South Korea’s Security and Software Industries Keeping Their Eyes on Current Trade Tension between South Korea and Japan

Aug 08, 2019

South Korean industries are worried that current trade tension between South Korea and Japan can spread to other areas such as security and software. Some security companies had their contracts foundered as Japanese Government is set to make an announcement on South Korea being removed from its white list of favored trading partners. Although there has yet to be any additional damage reported, there can be significant impact on exportation and wire transfer of profits to South Korea if current tension continues.
A South Korean security company recently planned on co-selling products with a major Japanese SI (System Integration) company. However, its plan was foundered. Even though its plan had gone to a preliminary agreement as it even signed a NDA (Non-Disclosure Agreement), its plan was ultimately was broken down due to various circumstances within Japanese market. Although it did not list current trade tension between South Korea and Japan as a reason, one can assume that the trade tension did played a role as there is a week left before Japanese Government makes its announcement.
Companies that set up joint corporates with Japanese companies and have started their businesses are also concerned. Security software (SW) is categorized as a strategic material. South Korea currently divides strategic material importation-exportation control permitted area into ‘A’ and ‘B’. ‘A' area consists of a white list of favored trading countries that apply three-year blanket permission to South Korean companies that export strategic materials. ‘B’ area needs to submit additional documents such as permit application, decision letter, contract, and written oath. South Korean Government is considering establishing ‘C’ area that will include Japan.
“South Korean Government is not discussing properly regarding what kind of impact countermeasure against Japanese Government’s regulation will have on the security industry.” said a representative for a security company. “Although there is not immediate impact, it is true that we have many concerns such as additional cost and time for an approval on exportation of security software and business suspension in Japan.”

South Korea’s Security and Software Industries Keeping Their Eyes on Current Trade Tension between South Korea and Japan

South Korean SW companies that are carrying out their businesses in Japan are also keeping their eyes on possible changes within Japan. They have yet to suffer any stoppage of their businesses within Japan due to current trade tension. Most of South Korean companies do their businesses through Japanese distributors and do not show their brands as a result. They will not face immediate effects on exportation.
However, story changes if current trade tension prolongs and expands towards financial regulation. Just like foreign companies, South Korean companies wire transfer profits made within Japan to South Korea. If Japanese Government sets up an upper limit to the amount of wire transfer, there can be a setback to cash flow.
“Most of SW does not fall under strategic material and South Korean companies in Japan are taking a wait-and-see approach as level of their interest towards current trade tension is not as big as the level of interest by companies in South Korea.” said a representative for the SW industry. “However, they are still keeping their eyes open since there can be issues if current tension prolongs and tightens up other regulations.”
“Although there is a possibility that current trade tension may affect exportation of some SW, it does not seem like a huge issue at the moment.” said Department Head Cho Young-hoon of Korea Software Industry Association. “We are planning to prepare necessary measures by doing complete inspection when Japanese Government makes its announcement regarding its revised white list.”
Staff Reporter Jung, Youngil | jung01@etnews.com & Staff Reporter Park, Jongjin | truth@etnews.com

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