati on is gener­ally not shared among Korean workers and within an organization. Hence, if the teleservice concept is dif­fu sed and utilized widely in Korean manufacturing companies the degree of informat ion sharing will be highly improved .

3.2 Technological Factors As for technologica l factors, we can say that te le­

communication technologies have deve loped success­fully in Korea and more will be deve loped according to the national informatization plan l5. It will have a

Remarks

On the cell level

On the shop fl oor level

Above the factory level

positive influence on teleservice diffusion. In addition, the Korean government initiated the Korea Advanced Manufacturing System (KAMS) Project that is man­aged by the Korea Academy of Industrial Technology (KAITECH). The goal of KAMS is the development of a flexible manufacturing system and computer in­tegrated manufacturing . Major goals of KAMS are summarized in Table 2(ref. 19)

With regard to machine tool technologies, some Korean companies such as Daewoo Heavy Industries, Ltd, Hyundai Precis ion and Industries Co ., Ltd , Hwachon Machinery Co., Ltd, and Kia Heavy Indus­tries Co., Ltd have developed PC-based NCs and in­troduced them into market. They can be regarded as middle-level of teleservice. It is known that Korean companies are not good at system S/W, DB S/W, and other sensing and controlling technologies. Standard­ization and compatibility are big problems in the CNC and there is a tendency to use the same machinery in one company. Korean teleservice providers are weak in basic technologies that are essential to teleservice formul ation . It is difficult for them to g ive total so lu­tions for user companies because of weak technologi­cal level, inefficient cooperation with te leservice pro­viders, and users' lack of specialties in teleserv ice . In addition, there is a shortage of experts who can rea li ze the teleservice concept. This is especially true for small and medium-sized teleservice providers. Big prov id­ers that be long to a conglomerate, dominate well-quali ­fi ed experts in te leservice and related areas.

The KAMS project has been funded j ointly by the public and private sector (Table 3). The tota l amou nt of project funding is about 44 billi on Won. We that the annual amount of financ ing has increased signifi­cantly during the entire projec t period. This impli es that both the private and public sector have recogni zed the importance of new producti on technolog ies for the development of industrial and nationa l competiti ve­ness. There should be a fair division of labor in fi­nancing, but the ro le of industry will be bio-o-er at the

bb

end of the project period. We think that a good divi -s ion of labor will play an important ro le in the deve l­opment and diffusion of the high-level teleservice (;0 11-

248 J SCIIND RES VOL 60 MARCH 2001

cept. According to our interviews with experts at KAlTECH, some teleservice-related projects will be included and supported in newly initiated projects of the KAMS project. We think that they also regard this concept as useful for Korean manufacturing compa­nies to enhance their competitiveness. Korean compa­nies should actively participate in these teleservice­related projects in order to realize better level of teleservice.

4 Tclcscrvicc in thc Korean Machine Tool Companies

4.1 Korean Machine Tool Industry in General One of the most relevant industries that realize the

teleservice concept is the machine tool industry. Cus­tomers want quicker and more reliable services than ever. In addition, the cost of manpower is increasing rapidly, especially in Korea. Korean machine tool com­panies should utilize each manpower more effectively while guaranteeing the quali ty of AlS . In machine tool the problems can be classified according to the loca­tion of problem occurred. There are problems from:(i) CNC controller, (ii) mechanical parts (iii) the inter­face between controller and mechanical parts. If a machine tool is newly developed, the problems in in­terface part are frequent. The producer of controller interfaces its equipment with mechanical parts manu­factured by another producer, and the interface will not fi t well into each other, at least in the first instance . In these circumstances, a high degree of teleservice adopted in the machine tool itself can solve the prob­lem of interfacing. In this section, therefore, we will analyze what kinds of teleservice concepts do Korean machine tool companies have in their manufacturing activities, based on our analys is of two representative case companies . We selected following two sample companies satisfying the required criteria: Daewoo Heavy Industries Ltd, Hyundai Precision and Indus­tries Co.

