Public SW 'Restrictions on Large Company Participation' Lifted... Expanding Participation Scope

Exception Reasons for Large Corporation Participation Restrictions to Consider New Market Creation Effects
Large Corporation Participation to Be Known from Business Planning Stage
SW Industry Welcomes "Strengthening Business Predictability"

[Asia Economy Reporter Jin-gyu Lee] The restrictions on large corporations participating in public software (SW) projects are expected to be somewhat eased. The scope of large corporations' participation will be expanded by considering innovation and new market creation effects as exceptions to the restrictions on large corporations in public SW projects, and whether large corporations participate will be known from the project planning stage rather than just before the contract award. However, the number of applications for exception recognition of large corporation participation will be limited to twice, down from the current unlimited number.

Expanding Large Corporations' Participation in Public SW Projects Amid Side Effects

On the 28th, the Ministry of Science and ICT held an online public hearing and announced an improvement plan for the restriction system on large corporations' participation in public SW projects. This marks the government's first move to improve the system in seven years since it completely restricted large corporations' participation in public SW projects in 2013. Until now, large corporations such as Samsung SDS, LG CNS, and SK C&C have only been allowed to participate exceptionally in public SW projects related to national security and new technologies like artificial intelligence (AI), after separate review and approval.

The government's restriction on large corporations' participation in public SW projects has caused various side effects. Exports of e-government systems have been halved, and mid-sized companies that filled the gap left by large corporations have faced profitability crises due to cutthroat price competition. As the situation worsened, public institution client councils requested the Ministry of Science and ICT to ease the restrictions on large corporations' participation, and the ministry eventually gathered opinions from the industry and experts to initiate system improvements.

The Ministry of Science and ICT will first strengthen evaluations not only on the application of new technologies but also on the effects of new market creation and innovation levels as exception reasons for restricting large corporations' participation. It will also subdivide project types into categories such as 'innovation growth type' and 'challenge-solving type' to broaden the range of projects in which large corporations can participate. Through this, the types of large corporation participation will expand beyond the existing exceptions of national security and AI projects, expecting more active development in these fields.

The ministry will also improve the process so that applications for review can be made at the project planning stage (the year before project implementation), instead of deciding on large corporation participation just before the bidding announcement. This will bring forward the decision timing by about a year, reducing market uncertainty and making it easier for both large corporations and mid-sized and small companies to establish management plans.

Furthermore, the ministry plans to investigate and disclose not only 'project information where large corporation participation is recognized' but also 'project information under internal review for exception application.' Regarding overseas expansion of public SW projects, additional review criteria will be established to promote joint overseas expansion of large corporations and mid-sized and small companies, thereby expanding the scope of the SW market.

The scope of win-win cooperation will also be expanded through technical support and workforce training. Previously, cooperation was limited to one-time incentives based on the share of small and medium-sized enterprises (SMEs) in the total project cost. Now, it will be expanded to include necessary support for SME growth such as technical support and workforce training, securing substantial growth momentum through continuous cooperation. The previously uniform method where large corporations participated as the main contractor will be improved, and an exception recognition method will be introduced where mid-sized and small companies act as the main contractors and large corporations participate as joint contractors. When large corporations participate as joint contractors, their participation will be limited to within 20% of the total project cost.

Industry Welcomes Strengthened Predictability in Public SW Projects

The industry has expressed a welcoming stance toward the Ministry of Science and ICT's improvement plan. Cho Young-hoon, director of the Korea Software Industry Association, who attended the public hearing, said, "As large corporations withdrew from public SW project exports, it became difficult to secure references, which eventually weakened the competitiveness of public SW projects." He added, "The strengthened predictability of projects through this improvement plan is a very welcome idea for both large corporations and mid-sized and small companies." However, he argued, "The system should be operated so that companies that perform well can win projects again rather than companies that are not capable, to improve project quality."

Professor Seo Seok-jin of Korea University commented on the improvement plan, saying, "The significance of this plan lies in seeing whether new market creation is possible rather than large corporations engaging in new technology fields." He also advised, "It is not enough to just establish the system; opportunities must be created for demand agencies and large corporations to plan projects together at the early stages."

Chae Hyo-geun, vice president of the IT Service Industry Association, pointed out, "The restriction system on large corporation participation over the past seven years was a strong regulation artificially limiting company participation in the market, which only caused conflicts among companies while the market remained unchanged." Song Kyung-hee, director of software policy at the Ministry of Science and ICT, said, "Through this improvement plan, large corporations are expected to increase predictability of participation projects and secure overseas expansion references, while mid-sized and small companies can expand growth opportunities through strategic collaboration with various companies and joint overseas expansion."

This content was produced with the assistance of AI translation services.