Software Industry Suffering Under Unfair Business Practices

The software development affiliates of major business conglomerates are not engaged in research and development, but merely bully small developers to hand over their products for free, which has led more and more people to shun working at small software companies, Knowledge Economy Minister Choi Kyung-hwan said on Tuesday. "Korea is one of the world's IT powers in terms of infrastructure, but it ranks near the bottom in software," Choi added. "I will change the way public agencies and corporations put out software contracts to tender, so that big software developers will have to look overseas for business."

Korea's exports of IT products totaled US$121 billion last year, accounting for a third of the nation's total exports of $363.5 billion. Korean companies take up 40 to 50 percent of the global memory chip and display markets and more than 30 percent of the global mobile phone market. The IT industry is one of the main engines of the Korean economy, and the nation ranks first in the world in terms of high-speed Internet penetration and speed.

But the story is much different when it comes to software. Exports of Korean-made software amounted to just $300 million last year, less than 0.3 percent of overall IT exports. In the global IT market the proportion of software and services increased from 28 percent in 2001 to 31 percent in 2008. But in Korea the figure shrank from 9 percent to 8 percent over the same period. Foreign products take up 78 percent of the local software market. Most Korean software companies barely survive by focusing their business on localizing imported products.

One of the main reasons behind this situation is the unfair business practice in which major conglomerates hire small contractors to develop software products for them at unreasonable prices and, worse, snatch away copyrights for the products. Software piracy is another problem. Both businesses and individual users are unwilling to spend money on software, resulting in the industry suffering. A look at the rapidly-growing market for smartphones shows us that making good handsets alone is no longer enough to remain competitive. More important are their operating systems and the diversity of applications available. The dire state of the local software industry should be viewed as a national crisis.