New businesses prove crucial to the economy

Last year, 760,000 people worked in relatively new venture companies, which is slightly higher than number of employees combined at the five leading conglomerates, indicating that small, innovative businesses are key to job creation.

According to a study by the Ministry of SMEs and Startups, the number of people working at these new companies increased by 4.6 percent over 2016’s 731,392. Last year’s figure was also slightly higher than the 750,600 working at Samsung Electronics, Hyundai Motor, LG, Lotte and SK.

Venture companies have to meet certain criteria, including getting their technology reviewed by related institutions, and have 10 percent of their total capital come from venture capitalists. The study was based on samples of 2,059 such companies out of the total of 35,187. The study was conducted between August and October.

The ministry said that each new venture company had 21.7 employees on average, which is a 4.3 percent increase compared to 2016.

The combined revenue that these companies made amounted to 225.2 trillion won ($201.7 billion), up 8.9 percent from 2016’s 207 trillion won. Each company made 6.42 billion won on average, up from 2016’s 5.88 billion won. Their operating profit was up 2.6 percent year on year to 9.4 trillion won. Their combined revenue is now edging close to Samsung Electronics’ revenue last year of 239.5 trillion won.

“Under the difficult economic situation, venture companies are doing their role in earnings and in employment,” said Seok Jong-hoon, head of the venture innovation office at the Startup Ministry.

Among new companies, machinery, manufacturing and automobiles accounted for the largest percentage at 25.8 percent, followed by food and beverage, textile and metals at 22.8 percent. Software developers accounted for 10.8 percent.

Nearly half, or 47.7 percent, were located in the greater Seoul area, including Gyeonggi and Incheon.

The average time that these companies have been in business was 11 years. Of their founders, 44.8 percent are in their 40s.

Those in their 30s trailed behind with 38.8 percent and those in their 50s accounted for 11.7 percent. Those in their 20s were only 2.9 percent.

The study has also found that the majority of these companies, or 72 percent, were selling their products through direct distribution channels. Those that used conventional channels like home shopping only accounted for 3.9 percent.

Research and development investment compared to revenue was small at 3.5 percent.

BY PARK MIN-JE [lee.hojeong@joongang.co.kr]