The challenge faced by Twinny, as well as other Korean tech SMEs, is how to cultivate future growth momentum to enhance the country’s technological prowess.
Over the past few years, South Korea has encountered disruptions in its supply chains due to the Japanese semiconductor export restrictions in 2019 and the subsequent impact of the Covid-19 outbreak. In response, the South Korean government has prioritized the development of a robust and resilient supply chain. From a broader perspective, what is your evaluation of South Korea's efforts to cultivate a strong Small and Medium-sized Enterprise (SME) market? Simultaneously, what challenges does the country face?
It's important to note that my perspective might not encompass the entirety of the industry landscape, so I will initially focus on the Robotics sector before expanding further. Robotics is a high-tech and technology-intensive industry. In the global context, Korean Robotics companies do not exhibit a strong competitive edge compared to their international counterparts. Consequently, we often confront significant obstacles and challenges.
When industry experts convene, a recurring theme is the relatively modest scale of Korean robotics companies. Our competitiveness lags behind that of our global peers, and the overall business environment isn't particularly favourable for robotics enterprises. Even the largest Korean player in this field, HD Robotics, which enjoys the highest market share domestically, still pales in comparison to global competitors. From my personal viewpoint, I'd like to delve into two facets. Firstly, the technological prowess; even leading companies like Rainbow Robotics might excel in the domestic market, but their presence is modest on the global stage. As such, we must focus on expanding internationally, yet we encounter various barriers impeding our progress.
Despite these challenges, we perceive significant potential in the robotics market. The utilization of robotics is continually growing, particularly in applications like smart factories that spearhead the adoption of cutting-edge technologies. Markets of this nature inevitably create business prospects. Consequently, we anticipate a rise in our sector's technological competitiveness. Although Korea boasts exceptional engineers, certain limitations exist. Many robotics researchers tend to diverge from the field, opting for careers in smartphone development or other markets. This talent outflow has been a notable issue. However, the pandemic has presented opportunities, as it has attracted highly skilled experts to the robotics industry. An example is the emergence of Twinny, a key company that benefits from the influx of Master’s and PhD holders from institutions like Korea Advanced Institute of Science and Technology (KAIST). With these strengthened technological capabilities and a burgeoning market, we identify substantial potential in this sector.
I believe that the only sustainable way for Korean companies to maintain competitiveness in the global arena is to harness our indigenous technological strengths. Rather than focusing on developing service robots, we prioritize nurturing our own technological capabilities. While we're encountering increasing competition from Chinese counterparts on the international stage, they too face hurdles that limit their progress. Developing standardized and universal robots has its limitations. The challenge faced by Twinny, as well as other Korean domestic companies, is how to cultivate future growth momentum to enhance our technological prowess. This entails reducing our reliance on large conglomerates and instead channeling our efforts into bolstering the technological capacities that can propel us into global niche markets.
Currently, the South Korean industry is expanding its reach into more critical sectors, including product applications such as semiconductors, materials, and highly advanced equipment. However, many critics argue that large Korean conglomerates are becoming too extensive and diversified, potentially hampering the growth of robust Small and Medium-sized Enterprises (SMEs). Do you share this viewpoint? Furthermore, in the pursuit of establishing a formidable SME sector, what do you consider the most pivotal aspect?
I hold a differing perspective. I believe there are specific domains where conglomerates can excel more effectively. For instance, they might perform exceptionally well in areas like vehicles or shipbuilding, as these industries lend themselves to their expertise. This then opens up sectors where SMEs can thrive and lead.
Perceiving the growing scale and diversification of large conglomerates' portfolios as an impediment to SME growth is, in my opinion, a narrow and short-sighted view. Contrary to this notion, I see a positive trend emerging. As conglomerates expand, they create an upsurge in business opportunities and a conducive environment for enhancing technological capabilities. Naturally, conglomerates cannot excel in every single sector. For instance, in the field of autonomous robotics, even though some large conglomerate has ventured into this realm, their technological prowess falls behind that of Twinny. While they might possess greater scale-based advantages, we, as SMEs, demonstrate distinct merits. Drawing from firsthand experience, our strengths include adaptable thinking and the ability to swiftly translate decisions into action. Rather than solely critiquing the conglomerates' size, it's essential to focus on cultivating and showcasing our own competitive advantages.
