[Editorial] Push for software industry

The government has rolled up its sleeves to foster the domestic software industry. On Thursday, the Ministry of Knowledge Economy unveiled a package of measures that called for, among other things, banning large system-integrating companies affiliated with chaebol groups from participating in public-sector information system projects.

The ministry’s plan caused an immediate uproar in the system-integration industry as it would prohibit starting next year the 65 SI units of the nation’s 55 largest business groups from bidding for projects promoted by the government and other public agencies. The public-sector information system market is estimated at 2.5 trillion won a year.

The big SI firms protested against the ministry’s surprise move, saying it would weaken, rather than strengthen, the domestic software industry and make the local SI market a playground for large foreign companies.

The ministry countered that it was the chaebol-affiliated SI companies that condemned the software industry to stagnation by distorting the market order and hampering fair competition.

The ministry’s view is more persuasive. Chaebol SI units have thus far swept public-sector computer system projects through price dumping. What enabled them to undercut their smaller, independent vendors were the profits they could easily earn by getting sweet deals from the sister companies of their groups.

These companies typically subcontract their public-sector projects to smaller firms at prices even lower than their already low bid prices. This practice makes it impossible for small software companies to exercise creativity and grow into major players.

The government has so far employed diverse ways to reform the software market, but to no avail. It has finally concluded that the most effective way to break the shackles that fetter small software firms is to keep the predatory big SI companies out of the public-sector market.

This ban would be painful even to large SI companies. Some of them could be forced to restructure their operations as they would lose a substantial chunk of their business. But they need to take it in stride. It is time for them to leave the crowded domestic market to smaller players and shift their focus to overseas markets. This is a big challenge but they should rise to the occasion.

Other proposals in the Thursday package would also help jump-start the stagnant domestic software industry and cultivate global software companies. Of particular importance is a plan to revitalize R&D on embedded software, which refers to computer software built in to such devices as electronics in cars, mobile phones, robots, airplanes and missiles.

Korea exports a large number of cars and mobile phones, but an increase in exports of these products is accompanied by a corresponding rise in imports of embedded software and system chips ― a phenomenon resulting from Korea’s underdeveloped embedded software technology.

Hence the plan calls for encouraging joint R&D between software firms, chip developers and manufactures of major export items, such as cars and mobile phones. We hope this strategy can help Korean companies excel in embedded software as well.