One of the most importan t criteria is whether spe­c ific companies can represent the status of Korea. There are both large and small and medium-sized com­panies. However, only handful companies dominate the machine-tool market in Korea. In Korea, top 10 companies hold about 70 per cent of market share and production . Most of them belong to Business Group (Chaebol) which ensures Chaebol-internal demands. They are companies such as Daewoo Heavy Indus­tries Ltd ., Hyundai Precision and Industries Co., Ltd , Kia Heavy Industries Co., Ltd, Tongil Heavy Indus­tries Co., Ltd, Hwacheon Machinery Works Co. , Ltd , Hyundai Heavy Industries Co., Ltd , etc .

The second criterion is the technological level of the companies. We think that the new concept , "teleservice", can be developed and utilized only by some technologically advanced companies. If we take the relatively low level of technological capabilities of Korean companies, this criterion will assume im­portance. Therefore, we selected sample companies, which have their own research insti tute. The third cri­terion is the cooperation and openness of companies . Since some companies are not ready to discuss and reveal its service and technical situation, it was im­possible to make the case study on such companies. Thus, the cooperation criteria limited our srudy to some extent.

Based on these criteria we select two machine tool companies for the case analyses, i.e. the Daewoo Heavy Industries Ltd, Hyundai Precision and Industries Co. These sample companies represent well the Korean machine tool industry, because they are ranked as the I st and 2nd in the Korean market.

4.2 Daewoo Heavy Industries Ltd. (DHI) Daewoo Heavy Industries Ltd (hereinafter DHI) is

the biggest machine tool company in Korea. It became a member of the Daewoo Business Group in 1976 and has played a leading role in the development of the Korean machine tool industry 20. The Daewoo Busi­ness Group has been appreciated as the most global­ized business group in Korea. We can say that the Daewoo's spirit is "Globalization"21. Such business culture has been soaked into DHI's business activi­ties, so that DHI has strongly emphasized export in its business activity. The total sales volume in 1995 amounted to 1,5 12 billion Won ( 1,962 mi ll ion US$). With 525 million US$ in 1995, about 27 per cent of the total sales volume comes from export. DHI's ma­jor products are machine tools, heavy machinery, in­dustrial vehicle and heavy construction equipment . About II per cent of total sales come from machine tool division 22.23.

(i) Service System

DHI puts top priority on complete cl ient and con­sumer satisfaction. and the company has developed a thorough after-sales service system. According to its organ ization stmcture, DHI places its service depart­ment at the top over other functional departments. DHI has a very centralized service network, the so-called Total Service Center at its Changwon factory complex . as shown in Figure 2 . This service center fun cti ons

CHUNG : TELESERVICE CONCEPT AS AN INDUSTRIAL INNOVATION - KOREAN APPROACH 249

Support from Factory Complex

in Changwon

Dealer service .---- Team for service training

centers in 7 regions I--

(32 NS persons)

r--- Team for service management

Total Korea Industrial

Systems Co., Ltd. Service Team for service techniques

Center

(58 Persons)

I-- Team for service components

12 designated

repair firms f-- '--- Seoul POST team

(70 -80 persons)

I 1 SEOUL Office of DAEWOO ECO

MT&FA Machinery Co. WERKZEUGMASCHINEN

Div. of DHI DAEWOO New Jersey, U.S.A Langenfeld, GERMANY

Source. Ref. 26

Figure 2- Total service system of the Daewoo Heavy Industries Ltd

not only as a service center but a lso as a training cen­ter. There are thirty-two dealer NS centers in seven regional posts, domestically and internationall y: three regional posts in Korea and four reg ional posts inte r­nationally. All service activities are merged into the Total Service Center in Changwon and managed by it2J . DHI has a nat ionwide network of after-sales ser­vice through over fifty sales offices that are staffed by service technic ians so that consumer's requests are answered promptly and effi cientl y. In addition , there are mobile maintenance tcams that promptly respond to requests for services from all parts of the nation.

