Cover Story / SW Industry Korean government to invest US$133.5 million in digital contents industry The government has finalized the digital contents industry promotion blueprint for 2006 and has started implementing the new plan. It will inject 130.9 billion won (US$133.5 million) into the digital contents industry this year, enabling Korea to become one of the world's top five digital contents providers by 2010. For globalization and expansion of the growth base of the domestic digital contents industry, the government will spend 130.9 billion won on supporting growth of digital contents, activating distribution of digital contents, fostering state-of-theart game software and DB industry, technology development of digital contents and nurturing professional manpower. In particular, this year's spending will focus on assisting Korean online gaming firms seeking to make aggressive inroads into foreign markets. Financial support will be given to a number of local digital contents developers and service providers seeking to advance into major foreign markets, including the United States, Japan and Europe, while bolstering overall global competitiveness of the Korean digital contents industry. Currently, the United States, Japan and Europe dominate more than 90 percent of the world digital contents market. As most domestic digital contents firms have a relatively short history of six to seven years and lack overseas business experience, they will be assisted by the Ministry of Information and Communication (MIC) with foreign market analyses and drawing up marketing strategies. They will also receive legal and management counseling services for running businesses abroad. State support will also be given to firms developing state-of-the-art gaming software, platforms and databases and establishing overseas sales networks for home-made digital contents. In particular, Korea established online game test beds for Korean game publishers in Japan and Europe to beef up their global competitiveness. Online game test beds were also established in the United States and Singapore in 2004. In addition, the government will support customization of domestically developed digital contents, including localization of the content according to foreign standards and translation of texts. Digital contents include online and video games, animation, mobile content and programs and software for digital multimedia broadcasting, e-learning, telematics systems, intelligent robots and home network. The Korean digital contents industry has recorded an annual growth rate of 16.8 percent in 2005 over the previous year, far exceeding the nation's GDP growth rate of 4 percent in the same year. In particular, digital video sector showed a high growth of 43.7 percent in 2005 thanks to stable growth of new services, including digital satellite broadcasting and digital multimedia broadcasting. The domestic digital contents market grew by 16.8 percent to 8 trillion won ($8.1 billion) in 2005, affected by high growth in online game and digital video. In the future, the domestic digital contents market is expected to record an annual average growth of 13 percent until 2010 with the market volume exceeding 10 trillion won in 2007 and 15 trillion won in 2010. Heavy export reliance on Asian markets and lopsided growth of the local digital contents industry, coupled with lack of core technical competitiveness, are major hurdles for Korea's swift growth into top-tier players in the world. Roughly 60 percent of Korea's digital contents production comprises PC-based online games and 70-80 percent of Korea's digital contents exports are absorbed by Chinese economies and Southeast Asian countries. In the meantime, the world's digital contents market grew by 18 percent from $205.3 billion in 2004 to $242.4 billion in 2005, centering on digital video, game and web information contents. In the future, the world's digital contents market is likely to grow by an annual average of 15 percent with the market volume going up from $242.4 billion in 2005 to $487.9 billion in 2010.

Taking the initiative to buy SW at fixed price Public sector purchases as a leverage of SW industry development The government is taking the initiative in a movement to buy SW at a fixed price. The "SW public purchase innovation plan" includes an awareness program for people to buy SW at a fixed price and increasing separate ordering for the purpose of nurturing superior smaller SW firms nurturing. Additional market growth of around 1 trillion won (about $1.03 billion) by 2010 is expected, according to the Ministry of Information & Communication (MIC). MIC reported the "SW public purchase enlargement method" to President Roh Moo-hyun last month through a reporting meeting held under the supervision of a smaller company special committee where related ministries' ministers and 10 public institutions such as KEPCO and business circles CEOs were present. The background regarding this SW public purchase enlargement is as follows: Since MIC proclaimed 2005 as the first year of the "SW industry leap forward" in Dec. 2005, the Ministry has announced concrete tasks to present the "SW industry development vision" by holding an SW industry development strategy reporting meeting on Dec. 1 last year. In a nutshell, this plan was mapped out to utilize public purchases as a leverage of SW industry development in the interests of effective promotion of the announced SW industry development strategy. The SW public purchase market comprises around 20.8% (2.6 trillion won) of the entire market. Central government ministries, local autonomous entities and each of the local offices of education, and the rest public institutions account for 51%, 36%, and 13% respectively. Public institutions hold an important position in terms of scale as well, but it is a competitive market in which anyone is able to participate differently from the private sector whose internal transaction weight between affiliates is substantial. In the meanwhile, public institutions have been a driving force of the domestic SW industry development, such as providing innovation-model smaller SW firms with important opportunities for market inroads. As a result of research on the actual conditions regarding public sector SW project ordering management, the common practice is to buy SW at a fixed price appeared not to be applied as yet. Moreover, due to the common preference for blanket ordering, opportunities to receive public orders are restrictive for superior smaller SW firms and systems for SW quality competitiveness improvement also are insufficient. Major characteristics of the SW public purchase innovation plan are as follows: The first is to promote an environment which can buy SW at a fixed price. Second, MIC plans to allow smaller SW firms' participation to enlarge when ordering in bulk. Third, the Ministry plans to boost the quality competitiveness of SW firms by developing "Korea-model SW process quality certification." Fourthly, ordering affairs-related special support service is offered to supplement public institution's weak ordering management plus supporting quality competitiveness improvement of smaller SW firms by researching/developing SW quality management model development as well as SW special manpower nurturing. Fifthly, public institutions' SW industry information management will be systematized and system improvement execution performance is managed.