My perspective leans towards a more positive outlook on the role of conglomerates in South Korea. Their burgeoning business portfolios aren't a primary concern for me; instead, they provide a sturdy foundation for our growth. These conglomerates stand as global leaders in their domains, affording us an extensive client base, including warehouses or logistics centers linked to conglomerate supply chains. This dynamic domestic market serves as a catalyst propelling our expansion and preparing us for a global trajectory.
You mentioned that Twinny boasts numerous PhDs and highly intelligent individuals. However, in Japan and Korea, many companies are grappling with the challenges posed by the workforce, particularly considering Korea's critical demographic situation. The aging population is growing, making it increasingly difficult to retain employees. Consequently, certain fields and applications are progressively leaning towards automation and robotics. In light of this context, which sectors do you believe hold the most profitability potential for future automation and robotic growth?
Navigating these challenges is indeed a substantial task. While I cannot offer a definitive answer, as we are currently deliberating over the sectors to target for the adoption of automated solutions, our accumulated expertise and research from the past decade suggest that we should concentrate on the logistics sector. This sector is poised for rapid expansion in terms of automation. Specifically, I intend to focus on plants, logistics centers, and the last mile of delivery.
Let me delve deeper into the significance of factories, plants, and logistics centers. The forthcoming years will likely witness the widespread integration of automated solutions in these domains. This shift is not solely a response to the demographic shifts you mentioned, but also a reflection of Korea's labor market dynamics. The challenges of recruitment and termination, along with the inherent difficulty, danger, and dirtiness associated with certain industries—referred to as the 3D industries—that people find reluctant to work for, prompt a move towards automation. Factories and logistics centers are thus at the forefront of adopting these automated solutions.
Allow me to present a case study as an illustration. I visited a factory where we proposed that implementing our automated solutions could result in a cost reduction of 1/5. Remarkably, despite the higher initial costs, they chose to embrace automated solutions. This decision stems from the recognition that it’s difficult to hire people in this field due to the unique nature of the work, leading to potential human risks. Interestingly, the driving force behind this shift revolves around cost reduction, the characteristics of the Korean labor market, and the ongoing demographic changes.
I would like to inquire about a topic slightly unrelated to your business. The landscape of labor markets and the sectors requiring automation still appear complex to predict. One aspect that I find rather surprising is the disparity between predictions made a decade ago and the current reality. A notable example revolves around service robots in the service industry, particularly in restaurants for cooking. A decade has passed, and yet we haven't witnessed the proliferation of service robots as anticipated. What, in your opinion, has caused service robots to fall short of the expectations we had for them a decade ago?
This is a matter I have pondered extensively. Firstly, I believe that a lack of technology played a role. Many companies were preoccupied with showcasing their technologies despite having technological limitations, often overlooking the actual needs of the market. This resulted in a gap or mismatch between the capabilities of the technology and their practical application. For instance, some automotive actors have promoted the advent of fully autonomous vehicles in one or two years. However, from the perspective of industry insiders, achieving level five automation autonomous vehicles could feasibly take another two decades. Similarly, for human-like motion robots, making interaction with humans challenging. This discrepancy between expectations and reality stemmed from a failure to bridge the technological gap. This misalignment with real-world applications, despite growing demand in sectors like plants and logistics hubs, can be attributed to these technological barriers.
Secondly, I believe a lack of experience and an inability to understand market needs played a significant role. The accumulation of user experiences directly contributes to a product's refinement through valuable feedback, both positive and negative. Unfortunately, such experiences were lacking with many initial robots, leading to user-unfriendly designs. Cost constraints and technological immaturity deterred potential clients from adopting robots, preventing the collection of substantial data for advancement. Moreover, companies often overlooked the importance of identifying market needs. Instead of pinpointing their potential clients and the locations where robots were truly needed, they ventured abroad prematurely.
Allow me to provide an instructive case based on trial and error. Initially, our product lineup included NarGo 60, NarGo 100, and NarGo 500. This approach was based on the observation that parcels vary in size and scale. The idea was to integrate our automated solutions into these robots, offering a universal solution. However, the diverse needs of individual clients demonstrated that a one-size-fits-all approach was inadequate. The importance of customization became evident. Consequently, we introduced distinct robot lineups tailored to specific requirements. For example, we developed NarGo Delivery for parcel delivery and NarGo Factory for plant applications. The lack of accumulated experience hindered our ability to discern market needs and emphasized the significance of customization.
