Since the latter half of last year, the domestic security market has been expanding briskly. Among them, the increase in turnover of firms in the IPS, VPN, Anti-virus, and IDS fields was remarkable. In particular, domestic firms in these fields have occupied a leading position over overseas security firms. In this regard, an industry insider told Korea IT Times, expressed confidence in local products by saying, "Even though compared with overseas firms, domestic firms are not behind in terms of technology. Yet, the industry is concerned as to how many domestic security firms could survive in the middle- and long-term perspective when judging the situation with a long-term appreciative eye." He continued: "If one looks at markets where domestic security firms lead, this is only because the relevant areas that are not complex such as IPS and IDS.

In addition, as competition among domestic firms has lead to fierce price competition in such a limited market, experts point out that these elements could eventually take the steam out of the security market.

Experts note particularly that overseas firms develop products and plan business strategies some two or three years ahead. Contrarily, because the majority of domestic security firms face victory or defeat by developing products that are tailored to current market situations, experts agree that the domestic industry lacks a business model that encourages long-term growth.

Right now, oversea firms are engaged in product development judging that what they offer will eventually be mainstream demand. Of course, domestic security firms also are also trying to gauge trends, but are more likely to invest all their resources into satisfying the current market.

For example, Fortinet Korea wants to position itself to be the prime security solutions supplier worldwide within the shortest possible period. To this end, the company plans to supply its market of communication business providers with high-performance integration security equipment. Currently, Fortinet is, in fact, capturing a large chunk of the world (and domestic) integration security market, through its "Forticake-5000."

Specifically, the company organizes itself to be able to satisfy all demands including excellent performance, competitive price, broad product range (12 items), maintenance expenses as well as TCO minimization, and being a perfect safeguard against all attacks, rather than looking to simply provide product in the manner of most domestic firms.

Fortine country manager Kim Jong-duk, said: "Only through a future-oriented strategy can domestic firms survive global market competition." He added that products as well as the solution global security firms are offering right now, are those that were developed strategically, looking ahead three or four years.

CA Korea is concentrating all its marketing effort on offering total security solutions suitable for the near future, judging that domestic firms are taking leadership in the fields of IPS and IDS. Hereupon, the company plans to expand by developing SIM (Security Information Management) solutions as a part of ESM (Enterprise Security Management).

Moreover, CA Korea plans to preoccupy markets by investing intensively in EAM (Enterprise Asset Management, or IAM (Identity Asset Management) in an effort to plan for markets that are not expected to materialize for three or four years. For this reason, the company's strategy is to concentrate on developing solutions such as access control, and SSO (single sign on).

Mr. Shin An-sung, CA Korea's eTrust product manager said, overseas security firms including CA, capture markets by concentrating on service as well as software. He advised domestic firms must nurture an ability to ascertain future demand in the interests of long-term survival, adding that domestic firms tend to lay stress upon offering hardware products.

Domestic Firms Must Abandon Fixation on Domestic Market

Overseas and domestic security experts advise that local firms should consider mid- to long-term countermeasures in terms of global management to ensure their survival in view of emerging demand, not to mention surviving in an economy as difficult as the present one.

Accordingly, they advised that domestic firms plan independently, rather than try to chase whatever foreign firms are doing at the moment.

In addition, they stressed that they must strengthen their customer service functions and be quicker in coming up with solutions that match the latest trend.

Global security firms say that domestic companies must become prime movers in the market by first boosting their competitiveness instead of playing catch-up ball with their foreign counterparts.

In addition, domestic firms develop products by analyzing what their competitors have to offer. However, overseas firms that in this case it would be difficult to maintain an edge in product superiority over the foreign competition that develops on the basis continuous feedback from customers.

Second, the majority of domestic security firms attach considerable weight to business in the domestic market. It is the general opinion locally that security solutions are necessary, but not an immediate need. Thus, different national markets demonstrate widely different growth patterns. Accordingly, global firms opine that constructing an overseas business network is a means of increasing product life and an indispensable to maintaining stable revenues. For Korean security firms, though, this concept of global management is only in its infancy.

Third, global firms point out that the service of domestic security firms is fragile. While overseas competitors provide information on hacking, viruses and the necessary equipment to cope with such ills, domestic security firms appear almost indifferent to providing corresponding services.

Fortinet Korea country manager Kim Jong-duk said: "Fortinet has grown into a successful security firm by aiming at the global market despite the fact we had only 150 employees at the time of our establishment". On the company's success, Mr. Kim added that the company developed products to tap customers the world over rather than just the Korean security market.

Likewise, Ahn Lab Inc. vice president Kim Chul-soo pointed out in a round-table talk on the IT information protection industry, "Domestic firms don't lag behind in terms of technology, but in view of the quality problems they suffer, the quality control processes of domestic firms are lagging very much behind".

In particular, as Cisco Systems and IBM entered the market by the acquisition of security firms to achieve the necessary market penetration, domestic firms must gain competitiveness by acquisition and merger between firms.

There Are Too Many Firms in the Industry Compared to Its Scale

Just two or three firms claim over 70 percent of the market. Overseas firms are encroaching upon the domestic market by through M&A (merger & acquisition).

Moreover, as corporations such as Cisco Systems and Microsoft continue to penetrate the home market, a sense of crisis pervades the local industry.

