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System integration (SI) companies, affiliated with chaebol, are struggling to find new sources of income amid negative forecasts about growth of the domestic market, analysts said Wednesday.
Market research firm KRG forecast that the domestic IT service market will be stuck on a slow growth rate of 3 percent over the next 10 years.
This was attributed largely to the failure of Korean firms to take the leadership in emerging markets such as cloud computing amid the strong presence of global IT giants such as Amazon and Microsoft.
KRG said domestic firms are expected to be active in increasing their investments in research and development, and pushing for merger and acquisition (M&A) deals in a bid to explore new business opportunities.
Among others, Samsung SDS, an IT unit of the nation's largest conglomerate, is facing the urgent task of clinching M&A deals and nurturing new businesses in order to secure more external clients beyond Samsung affiliates.
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| Samsung SDS CEO Hong Won-pyo |
The firm's dependence on Samsung affiliates has necessarily increased since 2013 when the government restricted large enterprises from participating in public projects.
The company now needs to cut its dependence on Samsung affiliates and find external clients as Samsung Electronics, the largest source of income, is moving to reduce its IT-related costs.
Knowing this, Samsung SDS said in May it would expand its cloud computing service to other corporate clients, but it did not come easy.
"This year, there is a great possibility Samsung SDS will suffer a blow as most conglomerates including Samsung Electronics are moving to their expenses in the IT area," KRG analyst Kim Chang-hoon said. "Samsung SDS needs to conduct R&D for new businesses such as blockchain and big data, and actively push for M&A deals to enhance its business outside of Samsung."
Mirae Asset Daewoo analyst Jeong Dae-ro also said, "Samsung SDS is expected to actively attempt to clinch M&A deals by utilizing its cashable assets."
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| Lotte Data Communication CEO Ma Yong-deuk |
Other IT service firms such as Lotte Data Communication and Asiana IDT are also expected to carry forward M&A deals as the two firms have secured funds after they were floated on the benchmark KOSPI market last year.
Lotte Data Communication CEO Ma Yong-deuk mentioned his company's willingness for M&A deals at an IT exhibition last year, saying the firm was considering taking over a fintech firm in Vietnam.
The move is in line with Lotte Group's initiative to make inroads into emerging economies such as Vietnam and Indonesia.