There is a specific warranty system for Daewoo 's machine tools and FA products ca lled " 11 2 Smile Ser­vice System ." Here, 112 means: " I " : to tal service within I d ; " I ": parts supply within I d, "2": free regu­lar warrant checking for 2 y24 . Ordinary products have a one-year warranty period, while controlle rs have a two-year warranty. Within this warranty period, DHI

renders free services to user companies. DHI also pro­vides free services of regularly checking on their prod­ucts and systems four times within two years afte r the day of sending out. For tota l client sati sfaction , local service centers can respond to customers w ithin twenty-four hours , so that necessary parts and a se r­vice man can reach the machine for services. If the machine has relatively severe problems, they rece ive factory services that can be handled by individua l fac­tories within seventy-two hours. There are twenty-fi ve factory service engineers, among which twelve per­sons are employed in the fi e ld . Frequent A/S parts can be obtained from each local dealer. With regard to in­te rnational services, DHI has a g lobal service network (Figure 2) . The Total Service Center in Changwon has a strong connection with thirty-two inte rnational ser­vice o ffices, i.e . dealers in three major reg ions in the world. DHl's thirty-two dealers in foreign countries handle primary services . The DHI' s headquarte r ren-

250 J SCIIND RES VOL 60 MARCH 2001

ders only secondary or back-up services for these pri­mary servIces.

Besides the normal service system, DHI has a spe­cial task team for emergency services of international customers. This team consi sts of forty- seven experts from different major business/product categories and is controlled by the TotaL Service Center. If any severe problem happens at any place in the world, they are ready to be dispatched there immediately.

(ii) Level of Teleservice

As DHI is a very internationalized company, it rec­ognizes the importance of teleservice in its manufac­turing activities. For example, when we visited the Changwon factory complex, one of the responsible managers told us that he had heard of the teleservice concept and saw its realization at a Japanese factory in the United States. In the Chang won factory com­plex, we saw that almost every system and product has its own electronic cable outlet, which can transmit information and data everywhere. This outlet was origi­nally installed to connect machine to machine, i.e., communicate between individual machines. However, communication among people through it is also pos­sible. Thi s kind of telecommunication service is a rela­tively high level of teleservice. It shows that DHI has tried very hard to utili ze the teleservice concept in al­most every type of product, even though thi s company has not attempted it explicitly. According to the ex­perts at the DHI 's plant complex in Changwon, it is necessary to standardize serv ice data and informat ion and to have a service data bank in order to atta in and realize the full potential of teleservice. Therefore, DHI plans to do it very soon. DHI has very intensively uti­li zed a low-level ofteleservice. It provides its service­men with their own notebook PC with CD-ROM and mobile phone. There is an on-line system between the Tota l Service Center and dealers or branch offices . Through thi s on-line sys tem, information sllch as ma­ch ine hi story data, parts orders, and service infonna­tion is obtained. Although serv ice engi neers utili ze fax, E-mail and other low-level teleservice methods, it has not proven satisfactory because both customers and providers want to see the ent ire information. In 1995 , DHI developed Korean-type PC-based NCs . It is an­ticipated that this new model can utilize the teleservice concept more widely than any other product in Korea. In other products, the on- line connec ti on between machines was developed at the end of 1994. Nowa­days, DHI's products and systems have an alarm func­tion that intimates when they have any problem.

It is our judgement that DHI is the most advanced company in the teleservice area in Korea. The peop le at DHI have already acknowledged the importance and future potential of teleservice. The TotaL Service Cell­ter of this company has already prepared an action plan for teleservice. It is establishing an infrastructure for teleservice and will begin to utilize this concept very extensively 1998 onwards. It has a plan to extend this teleservice concept to international business in 1999. Based on this schedule, from 2000 on, DHI plans to attain a service strategy of customer sati sfaction. DHI is the biggest company and has the longest history in the machine tool and FA industry in Korea.

To summarise, DHI puts service as the first priority in its business. This means that thi s company is trying to satisfy its customer by using the best service method possible. Teleservice can meet these needs. From our in-depth analysis of this company, it appears that it has a strong interest in high-level teleserv ice. In addi­tion, the Daewoo Group, to which DHI belongs, is the most globalized company in Korea. It has many sub­sidiaries and branches all over the world so that man­agement practice, information, and any other data merges at the Group' s headquarter and company head­quarters. Thi s si tuation promotes the utili zation of teleservice in manage ment , which will promote teleservice application in the production/manufactur­ing sector in individual companies. As the level of teleservice goes up, however, DHI should so lve a tech­nological problem. The fulfillment of the hi gh-level teleservice requires high level of tec hnologies not only in machine tools, but also in telecommunicati ons to­gether with standardization. Actually, the responsible person in DHI admi tted that technology was the cru­cial problem in their adopting te leserv ice conce\)t. However, the Daewoo Group and DHI have a g loba l network of R&D act ivities . This means that they ca n acquire much important informat ion on te lese rvice from advanced countri es. This will promote the for­mulat ion of the Daewoo-specific teleservice concept. Strong cooperation in R&D activities wi thi n DHI and the Daewoo Group as a whole wi ll promote thi s for­mulation .