Therefore, experts point out that it is necessary for local industry members, leading a comfortable life by several simple products, to merge or cooperate with each other in order to survive foreign competition.

For example, merger or cooperation between intrusion interception/prevention, authentication, and anti-virus firms is a possibility. Experts say that these products correlate with each other and could create synergy by being produced in the same company. In addition, network security, code, and vaccine firms could be more technologically innovative as well as having more leverage in business through mutual cooperation.

Indeed, M&A has been proceeding a pace to cope with a difficult market situation this year. Information security firm Netsecuretechnology acquired Oullim Information Technology in August this year. Netsecure is looking for synergy in the merger since Netsecure is a leader in the field of security control and Oullim is competitive in security solutions such as a fire wall VPN.

Internet security firm Hauri has sold 5.15 percent of its equity (900,000 shares) to GT Electronics while Exers Technologies became the largest shareholder in Securesoft. Kukje Telecom, an electronic parts manufacturer, was enthroned as the largest shareholder development firm in Senex Technologies, a specialist in iris recognition security technology.

Some observers contend that this wave of M&A is being done for financial reasons rather than for synergy, while others maintain it is a process of restructuring from which synergy would naturally flow. This point of view is meeting a skeptical response in many quarters since it is widely believe the M&As have been fueled by widespread financial difficulties.

A spokesperson for WINS Technet, said, "Recent examples of acquisitions between non-security and non-IT firms in the security business would not spur any developmental influence in the security industry or produce synergy."

A spokesperson for CoConut responsible for strategic planning, said, "Garnering greater company size and revenues through M&A without achieving competitiveness is not desirable," adding that only M&A based on gains in competitiveness and technology will be beneficial for the security industry.

In response, the government is working on a desirable M&A model. The Korea Information Security Industry Association recently discussed the necessity of enlarging corporate scale through M&A and governmental policy to expand the information protection industry.

Interview - Ker Gibbs, Vice President, Asia Pacific, SecureComputing

"K4 Weakens Korean Security Firm's Competitiveness," says Gibbs

Overseas Cos Cold to K4 Authentication, a Policy to Protect Korean Security Firms

In speaking about the Korean security market Ker Gibbs, Vice President, Asia Pacific, SecureComputing pointed out, "K4 is a protective policy that allows domestic firms to carry on their business, but it is also a fact that it weakens the global competitiveness of Korean security firms".

Mr. Gibbs emphasized that it is evident K4 is a barrier to overseas firms attempting to advance into Korean market, expressing a strong sense of disapproval about the authentication that must be passed when supplying product to governmental organizations or public institutions.

He further revealed strong dissatisfaction about a provision to which obliges foreign companies to make public core technologies, saying that K4 authentication is being used as a tool to hinder advance into the domestic public procurement market.

He asserted, "K4 authentication is being used to protect domestic industry, but because of this, Korean firms are not becoming competitive enough to compete on the world stage." He stressed that Korean competitiveness is considerably low, pointing out that SecureComputing competes with German, French, and Japanese worldwide, but has never competed with a Korean firm, except in Korea.

Information Protection Industry Is a Next-Generation Promising Industry

As the Internet continues to develop, the demand for information protection products will increase. In addition, the security industry's value added is high than any other manufacturing industry. Moreover, the information protection industry in which IT competitiveness is connected directly with national competitiveness and is therefore a key strategic industry.

This is the reason why each country strives to nurture its information protection industry and global IT business giants are heavily involved in the sector. The same is true domestically. A number of domestic security firms such as AhnLab Inc, Future Systems, WINS Technet, and CoConut are engaged in the market on the basis of their own information protection solutions. In particular, because the government offers support policies to protect domestic security firms at home, the industry has an added advantage.

In the meantime, Korea's National Intelligence Service is operating the authentication system in the public or financial sectors with regard to security products. This system has been the largest barrier in to entering the Korean market for foreign firms since the conditions of the system require opening the source codes of the products of would-be vendors, an intellectual property, to public inspection.

However, the National Intelligence Service has recently applied for admission of Common Criteria Recognition Arrangement (CCRA) that recognizes the authentication of security products between nations.

If foreign companies join the CCRA program, it means that domestic security market is open to all comers. Generally, if it is assumed that it will take one and a half years from the start of the CCRA admission application to actually joining, a life-or-death struggle between domestic firms and foreign companies in the domestic market from the beginning of 2006 is likely to be unavoidable.

Market openness meaning that overseas product can freely enter the domestic market, but conversely it means also that export markets are open to domestic security products. Thus, in order for Korean information protection corporations to avoid a "weeding out," it behooves them to start preparing now.

Yet, currently these firms are inferior in terms of financial as well as organizational capability, so much so that it is difficult to see foreign firms even wanting to acquire them.

Along with this, vital investment and the cost it entails is hardly thinkable due to cutthroat competition in the marketplace. Accordingly, market openness might cause the collapse of many domestic information protection firms.

Thus, experts advise the industry maps out a survival plan to help in cope over the next two or three years.

One foreign businessperson stressed, "For domestic security firms to survive in the long run, above all they should devise roadmaps in regard to technology, human resources and product development with a mind to competing in the global market, not setting their limits to Korea."

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