Of late, as trends in the IT industry are moving from the hardware sector to the software sector, the importance of software is increasing more than ever. But nurturing good Korean software companies is neither easy nor impossible. The point is that Corporate Korea should discover promising software developers with strong creativity and unique ideas and make steady investment in them.
The value of the software market is huge. In 2010, the world software market was valued at USD 1,016.3 trillion, six times the cell phone market and 3.4 times the semiconductor market. Another important fact is that the world software market grows 8.4% annually. But the domestic software market only accounts for 1.8% of the world market. This means the Korean software industry still has a long way to go to make its presence felt in the international arena.
“The domestic software market is too small for Korean software companies,” said Ryu Su-geun, Director General for Electronics & IT Industries at the Ministry of Knowledge Economy. “So at the moment, Korean software companies have a big interest in developing the overseas software market. They definitely need to export their products to overseas countries to continue to grow, going beyond staying in the domestic market. These days, export is a very important issue to Korean software companies.
Despite the significance of software exports, Korea’s overseas IT service business has been sluggish compared to its strong exports of IT devices such as semiconductors and cell phones. Ryu pointed out some reasons for the not so favorable fact.
“It is true that Korea exports even less software than hardware to the global market,” Ryu continued. “The world IT service market is divided into 70% in the private sector and 30% in the public sector. But Korea's IT service exports are in the public sector. Most of the IT service exports are limited to developing countries which receive aid from Korea. So it is difficult for Korean companies to expand their exports as they lean too much towards specific markets and services.”
Accordingly, Korean software companies need to tap not only into developing countries but also into developed countries and make a foray into the private sector, Ryu said. “They need to increase their consulting capabilities by taking part or investing in international bidding projects such as the international procurement market,” Ryu emphasized.
One of the key issues in the Korean software export industry is to secure specialized human resources. “We need localized communication about the strengths of our services," Ryu said. “In addition, we urgently need to nurture supervisors, leaders and project managers who can implement projects while addressing communication problems. In particular, small and medium-sized companies suffer from a lack of excellent human resources.”
The government is promoting joint overseas market development among big, medium-sized and small companies through a grand consortium on global market development. Joint overseas market development among big, medium-sized and small companies can benefit medium-sized and small companies as big companies have international marketing capabilities but medium-sized and small companies do not. The government is supporting such companies while regarding such a move as the beginning of export promotion.
“Local software marketing matters as software is an intangible product,” Ryu said. “Small and medium-sized software companies do not have enough local human resources. It is not easy for them to obtain information about local channels. In addition, some Korean software neither meets international quality standards nor has the methodology and human resources for an improvement in quality, while customers in advanced countries basically have high expectations about software products.”
It is true that small and medium-sized Korean software companies have difficulty in receiving investment from overseas channels due to weak brand power in overseas markets, even though their products are excellent. If foreign companies have opportunities to take part in a project with small and medium-sized Korean software companies, they will be able to enjoy a win-win partnership.
On the other side, the Ministry of Knowledge Economy is running the software Export Mentoring Program. This program is able to transfer overseas companies’ know-how in quality improvements and localization to small and medium-sized Korean software companies. “Overseas companies capable of helping Korean companies make a foray into overseas markets can take part in the software Export Mentoring Program," Ryu said. “They can become mentors for excellent small and medium-sized Korean software companies and help them with quality improvements, localization and marketing.”
The Korean government is implementing some policies to help Korean software companies develop overseas markets. “The Ministry of Knowledge Economy is supporting Korean companies’ software export in tandem with the Korea Trade-Investment Promotion Agency (KOTRA) and the Korea International Trade Association (KITA),” Ryu said. “We are executing support for quality improvements and localization of small and medium sized companies as joint projects among small, medium-sized and big companies, brand image enhancing projects, and education programs to reinforce the capabilities of small and medium-sized companies.”
