Report says 3 out of 5 start-ups fail in Korea

Three out of five start-ups in the country shut down their businesses in just three years due to poor performance and unfavorable market conditions, a report by the Hyundai Research Institute showed yesterday.

The private think tank run by Hyundai Group said one million people start their own businesses every year, but 58.6 percent of those businesses fail in three years.

It said nearly 91 percent of start-ups are one-man enterprises without employees. Limited resources make it increasingly difficult for owners to generate ideas for contingency plans to guard their businesses against unfavorable economic conditions.

The quality of start-up firms in Korea is poor compared to those in more advanced countries, as only 16.7 percent of start-ups are engaged in the knowledge-based industry as of 2011, way lower than United States’ 34.4 percent and Germany’s 30.6 percent.

Nearly half of local start-ups work in the manufacturing sector, which requires less cutting-edge technology.

“It turns out that less than 1 percent of start-ups engage in the country’s mainstay industries - electronics, chemical, transportation equipments - which boasts the highest gross output,” said Cho Ho-jeong, a senior fellow at the institute who led the research. “If this trend continues and the ratio doesn’t go up in the future, this would hamper start-ups from seeking innovation and advancement of new businesses.”

Research fellows at the institute urged the Park Geun-hye government to improve the business environment to help start-ups prosper in order to achieve the government’s “creative economy” initiatives.

The venture capital supporting start-ups needs improvement, too, as it only makes up 0.03 percent of the country’s GDP - lower than United States’ 0.09 percent and Israel’s 0.18 percent, according to the institute.

In a bid to encourage the birth of dynamic start-up companies, the Park administration has said it will adopt Israel’s “Yozma” (Hebrew for “initiative”) model under which the Israeli government in 1993 promised to match foreign venture capital investments in the country to boost venture capital investments in Korea.

“The government must build a network where start-up hopefuls can launch their own business after receiving training at industry-university coordinated programs,” Cho said.

By Kim Mi-ju [mijukim@joongang.co.kr]