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North Korea: Investing With the Enemy

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Believe it or not, there are those who believe the world's most isolated market will yet emerge.

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In fact, information technology has become a pillar of North Korea's attempt at joining the 21st century -- and the hermit kingdom's deep bench of programming talent has attracted outside investment.

"I understood that the North Korean IT industry had good potential because of their skilled software engineers, but due to the lack of communication it was almost impossible to work with them productively from outside," said Volker Eloesser, founder of Nosotek, a German firm which established a joint venture with Pyongyang's General Federation of Science and Technology. "So I took the next logical step and started a company here."

Managing a staff is quite different in the DPRK -- one guide says:

"The working week in DPRK is slightly different than in other countries, mainly because office staff have to participate in several activities not related to their work. All workers and office staff have internal meetings on Mondays, collective work assignments on Fridays (in the fields or at construction sites), political study sessions on Saturdays and a day off on Sunday. Business meetings should be planned on Tuesdays, Wednesdays and Thursdays to get the best chances of effectively meeting the desired people."


Lo and behold, things have gone relatively smoothly for Eloesser.

"We are quite successful," he told the German edition of the Financial Times. "One time, we were even in the top ten in the App Store. Our customers do not want us to mention the name of our company or our employees' names on the product."

Nosotek has actually produced at least two iPhone (AAPL) games -- "The Big Lebowski Bowling" and "Men in Black: Alien Assault," the last two based on the popular American films.

The client was an outfit called Ojom GmbH -- part of another firm by the name of Jamba. Jamba was then purchased by News Corp (NWS) and renamed Fox Games, after which "Lebowski" and "MIB" were released, creating something of a stir in the media after the (admittedly tenuous, but existent nonetheless) Kim Jong Il/Rupert Murdoch connection was discovered.

Not altogether surprisingly, those who worked on the games will likely never be able to access them outside the lab.

The CIA reports that there is no uncensored Internet service available inside the country for anyone except the highest-level government officials. The agency says:

... an 'Intranet' serves as a means to disseminate technical information to research institutes, factories, and schools throughout the country. Accessing the latest foreign data on line from their place of work, North Korean researchers remain under the control of the authorities. The Internet thus limits the risks of foreign defection or ideological infection inherent in sending scientists abroad to study or attend international conferences.


A look at Nosotek's website makes clear just how tight those government controls are:

"Communication between the engineers and the customer will only take place by email or Nosotek's bug tracking server. Phone calls are not possible.

"Chatting is only possible with members of Online Programming teams.

"Emails exchange will only take place once pay day, answers to questions will be giving on the following day, sometimes two days later.

"The customer accepts that it might happen that email communication is interrupted for one or two days for technical or administrative reasons.

"In case the customer sends political propaganda or agitation, Nosotek has the right to cancel the project without returning the prepaid fees."


Beyond technology, North Korea is interested in pursuing "imports, exports and Joint Ventures in any economical field."

Joint ventures include "monopolized production of fire extinguishers," since "there is no factory in the DPRK that produce fire extinguishers, so all of them are imported from China. Cost of one fire extinguisher in China is only 7 USD, but after transport and taxes, it is sold inside DPRK at 30 USD, and it's the policy of the DPRK Government not to depend on Chinese imports."

Exports include sea cucumbers [pdf], and clothing [pdf], boasting "more than 80 garment factories equipped with the modem industrial sewing equipments which can produce annually 1,000,000 sets of high quality ready-made suits for Men and Ladies, 1,000,000 pieces of ladies national dresses, more than 10,000,000 pieces of padded jackets and jumpers, 500,000 pieces of shirts, 1,000,000 pieces of trousers, 3,000,000 pieces of training suits, 7,000,000 meters of polyester padding, 1,000,000 hand knitted goods, 2,000,000 pieces of knitwears and 2,500,000 pieces of the other various garments."



If North Korea ever legitimately opens up, one thing is for certain: the country might not welcome Philip Morris (MO) with open arms, even though the World Health Organization estimates the smoking rates in parts of Asia to be almost 70%. That's because Kim Jong Il declared the "three fools of the 21st century" to be those who could not use computers, those ignorant of music, and smokers.



Unless, of course, you happen to be Kim Jong Il.

No positions in stocks mentioned.
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