4.3 Hyundai Precision & Industry Co., Ltd Hyundai Precision & Industry Co. Ltd (here inafter

HDPIC) was established as an affiliated company of the Hyundai ' s Business Group in 1977 . Based on the Group's experience and accu mul ated technology, it has grown to be one of the largest machine manufacture rs in Korea. It has enj oyed an excellent reputation in a

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CHUNG: TELESERVICE CONCEPT AS AN INDUSTRIAL INNOVATION - KOREAN APPROACH 251

Agency Agency agency agency

I I I 1 Seoul and Pusan area AJS Ulsan area AJS Taejon area AJS

K yunggi area center center center AJS center

I I I 1 1

Headquarter (HQ)

I

r I 1 I U.S.A Chicago

Germany, China, Beijing America Frankfurt

T I I I Dealer Dealer I Dealer Dealer

Source: Ref. 26

Figure 3- Service organization of HDPIC

variety of business fields such as machine tools, roll­ing stocks, 4-wheel-drive wagon and other industrial machinery. Its remarkable growth seems to have stemmed from the unique "Hyundai Spirit", which could be simply explained as "good team work" and "strong motive to innovate". HDPIC 's total sales vol­ume in 1995 was 1,986 billion Won (2,576 million US$), 26 per cent of which came from export. With regard to the machine tools division , the total sales volume in 1995 was 132 billion Won (171 million US$). HDPIC' s major products are automobiles, roll­ing stock, auto parts, and machine tools. About 6 per cent of total sales come from machine tool divi sion2

) .

(i) Service System HDPIC seeks reciprocal benefit to both customer

and itself. HDPIC thinks the AlS in terms of market­ing: AlS should support the sales. According to our interview with HDPIC's responsible person, thi s com­pany firmly recognizes that, if the machine is not fixed within reasonable time, customers also will lose busi­ness opportunity, which is more than just the A/S cost. Therefore , HDPIC emphasizes service activities, so that it does call its service organization "customer sat­isfact ion" organization26 The respon sible person re­plied that HDPIC has a philosophy that service should

be focused on customer rather than machines . Because of this service strategy, HDPIC often prioritizes ser­vice calls not by the time service call received , but by the opportunity cost to each customer. The service or­ganization ofHDPIC is divided between overseas and domestic markets (Figure 3). In Korea, they have HQ and four AlS centers which have their own sales agents . In the Seoul exhibition shop, HDPIC maintain s 24 h standby people and free telephone call service to meet the needs of customers all the time. To meet overseas needs, they have technical support teams in Korea. In addition, there are four regiona l centers that control their own dealers. They are in the U.S. (Chicago), Germany (FF), China (Beijing).

HDPIC thinks that the ability of its Korean agen­cies plays a very important role in buyer's decision for repeated orders and thus it has put much emphasis on improving the capabilities of its agencies. Since service personnel are more closely related to the buyer than are the marketing personnel , it is important to improve the capabilities of the agency. Thus, HDPIC has the OJT training program for A/S personnel who belong to agency, which usually takes one or two months. As a result, the service capabilities of large

252 J SCIIND RES VOL 60 MARCH 2001

agency are improved to the similar leve l of AJS cen­ter, while the smaller agency has still low capabilities . According to our survey, on average, 80 per cent of service calls are handled by the agency directly and the rest 20 per cent by the A/S centers.

