Despite the government’s announcement of pan-governmental measures to strengthen competitiveness in the software industry and plans to build a foothold for entering the global market, domestic software and venture firms are voicing complaints that the services they have developed are being killed off due to regulations that go against the “global standard.”

Hana Bank, which developed a smartphone banking system early on, launched an iPhone banking service to accompany the product’s domestic launch, after determining that the program had met sufficient security level requirements. However, Hana Bank has since been placed in the position of having to make revisions due to demands from financial authorities. These demands followed the announcement of new requirements by the Financial Supervisory Service to create stronger security levels, including measures to block malicious codes and electronic signature requirements.

In December 2009 and January of this year, the Internet book selling companies Aladdin and Yes24 presented services allowing customers to make payments by credit card while making a direct order by iPhone, but these were halted less than a month later. The method they used to confirm customer information was a text message to the customer’s cell phone, without use of a digital certificate, and the service was stymied as a result of security concerns from credit card companies and financial authorities. This problem has arisen because unlike in other countries, where competition in services and technologies takes place as different firms adopt different payment methods, financial transactions in South Korea are based on the digital certificate, which is issued only through Microsoft’s Internet Explorer web browser. Such problems become inevitable in South Korea when MS releases a new operating system or browser or when new devices such as the iPhone are introduced. The fault lies with authorities enforcing specific “technology methods” rather than presenting “technology standards.”

The government is claiming that changes are taking place in the competition paradigm of the global information technology industry, as witnessed with the release of Apple’s iPhone and iPad. However, in many cases, the use of various types of software and services for the iPhone has been blocked in South Korea. The Ministry of Knowledge Economy (MKE) released a plan last Thursday for pan-government efforts to help cultivate and push forward the South Korean software industry, stating “As evidenced from the iPhone, the core of product competition is moving quickly from hardware to software.” While holding an emergency economic countermeasures meeting, President Lee Myung-bak said that South Korea “needs success stories like Bill Gates and Steve Jobs.” The president also said that the government would provide “unprecedented support” to software businesses.

The disconnect between the government’s plans to promote the software industry and the market reality does not end with the digital certificate issue. The issue is far more serious in the Internet venture industry, which is focused on services that use software. Representative examples of this include the Internet real-name system and regulations requiring portal monitoring. Various Internet regulations that apply only to South Korean industries work against domestic software firms and venture firms’ ability to compete in the global market. The same applies to Internet commerce companies. When it entered the Singapore market in November 2008, Gmarket was stunned to find an environment totally different from South Korea. Gmarket attempted to introduce a global environment mobile payment service in South Korea as well, but became frustrated by the basis in the digital certificate. The company ended up introducing an expedient method of mobile payment by way of “manual credit card payment,” but that too was also recently stopped.

Factors such as the Internet real-name system are also blocking efforts to bolster the social networking service market for South Korean software companies. They are also making it difficult for global services to enter the South Korean market. A case in point is Google’s YouTube service. Claiming that the real-name system goes against international practice, Google refused to participate and prevented users of South Korean nationality from registering content with YouTube. Other services enjoying international popularity, including Twitter and Facebook, are not considering entry into the South Korean market or services for South Korean users such as Hangeul (Korean character) search capabilities.

The head of one venture firm said, “Services like Twitter can be used in the same environment by anyone anywhere in the world, but in the South Korean Internet environment, domestic companies are creating services and but it is difficult for international users to use them.” The same individual added, “Regulations such as the real-name system and monitoring requirements is the equivalent of telling companies based in South Korea not to do business outside of the country.”

Experts are stressing that the government needs to first eliminate the irrational regulations impeding the development of the South Korean software industry and create an environment where creative ideas and technology can compete. Kim Kee-chang, law professor of Korea University, said, “In order to promote software development, they first need to get rid of the regulations requiring certain technology in electronic banking transactions.”

Kim added, “They need to encourage people to adhere to global standards in an open environment and to ensure that different participants can competitively introduce a variety of technology.”

Please direct questions or comments to [englishhani@hani.co.kr]