It has been found that the number of Korean companies in the local software market with at least 30 billion won (US$28 million) in sales has surged since 2009. Software industry insiders are considering that the sales of mid-sized software development companies have soared with the importance of the economy of scale on the rise in the industry.
According to the Ministry of Science, ICT and Future Planning and the Korea Electronics Association, the software output of such companies increased 73.36% from 605.4 billion won (US$570 million) to 1.0495 trillion won (US$988 million) between 2007 and 2011. Meanwhile, the output fell 3.89% from 1.0387 trillion won (US$977.97 million) to 998.3 billion won (US$939.3 million) during the same period for firms with annual sales of between one and five billion won.
Until the recent past, the latter took the largest portion in the local software industry with an annual output of over one trillion won. However, they gave way to the former in 2011. Industry experts are interpreting the shift in the ecosystem with the theory of the economy of scale.
“Small firms in the local software market used to vie with each other in segmented sectors,” said one of them, adding, “However, companies with at least some size are showing greater competitiveness these days as the speed of market change is going up and the complexity is increasing.”
The trend can be clearly seen with sales per company. As of 2011, each of the 732 software firms in the one billion to three billion won category recorded 1.364 billion won (US$1.283 million) in annual sales on average. Meanwhile, the average annual sales of the 52 companies in the over 30 billion won category amounted to 19.8 billion won (US$18.6 million).
Many in the industry are pointing out that the government needs to come up with more support measures for mid-sized software developers, in addition to those for smaller firms, in an effort to promote their growth. Their consensus is that the overall industrial ecosystem can be developed in a balanced way only when the sectors that small and mid-scale firms are good at are in synergy with each other.
“At present, most of the government’s software development support programs are for venture firms and start-ups, and those with over certain sales are not eligible for them,” said the CEO of a local software firm, continuing, “More new programs need to be in place so that mid-sized companies and their smaller counterparts can benefit at the same time.”