HDPIC gives a guarantee of two years. However, if the problems arise from the customer abuses or the wearing-out of parts, certain service fees is charged. Even in that case, HDPIC thinks of service in terms of marketing and often provides service without charg­ing manpower cost. They made it a rule to meet the customer 's needs within 24 h20

. About 80 per cent of the service calls are handled within 24 h. There is no penalty contract for not meeting the 24 h schedule . On average, less than I per cent of all service ca ll s fa il to arrive at a machine within 24 h. HDPIC se ll s its ma­chines to large compani es and small and medium (S&M) companies. Usually the S&M companies ac­count for about 60 per cent to 70 per cent of its ma­chine sal es. The problem is that the operators in S&M companies are not well qua lified . For example, they usually are voca ti ona l high school graduates. There­fore, HDPIC tries to educate the operators. HDPIC asks for at leas t one week training for operators when they se ll the machines. In addi tion, they go to operating locati ons and train the operators on an OJT bas is. For example, if the customer wants to make spec ific type of products, they demon strate the whole process until the customer undenitands and is able to operate the machine too ls.

(ii ) Level of Teleservice

The readiness of supply can be a problem in appl y­ing teleservice. HDPIC tried to shorten the service time even before accepting the idea of teleservice. As a re­sult, AJS personnel of HDPIC are equipped with mo­bile phones and AJS cars. If we regard the use of tele­phones in the service area as te leservice, HDPIC uses te lephone ex tens ive ly in ac tu a l se rvice sys te m. Through phone conversati ons, the AJS center identi­fies what the real problems are and decides what needs to be done . In fact, about 80 per cent of A/S requests are handl ed onl y through us ing telephone and/or fax communications. The remaining 20 per cent need the presence of AJS people near the machine, because the problem is complex or needs parts to be changed.

With regard to the machine tool, HDPIC thinks it is not poss ible to catch up with advanced countries in mechanical parts, which need accumul ated know ledge and advanced know-how in small spec ific areas. But, in the e lectro ni cs re lated parts and the ir application fields, HDPIC regards itsel f as be ing at the same start-

ing line with companies in advanced countries because the technologies and application are fairl y new to ev­erybody. Hence, they want to focus the ir resources on those areas and teleservice is regarded as one of them. In its R&D center, HDPIC tries very hard to embody full teleservice in machine tool s. Genera lly speaking, R&D efforts of HDPIC will be focu sed on the elec­tronics and their application . In the near future, the stage-2 of the teleservice, which is menti oned in Sec­tion 2, will be effecti ve ly started by wide ly introduc­ing a series of PC-based machine too ls, e .g. Hitro l­King model series which can diagnose machine, co l­lect data, send them to A/S centers. They can so lve the problems partly by receiving the feedback cont ro l command from the A/S center. However, even before the second stage they pl an to deploy A/S personne l with notebook and kn owl edge of its use. By doing so, the A/S personne l will be expected to communicate the machine data through mobile teleco mmuni cat ion on-s ite.

The number of Hitrol- King Mode ls, a new seri es of product, sold by 1996 was onl y four. Such new mod­e ls require a relati vely hi gh-level ofte leservice. Hence, HDPIC is alert to respond to the needs of customers. Hitrol- King has many features based on the teleservice concept. According to HDPIC, Hitrol- King is an in­novative concept of knowl edge-based system that has the capability to handle machine appli ca tions for the next generation of technica l environment. We can see that HDPIC will develop new products that accom-. modate higher-level of teleservice functions. However, it presupposes the suffic ient development of techno­logical capabilities around teleservice, e.g . sens ing, d i­agnos in g, standardi zation and so on. According to our interview with HDPIC's responsible person, it had to so lve technolog ical problems in build ing te leservice functi ons in the Hitro l-King series. Therefore, in or­der to attain full benefits from te leservice in machine tool products, it now needs to enhance its R&D poten­ti al not only in machine too ls but also in te leco mmu­nications. In additi on, it should accumul ate more ex­perience in adopting te leservice in their machine too l products .

4.4 Comparison of Two Cases In thi s sec ti on, we compare DHI and HOPIC. From

thi s analys is, we can draw some implica tions, espe­c ially on company strategy, awareness on te leservice, level of te leservice applicati on, etc .