One of the significant challenges facing robotic companies today revolves around acquiring new clients. When discussing industrial or logistic robots, the primary buyers tend to be large companies. However, for smaller and medium-sized enterprises, adopting robotic technology often presents a substantial challenge. They might lack operators capable of maintaining and operating the robots, and they might not possess all the necessary systems to seamlessly integrate robotic solutions into their execution processes. Through our research, I understand that your specialization lies in making these technologies more user-friendly. With this in mind, what obstacles do you believe must be overcome to facilitate broader adoption of robotics among midsize and small-sized enterprises?
I believe it's the responsibility of suppliers to bridge the gap in terms of maintenance workforce and the necessary systems for executing automated solutions. However, the underlying issue ultimately comes down to cost. For instance, a logistics hub requires autonomous robots and customized racks, both of which involve significant upfront expenses.
Small and medium-sized plants can face immense challenges when upfront capital requirements reach billions of KRW. This can be especially daunting. Therefore, we believe that our robotics solutions should be seamlessly integrated into existing plants. Our focus isn't solely on newly established facilities; we aim to assist even those plants that are already operational. Our criteria were clear: our robots should directly apply to real-life scenarios in existing plants. As such, we are initially targeting this market, employing a rental-based model. The monthly cost is around 1 million KRW, with no additional charges. This approach is feasible because our robots seamlessly integrate into order picking and delivery processes, offering small and medium-sized plants easier access to our cost-effective robotic solutions.
You maintain a diverse array of partnerships. I would be intrigued to learn about your most significant achievement in this regard and the process that led to its realization.
To ensure the competitiveness and survival of Korean SMEs in the global arena, we recognize the importance of focusing on our core competencies, the greatest asset. The rest must be achieved through collaboration and partnerships. Our core competency lies in autonomous software, enabling us to navigate various challenges with our robotic solutions. With 160 employees, some might consider Twinny relatively large for an SME. However, we remain far from complacent and aspire to rival larger entities on the global stage.
We are actively pursuing collaboration in numerous sectors, including hardware manufacturing, as we lack our own in-house production facility, and logistics. Additionally, we engage with individual WMS companies that utilize our integrated order picking services. While certain global companies may mandate the use of their specific lineups, our system can seamlessly integrate with any WMS provider. This flexibility is one of our greatest advantages, as it not only ensures user-friendliness but also grants us access to the client databases of these WMS companies. By harmonizing delivery robots with these large platforms, we enable straightforward control from those platforms. Thus, we provide enhanced services to our clients without compromising our core competency.
You are actively involved in the development of autonomous driving robots, while also creating multi-platform software that can be integrated into robot hardware produced by other companies. How do you plan to incorporate this software into the global market?
We have established guidelines that enable seamless integration with various large platforms, accommodating diverse hardware specifications.
To delve deeper into your international strategy, you mentioned that targeting the global market was essential for competitive product development. Could you elaborate more on your strategy? Which regions or markets are your priority for future growth?
Our primary targets are the U.S. and Europe markets. This choice is not solely due to their size, but also because labor costs in these continents are notably high. This enables us to realize significant cost reduction benefits. Additionally, the presence of mature industries in these regions signals a growing demand.
Japan and China are not at the forefront of our main targets. Regarding China, we are proceeding cautiously due to the regulatory landscape for tech companies. As for Japan, its conservative approach to embracing pioneering technologies necessitates establishing more reference points before entering the Japanese market.
Allow me to ask a personal question. I discovered that you have a twin brother who is also a co-founder of Twinny, though you both majored in different fields. He pursued electrical engineering, while you focused on business administration. Given your roles as co-heads of the company and your shared experiences, how does your relationship contribute to the company's missions, core values, and overall direction?
Despite our diverse academic backgrounds, our collective pursuit remained consistent. Our mutual goal was to establish a people-centric company, even though we specialize in robotics. Despite our small size, we attract proficient talent not merely due to high salaries, but because of our people-oriented approach. Our company ethos revolves around people, which inherently extends to our business operations. Personally, I had worked in a public institution for eight years and recognized the limitations in exercising my foresight and capabilities due to the constrained environment. I am confident that our organizational culture will attract and retain highly talented individuals.
Autonomous robotic technology should enrich people's daily lives with convenience, transcending the futuristic images often depicted in science fiction. Rather than diminishing human capabilities, we believe technology should serve humanity's greater cause.
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