Starting firms in Korea costs more than in U.S.

Korea’s regulatory environment is more conducive for starting a business, ranking better than other East Asian nations like China and Japan, but still lagging behind other countries like New Zealand and the United States, according to the Korea International Trade Association (KITA).

In terms of starting businesses, Korea ranked 34th among 189 economies, according to the World Bank’s 2014 Doing Business project. The report, which was analyzed by KITA’s Institute for International Trade, shows that New Zealand topped the list, followed by Canada, Singapore, Australia and Hong Kong.

The report assesses business regulations for domestic firms and ranks 189 economies across 10 areas.

Among the Group of 20 nations, Korea ranked 5th, just behind United Kingdom. Among the members of the Organization for Economic Cooperation and Development, it placed 10th, behind Portugal. However, Korea’s ranking for starting a business was higher than East Asian rivals like Japan (120th) and China (158th).

But the World Bank report suggests that although Korea’s ease of doing business is ranked 7th, starting a business is a different issue.

Having a single registration system in place for starting a business, using an electronic database for encumbrances and specifying time limits for the majority of insolvency procedures were cited as methods in which Korea could improve its small-business environment. Eliminating the minimum capital requirement for incorporation was also mentioned as a wise step for enhancing the country’s start-up environment.

However, the report highlighted Korea’s modernized court process, better known as the “e-court” system - an electronic case filing system that enables electronic submission, registration and access to court documents - as an advantage for small firms, citing its efficiency.

However, costs and time to establish a business are not as competitive as in other countries, KITA noted.

According to KITA and the World Bank report, it costs an average of 5.5 days for incorporation, and entrepreneurs are required to go through at least five procedural steps involving various public institutions.

Korea’s system is far behind that of No.1-ranked New Zealand, where incorporation only takes half a day on average and entrepreneurs only go through one procedural step.

KITA also pointed out that the cost of starting a business in Korea is higher than in other advanced countries. The association said it requires an average of 3.5 million won ($3,260) for the administrative costs of starting a business in Seoul - four times more than in New York and 30 times higher than in Auckland, New Zealand.

And administrative costs in Korea were also 30 times more expensive than in China.

“To create business opportunities and ease the pressure for start-ups, it is better to have a less costly and time-consuming system,” said Chang Hyun-suk, a researcher at KITA’s Institute for International Trade. “We should enhance comfort for possible start-ups by simplifying start-up procedures, like in New Zealand, where the process is completed after registering at just one institution.”

BY JOO KYUNG-DON [kjoo@joongang.co.kr]