We observe some s imil arities with regard to the te leservice applica tion. F irst of a ll , both companies are

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CHUNG : TELESERVICE CONCEPT AS AN INDUSTRIAL INNOVATION - KOREAN APPROACH 253

Table 4-Summary of fac tors influencing teleservi ce diffu sion in Korea

Positive fac tors

Telecommuni cati on infrastructure + + Government S&T policy + Chaebol structure + + Rivalry between big companies++

Negati ve fac tors

FA and related industry -Company awareness among SMEs- -Standardization -Sensing and monitoring technology - -

+ +: Very positi ve influence, +: posi tive intluence, -: negati ve intluence, --: very negative intluence

well aware of teleservice and have strongly tried to utilize te leservice in their business activities . The ba­sic reason seems to be that they compete fi ercely with each other not only in domestic but also in interna­tional markets . As a result, they have tried to find bet­ter way of attaining competiti veness. The Chaebol structure of both companies played a cruc ial role in their teleservice reali zation, because they could have better fin ancial situation and stable initial demand gen­erated internally on teleservice from sister companies. Mo st Korean con g lo merates, suc h as Daewoo, Hyundai, and LG, have their own telecommunication company as a daughter company and offers some ad­vantages in implementin g te leservice appli cati ons. Both companies have also similarity that they are highly export-oriented . About 26 per cent of total sa les of both companies come from export. Te leservice can give a service with high quality to customer at a long distance, especially in fo reign countries, and hence ex port-orientation of both companies will be a posi­tive factor in the ir teleservice application.

However, their level of te leservice is still re lati vely low, because they are technologicall y weak, especially in the technologies of sensing, diagnos ing, monitor­ing, e tc. Both companies have the ir own corporate re­search institute and have tried to reali ze te leservice in their products fo r themselvesY• However, Korean com­pani es must have a cooperati ve relationship with pub­lic research in stitute and actively partic ipate in national R&D projects on te leservice, e.g . KAMS , in order to improve the ir level of teleservice .

However, there are some di fferences between two companies . F irst, there is difference in the ir emphas is on customer sati sfaction. DHT place more emphas is on customer sati sfaction, as it tries to get even c loser to customer sati sfaction. However, HDPIC understands customer sati sfaction as a part of marketing. Secondly, two companies have differences in the locati on of ser­vice center. DHI 's Tota l Service Cente r is located in its factory complex in Changwon, while HDPIC's ser­vice center is in its headquarter in Seoul. Finally, there

is difference in the share of machine tool di vision in their business. As of 1994, the DHI's share of machine tool divi sion in total sales volume is 29.8 per cent, while the HDPIC' s share is onl y 6.6 per cent. From this analysis, we can argue that DHI is in a better pos i­tion to realize higher level te leservice than HDPIC.

5 Conclusions In this study, we have re viewed the Korean envi­

ronment on teleservice diffusion and have studied two representative machine tool compani es in Korea. As illustrated in Table 4 , there are not only positi ve fac­tors, but also negative factors in re lation to the d iffu ­sion of te leservice in Korea.

First, Korean companies are well aware of the po­tential of teleservice concepts. They have recogni zed very well the importance of service acti vities in their business activities and pursued the new ways of better service like te leservice. Actuall y, some large Korean machine tool companies have already applied a low­level teleservice concept and are planning to introduce higher-level technologies. Here, the good infrastruc­ture of the Korean telecommunication seems to play an important ro le .

Secondl y, Korean companies are emphasizing low­level te leservice applicati ons. This level is we ll repre­sented in several large Korean machine too l compa­nies. The low-level applicati on means th at teleservice is applied in only one direc tion in whi ch the informa­ti on fl ows from customer to supplier rather than vice versa. These two companies appear to have entered bo th the first and seco nd stages s imultaneou s ly. Thirdly, we expect that the second stage of teleservice will effecti ve ly begin in the manufac turing industry by introduc ing PC-based NCs that can di agnose a machine fault , collect data, send it to the supplier (AI S center), and so lve problems partl y by receiving the feedback contro l command fro m the suppli er. Some advanced manufacturing companies are even plann ing to realize the third-stage teleservice.

