The world's most unusual outsourcing destination

North Korea is nurturing an IT force with competitive pay rates, but political concerns make it a hard place to do business

Think of North Korea, and repression, starvation and military provocation are probably the first things that come to mind. But beyond the geopolitical posturing, North Korea has also been quietly building up its IT industry.

Universities have been graduating computer engineers and scientists for several years, and companies have recently sprung up to pair the local talent with foreign needs, making the country perhaps the world's most unusual place for IT outsourcing.

With a few exceptions, such as in India, outsourcing companies in developing nations tend to be small, with fewer than 100 employees, said Paul Tija, a Rotterdam-based consultant on offshoring and outsourcing. But North Korea already has several outsourcers with more then 1,000 employees.

"The government is putting an emphasis on building the IT industry," he said. "The availability of staff is quite large."

At present, the country's outsourcers appear to be targeting several niche areas, including computer animation, data input and software design for mobile phones. U.S. government restrictions prevent American companies from working with North Korean companies, but most other nations don't have such restrictions.

The path to IT modernization began in the 1990s but was cemented in the early 2000s when Kim Jong Il, the de-facto leader of the country, declared people who couldn't use computers to be one of the three fools of the 21st century. (The others, he said, are smokers and those ignorant of music.)

But outsourcing in North Korea isn't always easy.

Language can be a problem, and a lack of experience dealing with foreign companies can sometimes slow business dealings, said Tija. But the country has one big advantage.

"It is one of the most competitive places in the world. There are not many other countries where you can find the same level of knowledge for the price," said Tija.

The outsourcer with the highest profile is probably Nosotek. The company, established in 2007, is also one of the few Western IT ventures in Pyongyang, the North Korean capital.

"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, president of Nosotek. "So I took the next logical step and started a company here."

Nosotek uses foreign expats as project managers to provide an interface between customers and local workers. In doing so it can deliver the level of communication and service its customers expect, Eloesser said.

On its Web site the company boasts access to the best programmers in Pyongyang.

"You find experts in all major programming languages, 3D software development, 3D modelling and design, various kind of server technologies, Linux, Windows and Mac," he said.

Nosotek's main work revolves around development of Flash games and games for mobile phones. It's had some success and claims that one iPhone title made the Apple Store Germany's top 10 for at least a week, though it wouldn't say which one.

Several Nosotek-developed games are distributed by Germany's Exonet Games, including one block-based game called "Bobby's Blocks."

"They did a great job with their latest games and the communication was always smooth," said Marc Busse, manager of digital distribution at the Leipzig-based company. "There's no doubt I would recommend Nosotek if someone wants to outsource their game development to them."

Eloesser admits there are some challenges to doing business from North Korea.

"The normal engineer has no direct access to the Internet due to government restrictions. This is one of the main obstacles when doing IT business here," he said. Development work that requires an Internet connection is transferred across the border to China.

But perhaps the biggest problem faced by North Korea's nascent outsourcing industry is politics.

Sanctions imposed on the country by the United States make it all but impossible for American companies to trade with North Korea.

"I know several American companies that would love to start doing IT outsourcing in North Korea, but because of political reasons and trade embargoes they can't," Tija said.

Things aren't so strict for companies based elsewhere, including those in the European Union, but the possible stigma of being linked to North Korea and its ruling regime is enough to make some companies think twice.

The North Korean government routinely practices arbitrary arrest, detention, torture and ill treatment of detainees, and allows no political opposition, free media or religious freedom, according to the most recent annual report from Human Rights Watch. Hundreds of thousands of citizens are kept in political prison camps, and the country carries out public executions, the organization said.

With this reputation some companies might shy away from doing business with the country, but Exonet Games didn't have any such qualms, said Busse.

"It's not like we worked with the government," he said. "We just worked with great people who have nothing to do with the dictatorship."

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Martyn Williams

IDG News Service

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