254 J SCIIND RES VOL 60 MARCH 2001

FOUJ1hly, we also expect that the teleservice con­cept would be widely diffused in the Korean manu­facturing industry, as there are strong competitions between Korean manufacturing companies . For ex­ample, we can easily recognize that DHI and HDPIC, competed with each other very strongly in machine tools and in other business. As to the teleservice ap­plications, they competed fiercely in developing and introduc in g PC-based NC s th at accommodates teleservice functions. As the competition goes up, there would be more pressure to upgrade the quality of ser­vIces .

Fifthly, the centrali zed service system of the Ko­rean companies would have a positive effect on the diffusion of the teleservice concept in the Korean manufacturing industry. DHI and HDPIC have a very centralized service organization, in which all informa­tion on products sold are gathered, fed back and man­aged. Even overseas serv ice organizations have been merged into the central serv ice organization. As the teleservice concept contributes to the integrated man­agement of informati on between users and suppliers of machines, it could be well applied to the Korean manufacturing industry.

Finally, the industrial structure of the Korean ma­chine tool is positive for the realization of teleserv ice concept in the Korean manufacturing industry. Accord­ing to innovation studies, innovations are effectively generated, diffused, and appropriated when there is enough demand . It is also true for the teleservice as a new industrial innovation concept. The higher the level of teleservice is, the stronger the demand pl ays a role. The Korean manufacturin g indu stry is co mposed mainly of some business groups, so-ca ll ed Chaebo ls. They have many daughter companies th at have strong demand of mac hine too ls with hi gher-leve l teleservice functions.

However, there are some negati ve factors that are mainly related with technological issues. Korean ma­chine tool and FA industry has suffered from lack of advanced technolog ies. In particular, SfW, sensing and diagnosing technologies are very weak . Also, standard­ization is a big problem between different machines and SfWs. As mentioned in case studies, big machine tool manufacturers are hes itant to make a cooperat ive relationship in developing and rea lizing higher level of teleservice. However, we argue that Korean manu­facturing companies, which are technologically and financially weak compared to forei gn competitors, can effectively solve these problems, when they cooper­ate with public research institutes like the Korea Acad­emy of Industrial Technology (KAITECH). KAITECH

has made a big effort in developing advanced manu­facturing systems that have higher-level teleservice function s under the Korea Advanced Manufacturing System (KAMS) projects of the G-7 Projec t. Recentl y, they have developed their own prototype teleservice products and are look ing for markets.

It is very difficult for individual companies to de­velop a high-level teleservice. It implies that the gov­ernment should promote effective development and diffusion of the teleservice concept. The governmen­tal intervention is stron gly justifiable because the teleservice concept can increase industrial competi ­ti veness very strongly. Based on our analysis, we sug­gest the following policy recommendations. First, the utilization of exist ing technologies is more important than developing high-tech monitoring and controlling instruments because the use of exis ting technolog ies can be very economical. It is obvious that the wide use of ex ist ing technolog ies with we ll organized con­cepts and procedures can be a very economical instru­ment and significantly improve customer sati sfaction. Secondly, in order to diffuse the teleservice concept , th e awareness of economic benefits coming from teleservice applica ti on should be raised. In add ition, information circulation for ex ist in g successful cases and proper training of operators should be emphasized. This implies that the government should develop some demonstration projects for teleserv ice applicati on whose results can be widely diffused among other manufacturing companies.

Finally, the direction of government policies should be diffusion-oriented rather than miss ion-oriented. Since the cost of technology development is not low, R&D for its own sake should be avo ided. This means that the development of a hi gh level teleservice tech­nology should be a problem-driven process in which the problems and needs are first identified and then the R&D activities are carried out.

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About the author Sunyang Chung is a sellior research Jellow at the Science and Technology Policy Institute (STEPI) ill Korea. He received his Ph.D degree frolll the Ulliversity ofStul/gart, Germany writing a dissertation Oil the comparative impact analysis oj COl/II try-specific fralll e cOllditions Oil technology policy Jor new productioll tcchllologies between Korea and Germall),. DlIrillg his study ill German)" he carried out several research projects at the FrallllhoJer-lnstitute for Systems alld Inn ovation Research (FhG- ISI) in Karlsmhc. He has published several books ill Korea and Gennany and wril/ell lIlany articlesJor Koreall alld illternatiollal jOl/mals.